Hi everyone — we are moving into the second order impacts of the US-China tech war this week with the news that Apple is canvassing views on shifting up to 30 per cent of its supply chain out of China. This trend will run and run, and south-east Asia will be the main beneficiary. Elsewhere, Facebook is making its first investment in India. North Korea is reaping rewards from cyber theft and Marie Kondo, the Japanese clutter-phobe, is the animating genius behind a Japanese “unicorn”.
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The Big Story — Exclusive
Apple has sounded out its major suppliers over the cost implications of shifting 15 to 30 per cent of its production capacity from China to south-east Asian countries as it prepares to restructure its supply chain, according to this scoop from the Nikkei Asian Review. Although the shift is yet to happen, the size of Apple’s supply chain in China — and the signal this potential move sends to others — makes this a vital issue.
Key Implications: The concerns of Apple over its exposure to China derive in part from the protracted trade tensions between Washington and Beijing. But even if such tensions are resolved, several sources said there would be “no turning back”. Apple has decided that China’s lower birth rate and higher labour costs add to the risks of overconcentration in one country.
Upshot: Apple’s move heralds what is likely to be a big shift of manufacturing supply chains from China to south-east Asia. Indeed, this is already under way. Foxconn, Pegatron, Wistron, Quanta Computer, Compal Electronics and key Apple suppliers have all been asked to evaluate options outside of China.
Mercedes’ top 10
A round-up of the week’s best tech stories from the FT’s Asia tech reporter Mercedes Ruehl.
- I was fascinated by this piece from Nikkei Asian Review on the abysmal failure of the unmanned convenience store boom in China. These shops were supposed to be the future of retail in the country but they have been shutting their doors nationwide for good.
- North Korea increasingly depends on cash from cyber-based theft. The FT’s reporters in Seoul provide what I found was a crucial explainer on how Pyongyang’s army of thousands of hackers has become a core source of revenue for the rogue regime.
One of the biggest trends James and I are following is how south-east Asian companies are riding the wave created by the success of Chinese digital payment giants Alipay and WeChat Pay. In Vietnam, a deal in the payments space is set to create what one expert called a “bloodbath” of consolidation.
It is hard to ignore Huawei, even for a week. The big story was the Chinese company grappling with falling smartphone sales amid the fallout of the US move to cut off its key suppliers. For more context on the digital iron curtain falling between the US and China, I suggest this deep dive from NAR.
Chinese companies have shown they can create new services, rather than just adapting US innovation, and they are starting to become global brands, writes FT columnist John Gapper. There are now 15 Chinese brands in the FT’s Top 100 global brands rankings.
I am circumspect about the cult of Marie Kondo, but the clutter-phobe and serial measurer of joy could provide the path to success for the flagging fortunes of Mercari, Japan’s first tech unicorn — a start-up valued at least $1bn — to go public.
The sewing machine revolutionised the garment industry. Now innovations such as 3D printing could spur another revolution. This has critical implications for many parts of Asia as the technology moves out of laboratories and into the mainstream.
Facebook’s new digital currency was the tech thing of the week and its implications will extend to Asia. If you could read only one article about it I recommend this explainer from the FT’s teams in London and San Francisco on the company’s “boldest bet in years”.
We have written a great deal on China’s electric vehicle boom in this newsletter — and rightly so because it is the world’s biggest EV market — but a slowdown is coming and many new start-ups may not survive it.
Chinese viral video app TikTok has revealed its next move in its bid to become a force in the west. Next target: the lucrative advertising dollars Instagram, Snapchat and YouTube rake in at the Cannes Lions festival.
When sages speak
Author Bernard Leong has a convincing take on the battle for supremacy between south-east Asia’s two “super apps”: Grab and Go-Jek. He thinks there are three metrics worth considering to “determine the winner”.
Jeffrey Ding (@jjding99), author of ChinAI, takes aim at the “new cold war” mantra that is spreading its tentacles through media and academia, arguing against what he sees as hype. Stop cherry-picking a few cases to justify a narrative of US-China “decoupling” and recognise instead how intertwined the US and Chinese economies are.
And here is an excellent overview from CSIS’s China Power project on where China stands in innovation versus other competitors. Hint: it is catching up mighty quick.
Heard by Henny
A stark read out on the US’s lack of competitiveness in 5G telecoms comes from the US Defense Innovation Board.
“The country that owns 5G will own many innovations and set the standards for the rest of the world. That country is currently not likely to be the United States,” the board says in a report. “Chinese equipment is cheaper [and] in many cases is superior to its western rivals.”
The introduction of 5G is a big deal, both in itself and because of its multiplier effect on a range of other technologies including autonomous vehicles, the internet of things, smart cities, virtual reality and battlefields, whether physical or in cyber space.
The companies or countries that are the first movers get to set global standards. That, in turn, brings hundreds of billions of dollars in revenues, substantial job creation and leadership in any other technologies that require ever swifter transmission of data, the board notes.
Read the story by Henny Sender, the FT’s chief correspondent for international finance.
In the spotlight
If you can tear yourself away from digesting news of Facebook’s new cryptocurrency, we at Tech Scroll Asia were interested by another digital manoeuvre by the US tech giant this past week: Facebook quietly made its first direct investment in India. Eager to deepen its reach in one of the world’s biggest internet markets, the social network bought a stake in four-year-old social commerce start-up Meesho for an undisclosed amount.
Founded by two engineering graduates in 2015, Meesho has raised more than $65m in funding. The Bangalore-based company provides sellers on its platform with products — which it gets from its more than 15,000 suppliers — and those more than 2m resellers then hawk those wares to friends and family. Meesho handles all payment and logistics, and the sellers get a cut of the transaction. Chief executive Vidit Aatrey says the company’s aim is to simulate the exact experience that happens offline. The attraction for Facebook, meanwhile, is Meesho’s strong uptake in India’s smaller cities and towns.
Thailand may be the second-largest economy in south-east Asia but it is yet to produce any unicorns, unlike a number of its neighbours. And foreign players are dominating the fastest growing segment of Thailand’s broader internet economy: ecommerce.
A joint study by Google and Temasek predicts that ecommerce in Thailand will reach $13bn in annual sales by 2025. But not even local start-up Tarad.com managed to dent the supremacy of Lazada and Shoppee. Lazada, owned by Chinese ecommerce giant Alibaba, has more than 50 per cent of online retail sales in Thailand, an exclusive content from scoutAsia Research shows.
- Alibaba has shaken up its executive ranks ahead of its planned secondary listing in Hong Kong. Maggie Wu, chief financial officer, will now oversee strategic investments, a key area for the group which has its roots in ecommerce. She will work alongside Joe Tsai, who now has responsibility for M&A.
- India’s Ola is hiring in the Valley. The cab aggregator start-up is setting up an Advanced Technology Center in San Francisco and wants to build a team of 150 engineers.
- Google has appointed Stanley Chen as head of its China business, plugging a key gap in the top layer of its Asian management. Mr Chen previously ran the US tech group’s Taiwan operations.
- Rajarshi Sahai, who formerly led bike-sharing start-up Ofo India’s public policy strategy, has joined Zurich-based venture capital firm Ennea VC as a partner. Ennea is planning imminent investments in India’s urban mobility sector.
- Todd Combs, one of the top lieutenants of the Sage of Omaha, Warren Buffett, will reportedly join the board of India’s mobile payments unicorn Paytm.
- A climbdown from India’s protectionist government? The country said it would review concerns raised by foreign technology companies around stringent rules to store data locally. Don’t hold your breath: the issue has been simmering for some time and lobbying by Mastercard, Visa and American Express has not been successful in softening the stance of the Modi government so far.
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