This week’s podcast is about the high profile events at both Apple and Huawei in China this month. Here’s my breakdown on what it means.
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- What TikTok Can Learn From Huawei About the Role of the State (Jeff’s Asia Tech Class – Podcast 39)
- How Tsingtao, CR Snow and the Other Beer SOEs Won Big in China (Pt 2 of 2)
From the Concept Library, concepts for this article are:
- Role of the State
From the Company Library, companies for this article are:
Welcome, welcome everybody. My name is Jeff Towson and this is the Tech Strategy Podcast where we analyze the best digital businesses of the U S China and Asia. And the topic for today, my prediction for Apple versus Huawei in China’s smartphones and I mean, these are kind of two fairly high profile stories in the last week or so that are really related, uh, which is One is the somewhat government restrictions on the use of the iPhone in China, which got a lot of attention in the last week. Everyone’s like, you know, what does this mean in terms of market share? And is this the first step in a sort of, let’s call it China retaliation for, you know, in the tech war between sort of China and the US? So that one got sort of elevated up to a larger geopolitical question very quickly. And then, you know, shortly after Huawei, without really any announcement, started selling their new Mate 60 smartphone in China and boasting 5G capabilities and what appears to be a seven nanometer chip, which is something people didn’t think Huawei could do given the sanctions levied on. it and it’s not totally clear what this thing is but people have been doing tech tear downs of that thing for the last week trying to figure it out. So that’s an interesting question and it also obviously has larger geopolitical sort of issues around it because it immediately got elevated into this situation of you know did Huawei and China really just basically nullify the entity-less sanctions that have been pretty tough over the last couple years so both of these questions are kind of cool business questions in their own And then they sort of have this larger geopolitical aspect, which I’ll talk about mostly the former, a little bit the latter. Anyways, I thought that was good. And I’ll give you my prediction on what I think is gonna really happen. Okay, so that will be the topic for today. Let’s see, housekeeping stuff. Something new we’re doing is we are starting to offer really a, let’s call it. influencer coaching service. It’s starting, what we’re doing is we’re obviously offering video production services for professionals who are usually very busy, who wanna start becoming more influencer types, thought leader types. And the key to that is you gotta post videos two times a week at least, which is very difficult to do, especially if you’re a busy professional. So we’re basically starting a service that lets professionals do that. And it… the analogy I use is it’s a little bit like instead of going to the gym, this is like having a personal trainer who just tells you what to do. And I basically have been doing this for myself for the last six months. It worked out very, very well. And so we’re thinking, okay, let’s start offering this to other people, which we’ve started doing in the last couple of weeks. Yeah, but basically what it means in practice is if you wanna be an influencer, you’re a busy professional, we’ll harp on you and pester you to make about two. five minute videos every week on your phone, send them to us and we’ll take care of the rest. Make them into YouTube, make them into LinkedIn, make them into Twitter videos, do all the text, all the cool things you gotta do and that’s it. So kind of like having a personal coach. You show up at the gym, we’ll take care of the rest. That’s the idea. Okay, if you’re interested in that, send me a note. Is this gonna be kind of a small thing we’re doing on the side? Because I’ve basically been building this for myself. So. If you’re interested in that, give us a heads up. Anyways, all right, let’s just get into the topic. Standard disclaimer, nothing in this podcast or my writing a website is investment advice. The numbers and information for me and any guests may be incorrect. The views and opinions expressed may no longer be relevant or accurate. Overall, investing is risky. This is not investment, legal or tax advice. Do your own research. And with that, let’s get into the topic. Now, as always, we start with a couple concepts, really just one today, which is, I don’t know if this is a concept, I just call it the role of the state. And when I take apart companies, I’m sort of micro at heart, I always do bottom-up analysis. I always start with, okay, taking apart the company, management, and really the commercial competitive dynamics. How does company A relate to company B within this industry? That’s standard sort of strategy competition. And then I look at some larger things like secular trends that are upward or downward. And then there’s outside of that picture, which is where I spend 80% of my time, I look at two or three external factors which could impact an otherwise sort of straightforward business analysis. One of those is are there large technological changes that are gonna change the game? which is what all my books are about. It’s all about digital technology intersecting with competition and strategy. And the other factor is the role of the government or the role of the state as an external factor that can change the dynamic in what otherwise would be like Coke versus Pepsi selling in Thailand. That’s a commercial question, unless the government gets involved and makes a rule. So I view that as sort of an external factor to. And it was role of the state. I’ve been talking about this a lot for China, really going back seven years, five years, seven years, because usually when people look at China, if you haven’t lived on the ground, it’s the state that kind of, people don’t know what to think about it. Freaks them out a little bit, it’s different. Everyone becomes an amateur political scientist as soon as it’s like, let’s talk about restaurants in China. And it’s immediate like, well, what is Beijing? Beijing doesn’t, it’s not relevant in that case. In other cases, but basically people don’t know what to think about it. So I wrote, co-authored a book called the One Hour China Consumer Book, which is basically about B2C consumer businesses in China and how to think about the role of the state and how to have basically frameworks for that. I still think it was one of my best things ever. Didn’t really sell very much, but you know, that is what it is. Anyway, so I’ve been thinking about this for a long time and sort of building framework and it’s just a factor once you understand it it’s not that complicated really. Okay so that’s a big part of what’s going on with Apple and Huawei in China smartphones and obviously bubbles up to the geopolitical questions which are larger. That’s kind of the idea for today if you’re curious about that go to the concept library on the web page just click on role of the state or go look at the one-hour China consumer book it’s like four bucks or something I don’t remember what it is. There’s a lot of frameworks in there. And for those of you who are subscribers, I sent out an email yesterday about this and gave you some of those frameworks. So that’s there. Anyways, so to keep that in mind, it’s an external factor that can have a minor or major impact on normal business competition, just like a change in technology could, or a large change in consumer customer behavior. And those things can go together. Okay, so that’s the concept for today. It’s a big topic to sort of think about. All right, so let’s start with Huawei. 2019, I was in Beijing. I would have, and that’s when this whole entity list thing came out of the US, was early 2019, about March. And really, China has an idea had not been very political in the US prior to Donald Trump getting elected. It really wasn’t. And then when he got sort of elected, he’s really the one who put it on the map of the political class of the US. And it became a topic, suddenly it was in the Washington Post. It was never in the Washington Post before as a topic. So it was a couple of years and there was sort of this escalating rhetoric, but the big move really came in early 2019 when the US used the Entity List, which is basically restrictions on what technology can be exported out of the US. and Huawei and some other related companies got put on that list. And it was a big deal. I mean, it was a major move. And out of the blue, I got a call from Huawei. I was in Beijing and they said, hey, would you like to come down to Shenzhen and maybe talk to some people? Or we’re having an event. We have our financial annual meeting in June, May. And Huawei typically had never really talked to the press, really at all. And they basically did a 180 because they realized they were in the spotlight and they needed to start telling their story. There’s fair criticisms of any company for sure. But if you’re silent, a lot of the criticism is not fair or accurate. Some of it is of any company, not just Huawei. So… staying silent was not a good approach. So they started to talk to people and I found them actually very transparent about well everything I asked pretty much. Anyway, so I went down there, I was hanging out with them and that’s when they had the big sort of financials annual meeting which was in May about two to three months after the entity list hit and they basically did their financials and they said we’re going to talk about what’s going on and keep in mind it’s a private company so they have no obligation to do this. they could just say nothing about their numbers, but they actually released their financials twice a year. And, you know, of course the press, their story, which was idiotic, was, you know, Huawei’s only releasing their semi-annual numbers and not quarterly numbers because they don’t wanna see what, they don’t wanna talk about what impact this has had. And like, if you actually look up any history, like, They’ve never done anything but semiannual numbers, going back 10 years, that’s all they ever do. And in fact, the only difference they made post Entity List hit was they added a in-person event where you could ask questions that they hadn’t done before. So if anything, they dialed up their transparency post Entity List. Well, let me, transparency might not be the best word. Let’s say willingness to discuss and engage as opposed to going silent. Anyways. So that was there and it was a kind of an event and rotating chairman, the young boy was there. I ended up sitting behind him, which was kind of interesting. And I’m just taking notes and asking questions and that sort of thing. And that was the beginning. And the impact was really like, it hit their supply chain big, hit it in a ton of places, lots and lots of components were a problem. And they went around fixing those over the next two years. And the two that really were the problem were semiconductors and access to Android and the Google Play Store and all of that. And within the B2B business, the telco business, they actually solved that fairly quickly. They redesigned a huge number of parts so that they weren’t relying on tech that fell under this. And then they found alternate sourcing. So it wasn’t just alternate sourcing. you had in secondary sourcing, which is important. They had to redesign quite a lot. They did that on the B2B telco side fairly well, but it was really smartphones and the consumer business that got hit. And mostly it was the high-end smartphones because that’s where you need the cutting edge chips. And you couple their inability to access those chips and their inability to put. you know, the Google ecosystem, which is Facebook, YouTube, you know, that pretty much whacked their international consumer business. And they made up for that by growing pretty significantly domestically. So they took a pretty big financial hit in their consumer business, like 40% year over year, but then it pretty much stabilized, which it has been stable for the last year or two. And that was the picture up until about four months ago when I went out to their Fin. financial event again, also in Shenzhen. This time it was now rotating chairwoman Sabrina Meng giving the thing, the presentation. And the basic takeaway from that was they have stabilized the business and built in a lot of resiliency. That’s kind of where they were. Basically the story was we’re done with that now. Let’s start to shift back to growth. So in the last two years, all they talked about was rebuilding and building in basically resiliency so that they’re not exposed to these sort of shocks. May of this year, more or less, now the story is, okay, we have resiliency, let’s start talking about growth again, we’ve turned the corner. And that was what they talked about. Okay, and now in the last week, this new phone has dropped. And I should say one more thing. Back in 2019, before their consumer, really smartphone business took the hit, they were on the verge of becoming the largest smartphone maker in the world. It was gonna happen in 2019, it was right there. Now that kind of depends if you consider OPPO and Vivo and separate companies, because a lot of this is BKK, but generally speaking, they were on the verge of becoming the largest consumer smartphone maker in the world. And their high-end phones, because Chinese smartphones had traditionally been mid-market or low-end, their high-end phones were better than the iPhone. I mean, back in 2019, their high-end smartphones were so much better than the iPhone, the handsets. They’re spectacular. The camera’s unbelievable. The screens are phenomenal. They’re beautiful devices. Right? OK. That kind of got hit because the high-end smartphones is where you need the high-end So they got hit. Okay, so that brings us, they just released the P60, and what does everyone start talking about? Like, one, where did you get this chip? Two, the screen is beautiful. You can put this phone in a bucket of water and just wave your hands in front of, above the water, and it will flip through the screens. The camera can go, I don’t know how far, miles? I mean, it is just a better piece of hardware than the iPhone. I can’t stand my iPhone. I think it’s kind of a piece of junk compared to these. So that jumped out immediately in the last week. The ecosystem obviously is an issue because they’re building Harmony OS. It’s mostly domestic. The ecosystem within China is not that big of a deal because you’re not using Facebook and YouTube there anywheres. But that was kind of the picture and You know, the way I sort of describe it is look, Huawei has much better handsets than Apple. They are a far more innovative company. They move very quickly, very aggressive. Apple can’t innovate to save its life. Like these handsets, you know what Apple’s big announcement was for their iPhone which just dropped this week? The iPhone 15? They have a USB-C charger. That’s it. Like it’s lame. Like I… I don’t like the iPhone at all really. I mean, the ecosystem’s beautiful for Apple. And the fact that it’s all integrated and has a seamless uniser experience is fantastic, but the handsets drive me crazy. Anyways, so they launched their seven-nitre-miniure chip. I’ve been waiting for people to do a tectaradown of this thing. Unclear how they made it. It does do 5G, which is impressive. It works with their satellites. Keep in mind… There was a bit of a tech thing years ago where GPS started to cut out Chinese companies. So they just built their own satellite network, Beidou. They have about twice as many satellites as GPS now. So this thing works with Beidou. You can call from your airplane directly. So it’s satellite capable 5G smartphone with a beautiful screen, unbelievable camera. The question I think is, okay, fine. Can you make these seven nanometer chips cost-effectively at scale? Do you have the manufacturing capability to now make seven nanometer chips? They don’t have to be the most efficient in the market, but you know, is this a scenario where you spent a lot of money with some backdoor method of making seven nanometer chips where you spent? five times more making the chips than everyone else, such that it’s not cost effective to do it at scale competitively. Or are you actually able to do this at scale in a way where the cost is in the realm of okay? And I don’t think we know the answer for that, because I think people quite haven’t figured out how they’ve done it. If they have done that, then that’s a game changer. They can make seven nanometer chips in China at scale in a reasonable method. That’s very impressive if they’ve done that. If they’ve just done some backdoor work around where they spent a ton of money, and everyone’s kind of wondering where the lithography machines came from, are these ASML, how did they do it, right? It’s not so much what the chip is, which I think people have figured out, it’s how did they do it. And they’re pretty mum about that right now. So that’s kind of where I put it. The two questions I’m trying to figure out are, can they do this at scale cost effectively at seven nanometers? That’s one question. Game changer. Question number two is, okay, can you then continue to narrow the gap between what TSMC and the others are capable of doing? Yes, you’re advancing, but so is everybody else. So if the gap between the frontier of chips and Huawei is persistent, that’s a problem. If they can close the gap, that’s a whole nother level of winning, which may or may not be possible. Okay, so those are kind of what I’m waiting for. But it’s definitely big news. There’s a lot of hype going around China. There’s lines out the door. Big event. Anyways, I’m going back to Shanghai in a week. I’m gonna go, I’ll swing through Huawei and there’s a rumor floating around that they’re gonna do some big announcement in the next two weeks. Which would be the three year, I believe three year anniversary of when Sabrina Meng was either arrested or released in Canada. Anyways, there’s a rumor that there’s gonna be some big product announcement soon. So. We’ll see if there’s something more because they didn’t really announce this phone. They just kind of put it on the website and put it in stores, but there was no big announcement, which is not really how they do things. So anyways, keep an eye on this for the next two weeks. It’s gonna be cool. All right, so that’s kind of topic number one, Huawei, that’s kind of where it is. Let me move over to the Apple and then I’ll sort of give you predictions for both. Now, when we look at Apple in China, really the iPhone is what we’re talking about. My standard little framework, which I have been using for years, is you try and get a read on three different forces. Not rocket science here. What is the interest of the state in this business? And I would say this for any consumer facing business. What is the competitive advantage of the company and what do Chinese consumers really want? Like I want a solid answer to all three of those questions. And sometimes you can get it and sometimes you can’t. All right, so the Apple story is basically the central government announced some restrictions on whether central government employees could use their iPhone at work or in other situations. That got people’s attention. Wasn’t quite sure what this meant. Then that was followed by other announcements by mostly provincial governments. and then maybe some state-owned enterprises that there would also be restrictions on the iPhone usage. So, okay, people thought, well, what does that mean? Like, does it impact their market share in China? Because obviously China is the third largest market for Apple, so it’s a big deal for them. That would be one question. The other more important question is, you know, is this a significant change coming out of the Chinese government as a response? to the never ending and continually escalating moves by the US government against Chinese tech companies. I mean, the US government has been pretty much unrelenting. Since 2019, it has been announcement after announcement after announcement after escalation, the Huawei Entity List ban in 2019. was expanded in 2020 extra-territorially, which is really stunning. Which was the first ban was telling US companies like Nvidia, you cannot sell chips to this company. Or it’s telling companies that are foreign operating in the US, you cannot do this. Basically, it’s the US government exercising its jurisdiction over the US as a country. Okay, one year later, they expanded that outside of the US, where they said, we are going to tell you TSMC, which is a Taiwan company, what you can and cannot sell to other companies in China or other places, right? So there’s no US company involved in this. None of this is happening. This is the US basically issuing rules to countries and companies saying, these are our rules. You will obey them. And the justification was, well, the technology within TSMC is used, comes from the US. So if a certain percentage of tech, we did, you know, it’s a justification. But it was really just a threat. If you don’t do this, we will cut you off too. I mean, that’s pretty, it’s pretty sweeping. And you know, you think about that, like if the US government issues rules against NVIDIA, And NVIDIA doesn’t obey, what happens? Well, maybe the FBI shows up or a judge issues a search warrant and they show up. Well, if a company in Taiwan or China, it could be anywhere, Japan, Saudi Arabia, if, or Brazil, if they don’t follow what the government of the U.S. says, what happens? Do FBI agents get on airplanes and fly to Brazil and show up and knock on the door? Do they show up with a U.S. court judge? I’m not pretty sure that. Brazilian companies don’t care about that. So they’re imposing it extra territorially not by the legal process but kind of by threats. Anyways that’s been going on. Pretty big deal and then in addition other companies were added to the entity list and then there’s the DOD list and there’s some other lists and you know obviously there’s the discussion of banning TikTok. I mean it’s just been a lot of escalation escalation. And this is usually done under the rubric of national security. I’ll be honest, I don’t really believe that anymore. I used to, well I don’t say Jesus. The story in China for the last 15 years was always, this is what you would hear in China, you would hear the US just wants to keep China down. That was the story and I never agreed with it. I was like, nah, I don’t, one, Americans don’t really care about that, they’re pretty open-minded people and. US companies, maybe a little bit, you know, somewhat, but I didn’t buy it. I kind of believe it now. I think a lot of the, I think there is, appears to be a concerted effort to keep China technologically behind the US. I might be wrong, but like, I wouldn’t have said that five years ago. And now I’m kind of like, kinda sure looks like it. Cause it is a lot going on and you know, okay. I know I’m not geopolitics, but that’s. I’ve kind of changed my perception of that a little bit. Okay, the point of this is the US government’s in escalating and they’re not just doing it themselves. They’re talking with Germany, they’re talking with the UK, they’re talking with Japan. They’re trying to get others on their team to do this. Sometimes nicely, sometimes with a little bit of a threat. Very aggressive. The government of China by and large has not responded. Really, and I don’t know why this is. I thought two to three years ago they would. Not really much has happened and there’s a lot of ways they could respond. We have seen responses against South Korean companies like Hyundai in China. We have seen responses against Japanese companies because there are frequent geopolitical flare-ups between South Korea and China and Japan and China fairly regularly. Someone says something the other country doesn’t like and then Hyundai, their market share takes a hit. And there’s a lot of mechanisms by which this can be done. There are consumer boycotts, there are media investigations, there’s regulatory investigations, there’s new licensure requirements. There’s a whole, when it comes to sort of being active and against a company, China has far more mechanisms on US companies in China than the US has against Chinese companies in the US, far more. but they overwhelmingly have not done this. They have done it against other countries. We’ve seen it against Japan and South Korea. Never seen it against the US. So people have been kind of wondering that’s strange and the company everyone always points to, look, if China’s gonna hit back in the tech war, it’s probably Apple, right? Been watching this for years. So that’s why this got so much press because everyone’s kind of been waiting for it. Okay, so given that backdrop, We start with question number one. What is the role and the interests of the state? And by this I mean with regards to Apple and with regards to really several things within China. If the government doesn’t have an interest, like in restaurants it doesn’t have an interest, we don’t usually think about the role of the state in China in restaurants. We don’t. It doesn’t have any. Health safety basic regulatory but nothing strategic nothing political nothing security ish So we don’t really talk about it and then the other end of the spectrum might be Telecommunications digital infrastructure, especially for things like banks. Well, the government has a lot of security concerns They want those things done by Companies that are more closely tied, you know, they don’t want the entire telecommunications network of China being built and run by European companies. There are components in there, but so there’s a spectrum in terms of security versus we don’t care. There’s also strategic interests like the Chinese government has made very large announcements that electric vehicles are a major strategic priority for the country, and they are putting a huge amount of support for this. And electric vehicle companies in China are rolling. That would be more of a strategic objective. And semiconductors are the same. Semiconductors are arguably the largest strategic objective coming from the top of the government today. Renewables is also important. Electric vehicles, pretty big. AI is a big one. Mass entrepreneurship and mass innovation, those are terms from the Chinese government, have been a big focus for about eight years. So, and this is not a secret, it’s announced. I mean, you can see it from the state council, they talk about these things. So it’s very easy to say, okay, so if we try and assess what the role and the interests of the state are in Apple’s business in China, we’re really talking about smartphones. We can break that into buckets. We can say, okay, what is their interest with regards to handsets? Not the software, handsets. And the answer is not much. It’s just another consumer product. It’s about the same as vacuums. Not that big a deal. What is their interest in a smartphone as a software service or a software platform? Well, then it can be pretty significant if you’re talking about communication software, like Messenger, pretty strategic interest there. That’s telecommunications. Everything is done on WeChat, right? Couple… key companies in China everyone uses. Social media, very sensitive. Facebook isn’t getting into China ever. A little bit less sensitive would be media and content apps. Things like YouTube, music, sports, NBA. The NBA puts out its content in China every single day. It’s not a problem. So media and content are sort of lower below communications and social media. App stores are not really that much of a concern. In most of the world, apps are an oligopoly or a duopoly, really, it’s Android and it’s iOS. In China, it’s pretty fragmented. Huawei has an app store, OPPO has an app store, Vivo has an app store, everyone at Xiaomi has an app store. There’s nine or 10 major ones. That’s not really that big of a deal. It’s pretty fragmented, nobody controls it. And if there’s an app that is… problematic like OpenAI, ChatGBT, well that disappeared very quickly from all of them. So not so much. The operating system, sort of a concern. iOS versus Android. But basically WeChat has sort of become the de facto operating system for a lot of this. And then Android, everyone is basically using open source Android like Xiaomi. And they’re creating their own version, which is pretty much what Harmony OS is, as far as I can tell. So, okay, not major. Really, it comes down to a handful of apps, social media, communication, mapping. There are significant security and strategic concerns. Hand sense, not so much. We could look at services. Apple does well in services in the US. Apple Pay, cloud service, backups, things like that. Those create a lot of the switching costs for Apple. Most everything in China, it’s not Apple’s being used. Apple Pay’s there, but not really. I mean, it’s Alipay, it’s Alibaba Cloud. So, if you had asked me this question six months ago before the recent announcement, I would have said basically, look, the role of the state in smartphones is they care about software in certain areas quite a lot. They don’t really care about the handsets very much and the operating system’s not that big of a deal. That’s where I would have been. And I would say Apple in China, the iPhone, is really not like the iPhone outside of China. Outside of China, Apple is an ecosystem plus some hardware. In China, the iPhone is mostly hardware, luxury brand hardware and a limited ecosystem. But it’s basically luxury hardware running Chinese software. That’s pretty much what the iPhone is. That dramatically weakens their their competitive strengths versus what they have in the West. It’s very easy to switch phones in China from the iPhone to something else because WeChat is the same. Alibaba Cloud is the same. Baidu Maps is the same. It’s not that big of a deal where if you switch in the United States from iPhone to Samsung, you know, it’s a major problem usually for most people. So that’s kind of where it is. So. Answer to this question number one, I don’t think there were big political concerns or state interests about Apple selling handsets in China because the software issue had already been solved. Now, does Apple have concerns about, oh shit, does the government have interests in retaliating against a very high profile US tech company in China? And the answer is nobody knows. Like nobody knows what’s going on behind closed doors My impression is no because if they did they would have done it two years ago, and we haven’t seen it In fact, the government seems to be conspicuously passive in the face of constant sort of escalations by the US government. But I don’t, nobody knows unless they’re in the room. Okay, so that’s kind of how I would answer question number one. There’s also some issues about manufacturing in China, which Apple does most of their manufacturing there, or at least their assembly there. So. So far, that would be how I’d answer number one. Number two, does Apple have a competitive advantage in China’s smartphones? I mean, I’ve kind of already answered that. Yes, they do, but it is far weaker than outside of China. They are mostly a handset with a very well-known and very well-loved luxury brand. They really do have a fantastic name in China. They have an ecosystem. It’s much more limited than outside. They have some switching costs. It’s much more limited outside. But they are an affordable luxury, and Chinese consumers really, really do like them. And their market share, 17%, that has been solid for five years. Everything I just said about them being weaker inside China than outside, that was true five years ago, and their market share hasn’t moved. So they’ve got some strengths there and the weakness has not played out. Which brings us to the third and final point and then I’ll finish up. What do Chinese consumers want? And this is the factor people always sort of forget about in my opinion. Everyone thinks, well, what does the state want? True, that’s an important question. But keep in mind, the other major force in China is what consumers want. Because if Chinese consumers want something, they generally find a way to get it. And if something gets banned or something is not, if you can’t watch some TV show you like there, everyone just gets pirated DVDs. If there’s too much Chinese milk powder, let’s say foreign milk powder for babies being imported in, it gets stopped. Well, Chinese mothers really want foreign milk powder and it comes in a thousand different ways. If they start banning iPhones or whatever, people will start covering their bodies with iPhones and walking across the border. It’s the latest example of this was… I guess 18 months ago when the Chinese government had a fairly sweeping action against these for-profit education companies, a lot of which were publicly listed in the U.S., and basically said we don’t like for-profit education. We don’t like these after-school tutoring programs, which they’ve been saying that out loud for 10 years. It’s been very well known. And they kind of took a hammer to that sector very quickly. And these major companies like New Oriental. You know, they got hit pretty hard. Their stocks collapsed. Did that change the fact that Chinese parents are absolutely obsessive about educating their children? I mean, people start doing after-school tutoring sessions in China at age four and five. They start going to private kindergartens on Saturdays and that goes on, you know, forever. I mean, it is just, it’s pretty scary actually. It’s unbelievable how much they do that. So yeah, the government said this is what we want and Chinese parents, I’m sure, just started hiring private tutors the next day. I guarantee you they didn’t stop. So there’s a countervailing force there and there’s always a balance between these and the government is very well aware of this. And they’re actually fairly prudent in not being too heavy-handed because they know people do want things. Like Chinese consumers really like to gamble. It’s very, very popular. So the solution to that has been, look, there’s no gambling in China, but China, mainland, but you can cross the border into Macau, which is still China, mainland, but separate. And it’s okay there. And so they kind of leave a valve open to release the steam, to release the demand in a controlled manner. VPNs are still, you can get a VPN in China, even though it’s not technically allowed, everybody knows. And, you know, it’s allowed. But sometimes during major conferences, you’ll find all the VPNs stop working, right? So there is this balance there. And that’s really how I view Apple. Like, I don’t see a tremendous state involvement that’s different than today. I don’t see a major interest in teaching a lesson to a high profile US tech company in China. And I see a reasonable competitive picture, weaker than the rest of the world, but fairly stable over the last five years. And the big question I focus on is, what do Chinese consumers want? Because that’s the key to everything for Apple. If they lose that deep desire by Chinese consumers to have the Apple brand, that’s the heart of their competitive strength. It’s that they’re viewed as a luxury brand that is very well liked. If that starts to change, then I get worried. And that’s the number one thing I look about. Is Chinese consumer sentiment towards the iPhone changing? The other stuff seems pretty stable to me. So that’s kind of where I fall on this. All right, let me finish up here. Prediction, I said I would have a prediction. This is closer to a guess than I normally do. No, I don’t think Apple is gonna get hit with anything major. I don’t really think that’s gonna happen. I don’t think the competitive dynamic is gonna change significantly. I think the company’s gonna stay at somewhere on, as long as the company is 15 to 70% of the market, I think that’s fine. If they were to get up to 40% of the market, I think we might see government action. But as long as they’re at 15%, I think that’s fairly stable. It’s a good position to be in. So I view Apple is fairly stable going forward in China unless Consumer sentiment starts to change and it can actually change fairly quickly in China. We see it fairly regularly So that’s kind of what I’m watching closely Now that brings us to Huawei There seems to be a lot of enthusiasm for Huawei. Well, that’s consumer sentiment If not changing doing something noticeable the lines outside the Huawei stores to get the new Mate 60 are down the street. The Apple stores don’t get those lines. They do get pretty good lines when they release, but nothing like this. So if Huawei, if it turns out Huawei can mass produce seven nanometer chips cost effectively, not efficiently, but effectively, then I think they are back as a serious competitor. in high-end smartphones in China. Now, their consumer business has done all right in China, but it has a lot to do with ear pods and other things. That key high-end smartphone space they were going after in 2019 is what got hit. If they can show the seven nanometer chips at scale, then they are back as a major player in high-end smartphones domestically. That’s also a big problem for Apple. That’s why I’m kind of excited about whatever this maybe product announcement is in the next two weeks. If it’s in high-end smartphones, that could be big. Anyways, that’s where I am. That’s kind of my predictions. Fun space, interesting. I don’t generally cover smartphones because I don’t particularly like it as a business. I like software on smartphones far more than I like selling smartphones as a business. I think there’s a lot more competitive strengths in there. I like ecosystems, but most people don’t have one, just Apple internationally. But this is kind of an interesting question. I thought it was maybe a little better suited than some to talk about it. So anyways, probably won’t go too much more into smartphones. It’s not really my interest. All right, that is it for me. And I think that is it for the content for today. Role of the state, it’s worth thinking about. It’s worth having a couple frameworks in your pocket that you can use for this because it does tend to be a bit fuzzy as a topic. Anyways, but that is the content for today. As for me, just a pretty good week back on the road starting next week and I’ll kind of be on the road quite a bit over the next month, which is good, exciting. Singapore, China, a lot of that, which is kind of my standard stomping ground. So I’m looking forward to that. Any things to recommend? My latest one, I’ve been watching these reality dating shows because my girlfriend really likes them. So I ended up watching them. But the truth is I kind of admit, it is kind of compelling. We’re watching a lot of them and I’m totally watching in it with her. So I can’t totally point the finger on this. So the one that just drove me crazy was this. this Netflix show called Love is Blind, where basically they put people in these pods and you talk but you can’t see each other. Okay, that actually seems kind of interesting. But the whole point is to get married. So after talking for like three days with someone, then someone proposes, and then they get engaged, and then at the end of the show you actually get married, which that part’s insane, but I guess it makes for good television. Anyway, so we were watching Love is Blind. in the US and it just drives me up the wall. Like the behavior and how people act, as my good friend has told me, I am no longer culturally American at all apparently. Like I don’t understand it. I kind of find it horrifying often. Like I don’t get it. Anyway, so I’m just like pacing. She’s enjoying this, especially when like the person proposes. Like, you know, it’s really sweet and emotional. I get it. I’m just pacing. Anyway, so in contrast to that, here’s the so what we turned on love is blind Japan. Where everyone was actually really nice. Like everyone’s like, there’s a hairdresser and then one person’s a business person and they’re all talking and then they propose after talking for three days or something. And I still think it’s crazy. And then they get married, but everybody on the show seems like a pretty decent person having honest discussions. And I realized like the love is blind Japan, I actually thought was very sweet. And this is nice. And then the one in the U S horrifies me on like six levels. And like, anyways, I just remember my friend. He’s like, dude, he’s like, you can’t live in the U S anymore. He’s like, you’re so far gone. You don’t even appreciate it. And I think he’s probably right. So anyways, if my recommendation, if you want to be horrified culturally, uh, in my opinion. Watch Love is Blind US. If you wanna like see something relatively sweet, watch the Japan version. That’s what I learned over the last couple of days. It’s pretty fun though. I gotta even give them credit. The whole reality TV thing, I get it. Anyways, that’s it. Okay, hope everyone is doing well. I will talk to you next week from Shanghai. Bye bye.
I write, speak and consult about how to win (and not lose) in digital strategy and transformation.
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