50 Business The EconomistAugust 8th 2020
1S
ince theMiddle Ages, when the Hanse-
atic League of merchant guilds domin-
ated trade in northern Europe, the German
and Swedish business worlds have been
close. This remains the case. Both econo-
mies depend on exports, manufacturing
and retail. Germany is the biggest market
for many Swedish firms. Nearly a fifth of
Sweden’s imports come from across the
Baltic. The two countries’ stockmarkets
also tend to move in lockstep (see chart).
You would, then, expect covid-19 to
have affected Sverige ab and Deutschland
ag in similar ways. Not quite. The 18 mem-
bers of the dax 30 index of Germany’s big-
gest firms that have already reported
swung from a healthy profit in the second
quarter of 2019 to a loss almost as big this
year. For many companies, including
Volkswagen, a giant carmaker, and basf,
the world’s biggest chemicals concern, re-
sults were even worse than analysts had ex-
pected. The income of the 27 Swedish firms
in Stockholm’s omx 30 that have reported
so far fell by 49%, bad but much better than
the dax. If you include adjusted earnings of
two opaque investment vehicles in the
omx, income actually rose.
From makers of kitchen appliances
(Electrolux) and telecoms equipment (Er-
icsson) to finance (Svenska Handelsban-
ken) and pharmaceuticals (AstraZeneca,
which is listed in Stockholm, London and
New York), big Swedish firms trounced ex-
pectations. “I have never seen so many
companies come in with better than ex-
pected results,” marvels Esbjörn Lundevall
of seb, a Swedish bank.
Mr Lundevall points to three main rea-
sons for the surprise. Sweden’s pandemic-BERLIN
Swedish firms have outshone German
ones in the pandemicEuropean businessSverige AB v
Deutschland AG
Northern exposures
Stockmarket indices
January 2010=100Sources:DatastreamfromRefinitiv;Bloomberg30025020015010050
20181614122010OMX Stockholm 30DAX 301,490714Market capitalisation
August 5th 2020, $bnO
njuly29ththebossesof Alphabet,
Amazon,AppleandFacebookendured
afive-hourvideoconferencewithacon-
gressionalsubcommitteeonantitrust.Sa-
tyaNadella,chiefexecutiveofMicrosoft,
America’sothertechnologytitan,spentthe
day talking to investors,recruiting new
hires and reviewing thelatest quarterly
numbers.Hispresencewasnotrequired—
Microsoftnolongerattractsthecontrover-
siesthatbringpoliticiansrunning.
Ordoesit?OnAugust2ndthefirmsaid
it wasintalkstobuytheAmerican,Canadi-
an,AustralianandNewZealandoperations
ofTikTok,a wildlypopularbutproblematic
Chinese-owned video-sharing app. Presi-
dent Donald Trump had mused about ban-
ning it over fears that it could hand data on
Americans to China’s Communist authori-
ties, despite protestations by its parent
company, ByteDance, that it would never
do such a thing. After some unusual steps
to mollify Mr Trump—including a state-
ment in which it thanked him effusively
for his “personal involvement”—Microsoft
has until September 15th to hash out a deal.
Other suitors may cut in. ByteDance’s
venture-capital backers, most of whom are
American, will try to flush out rival bid-
ders. They are disappointed that ByteDance
failed to head off TikTok’s political travails.
The Chinese group should have spun off
the American unit this spring, keeping a
big minority stake, says an investor close to
the firm. But the ambition of its founder,
Zhang Yiming, led ByteDance mistakenly
to calculate that it could muscle through
geopolitical tensions, the investor says.
TikTok’s price could rise if more bidders
emerge, but it will still go for far less than
ByteDance’s estimation of its value. Byte-
Dance believes TikTok us would have been
worth $200bn within a few years. Now it
may have to sell the business for between
$15bn and $40bn. That would be one of the
year’s biggest deals. But once TikTok us,
with its 100m or so users in America alone,
turns profitable—which it is widely ex-
pected to soon—it may look like a bargain.
TikTok would propel Microsoft into the
social-media big league. That may be Mr
Nadella’s strategic aim. Google, the main
division of Alphabet, is challenging Micro-
soft in cloud computing and office soft-
ware. Nabbing TikTok would be a counter-
strike against Google’s YouTube, notes
Mark Moerdler of Bernstein, a research
firm. The app would also give Microsoft atroveofdataonyoungpeople,puttingit on
a par with the likes of Snapchat and Face-
book’s Instagram.
At the same time, TikTok is a departure
from Microsoft’s core competence of busi-
ness-productivity tools. The app is unpro-
ductivity software par excellence. Micro-
soft’s gaming business, including the Xbox
console, brought in only 8% of its $143bn in
revenues in the 12 months to June. The firm
has a mixed record with consumer tech-
nology. In July it shut Mixer, a live-stream-
ing service for gamers that had failed to
gain traction. And with TikTok Mr Nadella
may expect an invitation to Big Tech’s next
roasting on Capitol Hill. Controversies
around TikTok’s content moderation and
data protection will keep cropping up.
The next 40 days will be busy. Microsoft
may try to buy more of TikTok than just the
four English-speaking markets. But Byte-
Dance will want to keep as much of its glo-
bal presence as possible, especially with Mr
Zhang under fire in China for selling out to
the Yankees. The world may end up with
two TikToks, one American-run, one con-
trolled by ByteDance.
How an American TikTok would work is
unclear. Microsoft would need to replace
the app’s Chinese infrastructure, presum-
ably by copying ByteDance’s code and au-
diting it. If it wants American teenagers to
be able to view videos uploaded by Japa-
nese or even British ones, it would have to
license them from ByteDance, which may
run afoul of Mr Trump. TikTok’s current ap-
peal rests in part on its global assortment.
Both versions of the app will be diminished
by a split. Instagram’s Reels, a TikTok look-
alike launched on August 5th, will try to
woo disenchanted TikTokers. For the 45-
year-old Microsoft, navigating the Sino-
American tech tussle may be the easy part
next to keeping teenagers’ attention. 7Whatdoesa middle-agedtechgiant
wantwitha teensensation?MicrosoftandTikTokUnproductivity
puzzle
I’ll pay this much for half the globe