My interest in business or commercial activity first started when a work friend of my Mum visited our family. She brought a book on commerce which is what business studies would have been called decades earlier. I read the book and that piqued my interest.
At the end of your third year in secondary school you are allowed to pick optional classes that you will take exams in. this is supposed to be something that you’re free to chose.
I was interested in business studies (partly because my friend Joe was doing it). But the school decided that they wanted me to do physics and chemistry instead and they did the same for my advanced level exams because I had done well in the normal level ones. School had a lot to answer for, but fortunately I managed to get back on track with college.
Eventually I finally managed to do pass a foundational course at night school whilst working in industry. I used that to then help me go and study for a degree in marketing.
I work in advertising now. And had previously worked in petrochemicals, plastics and optical fibre manfacture. All of which revolve around business. That’s why you find a business section here on my blog.
Business tends to cover a wide range of sectors that catch my eye over time. Business usually covers sectors that I don’t write about that much, but that have an outside impact on wider economics. So real estate would have been on my radar during the 2008 recession.
When Nokia Pulled Out of Russia, a Vast Surveillance System Remained – The New York Times – Nokia said this month that it would stop its sales in Russia and denounced the invasion of Ukraine. But the Finnish company didn’t mention what it was leaving behind: equipment and software connecting the government’s most powerful tool for digital surveillance to the nation’s largest telecommunications network. The tool was used to track supporters of the Russian opposition leader Aleksei A. Navalny. Investigators said it had intercepted the phone calls of a Kremlin foe who was later assassinated. Called the System for Operative Investigative Activities, or SORM, it is also most likely being employed at this moment as President Vladimir V. Putin culls and silences antiwar voices inside Russia. For more than five years, Nokia provided equipment and services to link SORM to Russia’s largest telecom service provider, MTS, according to company documents obtained by The New York Times. While Nokia does not make the tech that intercepts communications, the documents lay out how it worked with state-linked Russian companies to plan, streamline and troubleshoot the SORM system’s connection to the MTS network. Russia’s main intelligence service, the F.S.B., uses SORM to listen in on phone conversations, intercept emails and text messages, and track other internet communications. The documents, spanning 2008 to 2017, show in previously unreported detail that Nokia knew it was enabling a Russian surveillance system. The work was essential for Nokia to do business in Russia, where it had become a top supplier of equipment and services to various telecommunications customers to help their networks function. The business yielded hundreds of millions of dollars in annual revenue, even as Mr. Putin became more belligerent abroad and more controlling at home. – SORM has been around in one form or another for almost three decades. It mirrors the surveillance system used by Sweden and GCHQ in the UK. The latest version of SORM is SORM-3 that uses deep packet inspection infrastructure. SORM seems to be based on a mix of Russian made infrastructure and equipment by the likes of Israeli vendor Cellebrite.
Trial of Australian Journalist in China on States-Secrets Charges Ends Without Verdict – WSJ – Cheng Lei’s detention in August 2020 coincided with a sharp downturn in diplomatic relations between Beijing and Canberra – this is likely to be better for Australia’s incumbent prime minister Scott Morrison as is shows progressive realism doesn’t work. That’s not so good for Chinese interests in Australia
Not an April Fool: Dyson announces apocalyptic filter-headphone combo | Ars Technica – if you told me that this was bought in the SEG Plaza in Shenzhen and was a fake Dyson product I would believe you. I don’t know why Dyson went there. Usually its product development is well-gated which is why its electric Range Rover analogue got shelved prior to going into production
Taiwan’s love motels are safe spaces for couples — Quartz India – Marco Hsiao, a private investigator, has frequented hundreds of love motels in an attempt to provide evidence of adultery for divorce cases—80% of his cases pertain to cheating spouses. He said the rooms are also used for drug deals, interviewing new workers entering the sex industry, and money-laundering meetings.
Japan has had a small but vibrant Chicano culture scene for years. The Japanese have had a community on the west coast of the US for over a century and a love of the detailed sub-cultures of the US. Japan also influences cultures and consumers in Taiwan, Thailand, Hong Kong and even China. Add to that, the fact that Chicano culture is portrayed in shows that are streaming internationally like Mayans MC.
In the west, this would be called cultural appropriation; but I don’t think that really captures what’s going on here.
It is interesting that it is happening now, while Thailand is ruled by a military government; there is a sub-culture flourishing that probably looks rebellious and anti-authoritarian is very interesting.
Korea
Vice News did an episode on the families behind chaebols – Korean business empires called South Korea’s Untouchable Families. None of the content will be of any surprise to anyone who has read this blog or has an appreciation of modern Korean culture. The tale of how the chaebols where largely creations of the Korean government and in time managed to capture the country after the 1997 financial crisis is largely a matter of public record. The extra-legal nature of chaebols are the stuff of Korean dramas.
The ‘chaebol negotiation rule’ of a three year sentence commuted to five years probation is also well known.
What I found curious is how much emphasis they have put on Samsung, who have the most international reach and advertising spend. The Samsung semiconductor experience with workers suffering from cancer mirrors the experience of workers in fabrication facilities when they were based in Silicon Valley. So the risks involved in the chemicals and the need for protection would have been well known.
Asianometry has also recently published a video on the Chaebols that takes a slightly different take on the rise of the companies, linking their rise with weak and financially challenged political parties.
Japan – Tokyo Girl’s Collection
I have written about Tokyo Girl’s Collection in the past. It is interesting to see that it was extended into the metaverse this year. The formula is still largely the same:
A large live event with entertainment
Models and dokusha-models. (These are chosen among actual readers of the magazines as “representatives”. They are more attractive than average readers but not pretty enough to be actual models).
Online shopping and m-commerce of looks that the audience wouldn’t be able to buy locally if they live outside Tokyo
Hong Kong deindustrialisation
By the time I got to Hong Kong, the city’s industrial base had migrated north to the mainland. But I did get to see the massive packaging and printing factory that had been converted to the home furnishing shopping centre now called Horizon Plaza in Ap Lei Chau. As a child many of my clothes and toys had ‘Made in Hong Kong’ written on them.
I got to see the massive buildings that used to have clothing factories in Fo Tan and the Sui Fai Factory Estate – a multi-storey building full of light industrial units. De-manufacturing encouraged the rent-seeking oligarchs that dominate Hong Kong today, for instance Li Ka shing started off manufacturing plastic flowers and other light industrial processes, but pivoted to rent seeking businesses property, telecoms and retailing.
Its really hard to get your head around the situation playing out in Ukraine. One of the best set of videos that I have seen to try and make sense of what’s going on in Ukraine is done by Chris Cappy. He admits in the last video that his jocular tone is a way of dealing with the horror of it all and his analysis seems to be on point. I have embedded his Ukraine related videos here:
Beyond the horror playing out with Russia’s invasion of Ukraine; what will be some of the global impact of the Russian invasion of Ukraine?
I have put down some thoughts on the effects of Russia’s invasion of Ukraine into three buckets:
Short term effects
Medium term effects
Long term effects
Short term effects
Bread riots and inflation
The invasion of Ukraine will disrupt the country’s wheat harvest. Ukraine is responsible for 10% of all global wheat production and is a major exporter.
Developing world consumers are already suffering from the rise in food prices. This might be felt especially hard in the Middle East, where the price of bread is often subsidised by the government to help prevent riots. It was one of the factors that drove the ousting of former Egyptian president President Hosni Murbarak as part of the Arab spring series of movements.
There have been past bread riots in other countries like Algeria and Jordan at a time of massive civil disturbances. One of the first impacts of Russian actions in Ukraine may play out with disturbances in the developing world.
Russia is also a wheat exporter, but ironically won’t benefit from the price rise due to long term contracts that it has with China. China previously leased land responsible for 5 percent of wheat production in Ukraine. China had also invested in Ukrainian pork farms.
Oil and gas
The impact on global oil and gas prices has been immediate. Oil prices had been high anyway as the oil industry ramped up and tried to match post-COVID shock supply chains struggle to get back in sync. Sanctions on Russian oil have been implemented by oil traders faster than western governments have implemented them. Taking Russia out as a supplier is likely to drive western customers in a number of directions in the medium and long term. In the short term we may have power and heating shortages. Russia currently doesn’t have pipeline capacity to ship oil and gas to China in the kind of volumes that would compensate for reduced Western demand. So you might see some of that oil being shipped in sanctions busting tankers, again the challenge would be finding ‘ghost boats’ that have capacity.
Western inflation versus China inflation
China has probably worked out the calculus of products that it loses in the short term, versus long term products from Russia as a pariah state at below global prices as Russia won’t have a choice. So we can expect China to benefit from lower inflation inputs than other countries in the short to medium term. It will be inputs from oil and gas to wheat or titanium foam. This gives some Chinese businesses a comparative advantage versus their competitors, particularly western countries.
Western European concerns about energy, particularly running into winter are acute and energy transformation to lower carbon options will take time.
Russian inflation
The rouble has dropped in value by 30 percent as soon as sanctions went in. So one would think that the effect on inflation would be immediate. But you also have multinational companies withdrawing from Russia. In the short term, many products from fast moving consumer goods to clothing and home furnishings will quickly no longer be available. Even smartphone sales of Chinese brand smartphones have plummeted, which gives you and idea of what western sanctions don’t do, the plummeting rouble will do instead.
Many of these multinational companies will no longer be manufacturing in Russia either, which will create a decrease in both supply and demand. So the impact on short term inflation may take a while to become clear. It is likely to impact unemployment as well.
Russian banks and the central bank are extremely capital constrained which will not only affect monetary policy but providing sufficient credit to keep businesses going. What you will see is a brain drain of the educated and the talented as they don’t really have a future at home. Which is why Russian’s have been paying €9,000 for a railway ticket from St Petersburg to Helsinki. Talented Ukrainians are either engaged fighting the Russian army in Ukraine, are internally displaced in western Ukraine or have already left the country.
If Russia goes to martial law then all bets are off in terms of financial damage because that would likely be the least of government’s concerns in terms of maintaining other aspects of control.
Medium term effects
CHIPS Act & strategic capability
The US has looked to promote domestic semiconductor manufacturing through government investment. However inert neon and krypton gas, which is used in the semiconductor manufacturing process is supplied by Ukraine. Russia and the Ukraine were responsible for half of all global production of these gases. This will impact US national security and development of semiconductor manufacturing as a strategic capability.
Neon mirrors shortages of critical materials for western countries that will impact high technologies and engineering using performance materials. Western countries will have to think about how they update their own strategic capacity to make these materials. This covers a wide swathe of materials including:
Lithium – something that Ukraine has large deposits of
Industrial and jewellery grade diamonds.
Uranium
Titanium foam. Titanium foam is the raw material that titanium alloys are made from. Currently two out of the top three producers are China and Russia. Given what has happened with Russia, the risk calculus will change around China.
There has been a steady tempo of voices on the need to have strategic capability in critical areas like lithium and rare earth metals. This will likely be mirrored by China with its five year plans. The degrees of will to achieve strategic independence will dictate the amount of time that it takes to implement.
Innovation
Being cut off from western capability will place two problems on Russian innovation:
Access has been cut off to critical resources. Yandex has already expressed concern on how this will affect their business.
Over time, access will be reestablished through extraordinary means, but will incur additional costs. So Russian innovators might be able to acquire foreign critical materials with enough money. These will have to be funnelled through front companies in third countries in places like China and the Middle East. This is effectively a tax on Russian innovation.
Russia has some semiconductor capability, but it is way behind modern manufacturing, so it relies on foreign manufacture.
This all means Russia will be an ideal market for Chinese vendors. Huawei has already been helping Russia with their networking and information security needs. Other Chinese vendors will end up dominating other aspects of Russian technology from automation to smartphone apps. Over time Russia will fall behind and end up being a supplier of raw materials and source of skilled labour for Chinese enterprises. Having a Russian version of WeChat and Weibo with similar censorship would be attractive to the Russian government.
Russia is already behind in semiconductor manufacture, but it might be helped by China’s similarly sanctioned semiconductor companies. Russia has been trying to get self sufficient in products like computer servers, but Chinese chips will be seriously behind the chips that they’ve already had made in Taiwan.
Russia will probably do everything that it can to shield its defence industry from impact. Not only in support of its policy aims, but its one of the few value add sectors where Russia is a peer with China. Otherwise post-Ukraine, Russia’s negotiating position with China would be more akin to China’s relationship with sub-Saharan African countries or Sri Lanka.
Maintenance
Most of the civilian Russian aircraft fleet is of Boeing and or Airbus aircraft. The only access to maintenance parts will be the ones that they have on the shelves. Over time Russia might be able to reverse engineer and manufacture at least some parts. Electronics may prove harder. However Russian aircraft no longer have the amount of destinations that they can fly to with passengers or air freight, so they can likely cannibalise much of the fleet for spare parts. And since the majority of the aircraft are leased from Irish companies, there will be little blow-back that the Russian government would be bothered about at the moment.
Maintenance will also need to be done on trains and the railway network, oil and gas extraction equipment, manufacturing production lines and even hospital medical equipment. A similar mend and make do approach will likely be needed for all these sectors, which will slow down economic activity and make it harder to climb out of recession.
Rebuilding
If the second Chechen war is anything to go by, rebuilding Ukraine will be a very costly endeavour that will need to be bankrolled by either Russia or the west. As the west found out in Iraq, winning the war is the easiest and cheapest part. Rebuilding and trying to a puppet government in power with an insurgency funded by western citizen direct contributions and government funding could be a real challenge. As would trying to integrate Ukraine into Russia. Even the most draconian of measures have a high financial cost as well as societal and moral related issues.
Footage has also indicated that Russia will need to rebuild its military apparatus. The tyres were rotting off Russian and Belorussian vehicles for the want to proper care and maintenance programmes. In preparation of a future conflict with NATO, or further down the line China, Russia couldn’t afford to take those kind of losses. Wars are a shop window for the defence industries and this won’t be doing any favours for foreign sales of Russian armed vehicles, anti-aircraft systems or aircraft.
The performance of equipment in Ukraine is in sharp contrast to the veneer of professionalism and technical excellence shown by Russian forces operating in support of, and on the ground in Syria.
Russia will need to replenish ammunition supplies, maintain or replace artillery barrels and replenish field rations. Word will get around about the poor state of field rations. It will need to revamp its approach to logistics and supply chain management because everything that I listed was entirely preventable. All of this rebuilding will be challenging if Russia faces a sustained insurgency. China spends more on internal security than it spends on external facing military. NATO estimates that Russia would need to have a minimum 400,000 soldiers to maintain control of Ukraine. If Russia followed the same density of soldiers to population that it had in Chechnya, it would need 4 million soldiers.
There are some terrible options to consider:
Cull a proportion of the population, Russia is already a pariah state after all. Ignoring for morality of this for a moment which would be a huge issue in Russia, we know that this would represent tremendous logistical challenges as it did for Nazi Germany. But former Russian leaders, notably Josef Stalin killed a lot of Ukrainians including starving many of them to death and Mr Putin has proved himself to be a student of history
Internal exile. Stalin exiled the Cossack community of Crimea to Siberia. It decimated social cohesion and the ramifications of this exile is still felt by the Cossacks. Russia could do this to portions of the Ukrainian people. This would present a logistical challenge and an economic burden on Russia. If Russia thinks that sanctions are bad now, either of these two options would make current economic decline sound like paradise.
Paying for rebuilding will be challenging, if Russia manages to hold Ukraine, it might be able to exploit its rich natural resources like lithium deposits. But these will be sold at a considerable discount to the likes of China or India. We are unlikely to see Russia as a serious player in the lithium ion battery market.
Russian recession
When you take jobs, economic activity and capital flow out of an economy a recession will be inevitable. Many of the jobs that Russia will lose will be in middle class sectors including management, banking, the professions and business services. No matter what these companies do to try and mitigate the impact on their former staff, the impact will be felt economically in Russia.
Add to that the obliterated economy in Ukraine that might be dragging Russia down even further.
Over the longer term Russia will be selling their export products at a discount due to fewer customers and a more expensive route to market. So it will be harder for Russia to climb out of recession.
Reshaping of supply chains
Russian oil and gas has previously focused predominantly on selling oil and gas to Europe and Turkey and will be covered with sanctions. It will take a while to make alternative pipeline capacity to go east to China. Previously Russia has made use of foreign LPG terminals. Presumably these will cut access to transport by sea for Russia. Liquified natural gas tankers are expensive and Russia’s largest domestic LPG terminal is on the wrong side of the world, just down from St Petersburg on the Gulf of Finland. This would be the equivalent of drinking a venti mug of coffee with a teaspoon.
Russia has been experimenting with shipping some LPG by train to Northeastern China. In terms of helping finance future projects, China isn’t likely to fund LPG projects that would give Russia to foreign markets other than itself. This would be one of the first areas where we see Russia clearly as the junior geopolitical partner beholden to China. So a gas pipeline to China is likely to be the preferred route to market.
Russia is in a slightly better position with oil. its easier to ship by sea and for the right price, Russia could find customers beyond China.
Consumer sanctions busting
Russia will have already started thinking about sanctions busting, but doing this in a big way will take time, money and planning. At a consumer level, Russians will be looking to safeguard wealth through portable assets that are liquid, or can be easily made liquid. This means foreign currency, crypto-wallets, luxury watches, diamonds and precious stones. There has already been a run on the rouble at Russian banks as citizens look to obtain foreign currency and Russia has implemented capital controls on people leaving the country.
Cybercrime
It’s only a matter of time for Russia to tap its cyber criminal community and state hackers to come up with a source of foreign currency to help the Kremlin. These will be more capable than what North Korean state hackers have historically being doing. Ransomware payments will likely come over cryptocurrency. The problem with cryptocurrency is that the exchanges are becoming increasingly centralised, so criminals will be playing cat and mouse with the likes of Binance. The cryptocurrency sector in Hong Kong may be more fruitful. The COVID quarantine situation and regulatory uncertainty in Hong Kong won’t deter Russians keen to launder crypto into foreign currency and access to the global financial system.
Finance
Russia will try to get around foreign payments through a number of ways. Asianometry have done a really good exploration of this topic and I figure that you could do with a video break in this dystopian discussion of Russia and Ukraine. We have seen Russian banking systems sign up with Union Pay, which has limited acceptance in the west (usually big department stores that rely on the Chinese tourist trade like Selfridges in London and Brown Thomas in Dublin).
Long term effects
At the moment there isn’t a clear off-ramp for sanctions against Russia. One might see softening of sanctions in the developing world, for Russian products at the right price. The longer that sanctions remain, the harder it will be for Russia to regain its global economic standing once they are lifted. Russia hasn’t been a trusted partner at the best of times due to systemic corruption. Systemic corruption will be further fuelled as the country falls under Chinese influence, there won’t be a need to meet ESG driven checks and balances. It will face sustained cynicism in the west with regards its motives and will increasingly become less relevant.
In addition it will be locked into draconian financial deals with China which would make it harder to kick start the Russian economy. Globalisation will have created alternatives for its higher value goods, so will need to rely its commodities. It will be a third line supplier for strategic materials like industrial diamonds, uranium or titanium because of the trust deficit.
Russia declining, China rising
Russia is already struggling for relevance in the Russian Far East. The economic gravity is moving away from Russia towards China. Chinese companies are leasing farm land and forestry. Russian financial distress will encourage this trend much faster. The Russian Far East is part of an ‘unfair treaty’ between Russia and China during the 19th century. While China tries to keep a lid on the discussion about this, it is on the radar of Chinese nationalists. The question of Russian sovereignty will come up at some point and Russia won’t be able to secure any foreign support.
China will be Russia’s banker of last resort and given that the yuan isn’t transferrable, Russia won’t be able too disconnect at a later date. China will use favourable pricing to get hold of Russian resources, Russian expertise and privileged market access. All of this will come at the expense of Russian businesses, entrepreneurs and the Russian taxpayer.
Russia will have been cleared off the map for sporting events, an area that China attaches great importance to for national pride.
The fall against China will transform the China-Russia relationship in a coercive way, similar to what we have seen China do with African countries.
Sanctions busting
Taking apartheid era South Africa as an example. South Africa was able to buy arms from East Germany, despite the communist state’s support of the ANC. Chinese arms were purchased by South Africa and used to equip their allies fighting in Angola. If the price is right, Russian arms will still be sold abroad. We know that North Korea has serviced and refurbished Soviet-era equipment like T-55 tanks for a long time and Iranian arms pop up across the developing world including medium range missiles and drones. So there will be customers there for Russia, at the right price. What we might end up seeing is that Chinese arms are seen as ‘more premium’ due to superior technology. Russian private military contractors will be used to earn foreign currency, wherever there is money on the table.
We can expect Russia to be able to obtain at least some material that it considers to be vital to its needs and there will be some strange bedfellows involved. This might be through convoluted and more expensive means. Countries that fully supported Russia in the UN are pariah states anyway, so they would be of limited use as conduits. But they are likely to be customers for Russian exports. For instance, North Korea could be enjoying more oil at a lower price, if the rail link across the Russian border would be able to handle a long tanker train. Or if Russian ‘ghost tankers’ manage to do transhipment.
So they may use third parties countries that abstained from the UN motion
Algeria, Equatorial Guinea and Iraq. Russia presents an arbitrage opportunity for these countries. If Russia is desperate for foreign currency reserves, these countries could buy Russian oil at less than their own cost of production. Perform an offshore ship-to-ship transfer or fake paperwork for a full tanker and sell Russian oil as their own. Russia would be losing money this way but it offers an opportunity to get hold of foreign currency.
China is going to be Russia’s leading economic and development partner. This is likely the key conduit for foreign products into Russia. However, where China is restricted in key areas such as technology, Russia will need to look further afield.
Bangladesh and Pakistan. Pakistan has a lot of experience in sanctions busting and used to build their nuclear weapons programme over the past number of decades. It also has an ambivalent relationship with western countries, although its tight relationship with China might make its willingness to help Russia have limits.
Bangladesh and Pakistan are the number two and number three countries in ship breaking. When Russia needs ‘ghost tankers’, being able to buy ships that are due to be scrapped will be the easiest way of doing this. Having ships pirated in the straits of Malacca by corrupt Indonesian military or Filipino Islamic terrorist groups would be a higher risk, less reliable source of ‘ghost tankers’. If Russia wants to sell oil or arms, it will need access to shipping. Ghost ships are already estimated to represent about 10 percent of global oil tanker capacity. Prices have already been rising for older ships due to be scrapped prior to the Ukraine invasion as the demand for ‘ghost ships’ had increased.
South Africa and India. India and South Africa are long-time partners of Russia in the diamond trade and would be likely called upon to help Russia get its diamonds on the global market. India is responsible for most of the diamonds cut globally. Its diamond businesses also have a crisis of credit. Both South Africa and India are part of the Kimberley Process. Both of these factors make them ideal countries to launder Russian diamonds through if the price is right.
The United Arab Emirates is in a unique position. It is an established Russian trading partner with an established Russian community and the kind of financial sector infrastructure to help build an offshore shell game to hide Russian sanctions busting. It has many of the benefits of London in terms of expertise, but none of the ESG related problems that ‘Londongrad‘ now has due to the invasion of Ukraine.
Cultural impact
Russia feels that it is linked culturally much more closely to the west in terms of music, literature and even sports. This will be unprecedented, even during the cold war, there were cultural and sports exchanges. Being cut off from these exchanges had a huge impact on apartheid-era South Africa. It is likely to impact how Russia sees itself, the sense of isolation due to its pariah status will be palpable. I can’t see Russia pivoting to China in those areas, they have too little in common from a cultural perspective.
The rich and powerful who enjoy a global cosmopolitan lifestyle will feel this impact in a very acute way, the middle classes will also feel the impact but will be equally concerned with their reduced financial status.
The rundle as a term was popularised by business academic Scott Galloway.
It means ‘recurring revenue bundle’. In the technology world bundling meant concealing the real price and value of a product, and or maximising leverage from one industry into another. Here are two bundle examples:
Mobile carrier combined text, data and call plans were originally designed to make it harder to compare one carriers offering with another. That was supposed to reduce customer churn because it was like comparing apples and oranges, rather than voice minutes, cost per text or cost per MB of data used
Microsoft integrated its web browser in with its operating system Windows. This meant that life was appreciably harder for Netscape to build its web browser business. Web developers in large corporates optimised their websites for Internet Explorer. Western Mac users like me couldn’t use online banking. Korean Mac users couldn’t get online because they couldn’t verify their identity. Korean cybersecurity was based on a common identity platform that relied on Microsoft ActiveX – which got hacked by North Korea….
Back to rundle
Remember the ‘recurring revenue’ bit?
The classic example of a rundle that Scott Galloway uses is Amazon Prime. A one-off annual payment made by Amazon customers for free postage. There are also some ancillary benefits such as content from the Amazon Prime Video service. But Amazon Prime has a secondary effect, Prime customers spend more with Amazon over a year. This made increased profits for Amazon and less profits for its competitors, further strengthening Amazon’s hand. By 2019, 82 percent of US households have an Amazon Prime membership.
Another example would be Apple’s service businesses:
Apple TV+
iCloud+
Apple Music
So what’s the Korea connection?
The rundle in Korea story started with a flower market.
The Seoul wholesale flower market. The first thing that you need to know about Korean flower sales is how small they are. Here’s a rough and ready industry comparison. On average per person, per market on an annual basis:
The UK sells about $150 worth of flowers per year, per person
Japan sells about $50 worth of flowers per year, per person
South Korea sells about $15 worth of flowers per year, per person
The first week in January meant that the trade was starting to get back to normal. Imports of flowers from around the world had started up again as foreign businesses reopened from the Christmas break. This is when things started to go weird. Wholesalers claimed that an online-only mail order flower company was cornering the market across a wide range of flowers driving prices up. The company that they alleged was doing this was Kukka. According to their allegations, Kukka had managed to get a wholesalers licence so that the could bid directly on the spot market for flowers. There is some anecdotal evidence that this drove florists already operating on meagre margins into the wall.
At the time, this story didn’t make the local Korean media. Why? There are a few hypotheses:
Korean journalists weren’t interested because Koreans don’t buy that much flowers
Korean journalists couldn’t get enough sources to make the story fly
Korean news media publishers tend to be leery of stories that involve large corporates. What the Koreans call chaebols, unless they can’t really ignore the story any longer
So why would Kukka have allegedly done this now? A few changes happened at Kukka the previous year. At least one of the founders left, a new management team was put in place and Kukka signed up to be part of T-Universe in August 2021.
SK Telecom officially launched T Universe at the end of August last year with a number of subscription services. Think of T Universe as a platform for bundles. It encompassed a number of Korean and international brands into rundles:
Amazon Global Store: remember that Amazon Prime won’t cover buying items on Amazon Japan or US? Well for $7.20 per month Koreans can get an Amazon Prime like free shipping. Frankly that would scare the crap out of my bank manager, given the amount of vinyl records, Blu-Rays and books that I would be buying
Starbucks: unlike most of the rest of the world, Starbucks isn’t the cock of the walk in Korea. It has a range of fierce domestic and international competitors in Korea. Koreans are big coffee drinkers and pay more than people in the UK for their coffee to go
Paris Baguette: despite the name, this company is as Korean as Shin spicy ramen noodles. Think of it as falling somewhere between Pret a Manger and Paul in terms of its offerings.
AIA insurance: AIA is an American-founded Hong Kong multinational insurance and finance corporation. It is the largest public listed life insurance and securities group in Asia-Pacific. It formerly used to be part of AIG
Kukka is also part of these subscription plans with consumer being able to get 9000 Korean won vouchers every month.
SKT
SK Telecom (or SKT as its often known) is a vast business in its own right and is part of an even larger group SK.
SK or as it was originally known Sunkyong Group started off in textiles and then became vertically integrated from petroleum to polyester fibres. Now the business covers:
Construction: aka SK Ecoplant does a wide range of projects across oil and gas, chemical plants, power generation and infrastructure, environmental protection, industrial buildings, civil engineering and housing
Pharmaceuticals with a focus on drug discovery and development
Chemicals also known as SK Innovation. SKC specialises in making polyester films for LCDs and solar cells.
Energy from oil and gas to electric battery production
Telecommunications
Trading and services: loyalty schemes (similar to Tesco Clubcard or Nectar points), a wedding consulting firm and an IT services provider with a particular focus on mobile commerce products. Their US arm launched Google Wallet
Semiconductors. SK Hynix is the world’s third largest semiconductor manufacturer
Even SKT on its own is vast in its own right
Mobile carrier
E-banking and mobile payments
E-commerce platform (Shopify analogue with a loyalty programme)
Nate online portal (think Google services but Korean)
Satellite communications
Broadcast networks
Cable TV and brandband
T-Map (an Uber like service in partnership with Uber)
Dreamus: the people who make the Astell & Kern music players beloved of digital hi-fi enthusiasts
Market distortions
SKT brings a number of strengths to the T-Universe rundle series.
It already handles 100,000,000 customer service calls a year
A huge existing customer base
CRM software and marketing data-mining expertise
It has the scale to bring on a 1,000 (sales) consultants to just focus on growing and upselling T-Universe
SKT also doesn’t care about margin at the moment, instead focusing on market making:
“Instead of a profit margin, we are thinking about expanding customer services and believe that new business models will emerge in the process. Margin is not a priority at this early stage,” Ryu said.
SKT executive Ryu Young-sang quoted in the Korea Times: SKT to boost commerce biz with subscription platform (August 25, 2021)
All of which is likely to mean a bump in potential customers for flowers, that probably haven’t bought flowers previously. It is easy to see how this rundle could create a market distortion. For businesses like Starbucks and Paris Baguette this would mean reduced margins on higher foot traffic, nothing that they couldn’t manage.
However in a smaller market scenario like flowers, things could get more interesting. Huge demand from new customers that Kukka would be obliged to fulfil at ANY cost, because being sued in a Korean court by a chaebol would be disastrous.
Korean business environment
Korea is a relatively unique business environment. A few large businesses drive the country. You can literally live a Samsung life:
Work at Samsung
Shop at Shinsagae
Commute in your Samsung car
Stay in a Samsung hotel paid for with your Samsung card
Watch entertainment from CJ on your Samsung TV, tablet or phone
Ensure your safety with Samsung insurance for your Samsung built apartment and should you feel ill go to a Samsung hospital
Online brought additional pressure to large businesses. Internet giant Kakao moved from internet media and communications to taxi bookings and mobile payments. Korean banks feeling under threat have moved into online services. So it was only a matter of time for SKT to build its rundle series for consumers to pick and choose from. Unlike many businesses (Apple and Amazon) who have moved from a transactional to a hybrid transactional and recurring revenue model, SKT was always a recurring revenue model because of its sector. So the only way for it to grow would be to expand the number of sectors that it got recurring revenue from with its ‘subscriptions of everyday things’ in T-Universe. SKT and the flower industry (let alone Kukka) look like apocryphal story of a hippo and a chick sharing the same bed.
Is there an end in sight to supply chain disruption? | Financial Times -There are major barriers to ending supply chain disruption by decoupling from China. Japan is trying to reduce supply chain disruption by replicating Chinese factories in other countries like Thailand and Indonesia. Here are some of things stopping multinational corporations from making that happen. In order to end supply chain disruption, I would imagine that a higher degree of automation is key, which will require corresponding improvements in automation technology. This doesn’t just mean software but also in mechanical engineering. The main issue for fine motor control in robots is the design and price of harmonic drives. This doesn’t operate on a Moore’s Law speed and scale of innovation. Increased automation also likely means major changes in approach to product design. Back in the golden era of consumer electronics just prior to the consumer adoption of the internet, circuit boards were less dense because they were designed for automated ‘pick-and-place’ machines. Nokia had a similar approach to its phones prior to the pivot to Windows and Qualcomm chips. The reason why Apple needs iPhones made in China is because a lot of the final assembly is closer to the work of a watchmaker servicing a mechanical watch than you would credit. So lots of cheap, (younger, smaller, delicate, usually female) hands are required. Our financial system’s obsessive, narrow focus on shareholder value will curtail these movements. Look at how Apple crows about how green they are and yet makes the virtually unrecyclable Air Pods by the million. Until that changes and the computers are assembled from modular boards, closer to their home market the supply chain won’t change despite the political, economic, national security and moral imperatives otherwise. Which is why Apple amongst others point out that they have an inability to move production out of China. This will get even harder as China moves up the semiconductor value chain. Once they are building memory modules and modern silicon fab processes, its game over for manufacturing elsewhere in the electronics sector. China is also the sole provider for many of the ingredients in multi-vitamins and pharmaceutical products. They process and mine just under 90 percent of the world’s rare earth metals – key for a large swathe of technologies from magnets to chips and batteries. They have a similar position in solar cell polysilicon and lithium ion battery ingredients.
JAXPORT promises less supply disruption
So ending supply chain disruption would mean replicating whole ingredient manufacturing chains and industry knowhow that multinationals had migrated to China decades ago. All of these actions to reduce supply chain disruption may not be received very well by China itself. China has bought key infrastructure around the world: power generation, ports, water supply, rail networks and more. All of which means that they get a greater say in how the world’s supply chain works. Xi Jingping has been straight forward in saying that he wants the world to rely on China more, and China to rely on the rest of the world less. Decoupling from Chinese supply chain disruption has taken on even more importance with the rise of Chinese secondary sanctions. More on nearshoring to avoid Chinese supply chain disruptions here: China’s economic woes: An opportunity for U.S. manufacturing?
China
Scientists believed Covid leaked from Wuhan lab – but feared debate could hurt ‘international harmony’ – An email from Dr Ron Fouchier to Sir Jeremy said: “Further debate about such accusations would unnecessarily distract top researchers from their active duties and do unnecessary harm to science in general and science in China in particular.” Dr Collins, former director of the NIH, replied to Sir Jeremy stating: “I share your view that a swift convening of experts in a confidence-inspiring framework is needed or the voices of conspiracy will quickly dominate, doing great potential harm to science and international harmony.” Institutions which held the emails have repeatedly resisted efforts to publish their content. The University of Edinburgh recently turned down an Freedom of Information request from The Telegraph asking to see Prof Rambaut’s replies, claiming “disclosure would be likely to endanger the physical or mental health and safety of individuals”. – this is going to turn into a dumpster fire
Dutch university gives up Chinese funding due to impartiality concerns | Netherlands | The Guardian – Amsterdam’s Vrije Universiteit (VU), the fourth largest university in the Netherlands, has said it will accept no further money from the Southwest University of Political Science and Law in Chongqing and repay sums it recently received. The announcement came after an investigation by the Dutch public broadcaster NOS last week revealed VU’s Cross Cultural Human Rights Center (CCHRC) had received between €250,000 (£210,000) and €300,000 annually from Southwest over the past few years. According to NOS, the CCHRC used Southwest’s money to fund a regular newsletter, organise seminars and maintain its website – which has published several posts rejecting western criticism of China’s human rights policy
Why is it still considered OK to be ageist? | Financial Times – A study by academics at Yale found that people with a negative approach to ageing deal with it worse mentally and physically and die seven and a half years younger. To put this in context, mild obesity shortens life by three years, extreme obesity by 10. Hardly surprisingly, this has prompted a great deal of fuss at government level. Policymakers and health professionals obsess over obesity. But what about the damage done by poor attitudes to ageing? Until I read about the survey I had no idea it was even a thing: the fact that ageism can actually kill you is a well-kept secret. It is also a costly one. According to the WHO report, the resulting ill health places an additional annual burden on the US healthcare of $63bn. I realise that health policymakers have been busy since the report came out last March, but still there hasn’t been a peep out of them
I love this 60 Minutes Australia film about an Australian inventor
Equations built giants like Google. Who’ll find the next billion-dollar bit of maths? | David Sumpter | The Guardian – The PageRank story is neither the first nor the most recent example of a little-known piece of mathematics transforming tech. In 2015, three engineers used the idea of gradient descent, dating back to the French mathematician Augustin-Louis Cauchy in the mid-19th century, to increase the time viewers spent watching YouTube by 2,000%. Their equation transformed the service from a place we went to for a few funny clips to a major consumer of our viewing time.
Murata’s Thailand move heralds Japan tech shift from China | Financial Times – “The most populous country today may be China, but in 2030 that will be India, and further down the road it will be Africa,” Nakajima said. “Will those economies be aligned with China or the US? We don’t know. We should be able to respond to both scenarios.”
Legal
Hong Kong: how colonial-era laws are being used to shut down independent journalism – police recently told reporters that opinion articles aren’t the only ones that can be regarded as seditious. Media interviews with exiled activists and features on clashes between protesters and riot police can also be considered seditious if the content is deemed by the government to be “fake news” or inciting hatred towards the government and endangering national security
Hong Kong independence activist Edward Leung released from jail, told to stay silent — Radio Free Asia – Hong Kong barrister and former lawmaker Siu Tsz-man said supervision orders are sometimes issued to released prisoners involved in violent crimes, including murder and manslaughter, and require the former prisoner to maintain contact with supervision officers and remain at a stable residence. But Siu said the order to stay away from the spotlight was unprecedented. “I have never heard of this happening before,” Siu said. “My staff have never heard of a supervision order under which the person isn’t allowed to give interviews to the media.” Siu declined to comment on whether the order was appropriate without knowing the details of the case. “The point of a supervision order isn’t to confine someone at a certain location and not let them leave,” he said. Some drew parallels between Leung’s release and the continuing controls on released political prisoners in mainland China – similar in nature to an ASBO but inherently political in nature
Virginia burglaries work of ‘crime tourists,’ authorities say – The Washington Post – Authorities call them “crime tourists.” Law enforcement experts say cells of professional South American burglars, particularly from Colombia and Chile, are entering the country illegally or exploiting a visa waiver program meant to expedite tourism from dozens of trusted foreign countries. Once here, they travel from state to state carrying out scores of burglaries, jewelry heists and other crimes, pilfering tens or hundreds of millions of dollars’ worth of goods each year, the FBI estimates. Experts said the groups often operate with impunity because they have found a kind of criminal sweet spot. Bail for nonviolent property offenses is often low, so an arrested burglar often quickly gets bond and skips town for the next job, experts said. The crimes often don’t meet the threshold for the involvement of federal authorities. And they attract less attention at a time when U.S. authorities are contending with a rise in homicides. Dan Heath, a supervisory special agent with the FBI’s criminal investigations division, said “South American theft groups,” as the agency calls them, are a growing problem across the United States — and in countries including India, Britain and Australia, where they often employ similar tactics. “They represent an enormous threat right now in our country,” Heath said. “They are tending to thread the needle in avoiding both state and federal prosecution.”
VW fired senior employee after they raised cyber security concerns | Financial Times – A senior Volkswagen employee was dismissed weeks after raising the alarm about alleged cyber security vulnerabilities at the carmakers’ payments arm, which is soon to be majority-owned by JPMorgan. The manager alerted bosses in September 2021 to concerns that VW’s system in the region was “open to fraud” following an attempted cyber attack, and maintained that $2.6m sitting in the company’s accounts could be stolen, according to documents seen by the Financial Times. The staff member, who also told superiors that VW could face regulatory action if the vulnerabilities were not addressed, was then fired in October. – not terribly surprising
Software
After ruining Android messaging, Google says iMessage is too powerful | Ars Technica – “Google clearly views iMessage’s popularity as a problem, and the company is hoping this public-shaming campaign will get Apple to change its mind on RCS,” writes Amadeo in closing. “But Google giving other companies advice on a messaging strategy is a laughable idea since Google probably has the least credibility of any tech company when it comes to messaging services. If the company really wants to do something about iMessage, it should try competing with it.” – if this wasn’t an admission of failure by Google I don’t know what is. Google has a history of failed or closed communication services Google Talk (GTalk) (which was retired when Google decided to move away from an open messaging standard , Google Hangouts (which was spun out of Google+ messaging functionality), Google Allo and Google Wave
Christine Lee and Foreign Interference: what the UK can learn from Taiwan | China Dialogues – As part of the transition from authoritarianism to democracy, Taiwan retooled its political commissar system (zheng wei 政委) – formerly responsible for policing political loyalty toward the regime – into an institution that safeguards democracy by working to identify Chinese influence at all levels of Taiwanese politics and society. Political commissars (PCs) not only receive extensive military training but also develop a deep understanding of the Chinese Communist Party’s political warfare tactics. Most major government departments and private sector organisations in Taiwan will have PCs operating within their ranks, monitoring and reporting evidence of foreign interference. As many democracies facing Chinese influence and interference do not have such well-established systems in place, Taiwan’s zheng wei system may provide a starting point for how anti-foreign influence institutions can work effectively within democratic societies
Technology
EETimes – Arm Predicts Stagnation if Nvidia Deal Fails – without investment from Nvidia, Arm would be seriously disadvantaged in its bid to grow in data center markets and compete against Intel Corp. and x86 incumbents. The filing also explains why an Arm stock offering is a non-starter while noting that Arm faces stiff competition from emerging RISC-V competitors – interesting that they don’t mention ARM China crisis at all. Nvidia have now walked away from it and Softbank is supposed to be preparing a public offering for ARM
