Talibs Weekly Email - Week 79
🇨🇳Why Didi can shine in China, 🍎Tim Cooks transformation of Apple & 🧑💼Ban on foreign workers in US hurts many businesses
Hi Everybody
Hope everyone is doing well as we’re almost into March. There is definitely light at the end of this tunnel and hoping everyone takes some time to unwind and relax. (Summer too!!)
Some interesting conversations that I’ve heard in a while
Let me know on your thoughts on any of these!
What I’m listening to
Tweet that made me go hmmm..
Economist: Why China’s Didi can succeed where Uber has struggled
TLDR: Uber was unable to get foothold in China mainly due to the state regulations being in favor of local companies.
🚖What is Didi? Simply put it - Didi is the Uber of China. Didi was founded in 2012 and has over 550 million users and tens of millions of drivers.
🇨🇳Was Uber in China before? China was Uber’s famous tactical exit in 2016 where they had sold off their Chinese operations for a 20% share of Didi. Uber struggled in China while spending in excess of $2 billion a year. (I remember using Uber in China in 2016 and it was ridiculously cheap..they were subsidizing all rides)
A really interesting article on the real reason Uber gave up in China is here
Strategically they’ve experienced similar issues as many western companies face into moving into China
They had to change their initial core product (They had to allow and integrate with Alipay as Credit card adoption wasn’t widespread)
Uber’s reliance on Google Maps in their product was a disadvantage as maps in China were inaccurate (Google is banned in China). They had to make deals with local maps such as Baidu.
Uber had to install servers in China to prevent its operations getting blacklisted.
Marketing Costs: They had to spend extensively to attract drivers and users by offering large discounts on their first few trips.
🗺️How many orders did Uber get? Uber received more orders in China than in any other country, including its home market. In Chengdu, Uber drivers numbered 42,000, nearly the same as the number of Uber drivers in London, Paris, and San Francisco combined.
💸Still they lost money? Uber lost $2bn over two years in China. Its retreat paved the way for Didi to grow into China’s ride-hailing winner which currently occupies 80% of the domestic market. Didi is expected to go public in the next few months and could fetch a valuation of $60 bn. (Uber is currently evaluated at $103bn)
👨⚖️Regulation: In the end, competition wasn’t the only threat for Uber in China. It was pending national regulations; ride-sharing for the most part was unregulated nationally and Uber was able to work in certain grey zones within cities. The potential of nationalized regulations was bad news for Uber that depended on local zone.
🚕How big is China’s ride-hailing market? China boasts the world’s biggest ride-hailing market. According to its transport ministry, 21 million trips were booked on ride-hailing platforms each day, on average, last October.
🌆Where does ride-hailing work? Ride-hailing companies depend disproportionately on customers in big cities, where population density is highest. Around a quarter of Uber’s gross bookings by value in 2019 came from Chicago, Los Angeles, New York, San Francisco & London. China has 14 metropolitan cities with a population of over 10 million.
⚡️City regulations in China? Most of Chinese states are keen to reducing congestion and discourage private car ownership by restricting the supply of license plates. In Beijing, the most recent bi-monthly lottery had 3.6 million applicants for 6,000 spots. Each city has a different method/process but in essence they are all aimed at restricting the number of vehicles on the road.
🚅Long Distance drives? China’s extensive high-speed rail network blunts the benefits of car-ownership for long distance travel and along with low labor regulations with lower costs enables ride sharing alternatives at affordable levels to a larger base.
🔥How much is Didi losing? In 2019, Didi disclosed it was losing ~2% of the total fare on each ride and claims that their core business is already profitable. The next question is how can they sustain their monopoly in China and expand abroad. They’ve expanded their eco system to include bike-sharing, food delivery and financial services and are hoping to make it costlier for customers to switch to a rival platform.
Here is the takeaway:
Where the Chinese state steps in is where entrepreneurship goes to die. In selling its China business to Didi Chuxing, Uber is getting out of its China operations at the right time and at a reasonable price.¹
💭 My Thoughts: I was in China in 2015 and noticed that Uber was ridiculously cheap and an abundance of supply. Overall; its the threat of regulation that forced Uber to make the deal with Didi and sacrifice their position. They took 20% ownership in Didi which cost them perhaps $2-$4 billion but that has turned their investment into a cool $20+ billion.
Bloomberg: This is how Time Cook transformed Apple after Steve Jobs
TLDR: Tim Cook strategically aligned himself with political administrations by making sure that China’s relationship with Apple wouldn’t be compromised regardless of Geo-political events.
🍎Who is Tim Cook? Tim Cook is the current CEO of Apple; he joined Apple in 1997 after working at Compaq and Intel. Cook came to Apple in 1998 after a dozen years at IBM and a six-month stint at Compaq.
🧑🏭What was Tim Cooks super-power? Apple’s turnaround in the early 2000s was attributed to Steve Job’s product genius beginning with the iMacs to the iPhone. However, scaling the economic and cultural force today has been Cook’s ability to manufacture those products in massive quantities without compensating in quality.
🛠️Compact Stint: Cook worked a short stint at Compact but he was able to cultivate important relationships that has benefited Apple in many ways. He became friendly with FoxConn founder Terry Gou, who now manufactures most of the Apple products in China.
🏭The Outsourcing: By the time Cook joined Apple, centralized factories in “manufacturing” hubs in Shenzhen, China were far more efficient than anything in the US. Apple sold off a huge Colorado plant in 1996 and when Cook arrived; he cut its Ireland-based manufacturing plant and the remaining American production line in California. He began outsourcing more and more production to China starting with laptops and webcams.
🍥Focus on Design: Cook’s innovation was to force Foxconn and others to adapt to the extravagant aesthetic and quality specifications demanded by Jobs and industrial design head Jony Ive. Apple engineers crafted specialized manufacturing equipment and travelled frequently to China, spending long hours on production floors hunting for hardware refinements and a detail eye on production.
Cook set Apple apart by:
By spending big to buy up next-generation parts years in advance and striking exclusivity deals on key components to ensure Apple would get them ahead of rival.
Fulfillment Times: particularly fussed over fulfillment times. Faster turnarounds made customers happier and also reduced the financial strain of storing unsold inventory.
He ordered his operations team to work closely with the industrial design group from the earliest stages of the development process, rather than joining months in, as had been the norm under Jobs.
🇺🇸Cooks Real Victory: Strategic compromises with state authorities: He understood the power that governments had and catered his responses to their needs. Hence, Apple decided to open a factory in Texas to appeal to politicians.
💸The Texas Factory: This factory has been a disappointment but a strategic political win. Apple chose to produce the first iteration of its “Made in America” Mac Pro in Austin 2013 because it was expensive and sold in low volume. Here are some of the issues the factory faced:
Supplier Issues: They had trouble finding local suppliers willing to invest in retooling their factories for one-off Mac Pros.
Recruitment: Skills common in Foxconn were harder to find in the US where new hires previously worked at Costco rather than other manufacturing facilities.
Supply Chain: Huge quantities of products needed to be imported from Asia which caused delays and increased costs. This was different than factories in Shenzhen where replacements were minutes away.
🛠️The Win? Financially the move was a cost-center for the real win: the political bonus points in the Administration. The Apple factory event with Trump was the highlight of this entire process allowing the Administration to boast about their promises. -
Trump touted the Austin Factory as a victory for bringing “jobs” back to America and this allowed Apple to gain major exemptions in the tariff wars with China.
Tariff Wars: Apple dodged many tariffs notably the iphone tariff when Trump confirmed the trade deal agreement with China in 2019. Trump had enacted 15% tariffs on Chinese made consumer products but gave Apple the exemption.
Cook did not correct the president on many of his claims regarding Apple manufacturing and chose to stay quiet. He was strategic in his communication with the administration
💭 My Thoughts: Its a perfect CEO transition; you have the CEO who can hustle and focus on finding product-market fit and then you have the CEO who can truly scale at exponential levels. Apple was able to take a hardware product and generate margins without compensating quality.
Cooks ability to handle the Trump Administration and at the same time progress Apples fortunes during a turbulent political climate is a success story. He knew what he had to cater to (the Trump ego/message) and at times didn’t bother correcting any misstatements by the Administration.
WSJ: Ban on New Foreign Workers Left U.S. Jobs Unfilled, Even in Covid Downturn
TLDR: The US Ban on foreign workers has back-fired as many companies in the US from high tech companies to amusement parks are scrambling for employees as Americans aren’t qualified nor are interested in the jobs being offered.
🇺🇸What happened? The US closed the door to nearly all foreign workers last year due to Covid-19 restriction.
In April, as the pandemic set in, the Trump administration temporarily banned would-be green-card holders from moving to the U.S. for jobs and permanent residency.
In June, the ban expanded to include most temporary work visas except for agricultural workers
✈️Why? The policies were enacted to allow Americans to fill those jobs that would’ve been occupied by foreign workers in the midst of high unemployment numbers. However, most American workers weren’t interested in jobs typically held by foreign hires at the lower & seasonal end of the job market nor at the specialized jobs at the higher end.
📓What type of Work Visas? These work visa programs are aimed at specific, even niche categories. They include temporary visas for nannies & foreign students who work at lifeguards. The long term visas are for high skilled tech workers and foreigners starting their own businesses in the States
But what Biden? Biden has pledged to roll back a few immigration policies of the previous administration. So far, the executive orders on immigration have mostly concerned refugees and asylum seekers.
🧑💼Work Visa Programs?
Argument Against: Supporters of limits of work-visa programs have called for an overhaul stating that employers don’t aggressively seek American workers before hiring from abroad.
🔖Wait - how many type of Visas are there?
The seven most popular categories of student and work-related visas were down 89% to 408,046 in June through December last year from 3.66 million over the same period in 2019, according to State Department data;
• H1B visas for highly skilled workers were down 94% to 7,696 in June through December last year from 130,112 over the same period in 2019.
• L1 visas for foreigners transferring within their company to a U.S. location were down 95% to 2,487 in June through December last year from 47,356 over the same period in 2019
• J1 visas, which cover au pair jobs and seasonal work by foreign college students, were down 88% to 20,110 in June through December last year from 172,791 over the same period in 2019.
💭 My Thoughts: This is an example of either a) unintended consequences b)Lack of detailed analysis. During the peak of COVID, most countries closed their borders to tourism but not many closed their borders to foreign workers. The political attempt to “secure” american jobs for americans may have back-fired.
There are also possibilities that most Americans aren’t willing to work because the unemployment benefits in the certain states are quite high. (The difference is ridiculous- Massachusetts pays as high as $1.5K per week compared to $250 per week in Florida)
Canada on the other hand has reaped the benefits of this as Canada revamped the Global Talent Program where they would expedite the process of workers willing to move to Canada (certain jobs) and aim to get Visa-approved in less than a month.
Temporary Foreign Worker Program (TFWP)- Canada hires over 300K foreign national every years and they haven’t stopped this program either this year.
📚Books of 2021
Here are my books to read/finish for the next while
Completed
Educated by Tara Westover (9/10)
Loonshots by Safia Bahchall (8/10)
Range - David Epstein (8/10)
American Dirt by Jeannine Cummings (9/10) [fiction]
We The North - Doug Smith (8/10) - Nice history from a Raptors beat writer
Promised Land - Barack Obama (8/10) - Great perspective; audio book recommended
Tanking to the Top - Yaron Weltzman (7/10) (Philadelphia 76ers “The Process”)
The Color of Money: Black Banks and the Racial Wealth Gap (8/10)
House of Debt - Atif Mian (8/10)
Nine Lives of Pakistan - Declan Walsh (8/10) - Recap of Pakistani history
If you’re looking for books to get, I would suggest checking out bookdepository.com or thriftbooks.com (both are cheaper than amazon at times)