How the Chinese Market is Changing the Face of Global Tech by Ashley Fernandez W'22

The National Basketball Association (NBA) was in the spotlight in October of 2019 due to steps taken against associates who have spoken out on social media about the situation in Hong Kong. There have been many recent cases of companies retracting statements and suspending or firing the people who speak out in similar ways, so that such companies can maintain their ability to do business in China. The Chinese Government’s system of internet regulations and technologies is called the Great Firewall of China. China’s policies regarding domestic internet regulation has allowed China to shape the face of Global Tech by challenging outside tech companies with dilemmas on policy and creating an environment for new Chinese based tech giants to flourish.

Why are companies struggling to address these policies? Many of China’s internet regulations are not unique. Most countries have some form of internet protections and several censor specific things, such as in Germany where Twitter must censor Holocaust denial and hate speech. These types of regulations have been increasing over the past decade with one of the latest being Singapore’s Protection from Online Falsehoods and Manipulation Act. Some of China’s requirements are specific, dictating that companies must list Taiwan, Hong Kong, and Macau as part of China when using them as locations on their websites; however, this already provides a question for companies based in countries that explicitly see these regions as separate and or independent. When regulating more divisive issues such as certain news, images, or references to historical events, following the law becomes more challenging.

The main problem companies faced when trying to do business with China, is balancing the needs of different countries. As more companies prioritize global expansion, they must abide by Chinese laws to continue operating in the expanding Chinese market. At the same time, however, companies outside of China must balance the sentiments and preferences of their home country consumer base. A Peking and Harvard University study showed that Chinese students receiving unregulated access to the internet have little interest in currently banned content, they simply want the best service, therefore compliance does not minimize a company’s appeal in China. However, when tech platforms censor content, they can face major pushback from foreign consumers and legislators. While many countries have been expanding regulations against hate speech and fake news, democratic governments are reluctant to directly regulate against Chinese mandated censorship because it expands the standard that setting content standards for private companies is acceptable and it uses private companies to enact foreign policy. This reluctance has allowed China to influence what Global Tech looks like.

It is also important to consider how Chinese technological regulations have helped create a protected environment, where domestic Chinese companies to grow into tech giants. Companies like Tencent, Weibo, and Alibaba, may not have been able to succeed without the blockage of Google, Facebook, and other tech companies that were already dominating the space. These massive companies have now begun to shape their counterparts outside of China. Tik Tok is a massively popular across the world short-form video social media app. It is owned by a Beijing based tech company and is now under National Security review by the U.S. government due to accusations of censoring content in the U.S. following Chinese policy. Still the app continues to have a massive following, especially from young people. Tencent, a giant Chinese corporation that specializes in internet-related services, products, and entertainment, has been under scrutiny as a possible influence for the NBAs actions due to its recent deal to stream NBA games in China. 

The rapid growth of these companies also demonstrates the power of the Chinese market for tech industries. Alibaba’s Singles Day 2019, an annual e-commerce shopping event similar to Black Friday, broke its own record with $38 billion in sales in 24 hours, largely from a Chinese market that has money to spend. For this reason, many have chosen to directly cooperate and abide by Chinese policy either by creating separate products for China or making their platform comply universally. Two of the biggest global tech companies, Apple and Microsoft, censor some information as a condition to operate in the country. Although policy chiefs reassure consumers that having a presence in China promotes greater openness and allows a free flow of ideas, many consumers and politicians have been skeptical of this practice.

Another reason many companies struggle is that they have built monopolies into their platforms. For instance, because the Apple controlled App Store is the only way to download applications, they are forced into acting as the checkpoint for governments. When governments do not want a specific app to be available, Apple is the one that has to take action, which can cause backlash. One alternative way to comply with the proposed policies is by reducing monopolies. By putting power back in users’ hands, the job of regulating could be passed to the Great Chinese Fire Wall’s domestic systems. If Apple were to decentralize and allow for user controlled downloading off websites or allow local, competitive versions of the App store, governments could regulate directly through internet compliance services.

China’s growth has made its market essential for future tech expansion. Ignoring such opportunity is not an option. Whether it be with companies in the U.S., Japan, Europe, or developing regions involved with China through its global expansion effort called the Belt and Road Initiative, China will continue to expand and continue shunning uncooperative firms and governments.

Ashley Fernandezis a sophomore in the Wharton School studying Management and Legal Studies, with a minor in Chinese EALC. Her interests include international business and international affairs. Ashley is also a Civic Scholar working in Environmental and Educational Justice. She will be the Managing Editor for IBR Online starting next semester.

Sources:

https://www.vox.com/2019/10/7/20902700/daryl-morey-tweet-china-nba-hong-kong

https://www.theguardian.com/news/2018/jun/29/the-great-firewall-of-china-xi-jinpings-internet-shutdown

https://www.economist.com/international/2019/11/07/countries-are-increasingly-willing-to-censor-speech-online

https://mashable.com/article/china-censorship-companies-hong-kong-protests-nba/

https://www.vice.com/en_us/article/a35yke/tech-companies-didnt-plan-for-chinese-censorship

http://davidyyang.com/pdfs/1984bravenewworld_draft.pdf

https://yp.scmp.com/over-to-you/op-ed/article/107526/heres-why-great-firewall-china-has-benefited-country

https://www.nytimes.com/2019/11/01/technology/tiktok-national-security-review.html

https://fortune.com/2019/10/11/china-nba-feud-tencent-blizzard-fortnite-epic/

https://www.cnbc.com/2019/11/11/alibaba-singles-day-2019-record-sales-on-biggest-shopping-day.html

https://www.nytimes.com/2019/11/01/technology/tiktok-national-security-review.html

https://fortune.com/2019/10/11/china-nba-feud-tencent-blizzard-fortnite-epic/

https://www.leahy.senate.gov/imo/media/doc/Apple%2011212017.pdf

https://www.reuters.com/article/us-hongkong-protest-cook/apples-cook-defends-decision-to-remove-police-tracking-app-used-in-hong-kong-idUSKBN1WP2SZ

https://www.asiatimes.com/2019/12/article/huawei-appeals-to-japan-america-miscalculates

How Charles Schwab Won the Race to Cut Fees by Bennett Katz C'22

Upon the formation of our world’s first stock markets, investing in stocks was generally restricted to those in the upper classes of wealth. Aside from the purchasing of bonds, there was a general lack of investing options and little to no brokerage firms to service the working American class that had just enough extra money to invest in the markets. 

Eventually, firms such as Charles Schwab and Ameritrade, founded in the early 1970’s, pioneered the mission to increase accessibility to the stock market and the field of investing. Their business model allowed for middle class Americans to open accounts with these firms, allowing individuals to buy and sell stocks on their own. This change marked a strong movement away from firms investing the large sums of money provided to them by institutional investors to a more freelanced, grassroots approach.

This new freedom allowed people to independently buy and sell securities, albeit with heavy trading fees. Each stock trade cost roughly $50.00, worth about $320 today. The implications of this hefty fee were such that the class restrictions of the past remained, starting a decades-long race to lower transaction fees to appeal to as broad a market as possible.

This continual slow lowering of fees lasted until recently when in 2016 startup Robinhood LLC. started to offer unlimited free transactions, upending the stock brokerage industry. Since then it has continued to pioneer with free options and cryptocurrency trading, opting for a different business model than most firms. This type of payment structure attracted millennial investors to the platform, giving the startup a stronger market share to keep experimenting with ways to chip away at its established competition. While the established firms did not collect a significant percentage of revenue from transaction fees, they were losing key, profit-driving accounts to new startups like Robinhood.

While the situation looked grim, Charles Schwab recognized an opportunity to turn a near guaranteed loss in revenue into a major acquisition. Schwab had been looking to acquire rival, TD Ameritrade for a long time and had trouble due to the valuation of the companies and differences in how revenues were brought in. While Schwab only collected 8% of its revenue through transaction fees and commissions, they comprised 36% of TD Ameritrade’s revenue.

This massive difference allowed Schwab to match Robinhood’s revolutionary new concept, reducing their trading fees to $0. Although it appeared as though Schwab had just given up 7% of its revenue, their reduction in trading fees forced TD Ameritrade to follow suit to keep its clientele. TD Ameritrade’s valuation plummeted, as roughly a third of their base revenue had come from commissions and fees. TD Ameritrade’s vulnerability allowed Charles Schwab to swing in and purchase them outright for $26 billion on November 25th, 2019. As a result, Schwab obtained a considerably larger share of the market, leaving them with less competition and a managing base of $5 trillion. With a forward-thinking mindset and a bold strategy few would pursue, Charles Schwab managed to turn a crisis of fees into a stellar acquisition.

Bennett Katz is a freshman in the College of Arts and Sciences studying International Relations and Economics. His interests include international politics, sports analytics and investing. In his free time, Bennett is involved with fantasy football and researching potential companies to invest in. 

Sources:

https://www.cnbc.com/2019/11/20/robinhood-to-launch-commission-free-stock-trading-app-in-the-uk.html

https://www.thestreet.com/investing/how-does-robinhood-make-money-14856528

https://www.forbes.com/sites/donnafuscaldo/2019/12/04/mobile-trading-app-robinhood-now-has-more-than-10-million-accounts/#3c36cde13f81

https://www.bankrate.com/investing/zero-fee-broker-commissions-long-term-investors-win/

https://www.npr.org/2019/10/01/766110889/schwab-cuts-commissions-to-zero-as-free-trading-edges-toward-the-norm

https://www.cnbc.com/2019/11/25/charles-schwab-to-buy-td-ameritrade-in-a-26-billion-all-stock-deal.html

Twitter, Made for Japan? by Sarah Zhang C'22

In its home country, the iconic little blue bird seems lost. With only 22% American adults using the platform and a ranking far lower than that of Facebook, Instagram, and Snapchat, Twitter’s hopes in the US are dire. However, in one region of its international travels, the real-time microblogging platform is soaring. In the words of Yu Sasamoto, the local country manager, Twitter “started as a lifeline and morphed into the culture.” 

This country, where one out of three citizens is an active Twitter user, is Japan. 

Today in Japan, there are a total of 45 million active users, making the nation Twitter’s second largest market globally and second in total penetration. According to the Japan-based digital marketing agency Humble Bunny, Japan is the only country where Twitter is used more frequently than Facebook and Instagram, which have 28 million and 29 million monthly active users respectively. 

Demographics-wise, Twitter is also the most wide reaching Western social network in Japan, given a fairly equal male-female split and the fact that some 61.3% of all users are over the age 30. Accessibility seems key to Twitter’s popularity amongst older users. Compared to other networks like Japan-based Line and Facebook, Twitter can be accessed even through feature phones typically used by the Japanese elderly. 

Furthermore, amongst youngsters, Twitter is used weekly by nearly three-quarters of Japanese students and half of young professionals, according to Humble Bunny. This makes Twitter an attractive option for video advertising, as smartphones tend to be in the hands of young people who “overwhelmingly” use them for social activities like watching videos. The popularity of video on Twitter was particularly evident during the Winter Olympics last year when national broadcaster NHK’s video of Japanese figure skater Yuzuru Hanyu’s gold-medal-winning short program was streamed over 4 million times and shared 125,000 times. Watching Studio Ghibli’s Castle in the Sky also refreshed the tweets per record record to a whopping 143,199 tweets in August 2013.  According to Twitter’s official blog, this spike was 25 times greater than the recent steadier trends of Twitter activity, and more than four times the previous record. 

Such popularity, capitalized by In-Stream Video Ads, allowed Twitter to make nearly twice the $1.24 in revenue per non-US user overall from Japanese users in Japan in 2017 and has contributed to Japan becoming Twitter’s second-largest market with $136 million in revenue from Japan in the first quarter of 2019. 

Unlike in the U.S., where Twitter is perceived to be more suited for public figures, journalists, and entertainers, Twitter has mass appeal in Japan. 

As “Japanese people tend to not feel comfortable expressing feelings or opinions in public,” according to Kiyo Yamauchi, a lead researcher for Twitter in Japan, the ease for Japanese users to sign up without using their real names is a key factor distinguishing Twitter from other popular social media platforms such as LINE and Facebook. With a disproportionate number of anonymous accounts and users with multiple accounts, almost half of active users claim to use Twitter to gather information regarding their interests and hobbies. As such, users tend to have user names corresponding with specific interests, such as the children's character Gachapin and the anime character Naruto. “It’s not surprising,'' says Kayvon Beykpour, Twitter’s head of product, “for a Japanese user to have, for example, one account for sports, one account for following K-Pop, and another for professional reasons”. Beykpour sees having different profiles as a means for allowing people to express different aspects of their personality - a feature also loved by advertisers who can now define their target markets more closely. . 

Being in tune with the preferences of Japanese consumers has long been important in Twitter’s product strategy, according to Beykpour. The bookmarking feature, he says, was created after realizing that many Japanese users were clicking the “like” button in order to save tweets to read later without having them publicly displayed on their profiles. 

The reserved nature of Japanese users is seen also in the trains and buses, where according to a 2015 survey by the NHK Culture Research Institute, the average Japanese working person spends over an hour and twenty minutes in. And since talking on one’s phone in public is frowned upon in Japan, most of the eighty minutes can be spent on one’s phone scrolling through tweets and updating followers. 

Evidently, Twitter has long recognized its unique position in Japan. The Japanese version was launched in 2008 as the first language officially endorsed after English and the Japan office was the first to open outside the U.S. in 2011. Given how well it seems to fit into the local culture and environment, considering also the site’s usefulness during frequent natural disasters and existing high-quality mobile networks in the country, Twitter is in Japan to stay even as it fades elsewhere. 

In other Asian countries with cultural similarities, however, Twitter’s future seems less hopeful. In China, Twitter is banned by the government (although recent figures claim a user base of 3.2 million), while in South Korea, Twitter faces “intense competition” from a more well-established messaging services provided by Kakao, according to its S-1. 

Thus, while the unique cultural, social, and political landscape in Japan may have put Twitter in a distinct position there that is propelling Twitter’s much-needed growth, globally, the little blue bird seems yet to find a strong updraft to save it from losing footing. 

Sarah Zhang is a College sophomore pursuing studies in International Relations, East Asian Studies, and Consumer Psychology. She is a passionate figure skater in the Penn Figure Skating Club and an ardent reader of poetry translations in DoubleSpeak.

Sources:

https://www.bloomberg.com/news/articles/2019-05-16/how-twitter-became-ubiquitous-in-japan

https://mashable.com/2013/10/22/japan-loves-twitter/

https://www.reuters.com/article/us-twitter-japan/in-japan-twitter-sees-a-surge-of-users-and-revenue-idUSKCN1GC17T

https://blog.twitter.com/engineering/en_us/a/2013/new-tweets-per-second-record-and-how.html

https://blog.hootsuite.com/twitter-statistics/

https://www.wasabi-communications.com/en/blog/an-overview-of-social-media-in-japan/

https://resources.realestate.co.jp/living/average-work-commute-time-japan/

http://www.nhk.or.jp/bunken/research/yoron/pdf/20160217_2.pdf