Philippa Kaur

DELIVERY HERO has had a good run in the past couple of years. In August 2020 it ascended to the DAX, the stockmarket index of Germany’s most valuable listed firms. It is present in 50 countries on four continents. Revenue for the third quarter was €1.8bn ($2bn), a jump of 89% compared with the same period in 2020. “We grew 100% before Corona, 100% during Corona and we will grow 100% after Corona,” says Niklas Ostberg, the Berlin-based firm’s Swedish chief executive.By number of orders Delivery Hero is more than twice as big as DoorDash, its large American rival. Even so, DoorDash’s market capitalisation is $58bn, more than that of Delivery Hero ($31bn) and Just Eat Takeaway.com ($13bn), the two big European food-delivery firms, combined. European shares tend in general to underperform American ones. But another reason for investors’ caution is more specific to food delivery. Strict labour laws, a tradition of union organising, pricey unskilled workers and stingy customers, who buy little and tip rarely, make Europe the toughest of all continents for the business.Mr Ostberg says that high labour costs have become less of a problem in Europe, because the efficiency of delivery has improved substantially in recent years. European consumers have also grown less parsimonious amid the pandemic boom in online shopping of all kinds. As a consequence, Delivery Hero has reversed its decision to leave the German market altogether, by offloading its domestic businesses, Foodora, Lieferheld and Pizza.de, to Takeaway.com (a Dutch firm that subsequently merged with Just Eat) in order to focus on fast-growing Asia. In the summer it launched a new app, Foodpanda, in Berlin, Frankfurt, Hamburg and Munich.When it comes to other labour matters, however, things may be about to get tougher still. If a draft proposal in the works in the European Union (EU) becomes law, as many as 4m gig workers delivering meals or ferrying ride-hailers could be reclassified as employees. This would entitle them to a minimum wage, sick leave and paid leave, unemployment benefits, health- and long-term-care coverage, and pension-insurance contributions.The EU estimates that the reclassification could cost gig-economy firms around €4.5bn a year. Like his counterparts in the business, Mr Ostberg insists that many of his riders choose to be freelancers because that lets them work as much as they want, whenever they want. “More or less anyone can work for us at any time of the day,” he says. But such arguments are increasingly cutting less mustard. In February Britain’s highest court ordered Uber (which runs both food-delivery and ride-hailing apps) to reclassify its drivers in London as employees. Delivery Hero’s share price fell by nearly 3% on December 3rd following reports of the draft EU proposal.Such developments help explain why couriers are getting more assertive. The riders of Gorillas, a German online grocer with operations across Europe, have clashed with management for months over working conditions and pay. In October the firm sacked hundreds of riders who had participated in strikes, which further fuelled tensions. In late November a labour court in Germany rejected the management’s attempt to stop Gorillas riders from electing an in-house works council, which they duly did. The firm’s executives grudgingly had no choice but to say they will work with workers’ representatives.All this is happening as competition in Germany intensifies. Delivery Hero will have to invest some €120m in German sales and marketing in 2022, reckons Jürgen Kolb of Kepler Cheuvreux, a financial-services firm. It is now competing with Lieferando, which dominates the German market (and is owned by Just Eat Takeaway.com), Uber Eats, which launched in April, and Wolt, a Finnish firm recently acquired by DoorDash for €7bn. Last month DoorDash launched under its own brand in Stuttgart. The next few years look poised to be dog-eat-dog in German food delivery. Consumers can count on full bellies, courtesy of the gig firms. Their shareholders may go hungry. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “How can we be heroes?” More

CAR-BUYERS are getting behind the wheel of an electric vehicle (EV) in ever greater numbers. No wonder, for they are exciting and easy to drive, compared with internal combustion engine (ICE) equivalents. As battery costs tumble, prices are falling. But the shift to EVs means much more than driving pleasure. Transport is responsible for around a quarter of the world’s carbon emissions and road vehicles account for around three-quarters of that share. If there is to be any chance of reaching net-zero by 2050, EVs will need to take over, and soon.The 6m pioneers who opt for EVs this year will still represent only 8% of all car purchasers. That figure will need to increase to around two-thirds by 2030 and to 100% by 2050 in order to meet net-zero goals. Many an investor is operating on the assumption that this will all happen as smoothly as a Tesla shifts gears. The huge market values of Elon Musk’s company, and of other newcomers such as Rivian with its electric pickup trucks, as well as pricey Chinese EV firms, attest to sky-high confidence. Electric battery-makers, too, are booming and their shares are soaring.Yet look beyond the glamorous, shiny vehicles stuffed with the latest technology that are the obvious embodiment of the EV revolution, and you can see a merciless bottleneck ready to foul things up. Not even those eyeing an EV purchase are sufficiently aware of it. Governments are only waking up to the problem around now. Put simply: how will all these EVs get charged?The current number of public chargers—1.3m—cannot begin to satisfy the demands of the world’s rapidly expanding electric fleet. According to an estimate by the International Energy Agency (IEA), a global forecaster, by the end of this decade 40m charging points will be needed, requiring an annual investment of $90bn a year as 2030 approaches. If net-zero goals are to be met, by 2050 the world will need no fewer than 200m public charging points.It is certainly true that current pledges by governments on the phasing-out of ICE cars and the transition to EVs mean that sales consistent with net-zero look unlikely. Even so, should roads turn electric less speedily, the sums the world needs to spend on charging infrastructure are still stupendous. In a slower scenario envisaged by BloombergNEF (BNEF), a research firm, under which EV penetration continues to rise as battery prices fall, but sales only reach just under a third of all vehicle sales by 2030, roughly $600bn of investment would still be needed by 2040. That would pay for fewer chargers than the IEA foresees—24m public points by 2040, and 309m in total. If net-zero is to be achieved by 2050, BloombergNEF calculates that the cumulative investment required would be a whopping $1.6trn.To the problem of woefully few public chargers, add the poor operational record of the charging industry thus far. On paper, the number currently exceeds what some authorities reckon is needed. The European Commission, for example, thinks every ten electric vehicles require one public charger. According to the Boston Consulting Group (BCG), a consultancy, there are now five EVs per charging point in the European Union and China and nine in America.The reality is starkly different. According to a survey of chargers in China by Volkswagen (VW), inoperable or “ICEd” chargers (those blocked either inadvertently or deliberately by fossil-fuel cars) mean that only 30-40% of Chinese public points—there are now 1m—are available at any time. It is safe to assume some inoperability in the EU and America.Even important drivers deride the experience. Herbert Diess, VW’s chief executive, posted on LinkedIn, a social network, this summer to complain that his holiday had gone less than smoothly because Ionity, a European charging network, provided too few points on the Brenner Pass between Austria and Italy. The firm’s charging facilities in Trento in northern Italy left plenty to be desired. “Anything but a premium charging experience,” he wrote. That vw is a part-owner of Ionity made the criticism sting more.Drivers can smell trouble ahead. Range anxiety and the availability of public charging is a huge issue (see chart 1). In a recent survey by AlixPartners, a consultancy, in the seven countries that make up 85% of global EV sales, the cars’ high prices came third on the list of main reasons not to switch to battery power; the four others were all anxieties related to charging.To assess the scale of the challenge, and how it will be met, start with the basics. One big advantage of EVs is that the cars can be charged at home—or at workplaces, if employers install chargers as a perk. In America, 70% of homes have off-street parking where a charger might be installed (the equivalent figure is lower in Europe and China). BCG estimates that the energy demand for home and workplace charging in 2020 accounted for nearly three-quarters of the total in America, around seven-tenths in Europe and three-fifths in China.Current models of electric cars typically have batteries with ranges of around 250 miles (400km). Some go over 400 miles. The average American drives 30 miles a day, according to Bank of America. Europeans and Chinese drive less than that. That means two types of charger are good enough to top up vehicles, or to give them a bigger boost overnight at home or during the working day. The slowest, delivering up to five miles of range an hour, can do it. So do “level 2” chargers that deliver around 10-20 miles. These chargers are easy on the wallet, too. Using dedicated sockets that cost just a few hundred dollars (they are often subsidised by governments) entitles drivers to the very cheapest electricity tariffs.Nonetheless, home and workplace charging only gets drivers so far. As EV ownership spreads from wealthier households to people living in flats or dwellings without the ability to plug in at home, a public network becomes more and more vital. In America, Europe and China, demand for public charging as opposed to private is expected to increase (see chart 2). Public chargers come in three varieties. A common kind is kerbside charging, which can be via converted lampposts or other dedicated charging points, where cars might park overnight. Then there is “destination” charging, of the sort that is becoming more widely available in car parks at shopping centres, restaurants, cinemas and other public attractions. For both kinds, which count as level-2 charging, the installation cost is usually between $2,000 and $10,000 per point.Fast charging, which can typically deliver 60-80 miles of range every 20 minutes, is vital on main roads for drivers making long inter-city trips beyond the range of their vehicles, and in cities for a quick emergency jolt. Commercial vehicles, such as taxis, driving longer distances need fast charging too. But since charging companies are seeking to recoup hefty costs of $100,000 or more per charger, the price is high. To make life easier for its customers, Tesla’s mapping software directs its cars on long journeys and works out the best route weaving through its dedicated, rapid “Supercharger” network. Other new EV models come with similar features for planning long journeys around fast chargers.In the charging industry’s defence, many in it point out that both EV ownership and charging are in their infancy. Pessimism is unwarranted, they argue, based on just a few years of experience. Only one car in a hundred now on the world’s roads is an EV, after all. And as Pat Romano of ChargePoint, an American firm that is one of the world’s biggest charging companies, notes, this is the start of “a 20 year arc”. But though the charging industry has time to mature, what sounds clear on paper is daunting in reality. The nature of demand for charging at scale is impossible to know as yet, meaning much unpredictability.Expansion is coming fast, say some. Along with all the momentum from EV-phile governments, the opportunity to make money charging the world’s expanding fleet means that “hyperbolic growth” is on the way, insists James West of Evercore ISI, a bank. But exactly how many public chargers are needed for each EV on the road is “an open question” notes Bank of America. Scott Bishop of Yunex Traffic, a division of Siemens, a German firm that makes charging hardware, notes that there are many different answers to the question of what proportion of slow versus fast chargers will be needed.Another problem is that the charging industry is made up of many complex layers. Aakash Arora of BCG’s automotive practice calls this the “gnarliest problem of all”. The need to co-ordinate with and get permission from many different parties helps explain the slow roll-out of charging infrastructure. First, there are firms that make the chargers themselves. Then there are the operators. These might own the points, earning money directly from charging. Or they might lease or sell points to site-owners but make money maintaining the chargers and update software when needed. Site-owners, usually businesses, other private landlords or local authorities, provide the locations for chargers and typically charge rent to operators. Service providers allow the charging to happen, with apps or cards that give access to charge points and provide payment mechanisms.Three kinds of company are coming to rule the EV-charging roost. One is the vertically integrated car giant. Tesla has not revealed what it has spent on its “Supercharger” network, which now numbers 30,000 points worldwide, but it is likely to have been several billion dollars. Other car firms are following, up to a point. BMW, Ford, Hyundai and Mercedes-Benz are partners with VW in Ionity. Its fast-charging network hopes to expand from 1,500 points to 7,000 by 2025. Electrify America, set up by VW as part of its settlement with American regulators over its dieselgate emissions-cheating scandal starting in 2015, now has 2,200 fast chargers in the United States. General Motors says it will spend $750m on charging. Its first move will be to install 40,000 points at dealerships.Specialist charging firms are also expanding quickly. Several have come to public markets during the past year. None of them are profitable, and their revenues are tiny for now, but their market capitalisations are increasing. The most highly valued (at around $7bn) is ChargePoint, which is based in America with 44% of the public-charging market there; it is also expanding in Europe. EVBox, a Dutch firm, has 300,000 points worldwide including a quarter of Europe’s public level-2 chargers and third of fast-charging points. EVgo has half the fast-changing market in America (excluding Tesla). But as Ryan Fisher of BNEF notes, over the next decade, if governments start to cut subsidies, charging companies will have to find business models that reliably produce profits.A third category is oil companies. Fearful of losing business at petrol stations, they are developing ambitious schemes. After buying ubitricity, a leading European on-street charging firm, in February, Shell, an Anglo-Dutch oil major, said in August that it planned to roll out 500,000 charging points around the world by 2025, both kerbside and fast charging. BP and Total have also been busy buying charging firms. Utilities are making a push, too. Wallbox, part-owned by Spain’s Iberdrola, sells chargers for homes and workplaces. The Electric Highway Coalition, made up of 17 American power companies including Dominion Energy and Duke Energy, plans to install fast charging along intercity routes.But grave doubts about the speed of the ramp-up persist nonetheless. Instead of the 40m public chargers the IEA reckons the world will need by 2030 to put the industry on course for net-zero by 2050, BCG forecasts that in America, Europe and China, the world’s main EV markets, there will be only 6.5m. The number of cars per charger will thus rise steeply, it reckons.Governments will certainly act. America’s infrastructure bill will set aside $7.5bn to enable the installation of 500,000 public points by 2030. Mandates such as that recently announced in Britain requiring new homes, workplaces and retail sites to have charging points, adding 145,000 every year, are likely to become more common.But the numbers are still small relative to the vast scale of charging networks that the world needs. More money will be needed to update electricity grids to distribute power to the new source of demand. A reason for optimism is that improvements in batteries should continue to offer longer ranges, meaning less need for frequent charging. Newer batteries will be capable of being charged much more quickly and chargers will deliver current more swiftly in future. Drivers must cross their fingers and hope that technology delivers, again. More

FEW BLOCKBUSTER public share sales have been as tortured as Didi Global’s. Within four days of raising $4.4bn in New York in June the Chinese ride-hailing group was hit with an investigation by the authorities in its home market and its mobile application was dropped from app stores in China, preventing new customers from using it. The firm’s share price remained above its initial public offering (IPO) price for just three trading days and has since fallen by more than 40%. Now the company, which was once valued at $70bn and backed by Japanese investment firm SoftBank, says it will delist from American exchanges altogether and relist in Hong Kong.Investors should consider Didi’s exit a death knell for Chinese IPOs in America. Some $1.5trn of Chinese company shares trade in New York. Those listings have already been threatened by American regulations that require all listed companies to provide access to internal auditing documents or face eventual delisting. Chinese officials have refused to allow access, often deeming this material “state secrets”. The dilemma goes back a decade but recent American legislation, which was adopted by the Securities and Exchange Commission on December 2nd, will purge all non-compliant companies from exchanges within two to three years, with potentially devastating consequences for some investors.Many have held out hope for an eventual agreement between American and Chinese regulators that would revive a once-booming cross-border listing business. Not long ago American exchanges were the leading destination for the IPOs of Chinese tech groups such as e-commerce giant Alibaba and online services group NetEase. Didi has not commented on why it plans to leave the New York Stock Exchange for Hong Kong but the group has been under intense regulatory pressure from the Chinese government since its IPO, ostensibly over data-security concerns. Several news agencies have reported that the Cyberspace Administration of China (CAC), an increasingly powerful regulatory body, has pushed the company to delist.Such action—an unprecedented intervention by a foreign government in the American market—would make an agreement between America and China far more difficult to strike, says Jesse Fried of Harvard Law School. “Didi’s exit will thus be a preview of what is to come,” he says. China’s growing regulatory reach should also raise alarms for global investors. Until now no Chinese enforcement body has sought to control Chinese listings in foreign markets. But new rules give the CAC authority to vet most overseas Chinese tech IPOs. These rules may also apply to share sales in Hong Kong. On December 1st the China Securities Regulatory Commission (CSRC) denied reports that it plans to ban the use of variable interest entities (VIEs), an offshore holding-company structure that has allowed Chinese companies to skirt local regulations barring foreign investments in some types of businesses. Yet Chinese media have reported that regulators are planning to revamp rules on VIEs, indicating tighter control over foreign listings.China’s leadership wants more control over who can invest in the country’s tech groups, and who gets access to the data collected by those companies. Didi’s case shows they have few qualms about severing long-standing connections between those companies and Wall Street.■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More

THE BATTLE to be top of the charts on Christmas Day has been won in recent years by the likes of Taylor Swift, Ed Sheeran and Ariana Grande. But lately these singers have faced competition from an unexpected source: the 20th century. Despite the best efforts of today’s young stars, the December charts have become dominated by musicians who are well into middle age, or dead.On Christmas Day five years ago, every single in the top ten of the Billboard Hot 100, a chart of America’s most popular songs, was a new release. In 2017 Mariah Carey crept in at number nine with her massive 23-year-old hit, “All I Want for Christmas is You”. Since then the oldies have shuffled relentlessly forward (see chart). Last Christmas half of America’s top ten songs were more than half a century old. Indeed Ms Carey, then aged 51, was one of the younger artists: two of her fellow chart toppers were drawing a pension; three had joined the heavenly chorus.Old hits have been revived by new technology. Billboard’s charts used to be based predominantly on record sales, as well as incorporating the number of radio plays. But since 2015 its evolving formula has tended to give the greatest weight to the number of listens on streaming services like Spotify. The result is that records like “Jingle Bell Rock” (1957) by American country singer Bobby Helms, which no longer generate many physical-format sales but which still get streamed on repeat in December, have been catapulted up the rankings.The Christmas-charts phenomenon illustrates why investors are re-evaluating musicians’ back catalogues. Streamers pay rights-holders a small sum for every play of a song, so old favourites whose physical sales had long ago dwindled have returned to earning a steady income. Artists with year-round appeal have been cashing in on their newly sought-after oeuvres. Last year Bob Dylan sold his collection to Universal Music Group, the world’s biggest record label, for a sum reportedly over $300m. On November 30th BMG, another music company, said it had bought the heavy-metal collection of Mötley Crüe.Streaming may mean a new payday for enduringly popular artists, but it saps some of the excitement from the Christmas charts. Ms Carey, who claimed second place in Billboard’s ranking last year and first place the year before that, has already begun her festive assault on this year’s charts: at the time of writing she had reached number 12, and rising. Christmas may be “The Most Wonderful Time of the Year” (last year’s number-seven hit), but it is also becoming the most musically predictable.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Ghosts of Christmas past” More

THE OFFICE used to be a place people went because they had to. Meetings happened in conference rooms and in person. Desks took up the bulk of the space. The kingdom of Dilbert and of David Brent is now under threat. The pandemic has exposed the office to competition from remote working, and brought up a host of questions about how it should be designed in the future.Start with what the office is for. In the past it was a place for employees to get their work done, whatever form that took. Now other conceptions of its role jostle for attention. Some think of the office as the new offsite. Its purpose is to get people together in person so they can do the things that remote working makes harder: forging deeper relationships or collaborating in real time on specific projects. Others talk of the office as a destination, a place that has to make the idea of getting out of bed earlier, in order to mingle with people who may have covid-19, seem attractive.In other words, a layout that is largely devoted to people working at serried desks alongside the same colleagues each day all feels very 2019. With fewer people coming in and more emphasis on collaboration, fewer desks will be assigned to individuals. Instead, there will be more shared areas, or “neighbourhoods”, where people in a team can work together flexibly. (More hot-desking will also necessitate storage space for personal possessions: lockers may soon be back in your life.)To bridge gaps between teams, one tactic is to set aside more of the office to showcase the work of each department, so that people who never encounter each other on Zoom can see examples of what their colleagues do. Another option is to ply everyone with drink. Expect more space to be set aside for socialising and events. Bars in offices are apparently going to be a thing. Robin Klehr Avia of Gensler, an architecture firm, says she is seeing lots of requests for places, like large auditoriums, where a company’s clients can have “experiences”.Designs for the post-covid office must also allow for hybrid work. Meetings have to work for virtual participants as well as for in-person contributors: cameras, screens and microphones will proliferate. Gensler’s New York offices feature mini-meeting rooms that have a monitor and a half-table jutting out from the wall below it, with seating for four or five people arranged to face the screen, not each other.Variety will be another theme. People may plan to work in groups in the morning, but need to concentrate on something in the afternoon. Ryan Anderson of Herman Miller, a furniture firm, likens the difference between the pre- and post-pandemic office to that between a hotel and a home. Hotels are largely given over to rooms for individuals. “Home is thought of as a place for a family over years, hosting lots of different activities.”All of which implies the need for flexibility. Laptop docking stations are simple additions, but other bits of office furniture are harder to overhaul. Desks themselves tend to be tethered to the floor through knotted bundles of cables and plugs. The office of the future may well feature desks with wheels, which ought to go well with all that extra alcohol. Meeting rooms are likely to be more flexible, too, with walls that lift and slide.If socialising and flexibility are two of the themes of the post-pandemic office, a third is data. Property and HR managers alike will want more data in order to understand how facilities are being used, and on which days and times people are bunching in the office. Workers will demand more data on health risks: the quality of ventilation within meeting rooms, say, or proper contact-tracing if a colleague tests positive for the latest covid-19 variant.And data will flow more copiously in response: from sensors in desks and lighting but also from desk-booking tools and visitor-management apps. The question of who owns data on office occupants and what consent mechanisms are needed to gather this information is about to become more pressing.Put this all together and what do you get? If you are an optimist, the office of the future will be a spacious, collaborative environment that makes the commute worth it. If you are a pessimist, it will be a building full of heavily surveilled drunkards. In reality, pragmatic considerations—how much time is left on the lease, the physical constraints of a building’s layout, uncertainty about the path of the pandemic—will determine the pace of change. Whatever happens, the office won’t be what it was.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “The office of the future” More

LONG BEFORE the invention of stakeholder capitalism, a core principle—that the interests of customers, employees and society should be as high or higher than those of shareholders—was carved into the plaster at Johnson & Johnson’s head office in New Brunswick, NJ. “Our Credo” as J&J calls its mission statement, dates back to 1943, when it was penned by Robert Wood Johnson II, a former boss of the pharmaceutical firm.J&J says the Credo has helped construct a corporation built to last. Worth $420bn, it is the world’s biggest drugs firm by value. It is one of only two companies in America with a triple- A credit rating (the other is Microsoft). Of its $82.6bn of sales last year, pharmaceuticals accounted for 55%, medical devices 28% and consumer health 17%. It produces everything from blockbuster cancer drugs to band-aids and baby powder.Some argue that for all its pieties, J&J has let down both society and shareholders. In recent years it has faced multiple lawsuits against products ranging from prescription opioids to talcum powder to Risperdal, an antipsychotic medicine. It denies all wrongdoing, but the succession of controversies has tarnished its image and loaded it with legal liabilities.Moreover, since 2012 J&J’s total returns to shareholders have lagged behind the S&P pharmaceutical benchmark by about a third. Investors say the legal maelstrom is partly to blame. Another factor is lopsided performance. Buoyancy at J&J’s pharmaceuticals business, where sales rose by 8% last year, is overlooked because of low single-digit growth and, at times, declines in the medical devices and consumer-health divisions.Now J&J is taking steps—radical by its own standards—to reform on both counts. Alex Gorsky, its outgoing chief executive and soon-to-be executive chairman, is trying to draw a line under the legal troubles. He is also overhauling the firm’s structure. His methods have not yet had the desired effect. But they could restore the firm’s standing with investors and society.The first sign of progress has been in the legal realm. In August 2019 an Oklahoma court ruled that J&J’s promotional campaigns downplayed the risks of opioids and meant the firm bore a wide responsibility for the deadly epidemic. It was ordered to pay $465m. But on November 9th the state’s Supreme Court overturned the ruling, saying it was based on a wrong interpretation of public-nuisance law. The previous week, a California court threw out a similar case against J&J and other defendants.Such wins for J&J coincide with what Carl Tobias of the University of Richmond School of Law, calls a new legal approach. The firm has a history of litigating cases “to the bitter end”, he says. Lately, he points out, it has shown more willingness to settle. This summer it finalised an opioid settlement of up to $5bn with numerous American states, cities and counties which it hopes will lay the claims against it to rest. In October it said it had set aside $800m to settle most of its Risperdal cases.The company is still walking a legal tightrope when it comes to claims related to talcum powder. In October it deployed what is known disparagingly as the “Texas two step”, a manoeuvre in which it set out to ring-fence liabilities on 30,000 or more talc-related litigation claims by creating a Texan subsidiary, LTL Management, that promptly filed for Chapter 11 bankruptcy in North Carolina. It went down poorly. The North Carolina judge shunted the bankruptcy case to New Jersey, where many of the talc claims are filed. Some Congressional Democrats accused the firm of trying to manipulate bankruptcy law to deny claimants their day in court. J&J argues that it has established a $2bn trust attached to LTL to help cover talc-related liabilities under Chapter 11. Investors hope it could mark the beginning of the end of the saga.Mr Gorsky’s second sweeping change is structural. J&J said in November that over the course of 18-24 months it would split into two firms, one focused on consumer health, the other combining pharmaceuticals and medical devices. The consumer-health business badly needs a nip and tuck. It is no longer enough to boast that nine out of ten dermatologists recommend a skin product. Shoppers require Kim Kardashian-style razzmatazz. J&J hopes the consumer-health business will fare better with more focus. The break-up will also crystallise value lost in the conglomerate structure. It is a path trodden by GSK, a British drugs firm, which is spinning off its consumer-health joint venture with Pfizer. But a lot remains unknown about the split. Investors greeted it with a shrug.What shareholders are excited about is the pharma business. They take seriously J&J’s pledge to ramp up annual drugs sales from $45.6bn last year to $50bn by 2023 and $60bn by 2025. It reckons it can outstrip average growth in the drugs market even though one of its best selling medicines will lose patent protection. It promises new treatments, such as cell and gene therapies. Its oncology pipeline is strong. It will not be all smooth sailing, however. The pharma firm will still be tied to the sluggish medical-devices business. And if the talc-related bankruptcy man oeuvre fails, liabilities could fall onto the pharma business.Time for a booster jabThese are exciting times in life sciences. Pfizer is adding a fortune to sales thanks to its covid-19 breakthroughs. Eli Lilly is attracting investors because of an experimental Alzheimer’s drug. Against such competition, J&J urgently needs to move beyond the legal controversies weighing upon it and its share price.The biggest question is whether the company can become more dynamic overall. Partly owing to its mission statement, J&J carries a lot of history on its back. It makes decisions cautiously. Mr Gorsky has taken years to recommend a break-up, though investors have wanted one since he took over in 2012. Listening properly to shareholders would have meant earlier, possibly preventive, ingestion of the correct medicine. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “No more tears” More

IT IS TESTAMENT to human inventiveness that 50m patents are estimated to have been granted globally. But in aggregate much of the collection resembles an intellectual junkyard. Included are plausible ideas that no firm ever wanted to pay for, plausible ideas that fell short, and absurdities. A patent on the crust-less peanut-butter-and-jelly sandwich, for example, failed to be renewed in 2007.Pare the list to those that are both sensible and in force legally, meaning a fee is paid to a patent office to keep them alive, and there are 16m patents that count. Last year, 1.6m were granted.Most are the property of companies, but balance-sheets and conventional accounting are ill-suited to capturing their worth. Using acquisition cost, then depreciating it, does not work. Instead, lawyers provide subjective numbers based on factors such as a patent’s likely validity, royalties and litigation history. Many firms reckon it is not worth paying the tens of thousands of dollars that it costs for a valuation.In 2008 an intellectual-property exchange opened in Chicago to do for patents what other bourses did for stocks, bonds and commodities. Its backers were blue-chip firms like Hewlett Packard and Sony, but it closed in 2015. Patents cannot be treated like commodities, said the Cornell Law Review. A subsequent effort to value them used software to read and evaluate the documents. So far, however, not even machine-learning techniques have allowed code to penetrate the opaque legal language in which patents are couched.Now a startup called PatentVector, founded by a law professor, an information science professor and a software engineer, is trying something new. It uses a variation of a method started in the 1960s which evolved into tallying up how frequently individual patents are cited (a similar process based on citations is used to evaluate academic research).Rather than attempting to understand the patent, PatentVector employs artificial intelligence to comb through 132m patent documents kept by the European Patent Office in Munich (the world’s biggest collection). Then it evaluates, first, how frequently a patent is cited and, second, how frequently it is cited by patents that are themselves cited frequently. That provides an indication of importance which is then multiplied by a mean value of patents based on an estimate by James Bessen, an economist at Boston University, which has become a reference point. A number of companies, legal firms and institutions (including the Canadian Patent Office) are buying PatentVector’s product.The results contain interesting insights into inventing. Frederick Shelton IV (pictured) does not feature among prominent innovators of the 20th century but he probably should. He works at Ethicon, a medical-devices subsidiary of Johnson & Johnson, and PatentVector values his inventions at a cool $14bn, placing him aeons ahead of anyone else. His top three are for a mechanical surgical instrument, surgical staples and the cartridge for the staples; in short, tools to cut tissue and bind it up.Ethicon itself, a medical-device maker, holds 95 of the world’s 200 most valuable patents, PatentVector finds. The firm also employs Jerome Morgan, who is listed in second place with $5bn worth of patents (many overlapping with Mr Shelton’s). Only one other person is in the $5bn club: Shunpei Yamazaki, president of Semiconductor Energy Laboratory, a Japanese research-and-development firm. Mr Yamazaki’s most important patent covers the displays on computers, cameras and other semiconductor devices.PatentVector found 65 other people each responsible for patents worth in excess of $1bn. Only 14 of the top 650 tinkerers are women. The highest ranked is Marta Karczewicz, who works for Qualcomm, an American chip designer, and played a vital role in inventing the video-compression technology that makes Zoom and other video services function.Almost all valuable patents can be found in a few broad industry groups: biopharma, software, computer hardware, medical devices and mechanical equipment. Over the past 40 years the importance of specific categories has marginally expanded and contracted, but biopharma and information technology (IT) have dominated and their significance has grown. The companies with the largest aggregate value of patents are in IT, topped by IBM, Samsung and Microsoft.PatentVector’s figures on the patent holdings of countries are revealing, too. America has the most active patents of any country, at 3.3m, followed closely by China with 3.1m. But there is a world of difference in how frequently they are cited and their imputed value. America’s library is calculated to be worth $2.9trn, compared with China’s collection at $392bn.Of course, PatentVector’s methodology will face scrutiny. Naturally, the startup has patented its own technique. Information about patents, which are critical components of invention, has never been more important. Perhaps it was inevitable that innovation would be applied not only by means of patents, but to them as well. ■For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter.This article appeared in the Business section of the print edition under the headline “Billion-dollar blueprints” More

A BIG CHANGE is under way in Asia’s technology industry. As investors avert their eyes from the government-imposed nightmare engulfing China’s internet champions, a cohort of South-East Asian counterparts is booming. Tot up the value ascribed by the market to just three listed and soon-to-be listed consumer-app giants with headquarters in Singapore and Jakarta, and the figure approaches a quarter of a trillion dollars. Add to that the $70bn or so combined worth of a whole field of new unicorns—privately-held startups worth $1bn or more—and South-East Asia is surely fulfilling hopes, long-held, that a big emerging market consumer-tech sector would rise outside China.On December 2nd Singapore-based Grab, a consumer-technology firm, will list on America’s Nasdaq by means of a merger with a special purpose acquisition company (SPAC). The record-breaking SPAC transaction is expected to value Grab at $40bn. Another giant, GoTo Group, formed from the merger of Indonesia’s Gojek, a ride-hailing firm, with Tokopedia, an e-commerce company, will follow in the first half of 2022. Sea, largest of the three giants, and parent to regional e-commerce pioneer Shopee, was the earliest to list, in 2017. The company’s market capitalisation has risen eight-fold since the end of 2019, to $160bn, making it the largest listed company in South-East Asia.The three companies are each some combination drawn from ride-hailing and food delivery, financial services and mobile gaming. The precise blend varies from firm to firm, but the same idea runs through the core of each. It is to bring hundreds of millions of consumers together into a network of services. These may be low-margin, but the transaction volumes in question are vast. The model is often referred to as a super-app, or app-cluster strategy. In their domestic markets the companies are already behemoths. With a fleet of over 2m drivers, GoTo by itself boasted total transactions of $22bn last year, equivalent to 2% of Indonesia’s GDP.The prospects for South-East Asian consumer tech have been alternately hyped up and talked down over the past decade. Optimists, currently in the ascendant, point to a market of 650m people poised for rapid economic growth. Mark Goodridge, an equity analyst at Morgan Stanley, a bank, notes that online retail made up just 6% of retail sales in the countries of the Association of Southeast Asian Nations (ASEAN) in 2019, compared to around 15% in America and about 30% in China.But sceptics note the region’s fragmentation. South-East Asia’s markets are anything but a contiguous economic bloc. Even in the biggest, like Indonesia, multiple languages are spoken, to say nothing of widely differing income levels and infrastructure capacity. That no doubt contributes to the huge losses that are being racked up. None of the big companies are reliably profitable. In the third quarter of the year, Sea’s losses widened to $571m, a year-on-year increase of a third. The two largest companies, Grab and Sea, have made a combined $17bn of net losses since the beginning of 2018.The sea of red ink does not alarm investors. They demanded consolidation in order to make the market more orderly and investable, and, by and large, have got it. Mergers and acquisition activity in tech in South-East Asia exploded this year. By late November the volume of deals had already reached $61bn, equivalent to all activity for the past decade. Those transactions helped create the super-app strategy embraced so enthusiastically by consumers. “What customers want is deeper, faster digital solutions, which are not done in a fragmented way. They don’t want six wallets, they don’t want five e-commerce options and three food delivery companies,” explains Patrick Cao, president of GoTo Group.The triumph of GoTo Group, Grab and Sea, of course, came at the expense of powerful American and Chinese rivals. Alibaba still has a local presence through e-commerce firm Lazada, but, having led only two years ago, the firm has slipped into the second tier of competitors. With around 137m visits in 2020, according to IPrice, an e-commerce data aggregator, Lazada was slightly less than half as popular as Sea Ltd’s Shopee, the regional leader (although it is losing considerably less money). Since Uber beat a retreat in 2018 (its operations were bought by Grab), no American company has built a significant presence in e-commerce or in ride-hailing.As local firms see it, that is ample proof were it needed that a focus on localisation has borne fruit. In their telling, a lack of wealthy, homogenous home markets has forced them to tailor their products and services for specific places. For the most ambitious among their executives, it is a competitive edge that will work globally, too. The idea later would be to design slightly differing versions of their apps for different European markets and for America.Consolidation and scale should in theory lead to profits. The firms can bundle services together, and different lines of business can complement one another. Ming Maa, president of Grab, notes that in the second quarter of the year, 66% of the two-wheeled drivers in Indonesia, Vietnam and Thailand were working on both delivery and transport, up from 58% in the same period in 2020. That lowers costs.How soon will profits arrive? It is promising that Grab’s take rate—revenue as a proportion of the total value of rides taken or deliveries made—has risen from 9.5% in 2018 for mobility and 5.6% for deliveries in 2018 to 21.7% and 17.1% respectively in the third quarter of this year. The company’s preferred measure of profitability: adjusted earnings before interest, tax and depreciation relative to gross bookings, is chosen to flatter, but at least the 12% margin it yields for mobility is more than twice as high as Uber’s 5.5%. Grab’s argument that a lack of profitability is a choice linked to rapid expansion is not wholly unconvincing.The three firms’ ambitions to loom large in finance, however, means a long diversion from the path to profit. Their aim is understandable. “Financial services is something every super app needs to have. You have a supply chain, you have a customer base, you want to reduce your own dependence on others’ financial services,” says Venugopal Garre, an analyst at Bernstein, a broker. But Grab’s financial-services ambitions will certainly drag on profitability, as Moody’s, a credit-rating agency, noted early this year.South-East Asia’s tech boom is by no means isolated to large companies. There are 35 private firms valued at $1bn or more in ASEAN countries, according to research by Credit Suisse, a bank. Of those, 19 reached unicorn status this year. True, America and China already have hundreds of tech firms valued in the billions of dollars. But that is a relatively recent development, notes Nick Nash of Asia Partners, a private equity firm focused on the sector. The two countries only had ten such unicorns as recently as 2013 and 2014 respectively, before the numbers began to surge.Far from the stereotype of cash-bleeding startups, some South-East Asian firms have been remarkably disciplined in fundraising. Mr. Nash uses the example of SCI E-commerce, which specialises in cross-border retail and helps international brands access South-East and East Asia. The company has become one of the region’s fastest-growing firms having raised less than $70m in funding. Its revenues have surged to over $100m in 2020. Unlike many, it already has positive cashflow.And while the tech firms that have emerged in South-East Asia have done so only from a few sectors—ride-hailing, consumer e-commerce, food delivery and online gaming among them—the mix is broadening by the month. Listings by companies as varied as Singapore’s Doctor Anywhere, which offers video consultations with doctors, and Malaysia’s Carsome, an online marketplace for used-car sales, are in the offing.For now, just as in America and China a few firms led the consumer internet for years, most attention is focused on South-East Asia’s leading trio—Sea, GoTo and Grab. First among equals is Sea, whose recent expansion outside its home region sets it apart. Sea’s highly-profitable gaming arm, Garena, is responsible for “Free Fire”, a wildly popular mobile game which gives the company a footprint globally that the other two companies lack. Its move abroad in e-commerce is no small beer. According to Apptopia, a Boston-based research company, Shopee is now Latin America’s most popular e-commerce app, coming from a standing start at the end of 2019. The company launched in Poland and Spain in September and October respectively, and has quietly launched in India, too.South-East Asia’s tech champions follow a model that is flourishing elsewhere, too. As well as Latin America’s Mercado Libre in Latin America, South Korea has both Kakao and Coupang, with market capitalisations of around $50bn apiece. Given the turmoil in China’s tech sector, such firms are popular and likely to become more so. Take one leading fund, the JPMorgan Pacific Technology Fund, which has $1.5bn of assets under management. At the end of September it counted no Chinese companies at all among its top four holdings. Its largest single exposure, at 7%? The company called Sea, that is coming to epitomise Asian tech’s gathering sea change.For more expert analysis of the biggest stories in economics, business and markets, sign up to Money Talks, our weekly newsletter. More