The Epiphany of Bans

Milind Kothari , Managing Partner |

07 September 2020

While the focus on self-reliance is laudable, a single-minded promotion of the idea could have a large long-term impact.

Currently, it is a ‘low tide’ phase for numerous companies with global footprints; after a euphoric three decades of successfully riding the crest of the internet wave. Quite a few of them grew exponentially, became market leaders and stock-market favourites.

However, contrarian winds have been blowing against globalisation for some time. The US President in his speech before the United Nations general assembly, in September 2019, called on nations to embrace nationalism and reject globalism. He further added that the future did not belong to the globalists but the patriots. In hindsight, it seems like it was a clarion call for an inward-looking trend that is seemingly prevalent in the post-pandemic world today.

Several countries, including the developed economies, are resorting to a ban and disallowing certain foreign companies to operate in their domestic markets. The reasons are many, ranging from national security, data privacy, national pride or simply, financial constraints.

In July of this year, the Government of India banned nearly 59 Chinese mobile applications to counter the perceived threat posed by these applications to the country’s sovereignty and security. Also, to give impetus to the ‘Atmanirbhar Bharat’ (self-reliant India) campaign, the government has prohibited the import of 101 types of weapons and ammunition over the next five years.

One of the barred mobile applications is the extremely popular Tik-Tok. Bytedance, the company founded by a young Chinese entrepreneur, became a huge success with nearly 500mn active users globally. This application was one of the more prominent ones, amongst those banned by India, its biggest market globally. Now Tik-Tok faces a similar ban in the US and has been asked to exit the US market by mid-September.

The next in line after Tik-Tok is the app, WeChat, another Chinese application.  The US government has passed an executive order against WeChat and its parent company, Tencent. This ban is likely to even impact Apple which is deeply entrenched in China. If Apple was to remove WeChat from its App Store, it would most likely destroy its smartphone market in China. The other challenge would be regarding the manner in which Apple would build and sell new products in the future.  It is notable that China itself was the first to ban popular applications such as Facebook and Google from operating in their country.

Mainly, it is the Chinese companies that are facing the brunt of the bans. Huawei, a 5G network manufacturer is the epicentre of the tech cold war as it faces a ban from the United States and Britain, and it is likely that other European countries will also follow suit. The stated concern is that Huawei’s equipment is designed to aid spying and make it dependent on subsidised Chinese technology.

So, what can be the possible impact of these bans on global enterprises? For one, this new trend is likely to redefine the very future of commerce. Multinational companies may see a contraction in their markets, forcing them to rethink their supply chains. There is also the prospect of losing customers if there is a shift in user preferences.  All these factors would significantly influence global trade strategies and companies would seek to insulate their models from this new potential threat. The ban as a weapon could spread like wildfire with more and more countries opting to go national in the new insular world.

Coming back to India; while the focus on self-reliance is laudable, a single-minded promotion of the idea could have a large long-term impact. Our domestic production must match their global counterparts in cost and quality. The fear remains that if we do not get this right, we will end up returning to the same place where we started from in the 1980s when consumers were bereft of choice. Clearly, a world-class manufacturing capability ought to be the measure of the success of a ‘Make in India’ campaign. As we make our choices, protecting the nation should always remain a priority and needless to add, Indians also deserve low cost and high-quality products.

Source: http://www.businessworld.in/article/The-Epiphany-of-Bans/05-09-2020-315796/