The Economist - USA (2020-07-25)

48 Business The EconomistJuly 25th 2020

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province. The second worry is that as a Chi-

nese firm, ByteDance is subject to laws that

require it to work with China’s authorities.

TikTok says that it has never received

any formal requests for data from China,

and would refuse to hand over information

on non-Chinese users. But Alex Stamos,

former chief security officer at Facebook

who now advises Zoom, a videoconferenc-

ing service with operations in China, says

that even if TikTok could resist govern-

ment requests, “the question is what extra-

legal means exist to get data out”. If Beijing-

based engineers have access to TikTok’s

servers anywhere in the world, he says,

their government could force them to hand

over data stored there. TikTok says it col-

lects less data than many social networks,

but automatically records users’ gps loca-

tion, internet address, and browsing and

search history on the app. Users can also

opt in to share their contacts.

ByteDance has tried to head off these

concerns. As TikTok’s user base exploded

in the West, it took steps to Americanise its

operations and management. After a co-

vid-related delay its “transparency centre”

in Los Angeles, where experts can examine

its code, should open this summer. TikTok

has hired a high-profile new chief execu-

tive, Kevin Mayer, from Disney.

In March ByteDance also came up with a

more radical plan. It could take all its non-

Chinese businesses, including TikTok, and

give them a global headquarters in London,

plus a back-office in Ireland (where Eu-

rope’s strict data-protection rules are in

force). Operationally, the firm would bifur-

cate into “ByteDance China” and “Byte-

Dance Global”. It talked to the British gov-

ernment about the idea in February.

These discussions stopped once the

White House raised the prospect of ban-

ning TikTok. Some people involved now

reckon the likelihood of such a ban is pretty

high. ByteDance’s priority is to avoid this

outcome, while hanging on to a meaning-

ful chunk of TikTok’s economic value.

The company’s preferred option is the

“ByteDance Global” plan. It is ready to

change its capital structure and spin off the

global arm, keeping a stake of between 35%

and 49%. Mr Zhang would appoint a mi-

nority of board members. ByteDance Glo-

bal could in turn spin out TikTok’s Ameri-

can arm to distance it further from China.

Another option on the table is reportedly

for ByteDance’s existing investors to buy a

majority stake in TikTok, maybe letting

ByteDance keep a small shareholding.

Whether this would placate the Trump ad-

ministration is unclear.

What ByteDance fears most is a forced

sale of 90-100% of global TikTok to Ameri-

can investors or a tech giant. Larry Kudlow,

Mr Trump’s economic adviser, has said he

thinks TikTok will become an American

firm separate from the Chinese parent.

Beijing would probably accept a new Euro-

pean global headquarters for ByteDance,

the firm reckons. But handing global Tik-

Tok over to Americans would smack of ex-

propriation. “America would get another

global tech platform,” notes one person in

China involved in the matter.

Letting go of some or all of TikTok

would be a financial blow to ByteDance.

Without TikTok America its potential value

would fall from $500bn to perhaps $300bn,

reckons a big investor. Losing TikTok glob-

ally would be more painful still. A split

could also stunt the future development of

the app, whose popularity has been fuelled

by ByteDance’s algorithms, honed in devel-

oping Douyin and Toutiao.

TikTok’s woes offer others an opening.

In India, where 200m users lost access to it

overnight, a local rival, Roposo, got 22m

sign-ups in 48 hours. In America Facebook

is about to launch Instagram “Reels”, a Tik-

Tok clone, and YouTube will soon roll out

“Shorts”. The White House may yet think

twice about banning an app so many Amer-

icans are hooked on. Its corporate structure

may change. But Ms Pappas is resolute:

“TikTok is not going away.”^7

MegaByte-sized

ByteDance valuation, $bn

Sources:PitchBook;pressreports

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120

90

60

30

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2017 18 19 20

M

any of the world’s multinationals

claim to be technology companies. In

fact, their increasingly digitised opera-

tions often rely on a handful of Indian

firms. Few people outside their home

country have heard of Tata Consultancy

Services (tcs), Infosys, Wipro, hcl Tech-

nologies or Tech Mahindra, India’s five big-

gest information technology (it) consul-

tancies. Yet even when enterprise software

to manage marketing, production, inven-

tory and the like comes from Oracle of

America or Germany’s sap, it is often the

Indian companies that install and main-

tain software for clients. They create the

ledgers, transaction platforms and risk

controls that enable financial firms to op-

erate. They build and run websites. When

Rajesh Gopinathan, tcs’s chief executive,

noted recently that his firm helps manage

the world’s big banks, retailers, manufac-

turers and telecoms companies, it was not

an empty boast. 

The it consultancies have been India

Inc’s rare global success story. Except Info-

sys, which was born as an itconsultancy in

1981, all of the big firms were spun out of

their parent conglomerates, beginning

with tcs in the 1960s, which was hived off

to work out how to optimise electrical out-

India’s successful tech giants struggle against technological obsolescence

Information technology

In need of a software update

The IT crowds

India, information-technology business-processoutsourcing

Source:NASSCOM *Revenuesfrom clients/employeesworkingonprojectsbasedoutsideIndia †Forecast

1

200

150

100

50

0

20†1918171615141312112010

Financial years beginning April

Revenues, $bn

Overseas work* Domesticwork

5 4 3 2 1 0

20†1918171615141312112010

Financial years beginning April

Employees, m