1. (economics) China implementing its trade deal agreements (Finimize)

What’s up?

China has just announced it will halve tariffs on $75B worth of American goods. 

What does this mean?

China is trying to curry favor with the US, as it looks to avoid even more hardship from a trade war that’s dragged on for almost two years. Also, to curb the economic damage from the recent epidemic, the central bank injected ~$200B into the economy & slash interest rates to make borrowing cheaper, encourage spending and promote growth. This news came as welcome relief to investors, then not only the country’s stock rises, but also European and US stocks hit a record. 

2. (pharmaceutical) How does Merck splitting off part of its business save the company $1.5B in the long run? (follow-up the news in Feb 6)

Let me flashback

Merck’s planning to split its women’s health, biosimilars, and legacy drugs segments into a new standalone company 

Why should I care?

While Merck’s share will plunge in the first place, it reckons that loss will be offset by future saving costs in the remaining business (more towards R&D)

• The business of R&D is pretty standardized, then Merck can cut duplicate costs
• Merck can reduce manufacturing and distribution costs, since it will not have to make and sell as many drugs.

3. (e commerce) Tiki and Sendo has held exploratory talk to merge with each other to be the second unicorn in Vietnam (Cafef)

What’s up?

The market is going more fiercely with these two local companies. They are raising money slower than Shopee and Lazada as these two are backed by tech colossuses SEA and Alibaba. Therefore, a merge deal is reasonable at this time.

Zooming out

Let’s take a quick look at major players in the market (2018)

• Lazada: 1,773B VND profit and 7.111B VND cumulative loss. Backed by Alibaba, who has bought more than 50% of the e-wallet e-monkey. Then Alipay is coming? After years struggling with the license of State Bank of Vietnam 
• Shopee: 1,901B VND profit and 2,708B cumulative loss. Backed by Shopee, who owns “an ecosystem”: Shopee-ecommerce, GHTK-deliver and Airpay- payment.
• Tiki: 756B VND profit and 1,395B VND cumulative loss, two major shareholders are VNG and Tencent. 
• Sendo: 701B VND profit and 1,253B VND cumulative loss. Major shareholders are FPT and SBI. This company has raise $61M USD in 2019 (series C)

Today I will spend time for pharmaceutical industry. Here are some articles that I consider most worth-reading

1. What’s next for the Pharmaceutical industry? (McKinsey)

What’s up?

Till 2027, the global economy will 2x (from 2017), the total emerging markets consumer will reach 3B, people are getting older. All of that adds to the massive unmet need of the pharmaceutical industry. So, what is shaping it?

Zooming out

• Key industry drivers: (1) Technology & Innovation and (2) M&A
• Opportunities: Data, digital and technology
• What companies need to succeed: (1) Distinctiveness, (2) Have better insights and (3) Collaboration and partnership

2. What’s behind the pharmaceutical M&A push? (McKinsey)

What’s up?

The pharmaceutical industry is getting consolidated these years. M&A will help companies to innovate, work more efficiently and bolster product portfolio

Zooming out

• M&A is a source of innovation: M&A resolves two problems in the development of new products: large investment and capacity to navigate regulatory pathways
• M&A to unlock synergies: Most of the time it’s cost saving from the complimentary product portfolio and organizational structure.
• M&A to realign portfolios in some situations such as (1)Strategies has changed, (2) To bolster commercial pipelines or (3) To jettison unnecessary past assets.

3. Leading change in the Japanese pharma market: Innovating for the future in an uncertain present (McKinsey)

What’s up?

The president of Sanofi Japan: Jacques Nathan talks about the evolving Japan pharma market, areas impacted by that movement, and what Sanofi Japan is doing to adapt itself.

Zooming out

• Japan pharma market is evolving: It is exposed to a tension between cost control (mature products need more investments) and quality of care
• 03 challenged areas: (1) The promotional model: high cost, (2) The distribution and wholesale system: limited value-added and (3) R&D investment: unpredictability
• How is Sanofi Japan adapting? (1) Moving from primary care to specialty care. (2) Integrate digital into SOP and (3) Adopt some principles of agile.

1. #pharmacy Pharma giant Merck announces it is spinning off some of its products into a new business (Finimize)

What’s going on?

The title says it all :)). The company cut off its legacy products, women healthy and biosimilar drug divisions while holding onto its oncology, vaccine and hospital/animal health business. Its shares slumped

Why do I need to know?

It’s a strategic move from Merck. The spinned-off company contains low-growth but reliable existing products, while the other one is a high growth but risky R&D business. This will make it easy for investors to invest based on their risk interest. Many consumer health businesses are doing the same.

2. #banking Goldman Sachs and Amazon are collaborating (Financial Times)

What’s going on?

Goldman Sachs is close to striking a deal with Amazon to offer small business loans to its US customers. The project could be launched this March

Why do they collaborate?

• Amazon could (1) Extend its SMEs lending platform without associated credit risk of regulatory obligations and (2) Attract more business to its platform
• Goldman Sachs could increase revenue from new sources as its CEO has stated: consumer banking and wealth management. 

3. #retail Key Takeaways from BCG x Tencent 2020 China Social Retail Playbook

What’s going on?

The vast majority of Chinese consumers’ daily lives have become intertwined with social media. This January, the BCG and Tencent jointly published a whitepaper to help brands and companies better understand the landscape of Social Retail in China.

Zooming out (4 key findings)

• Consumer touchpoints become diversified (through various platforms like WeChat, TikTok, Weibo,..) and socialized, esp in the pre-purchase stage. 
• Decentralized distribution channels trigger “social fission.” Brands need to trigger customers to  repost product-related information. 
• Generating private domain (private chat or group chat) traffic is crucial to maximize customer lifetime value.
• Brands have to be specific, fast-paced, and flexible.

1. #oil Oil drops get dramatic (Finimize)

What’s going on?

Coronavirus is weighing heavily on international and Chinese economics growth, which in turn drag oil demand down. Therefore, OPEC+, who owns 50% world oil supply and 90% oil reserves, met on Tuesday to discuss making an emergency cut.

Why dramatic? 

British energy giant BP will suffer seriously due to 2 reasons

• BP’s reported earnings drop in Q4, 2019. This cut, along with a prediction of 40% global decrease in total, will put the company into troubles.
• The UK’s announced ban for sale of gasoline, diesel and hybrid cars by 2035, while road transportation accounts for 50% of oil demand in developed countries.

2. #politics Iowa caucus did not go smoothly (Morning Brew)

What’s going on?

Iowa Caucus is expected to take place on Feb 3, but technical problems left Iowa Democratic Party (IDO) officials and volunteers scrambling to transmit and validate vote totals.

Zooming out

Read this if you don’t know what Iowa Caucus is. This year, instead of following the traditional method, IDP rolled out a mobile app for precinct workers to share total votes with party officials. IDP did not test it with precinct organizers and rushed its development, then the app could not handle the volume of the nationwide election. It is becoming even worse when the security and validity of data is brought into the table

3. #pharmaceutical Pharmacity (backed by Mekong Capital) raised $31.8M in Series C round

What’s going on?

Mekong Capital-backed Pharmacity Pharmacy JSC, which owns the largest pharmacy network in Vietnam, has raised VND735 billion ($31.8 million) in a Series C funding round. The company said that this fresh funding will help its expansion plan.

Why do I need to know?

1. The pharmacy sector in Vietnam is active, with a number of players are jumping in to capture the market share
2. Pharmacity has a bright future ahead as this industry is very promising with (1) The shift from prescriptions to OTC drugs; (2) Low-regulated Vietnam market and (3) The rising of middle class with increasing expense for drugs. Read more here

1. #tech Alphabet is in trouble (Finimize)

Alphabet reported its fourth quarter earnings, which fell short of investors’ expectation. The bread-and-butter is still Google advertising, but the operating margin continued to fall (from 2017). However, analysts expect this number will increase in the next year due to the high-margin cloud business. That’s the trouble, as Google intends to ..cut off this arm if it is not the second-biggest till 2023. To make it happen, the “search monopoly” needs to overcome the breakneck-growing Microsoft Azure.

2. #analysis Economic Moats. What is it? (cxl)

What are moats?

They are one type of competitive advantage, but more durable than other ones.

Five types of moats

1. Low cost production – mainly by optimizing manufacturing and supply chain management. Ex: Walmart achieves the lowest inventory control and management cost/store among retailers because it has more stores in an area.
2. High switching cost – customer data. Ex: If an American wants to change phone providers, they will lose their current numbers, same for Gmail customers.
3. Network effects. Amazon and Uber are representatives for this type with a two-sided network effect. Read more about network effects here
4. Intangible assets – patents and brand. Ex: Hubspot, who defines & owns inbound marketing, is the first name people think about when looking for IM solutions
5. Efficient scale – limited demand and geographic dominance. Ex: In the US, freight roads own all the tracks, then an aspiring new entrants need to build its own railway to compete, which is costly.

Moats building in 21st industry

• Inbound marketing: above example
• Software adoption: Salesforce has a strong brand and exclusive integrations with Google Analytics 360. Sales reps are also likely to be familiar with Salesforce because it’s the most widely used CRM, reducing onboarding costs for companies that use it
• Customer data.

3. #analysis Why western digital firms have failed in China (HBR)

Western digital firms should learn from the main 3 lessons when entering the world’s most dynamically evolving country and follow these to capture a slide of that market.

The report from HBS converged foreign digital firms into three clusters. The first one is the lack understanding of the business environment -low barrier and highly competitive. Secondly, these firms had ineffective strategy making and communication, especially with the local government. Finally, it’s their underperformance operation and execution, including ill-fated attempt to impose global business model to unsuited Chinese market.

While the problem is insurmountable, the size and dynamism of Chinese digital market suggest firms should follow all these recommendations. Firstly, they should penetrate the market with a holistic view: work with the government, recruit Chinese for SVP position and partnership widely. Also, they need to accumulate incremental advantages across different areas overtime. Moreover, multinational companies must bring experimental approach to their strategy and innovation, when new ideas can become obsolete before being produced. This can be done only by setting up local team, local product and technical teams or even a tailor-made business model.

1. What is 5G (CNBC)

5G is a new, faster network with the potential to revolutionize the Internet. The obvious application of 5G is, it will bring faster downloads (your 3 hour film in 6s?) and faster interaction in video games, Awesomeeee!. However, the heretofore impact of this upgrade is the huge boost in data processing and real-time updates, which will fuel the development of self-driving cars and IoT.

2. Outsmarting the 5G smartphone challenge: How telcos can reinvent their handset business (McKinsey)

While the handset expenses have already strained the margin, the 5G upgrade cycle will bring a cost-management challenge for operators. One solution could be assigning a dedicated executive senior to manage end-to-end device life-cycle, which they have not done before as hardware device is only an ancillary revenue stream.

This E2E management approach includes 7 activities: Fund, Range, Buy, Distribute, Sell, Return and Repair/Resell. Most outstanding examples are presented in these three key activities:

• Fund: Securitization and Financing. For example, operators can off-load portfolios or tranches of their smartphone-related balance sheet to a financing company, which in turn sells bonds secured on the smartphone receivables to private investors.
• Sell: Insurance, accessory, and connected devices sales. (1) Offer a branded insurance plan that usually is bundled with additional value-added services such as password protection and cloud storage. (2) outsource insurance-related work to specialized providers. (3) Improve bundling and cross-sell. (4) Embed subscriptions such as screen insurance, annual updates and streaming videos. 
• Repair/resell: Re-commerce strategy. Ex: serve as strategic partners to OEMs to help distribute used phones in developing markets

3. How Huawei became America’s tech enemy No. 1 (Quartz)

Huawei has grown to become the world’s top provider of Telecom equipment, with over $100B in revenue. The article illustrates the summary of all Huawei’s activities in the US since 2011, with a number of collaboration with US telecom firms, along with “also” many privacy violation accusations. Huawei is now viewed as the poster child for the anxiety of Chinese hacking. The worst came when in 2019, Trump made an order that blacklisted the company and cut it off from US supply chains.

1. #retail Retail stock fell today (The Motley Fool)

The exacerbated Coronavirus impacts US retail companies in 2 different aspects. First, These companies depend on Chinese manufacturers  for everything from apparel, to furniture and electronics. Then the outbreak has the potential to upset the supply chain and delay shipments. Moreover, many of the top retailers count on international tourists (esp Chinese visitors) for a significant part of its business. Therefore, when China suspends all in and out flights, sales are expected to go down.

2. #tech IBM stocks plunged by 5% today (The Motley Fool)

The reason: IBM announced the leave of their CEO, Virginia Rometty this April. Rometty has made bold changes to IBM, building up its hybrid cloud, security, AI,…but lost 22% of its stock :)) why S&P 500 increases by 15%.

3. #analysis Why Some Platforms Thrive and Others Don’t (HBS)

Whether or not a digital platform can thrive depends on its ability to manage five fundamental properties of networks: networks effects, network clustering, risk off disintermediation, vulnerability to multi-homing, and bridging to multiple networks

The strength of network effects grows when firms leverage from same-side (“direct”) network effects to cross-side (“indirect”) network effects. Direct network effects mean the value of service simply goes up/ as the number of users goes up. For instance, at the beginning of Amazon, as the number of products on the site increased, users became more likely to visit Amazon. Indirect network effects mean the value of the service increases for one user group when a new user of a different user group joins the network. Since Amazon’s marketplace allowed third parties to sell products to Amazon users, it generated cross-side network effects, in which buyers and third-party sellers attracted each other, then the added value started to grow more disruptively.

The more a network is fragmented from local clusters and isolated from one another, the more vulnerable a business is to challenges. Taking Uber, for example, the fact that its drivers in each area care only about in-town riders makes it easy for another carpooling competitor such as Lyft to dominate the market in another city in which Uber has not strengthened its network. Airbnb, differently, is one large, global cluster because travelers do not care much about the number of Airbnb hosts in their home cities but in their planned-to-visit cities. Therefore, breaking into Airbnb’s market becomes much more costly.

Disintermediation can be a big problem for any platform that captures value directly from matching or by facilitating transactions. Homejoy was shut down after 5 years because of this issue when a customer stopped returning to the platform after they found a good period-hired house cleaner. To address these risks by enhancing the value of conducting business on their platforms such as providing insurance, payment escrow or communication tools. Others, like Alibaba, chose to capture value through other streams: advertising revenues and sales of storefront software that helps merchants manage their online businesses 

Some measures could be taken to tackle “multi-home” when users or service providers form ties with multiple platforms at the same time and makes it difficult for a platform to generate a profit from its core business. For example, Uber and Lyft provided drivers new requests for pickups very close to current passengers’ drop-off location, reducing the drivers’ idle time and hence the temptation to use other platforms. Another example could be the video game industry, in which console makers often sign exclusive contracts with game publishers or increase subscription services price to reduce players incentives to multi-home.

In many situations, the best growth strategy for a platform may be to bridge different networks to one another. Alibaba successfully bridged its payment platform, Alipay, with its e-commerce platforms Taobao and Tmall, providing a much-needed service to both buyers and sellers and fostering trust between them. Alibaba has also taken advantage of transaction and user data from Taobao and Tmall to launch new offerings through its financial services arm, Ant Financial—including a credit-rating system for merchants and consumers. These networks mutually reinforce one another’s market positions, helping each network sustain its scale.

When evaluating an opportunity involving a platform, investors should analyze the basic properties of the networks: ways to strengthen network effects, and the feasibility of minimizing multi-homing, building global network structures and using network bridging to increase scale while mitigating the risk of disintermediation. 

On the last day of this month, after passing all the news but not interested in any of them, I decided to read successful case studies of rising startups on the internet, then this one blew my mind. 

Shihuituan – Scaling Community Group Buy in China’s Lower-Tier Markets

Shihuituan (十荟团) is a community fresh group buy e-commerce platform. It copies the model of Pinduoduo, but brings to low-tier cities and focuses on fresh food instead of mass products. The company has secured ~$80B investment from the internet colossus Alibaba.

Three main questions answered in this analysis are “How does Shihuituan solve the two critical cost problems of every e-commerce: logistics and customer acquisition”, “Why is WeChat the KSF for this platform?” and “What are challenges we may face when implementing the model in Vietnam?”

How does Shihuitan solve the two critical cost problems of every ecommerce: logistics and customer acquisition ? They use community builders – who collect all the orders of residents in highly populated areas, then distribute them to the front door of each customer. This will bring down logistics costs. Besides, these people are active WeChat users who feel freely introduce products to their customers and gradually build trust with them, then customer acquisition costs are nearly zero. Shihuitan only needs to provide a fixed commission for these community builders, around 8-10%.

Why is WeChat the KSF for this platform?

• WeChat is where people cluster in China (1.15 MAU, omg..), socialize and share products information
• WeChat integrates with WeChat Pay, then purchasing in e commerce is no longer a problem

What are challenges we may face when implementing the model in Vietnam? The answer is infrastructure, including a place for people to cluster, and an ewallet that everybody uses (mobile payments are necessary for scaling business in terms of managing data and transaction. In Vietnam, both of these types of platforms are not popularized among local people, and the market is fragmented with no dominants. This makes it hard for Vietnam companies to leverage this model and create value for customers.

1. #tech Apple, Facebook and Microsoft is on stage  with insightful analysis today, click here to subscribe Finimize – my favorite newsletter

Facebook reported better-than-expected Q4 profit yesterday, with the increase in both MAU (advertiser’s customer” and revenue/MAU, which are statistics that investors care the most. So does Microsoft, with cloud computing lifted it up, but also brought two challenges: unpredictable large contracts and pushing-up costs. With Apple, it is the second largest public company in the world, just after Middle Eastern oil firm Saudi Aramc, $2B valuation and 2x Apple revenue.

2. #AI AI in China: TikTok is just the beginning (Fortune)

China is threatening the US on the kingdom of AI development as the world’s most populated country has advantages in data and support from the government sector. First, China has a massive treasure trove of data collected from 1.4B people, more than any country in the world. Also, the government shows strong desire to the development of this sector by the national champions program. In 2017, the central government selected five leading tech companies as “national champions” in A.I., instructing each to pursue a specific avenue of A.I. research. In return for picking up the mantle, the champions receive government support, such as access to finance, preferential contract bidding, and sometimes even market share protection. Also, the government implemented talent acquisition strategies to attract AI talent from all over the world.

3. #tech Apple beefs up supply chain in India (Nikkei)

The second-largest companies in the world does this for 2 reasons. First, they need to minimize the price of iPhone in the world most price-sensitive market. Also, India stiffs 20% tariffs on imported products, which makes iPhone here among the most expensive worldwide. Local sourcing and manufacturing will reduce the selling price significantly. Second, investing in China is a back-up plan for Chinese among the tension of trade world with the US.

1. #economics The impact of coronavirus across business and finance (FT)

The emergence of Coronavirus – a đeadly respiratory infection has far-reaching ramifications on the corporate world: luxury, leisure, airline, tech, banking to F&B,…Some largest chain closed their store as a precautionary action and some others made various pledges of support to Chinese Government

2. #F&B Better Buy: CocaCola or P&G (Fool)

This article illustrates P&G and Coca Cola’s different strategy in recent years to increase dividends purchasing to shareholders. P&G focused on its core product portfolio by diversifying more than 41 beauty brands. Meanwhile, Coca Cola put its effort on increasing profitability by refranchising its company-owned bottling operations.

3. #economics Davos 2020: Top Ten Impressions

Rich Lesser, CEO of BCG recap Davos 2020 (the annual world economic forum where leading politicians and business leaders gather to discuss the most critical world business issues)  with ten impressions. 

• Climate urgency
• Nature-based solutions for carbon capture 
• Aligning multi-stakeholder measures
• The power of inclusion
• AI’s promises – and challenges 
• Building bionic companies
• Geopolitics: Brexit and US-China first deal
• Geopolitics: US-Europe tensions
• Preparing for the decade ahead
• Davos:  a thank you to the organizing committee