Weekly Review July 4: How will things play out with India's ban?
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It’s currently the 4th of July, a major day of national pride in the United States commemorating the Declaration of Independence, a document created by the Founding Fathers in 1776 that rejected British Rule.
National pride and sovereignty are equally important concepts today as they were in 1776. And the most important story of the last week is a modern assertion of national pride and sovereignty. In this case, it’s about India.
A few days ago, the Indian government announced the ban of 59 Chinese mobile apps. While not explicitly mentioned, it’s highly likely this is the result of a June 15 military conflict between India and China on their disputed border where twenty Indian soldiers died. This has resulted in what is now the most tenuous diplomatic relationship between the two countries at any point over the last fifty years.
Last week’s ban affected many Chinese companies, but none is more high profile than TikTok. The short mobile video app, owned by Chinese parent company Bytedance, is the best symbol of China’s technological, cultural, and economic clout in 2020. In Q1, TikTok was downloaded 315 Million times, which is more than any mobile app in a single quarter ever. Even more importantly, TikTok is the very first social media app of Chinese origin to successfully break into Western markets like the US.
TikTok’s presence in India, however, has been a double edged sword filled with controversy. India is TikTok’s largest market outside of China, with 200 million Indian users on the platform. TikTok employs 2,000 people in their Indian office, has plans to invest $1 Billion in India over the next three years and is about to create a local data center.
At the same time, TikTok was temporarily banned in India for a week in April 2019 after being accused of exposing children to pornography, cyberbullying, and predators. The ban was lifted, but TikTok’s image was still tarnished in the eyes of Indian regulators.
In May of this year, a feud between Indian Youtube influencers and Indian TikTok influencers turned ugly and millions of Indians left one-star reviews of TikTok on the Google Play Store. At the beginning of June, before the border skirmish, there was already a grassroots movement across social media for Indians to remove China apps.
If the latest ban lasts, this causes huge problems for TikTok/Bytedance, as an internal company source has been quoted as saying Bytedance could lose $6 Billion in revenue from an extended ban. Newly hired TikTok CEO Kevin Mayer has been making major public announcements, promising new Indian initiatives and urging the Indian government to meet him directly. He still has a long way to go.
The fallout of the ban has wider implications for Indian tech and business. For every Chinese mobile app that had millions of users, you now have a gap in the market that could be filled by a local Indian mobile app.
Home-grown Indian alternatives to TikTok like Roposo recorded 22 Million new users downloading the app in the two days after the ban. There has also been talk about increased restrictions on Chinese goods, including boycotts and raising of taxes.
There are also many more highly skilled Indian tech workers who will probably now be in India, given President Donald Trump’s freezing of many U.S. work visas. That means a reverse brain drain where the overall quality and quantity of India’s human capital coincidentally happens to be at all-time highs at this very opportune moment.
A lot of Indian startups are also funded by Chinese VCs, who might be reluctant to supply additional capital given the geo-political landscape. Does this open the door to other non-Chinese funds who now have less competition to invest in the best Indian startups?
Balaji Srinivasan, a well-known investor in Silicon Valley, posted these tweets when the ban was first announced:
If you look at the history of many Asian countries over the last fifty years, you’ll see many cases of nationalism manifested through economic policy. The book How Asia Works by Joe Studwell explains how protectionism was a necessary tool to help developing Asia countries in their earliest stages of economic growth.
The best case study for this is South Korea, where the government forced local chaebols (industrial conglomerates) like LG, Samsung, and Hyundai to focus on exports and being internationally competitive. In 1962, a government law prevented foreign automakers from operating in Korea unless in joint ventures with local companies. These protections gave Korea’s automotive industry a needed head start for the underdeveloped country, and similar policies in other industries helped Korea grow into their current status as a powerful, highly-developed nation.
India’s situation is different from Korea’s and has its own complication. But this could still be India’s time to shine. Or at the very least, could we see a locally-developed Indian equivalent of TikTok?
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