Anti-Dumping Laws – To Be Applied To Huawei and ZTE In Europe?

Traditionally, anti-”dumping” laws are used by countries to erect non-market barriers to imports.

Sometimes, when the importer’s prices are much lower than domestic producers’ prices, thanks to subsidies the importer may have received in their home country, one could argue that the application of these laws is justified. In other situations though, when these laws are used to turn importers into pawns in tit-for-tat political games between countries, their use is a bit harder to justify.

Consider Huawei and ZTE, two Chinese makers of telecom equipment.

Long targeted in the US and elsewhere for supposed connections to the Chinese military, they found the going easier in Europe. But not anymore, writes the Economist. 

They are accused not of being spies (though Europeans also worry about security) but of being too cheap. On May 15th the European Commission agreed “in principle” to investigate the dumping of and subsidies for Chinese mobile-network equipment, of which the EU imports just over €1 billion-worth ($1.3 billion) a year. Karel De Gucht, the EU’s trade commissioner, says he will not start yet, to allow time for negotiations. Huawei, which is privately owned, has long denied being a tool of the Chinese state. ZTE, which is listed, insists it is “in full conformity” with the rules of the World Trade Organisation.

Interestingly, European telecommunication equipment makers are not too enthused about this unusual move and are fretting about potential tit-for-tat retaliations that may affect them in the very large, and growing, Chinese market.

Nokia Siemens Networks (NSN)

says it opposes “any efforts to erect trade barriers [and has] urged the commission to refrain from taking such steps”. Ericsson has damned Mr De Gucht’s foray. “We see nothing beneficial coming out of this,” says Ulf Pehrsson, the company’s head of government and industry relations. “Any protectionist measures taken are bound to trigger other protectionist measures.”

With billions of dollars in bilateral trade at stake, this situation is sure to be monitored closely in different parts of Europe and China. 

YouTube, Others Seek To Capture TV Ad Dollars

That many young viewers and perhaps some older viewers are watching their laptops and SmartPhones instead of TVs, is well known. But in the $64B US TV Ad market, the ad spend on YouTube and others (AOL, Yahoo, Hulu, et al) doesn’t seem to reflect the number of online viewers. 

This year, Google and the others are making a concerted attempt at changing that, writes Michael Learmonth, in a fascinating article on AdAge. 

A couple of things caught my eyes as I was reading the article.

1. While online TV is often edgy and can show and discuss what can’t be easily shown on Broadcast and Cable TV, a lot of ad dollars are still spent on family audiences. To this end, 

In a further bid to lure conservative TV advertisers, YouTube signed a deal with the Alliance for Family Entertainment, whose members include Unilever, Walmart and Subway, to create a family-friendly package across 32 channels on YouTube. Commitments from the members of AFE represent one of the bigger upfront deals YouTube is doing this year.

2. Google, with 12,000 sales people targeting TV advertisers, is becoming a force to reckon with, more so than in the past. Consider one way in which it is fighting for TV ad dollars:

This year, they’ve got a secret weapon designed to attack TV’s biggest weakness: the expense of reaching light TV viewers. National TV buys can pretty easily reach heavy TV users, but advertisers have to spend more on reach and frequency to find the last few when they happen to tune in.

This year, all of Google’s salespeople will be armed with what they call an “Extra Reach Tool” on their laptops to show TV advertisers that those light TV viewers can be reached for less money on YouTube. “The tool sits on a laptop and ingests Nielsen TV data, mixes in YouTube and produces a customized report,” Mr. Watson said. “More than half of campaigns would benefit from a 16% shift of TV to YouTube.”

Legacy TV networks and broadcasters may want to at least start thinking about how to pre-empt the Google juggernaut. 

India’s Airlines – Major Changes Ahead

The UAE’s Etihad Airways just bought a (24%) stake in India’s mostly domestic Jet Airways – after foreign direct investment in the airline industry was relaxed by the Indian government last year.

While Jet Airways gets liquidity for growth and expansion, Etihad gets a nice foothold in India’s growing domestic market. On top of that, and equally importantly, this can help it offer convenient “one carrier” routes from major international hubs and destinations to and from India – something that can help it compete with Emirates, Qatar and probably even major European carriers with global networks such as Lufthansa.

In other words, more competition for Indian air travelers which may translate into lower fares and more convenience.

The one entity that may not be too happy about this though is Air India, India’s state-owned airline that has had various management and profitability issues over the years.

An interesting excerpt on this, from Knowledge@Wharton:

Air India’s leadership has already begun complaining about “unfair competition.” Others have sounded warning notes as well. “Instead of giving Air India the time it needs to consolidate as well as expand its network, [the Jet-Etihad deal] will only hasten its demise,” said former federal railway minister Dinesh Trivedi in a letter to the prime minister. In a previous article, Wharton management professor Saikat Chauhuri told Knowledge@Wharton that “external shocks” could derail the initial signs of a turnaround at Air India. “I have been a vociferous supporter of government backing for Air India,” he noted.

Critics, however, say that a turnaround at Air India is an oft-repeated story. “It is no longer credible,” says Jitender Bhargava, a former Air India executive director who is writing a book about the airline.

And the national carrier is likely to face even more competition soon. The Foreign Investment Promotion Board has already cleared a joint venture proposal between the Tata conglomerate and Kuala Lumpur-headquartered budget airline AirAsia. AirAsia would hold a 49% stake, Tata Sons 30% and Arun Bhatia of Telestra Tradeplace the remaining 21%. Bhatia runs Hindustan Aeronautics and is related by marriage to L.N. Mittal of ArcelorMittal.

But if foreign equity investments increase the profitability, and stability (ref: Kingfisher), of various private airlines in India, surely this is good news for not just travelers, but also Air India’s pilots and employees who now have other avenues of employment?

Which leaves a few assorted politicians who might bemoan the ultimate (and unavoidable?) demise of Air India. That’s OK, though. In this day and age, the Indian government has no business being in the airline business. 

What Ails Infosys?

Recently, Infosys, one of India’s IT outsourcing giants released some weak results. The stock took a massive hit. In contrast, TCS, another Indian IT outsourcing giant, released great results a couple of days later.

So what’s the problem with Infosys, assuming that both are fundamentally in the same business – IT labor arbitrage between the developed world and the developing world?

According to The Economist, 

Infosys’s central dilemma is that its prices are too high compared with its peers’, and hence its best-in-class margins are unsustainable. The firm has now admitted that it has struggled to balance the short-term preservation of profits with long-term growth. Its hesitance has put it in a sort of Catch-22. It is reluctant to have a push for growth for fear of diluting its margins. Yet the cloudier the outlook for sales becomes, the harder it is to control efficiently the costs of ramping up recruitment and investment, thereby cutting into the margins the firm was trying to preserve.

The firm now says it will stop letting profit-margin targets get in the way of winning contracts. 

In other words, it is willing to trade margins for volume. 

On the face of it, such a strategy makes sense. IT services have come to define commodotization. So with a large number of firms – both Indian, and India-based western ones – chasing the same clients and offering the same types of services, pricing power is obviously weakened and volume is the name of the game. 

So why did Infosys think that customers would pay it higher prices? Any Infosys readers care to comment?

“Phones-Plus” from Motorola – One Solution To Google’s Samsung Problem

A couple of weeks ago, I wrote about Google’s Samsung problem.

Samsung helped popularize Android at one time, but now it is getting a bit too powerful – to add to Google’s Android woes. 

One possible way to blunt Samsung’s power was to hope and pray that HTC or someone else gains more market power. 

The other possible solution was to use Google’s Motorola division to make phones that can effectively compete with Samsung’s Galaxy series – but only using hardware or design innovations – since Motorola can’t have access to a (special) version of Android that others don’t. 

Unfortunately, after the Droid’s early visibility (and successes?), not a lot has been heard from those quarters. 

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The Overpriced Cupcake Bubble – Bursting Already?

The gourmet cupcake “craze” – with cupcakes going for $4.50 a piece, or more – is blowing over, according to Emily Maltby and Sarah E Needleman (paywall), on the WSJ. 

As evidence, they cite the performance of Crumbs Bake Shop, a public traded (!!!) chain of cupcake shops:

The craze hit a high mark in June 2011, when Crumbs Bake Shop Inc., a New York-based chain, debuted on the Nasdaq Stock Market under the ticker symbol CRMB. Its creations—4″ tall, with fillings such as vanilla custard, caps of butter cream cheese, and decorative flourishes like a whole cookie—can cost $4.50 each.

After trading at more than $13 a share in mid-2011, Crumbs has sunk to $1.70. It dropped 34% last Friday, in the wake of Crumbs saying that sales for the full year would be down by 22% from earlier projections, and the stock slipped further this week.

I am not sure one can use a single stock’s meteoric fall to indict an entire industry, but with low barriers to entry (unlike, say, gourmet coffee) and little, if any, differentiation between one cupcake hawker and another, the cupcake market was always something of a fad.

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