Notable Developments: Huawei
Huawei, one of China’s leading technology companies, has found itself at the centre of a dispute between China and the United States. In May 2019, the global technology company was added to the United States Commerce Department’s Entity List for posing a security threat and for undermining America’s interests. Huawei is now severely restricted from business dealings with American companies without prior approval from the US government. Huawei now expects its revenue to be up to USD20.0 Billion less than expected in 2019 and it will reduce production by USD30.0 Billion as the fallout from its ban continues. The company also expects overseas smartphone sales to decrease by up to 60.0MM units this year. However, outside of the US, Huawei has received support in Bahrain, Germany and Canada to continue the implementation of its 5G mobile network as long as they comply with national security provisions.
As a result of the Trump Administration’s policy decision, Huawei’s products immediately lost access to most of the functionality offered by Google’s Android operating system with Google only providing limited support to the Chinese company’s products. Going forward, Huawei’s products will no longer have access to Google support applications such as its application store, Gmail and YouTube. Interestingly, Microsoft has not yet commented on whether it will follow in Google’s footsteps in restricting its applications from Huawei’s laptops. We may now expect retaliation from China in blacklisting American companies after Huawei’s ban in the United States, which will come as no surprise given the ‘tit-for-tat’ actions taken by the two countries since the trade war started.
Indian General Election
In May 2019, India’s Prime Minister Narendra Modi was sworn in for a second term after a memorable landslide victory despite political pundits predicting a hung parliament. Modi’s victory comes in light of the fact that approximately 43% of the lower house of Parliament have ongoing criminal charges levied against them, rising significantly from the 34% seen in the 2014 election. Reports assert that this increase has come as a result of the increasing cost of general elections in India which rose to USD8.6 Billion in 2019, double the cost of the 2014 election. This has attracted individuals associated with criminality due to their financial power and questionable ethics.
In spite of this, Modi faced a difficult election campaign in which his opponents focused on his inability to resolve the country’s rural crisis and the growing backlash faced by minorities, Modi was returned to office with a larger majority taking 303 seats in the Lower House, an increase of 21 seats from the last election in 2014. Modi’s victory has been considered an upset by many who believe that the driving force for his reelection was his renewed focus on national security as a result of India’s conflict with Pakistan in February 2019. The Nifty 50, India’s National Stock Exchange, reacted positively following Modi’s win rising by c.4%. That being said, his government is under pressure to restart the economy following a slowdown in growth and introduce policies which will result in further job creation.
Focus Industry: E-Commerce
An increasing global trend has been the rise of sales through E-Commerce platforms such as Amazon and eBay. In the United States, Amazon accounts for 49% of the E-Commerce market which is valued at USD552.6 Billion and is equivalent to 5% of the national retail expenditure. By contrast, Amazon has a very small presence in Asia. Instead, the Asian E-Commerce market, valued at USD831.7 Billion, is dominated by Alibaba and its subsidiaries which are prevalent across many countries in the region. We have also witnessed foreign brands such as Uniqlo and Reebok listing their products on Tmall, a Chinese business-to-consumer online retailer operated by Alibaba, in an attempt to crack the Chinese market which makes up c.50% of global retail E-Commerce revenue. An attractive selling point of using Tmall from a foreign brands perspective is that Tmall is a reputable and a widely-accepted platform to build brand awareness in China, which may be difficult for them to achieve without such a platform.
We have increasingly seen Chinese E-Commerce companies breaking into the Southeast Asian market, which is valued at USD 18.7 Billion, through the use of strategic investments. Examples of such investments include Alibaba’s investment of USD1.1 Billion in Tokopedia, an Indonesian marketplace and its purchase of a controlling stake in Lazada, the Southeast Asian E-Commerce platform. Driving these investments is the increasing smartphone penetration in the region and a +5% economic growth rate. As a result, E-Commerce in Southeast Asia is forecast to grow at a rate of 6.5% to a value of USD52.6 Billion by 2023. However, this is significantly less than more established E-Commerce Markets such as Asia and the United States which are forecast to grow to USD1.0 Trillion and USD735.4 Billion respectively.