The whole world was in sleep mode while China was conquering different frontiers with contract manufacturing, and direct production. Before the world realised, China had become the number 2 economy behind the US. They became number one in the car manufacture, new infrastructure, contract manufacturing and many other areas which included computer games.
But something has been definitely changing in China, and China has started flexing its muscles and is showing an expansionist tendency of late. China tried the same act with India in Ladakh, probably hoping that India will blink first. They made a significant error of judgment, and India pushed back hard. All these years, India was not mixing border disputes with the trade. But Galwan changed everything.
After Galwan skirmish, India is systematically trying to push China, where it hurts. It started with slowly not allowing the Chinese companies to take part in tenders for infrastructure. The masterstroke was banning gaming and other apps. If you read carefully, the gaming companies hardly make money by the usage, but they are after their valuation done by the market. The valuation of such companies is dependent on the number of downloads and the number of active users. As these numbers increases, their valuation increases proportionately.
TikTok has about two billion downloads. Their current valuation is the US $50/ billion. These are market figures, and in the event of sale of the TikTok, by the parent company, ByDance is expected to make the US $ 50/ billion. India ban and future US ban will reduce the active users from the current 800 million by 35%. This reduction can severely affect ByDance’s TikTok valuation.
India has shown a great pragmatism by acting against the apps, which include a search engine and a chat application. By doing so in India, we will be hardly affected, but the Chinese companies owning these apps will be definitely affected. People had doubts that by banning Chinese products, production of Indian manufacturing companies could get affected. But the Indian Government has been more pragmatic. They have not taken any such steps. The steps taken are well thought as they are being implemented.
Following the Indian action, the US government also declared that it is going to ban TikTok in the US. In a surprise move, Microsoft has announced that it is in the process of buying out TikTok operations in the US, Australia and New Zealand. (Today’s news is that they want to buy global services)Though the total active users may not be as large as in India, they would be substantial. Why do they want to buy TokTok? The reason is that there would be considerable consumer revenue from advertisements, an area where Microsoft is lagging way behind FB and Google. Customers will get a trusted and secure provider that all the governments trust. None of the other social media biggies, like Facebook, Google can buy due to the anti-trust investigation going on in the US senate. Whether Microsoft will buy it or not depends on many factors. The first of these would be who blinks first? Microsoft or TikTok? Is Microsoft more desperate to buy or is TikTok more desperate to sell? Microsoft is loaded with money. A few years back they bought out LinkedIn. Before that, they had acquired Nokia’s cell phone business- the acquisition which miserably failed. But looking at recent Microsoft functioning, they appear to be pretty much in control of what they are doing. With Azure/Cloud computing business taking off for Microsoft, they again seem to have got their act together.
I have written about the business side of it. But even the US government led by President Trump has taken a pragmatic decision for a change. Without saying so, they have declared that they will ban TikTok US operations from 15th September. It means they have given leeway and time to Microsoft till that date. It is a very pragmatic and practical decision. It could have quickly banned TikTok overnight, but it saw that Microsoft was trying to make a deal where they will pay some money to the US government in the form of taxes- the amount would be directly proportional to the size of the contract.
As against that, there was a news item which said that Tata Motors is trying to hive off their car business in India. It wants to sale 49% equity to some reputed car manufacturer but intends to retain controlling shares with them. Is it pragmatic? Hiving off is pragmatic but trying to maintain control is not! Why is Tata Motors diluting their stakes? The first reason that I see is that they feel that they can not become a serious player in the Indian market with the current quality of cars being produced. The Sierras, Estates, Indica, Nano have created a long list of products which became difficult to sale, even in India. It became apparent once the Suzukis and Hyundais of the world took a firm foothold in the Indian market. With the new range of cars like Tiago and others, Tata made a bit of comeback. But this is not going to be enough. It is always going to be a catch-up game.
With Suzuki and Toyota coming together in India for both the IC engine and Electric cars, it is going to be tough for the competition to challenge them. Suzuki is a well-proven numero uno in India. Money power and technology of Toyota will boost the operations further. The combination is going to be tough for the competitors. They have also decided to come together in Electric Vehicles. Their battery plant is well on its way in Gujarat, in collaboration with Toshiba. For EV’s, it is going to Toyota design, Suzuki manufacturing cars for both for themselves and Toyota too, in India. The engine- battery power pack, would be Toshiba technology, which will be a win-win situation for all.
As against this, Tata Motors is going to find it difficult if they do not become pragmatic and handover control to the new partner. Especially with JLR facing tough times in China and other international markets, pragmatism is what is going to help. Sometimes it is essential to bite that bullet. There is a history of two significant partners not being able to work together. Bajaj Auto and Kawasaki tried this for some time, but it did not work out. Once Hero became very big, they broke the collaboration with Honda. Aramco and Reliance have been trying to come together in India, but somehow it is not working out, yet. But looking at history, it seems complicated.
When a large company is looking for a world-class organisation for collaboration, seeking to control the new company is not a pragmatic approach. The other company is also going to be significant. So, friends let us wait and watch the fascinating battle in the market place.