When the White House tenant told TikTok last August 6 that he had 45 days to shut down or find an American buyer, the Chinese video app was in danger of disappearing from the US, infuriating its 100 million users and sending in 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 forged to put the app under more US control. Don't be surprised. Another example: Nvidia, an American semiconductor company, has 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 drawn 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 (how to 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 will be sent to China, where Big Brother can spy on it, and that the algorithm that selects the videos is vulnerable to Chinese manipulation. Arm's chips are used all over the world, not least in America and China, its two largest markets. The UK government fears that an acquisition will move key business overseas (in 2016, Arm was bought by SoftBank, a Japanese company, which vowed 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 an instrument 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. The companies (I am thinking of General Motors, or Coca-Cola in Germany) allowed their foreign offices to become semi-autonomous, to continue working without risking closure. In the 80s, however, the idea spread around the world that all companies should be treated equally, regardless of their nationality. This has led them to operate as global enterprises with unified management, capital structure and production system. It was the beginning of globalization.
The deal proposed to TikTok shows how business is going in the direction of the 30s. Although the details are not yet public, the future of TikTok in America looks marked. Ownership of the company is likely to change, with US shareholders, including Oracle, and possibly Walmart, holding a large minority stake. Perhaps with the right of veto on some decisions. The location of key assets will change, with the headquarters moving to America and Oracle managing data storage there (and possibly 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 his supporter. To all detriment of Microsoft's offering, for example, which made a slightly more commercial sense. It will be the same for other realities. Even to reverse parties (China claims the right to approve or deny the sale). Splitting activities into "national versions" multiplies costs and complex structures do not make it clear who controls what.
Despite this, expect other multinational maneuvers with the decline of globalization. Other than the future of TikTok. The Australian government is demanding that Rio Tinto, a global mining company prone to scandals, be run by an Australian. European tech companies can fork, with one production line serving Chinese customers and another serving American customers. Chinese companies may have to be content with buying overseas minority stakes, 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.