When the occupant of the White House told TikTok last August 6 that it had 45 days to close or find an American buyer, the Chinese video app risked disappearing from the USA, infuriating its 100 million users and sending smoke billions of dollars of investors. Today a last minute agreement seems to be in the pipeline, but...
The complex negotiation between TikTok and Oracle was set up to put the app under greater US control. Don't be surprised. Another example: Nvidia, an American semiconductor company, offered 40 billion dollars for Arm Holdings, a UK chip design company. Similar reaction, a storm in Britain to prevent the tech company from being dragged into the American trade war. It's not just about the future of TikTok. These two episodes offer a preview of how this new era (what do you call it? Statist? Nationalist?) will change the way multinationals are run.
Both companies, TikTok and Arm, straddle the geopolitical divisions and the scuffle between the US and China. Above all, the future of TikTok and Arm are at the heart of the digital economy. TikTok is owned by ByteDance, a Chinese tech star, and the White House says it fears that user data is being sent to China, where Big Brother can spy on them, and that the algorithm that selects videos is vulnerable to Chinese manipulation. Arm's chips are used around the world, not least in America and China, its two largest markets. The British government fears that an acquisition will move key business overseas (in 2016 Arm was bought by SoftBank, a Japanese company, which promised to keep the company's base in Britain until 2021). Another concern is that, under American ownership, Arm will no longer be “neutral” but will become a tool of Uncle Sam's expanding sanctions regime.
Companies change with politics
Throughout history, companies have always adapted to geopolitics. The 30s and 40s were those of wars and protectionism. Companies (I'm thinking of General Motors, or Coca-Cola in Germany) allowed their foreign offices to become semi-autonomous, to continue working without risking closures. In the 80s, however, the idea that all companies should be treated equally, regardless of their nationality, spread throughout the world. This has led them to operate as global enterprises with a single management, capital structure and production system. It was the beginning of globalization.
The deal proposed to TikTok shows how business is trending in the direction of the 30s. Although the details are not yet public, the future of TikTok in America seems sealed. Ownership of the company will likely change, with American shareholders including Oracle, and possibly Walmart, holding a large minority stake. Perhaps with veto power on some decisions. The location of key resources will change, with headquarters moving to America and Oracle managing data storage there (and perhaps monitoring the algorithm). Arm, meanwhile, has already disrupted its structure once to address geopolitics: in 2018 it sold a 51% stake in its Chinese assets to Chinese investors. Now it could face a new metamorphosis. The British government, for example, could request legal guarantees which is managed independently in the UK).
Future of TikTok and Arm: contortions with obvious limitations
Trump appears to favor Oracle, whose president, Larry Ellison, is a supporter. To the full detriment of Microsoft's offer, for example, which made slightly more commercial sense. It will be the same for other realities too. Even in reverse (China claims the right to approve or deny the sale). Dividing activities into "national versions" multiplies costs and complex structures make it difficult to understand who controls what.
Despite this, expect other multinational maneuvers with the decline of globalization. Nothing but the future of TikTok. The Australian government is demanding that Rio Tinto, a scandal-prone global mining company, be run by an Australian. European tech companies may bifurcate, with one production line serving Chinese customers and another serving American customers. Chinese companies may have to settle for buying minority stakes overseas, not full control.
As for the future of TikTok and Arm, companies paralyzed by sanctions (for example Huawei), which still seem very powerful, could dissolve. Their intellectual property and the best people could migrate to competitors who don't face such constraints.
