Philippa Kaur

AFTER UNFRIENDING each other last week, Facebook and Australia are pals again. On February 23rd the world’s largest social network announced that it would reverse its decision to switch off the sharing of news on its site in Australia, as well as the sharing of Australian news sources globally. For its part, the Australian government said it would amend its proposed News Media and Digital Platforms Mandatory Bargaining Code, which had so upset Facebook.
Both sides claim victory. The government points to the fact that news will soon be restored to the platform, and that Facebook has agreed to make payments to Australian media companies. Yet the last-minute amendments will allow Facebook and other tech companies to avoid the code’s most exacting terms if they are deemed to be contributing enough. The upshot is that big tech will be able to sidestep regulation if it is willing to pay off its media critics—an outcome that suits both parties, if not necessarily consumers.

The central idea of the code, which was approved by Australia’s Senate on February 24th and is expected to go through the House of Representatives the next day, is that tech platforms benefit unfairly from content created by others. Companies like Google and Facebook make money from ads, which sit alongside links to news articles, among other things. The publishers of those articles say they deserve a share of the ad revenue.
The tech platforms retort that, on the contrary, publishers benefit from the traffic referrals they get when their content is shared online. If publishers disagree, they are under no obligation to post their stories to social networks or have them listed by search engines. Paying for link-sharing threatens freedom of speech—and, more worrying to tech bosses, their entire business model. If Google or Facebook must pay for displaying links to news, what is to stop them being forced to pay for the billions of other pieces of content they link to?
Australia’s code looks particularly fearsome. If an online platform and a media company are unable to reach a deal, an official arbiter will make a binding decision. Rather than splitting the difference between bids, it will choose between each side’s final offer. If it sides with the newsmen, platforms could be on the hook for hefty sums.
The concessions made by Australia’s government remove these risks, for a price. The high-stakes arbitration mechanism will be preceded by a two-month mediation period, giving platforms a chance to strike more palatable deals. Non-differentiation provisions, which would have forced platforms to pay all media companies on an equal basis, have been scrapped. Most important, the decision on whether the code should apply to a tech platform at all must now take into account whether the platform “has made a significant contribution to the sustainability of the Australian news industry through reaching commercial agreements with news media businesses”. In other words, if they dish out enough money, Facebook and others can avoid being subject to the code altogether.

Tech platforms are already making such payments, in a bid to ward off regulation. Last year Google launched its “News Showcase”, under which it plans to distribute $1bn over three years to publishing companies around the world. Facebook’s “News Tab” shares advertising revenues in a similar way (The Economist is a participant). Currently operating in America and Britain, it is to be launched in more countries. On February 24th Facebook announced that it too would dole out $1bn for journalism over the next three years.
The question is whether this will be enough to placate other governments. Canada is drafting its own code on the matter, expected to be published later this year. Last week Steven Guilbeault, the minister in charge, said: “I suspect that soon we will have five, ten, 15 countries adopting similar rules…Is Facebook going to cut ties with Germany, with France?” Britain is also drawing up new rules, as is the European Union. Microsoft, whose unloved search engine, Bing, stands to benefit from anything that hurts Google, is working with publishers’ associations in Europe to put together a blueprint for an arbitration mechanism.
Discretionary pay-offs to old media companies look as if they will become part of tech firms’ business in more and more countries. That is something the tech platforms, not short of money, can live with. The bigger risk would be any law that imposed a systematic obligation to pay for the content around which their business is built, or regulated the way in which that content is presented. They have managed to ward off this threat for now, by getting out their wallets. More

HAINAN, A TROPICAL island 450km south-west of Hong Kong, used to be a sleepy backwater populated by budget resorts catering to Chinese tourists unable to afford a trip to Hawaii. Today it draws travellers with considerably fatter wallets. Buying a Gucci gown or a Tiffany trinket in one of Hainan’s giant, posh malls feels no different from shopping on Fifth Avenue in New York or Avenue Montaigne in Paris—until the tills are rung. Instead of walking out with their bling, visitors from mainland China pick up their items at the airport on their way home, or get them dispatched there directly. Under rules devised a decade ago, which mean that for duty purposes Hainan is treated as a separate zone from mainland China, they are exempt from a variety of taxes and duties. Savings can reach 30% as a result.
Duty-free shopping conjures up images of crowded airport terminals. As the covid-19 pandemic has emptied these of passengers, the shops inside have suffered commensurately. Having reached $86bn in 2019, according to Generation Research, a consultancy, duty-free sales collapsed by two-thirds last year. Mauro Anastasi of Bain, another consultancy, forecasts travel-retail sales will not reach those levels again in real terms before the second half of the decade. Intercontinental passengers and business travellers, the biggest spenders, are likely to take longest to return to the skies. Chinese tourists, by far the most prized by duty-free operators, are shunning countries with poor track records at handling the pandemic.

Shoppers will one day return to airports. Yet when it emerges from the current crisis, duty-free shopping will have been profoundly transformed: unabashedly focused on luxury, less connected to travel and closer to Asian high-rollers. Hainan points the way.
Rebate tectonics
Before covid-19, selling stuff to travellers had been one of the few bright spots of the brick-and-mortar retail world. The practice has been popular ever since cruise ships on the high seas plied their passengers with booze and cigarettes free of government levies. In 1950 Ireland applied the principle to aviation. As mass tourism took hold, airports the world over turned themselves into tax-free shopping malls with departure gates. Annual growth of around 8% in recent pre-pandemic years—twice the figure for other shops—was fuelled by sales of cognac, sunglasses, purses and other knick-knacks. Sales have grown eight-fold since the late 1980s (see chart). Excited marketers referred to duty-free shops as “the sixth continent”.

Covid-19 has deflated that enthusiasm. It has also, as in many other areas, accelerated pre-existing trends that were reshaping the duty-free business. The first has to do with the mix of stuff sold in duty free. Alcohol and, particularly, cigarettes have dwindled over the years. Posh brands became mainstays of airport concourses as they cottoned on these were good places to pitch to wealthy people, particularly Asian passengers. Luxury goods, perfumes and cosmetics now dominate travel retail, accounting for two-thirds of sales.
The second development is the shift away from airports. Though the terminal remains its natural habitat, duty-free shopping has in recent years expanded into locations farther afield. Spending per passenger in airports was sagging even before the coronavirus hit.
At the same time specialised downtown shops in tourist hotspots have lured visitors eligible for tax discounts if they repatriate what they buy. These locations, particularly popular in Asia, now represent nearly 40% of all sales. Rules vary globally, but some allow shopping even from those with a tenuous link to travel, for example a ticket booked several months hence.
Tax-exempt outlets are popping up across mainland China, catering to domestic travellers who have returned from overseas (and, soon, who plan to travel there in future). Chinese shoppers in Hainan, for example, now enjoy a duty-free allowance of 100,000 yuan ($15,500), thanks to a recent tripling of the tax break.

The final trend, also on display in Hainan, is duty free’s eastward drift. In 2011 Asia-Pacific overtook Europe as the largest regional market. (America, where most flights are domestic, has always been a laggard.) Before the pandemic Seoul’s Incheon, a two-hour flight from Beijing, became the biggest airport shop in the world. Revenues for Prada and Hermès in Asia excluding Japan have jumped by over 40% in 2020, owing heavily to splurges in Hainan. Sales there are reported to have reached $5bn last year, more than doubling from 2019. Industry watchers predict they could grow five-fold within a decade.
Although Chinese buyers have been the world’s biggest luxury consumers for years, accounting for a third of global sales, brands were reluctant to consider places like Hainan as top-tier luxury venues. Around two-thirds of Chinese spending on handbags, watches and other baubles took place overseas. The Communist Party is keen to change that. The ever-more-generous tax breaks for the well-heeled are “the key tenet of a long-term government mission to maximise domestic consumption and repatriate travel-related shopping from abroad,” says Martin Moodie of the Moodie Davitt Report, a travel-retail newsletter. Daniel Zipser of McKinsey, a consultancy, expects the overseas share of luxury spending to decline. As a result, luxury groups’ attitudes towards venues like Hainan “have changed dramatically”, says Cherry Leung of Bernstein, a broker.
If the Chinese continue to buy their baubles at home, that will suck away more business from the duty-free operators that have historically dominated non-Chinese airports, such as Dufry of Switzerland and DFS, part of the LVMH luxury empire. Last year China Duty Free, a state-controlled group, overtook Dufry as the world’s largest purveyor of tariff-free luxury goods. The market capitalisation of China Duty Free’s Shanghai-listed arm has more than tripled over the past year to $112bn, making it one of the most valuable retailers in the world.
In an acknowledgment of the shifting balance of spending power, some travel retailers from Europe have tried to muscle in on Hainan. Dufry has sold a stake to Alibaba in the hope that the Chinese e-commerce giant can improve its fortunes there. Last month Lagardère Travel Retail, part of a French conglomerate, launched a second shop on the island.
Airports will remain good places to find well-off shoppers. Bored people waiting for their flights to be called are perfect marks for luxury brands. Most retailers spend fortunes attracting customers to their shops or websites, points out Julián Díaz González, boss of Dufry. “For us it is just moving them from the corridor to the shops.” As the industry continues to evolve, Mr Díaz may increasingly find it is a matter of moving the duty-free shops to the customers. ■ More

EMMANUEL FABER used to be seen as the spiritual son of Franck Riboud, honorary chairman and former boss of Danone, whose father Antoine co-founded the French yogurt-maker. Mr Riboud handpicked Mr Faber as his successor and loyally backed his transformation of Danone into France’s first entreprise à mission, a corporate form with a defined social purpose.
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In recent months the relationship has soured. According to the French press, Mr Riboud thinks Mr Faber is more interested in saving the planet than saving his firm. Danone’s share price fell by 27% in 2020 while those of rivals such as Nestlé and Unilever made gains amid pandemic larder-stocking. Its full-year results, due on February 19th, are unlikely to inspire investors’ confidence.

Danone has been hit harder by covid-19 than rivals because of its large bottled-water business. Its Evian, Badoit and Volvic brands make money mainly from sales in restaurants, bars and airports. But that is not the only problem. In 2017 Danone overpaid for WhiteWave, an American maker of health-focused fare that it bought for $12.5bn. The deal, which strained the balance-sheet but did not produce hoped-for returns, is the main reason for Danone’s current malaise, says Alan Erskine of Credit Suisse, a bank. Bruno Monteyne of Bernstein, a broker, points to years of underinvestment in brands, which face stiff competition from supermarkets’ private labels, at a time when Danone’s dairy and baby-food businesses slow as birth rates fall and people drink less milk.
Faced with these challenges, in October Mr Faber announced an overhaul of the business along more geographic lines. Perhaps 2,000 jobs will be cut. It was the fifth reorganisation on his seven-year watch.
Enough already, huffs Artisan Partners, an American investment fund which says it is Danone’s third-biggest shareholder with a 3% stake. In a meeting with board members on February 16th it demanded Mr Faber’s exit, a stop to his latest restructuring, and the sale of struggling brands such as Mizone, a Chinese vitamin drink, and the Vega range of plant-based foods.
Artisan is the latest Anglo-Saxon meddler to pile on the pressure. In November Bluebell Capital Partners, a London-based hedge fund that owns a stake in Danone, demanded that the firm boot out Mr Faber and split the role of chairman and CEO. Causeway Capital Management, an American fund, has echoed Bluebell’s call.

Mr Faber’s entourage refers to the demands, which appear to have the blessing of 65-year-old Mr Riboud, as a “revolution of gunslinger grandpas”. The activists may still succeed, and not just because they are not in fact that wizened. Helpfully, the French state is staying out of the fray; its spokesman said it had no comment. The government has no stake in Danone, but in 2005 declared it an “industrial jewel” to be defended against foreign buyers. Maybe not when they have an ally on the inside. ■
This article appeared in the Business section of the print edition under the headline “Culture wars” More

MINING BOSSES often leave under a cloud, ousted after a profit slump, a public-relations disaster or pit-hole calamity. Not so Ivan Glasenberg. For his last set of results on February 16th the boss of Glencore offered shareholders—including himself—a reinstated dividend and an upbeat outlook. Leaving on a high after 19 years in the top job will not make life easier for his anointed successor, Gary Nagle.
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All miners have had a bull run of late as commodity prices have surged. China’s appetite for natural resources is unabated. America and Europe are planning infrastructure pushes that will juice demand. The green tinge of such stimulus spending is especially good news for Glencore, a big producer of the cobalt, copper and nickel needed for electric cars and the like.

Investors on the earnings call were as focused on life after Mr Glasenberg. It may not be so different. Those used to seeing the Swiss firm run by a fast-talking South African accountant who has spent much of his career on the coal side of the business might not notice the handover, due to happen in the next few months. Like his predecessor, Mr Nagle is all those things. He will become only the fourth boss to lead the company since its founding in 1974.

Investors expect continuity in the business. Mr Glasenberg has re-engineered a pure commodities trader into a firm that also digs the stuff up. The model has not delivered stellar returns, at least since the firm went public in 2011 (see chart). But trading profits last year were fat and Mr Nagle says the set-up is fit for purpose.
Three thorny dossiers will keep him busy. The first is coal, of which Glencore is the biggest shipper. The banks that fund its trading arm are under pressure to cut ties to polluters. Glencore has some green credentials and says it is running down coal assets gradually. But a more radical move, like a spin-off, may be needed.
Then there is the Democratic Republic of Congo. A big source of copper and cobalt profits, it is also in the sights of America’s Department of Justice. Glencore denies any wrongdoing. After the Congolese elected a new president in 2018 some faces that helped Glencore thrive are being replaced. Dan Gertler, who teamed up with Glencore to develop assets in the DRC, recently earned a partial reprieve from American sanctions (he also denies wrongdoing). The copper belt is rife with rumours that Mr Gertler may be looking to cash out.
Perhaps the trickiest dossier is Mr Glasenberg. He will not upgrade himself to chairman, as some CEOs are wont to do. But he intends to keep his 9% stake, making him the second-biggest shareholder. And, potentially, its biggest back-seat driver.■

This article appeared in the Business section of the print edition under the headline “Pit stop” More

THE SCRAMBLE to electrify motoring resembles a car race. Tesla and like-minded startups, unencumbered by the legacy of the internal combustion engine (ICE), are surging up the straight. Behind them, jostling for position at the first corner, are the established carmakers, urged on by ever-tightening government deadlines for clean power to supersede fossil fuels. Many are calling time on the ICE. On February 17th Ford’s European division said that it would go all-electric by 2030. Days earlier Jaguar Land Rover (JLR), an Indian-owned firm based in Britain, announced that the posh Jaguar brand would become fully electric by 2025. In January General Motors (GM) promised it would make only zero-emissions cars after 2035.
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No one is dedicating more resources to electrification than Volkswagen Group, says Herbert Diess, the German giant’s boss. The company plans to spend around €73bn ($88bn) over the next five years on battery power and digitisation, he says. “The competition is now taking the same decisions,” Mr Diess notes, alluding to rival firms’ pledges.

Among the old guard, vw is indeed firmly in the driving seat. A fifth of the millions of cars it sells will be electric by 2025. Some analysts think that by then VW will churn out more electric cars than Tesla, today’s market leader. Mr Diess is more circumspect. A year ago he was confident his firm would lead the world in electric vehicles in ten years’ time. Now he is less sure, admitting that Tesla’s surging shares give it the resources to grow fast. Although Apple’s talks with carmakers such as Hyundai and Nissan did not go anywhere, the tech giant’s evident interest in an iCar could yet make it a force to be reckoned with, Mr Diess admits. But he still thinks that the electric race is Volkswagen’s to lose, not least because the cashflow from its traditional business gives him the money to invest in the future.
Indeed, despite all the noise about electrification the old ICE technology has plenty of mileage left in it. Unlike his counterparts at Ford Europe, JLR or GM, Mr Diess is unwilling to set a date for the demise of the fossil-fuel engine. His electric plans for 2025 still leave four-fifths of his firm’s cars powered by petrol or diesel. Volkswagen is a global company and, he says, many markets will not be ready for electric cars by 2035. Coal-fired power stations will still provide part of the electricity that might charge batteries, making electric cars a moot proposition. In places such as Latin America ICE-friendly biofuels will be the prevailing green alternative to petrol.
Scratch the surface and the ICE seems to be lurking even at firms which claim to be forsaking it. GM says its target is an aspiration. Citigroup, a bank, notes that the majority of investment by established carmakers is still directed towards conventional power trains. BloombergNEF, an energy-analysis firm, reckons that more than one in three cars sold in 2040 will be powered by petrol and diesel. Some will sport the Volkswagen logo. ■
For the full interview with Herbert Diess go to economist.com/VWpod

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This article appeared in the Business section of the print edition under the headline “ICEy conditions ahead” More

IF BUSINESS HAD a Moses, “Thou shalt link pay to performance” would be on his tablet. Compensation committees have, however, tended to stick to a narrow reading of the commandment. Whereas they reward good behaviour, deterring the bad is an afterthought. Worried that this may lead bosses to adopt a mentality of “heads we win, tails shareholders lose”, boards are rethinking their priorities—partly in response to pressure from regulators and investors, but also to shifting social winds. Perfectly balanced incentives remain as elusive as the promised land. Still, measures designed to ensure that misconduct does not pay are becoming central to the debate about how to craft bosses’ salary plans.
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The most striking change of recent years has been the rise of the “clawback”. This is a provision in pay plans that gives the board the right (or, less commonly, an obligation) to yank bonuses or stock awards given but later found to be unjustly earned. A prototype, contained in America’s Sarbanes-Oxley reforms of 2002, required retrieving pay from chief executives and chief financial officers whose sins caused accounting restatements. The idea gained traction after the global financial crisis. The European Union mandated recouping money from wayward bankers. In America Congress told regulators to craft a new clawback rule. While they mulled this, big firms got the message and began to draw up such policies voluntarily. Some 93% of those in the S&P 500 index now say they have one covering cash bonuses, equity awards or both, according to ISS, a proxy-advisory firm, up from a small minority before Sarbanes-Oxley.

As such provisions have grown in popularity, two things have happened. First, the list of misdeeds covered has lengthened. What initially applied solely to criminal financial conduct now extends to almost anything that might damage a firm’s reputation. That includes creating a toxic corporate culture, sexual harassment and “inappropriate” personal relationships; cupping backsides is taken as seriously as cooking books.
The second development is that more firms—albeit still a minority—are plucking up the courage to invoke the provisions. Wells Fargo clawed back $28m from John Stumpf on top of the $41m he forfeited when he resigned as CEO of the lender in 2016, after a probe concluded he had engendered a culture that encouraged employees to open fake accounts to lift sales. Goldman Sachs tapped a dozen current and former executives for $175m last year to help ease the pain of whopping fines over the investment bank’s role in the 1MDB embezzlement scandal. McDonald’s is trying to recoup $57m of severance pay from its ex-boss, Steve Easterbrook, who was fired over sexual relationships with underlings.
The Goldman Sachs case encapsulates the pros and cons of clawbacks. The firm won plaudits for its stance; here was a Wall Street giant willing to make top brass pick up some of the tab for wrongdoing. But what initially seemed a bold move became an embarrassment when Gary Cohn, its former second-in-command, who had cashed in his pay awards on joining the Trump administration in 2016, demurred. The stand-off ended when Mr Cohn agreed to pay a sum, reportedly $10m, to charity. Much as the bank tried to spin this as fair, it was made to look impotent.
The episode underlines that, when it comes to compensation, he who has already paid the piper finds it harder to call the tune. Goldman Sachs’s board could have shown more spine and seen Mr Cohn in court, if only to signal it was serious about holding grandees to account. That, though, would have been costly and risky. Lawyers’ fees might have exceeded what Mr Cohn owed as they wrangled over what is “excessive” pay, “inappropriate” behaviour or “inadequate” oversight in a scandal that involved decisions at many levels. The court might have sided with Mr Cohn, who was never personally accused of wrongdoing. Boards must also consider potential bad publicity. McDonald’s was put on the back foot when Mr Easterbrook claimed it already had information about his liaisons, including sexually explicit emails, when it approved his severance package.

Unsurprisingly, then, some firms try to just put the mess behind them. GE decided last month not to claw back pay from an ex-boss, Jeff Immelt, after a huge write-off and a probe into disclosure policies led to a $200m fine for the industrial conglomerate. (He denies wrongdoing.) Drugmakers accused of stoking the opioid epidemic have also eschewed clawbacks. Such clauses may deter some executives from reporting misconduct. And broadening what is considered wrongdoing creates ambiguity. Some firms include behaviour “embarrassing” to them. Might a CEO expressing exotic political views count?
Fire, brimstone and bonuses
Still, deterrence efforts are proliferating. One popular policy is to lengthen deferral periods for pay, by a year or more for cash bonuses, and a similar period beyond the vesting date for equity grants—in some cases until after the executive leaves the firm. Though less dramatic than clawbacks, this has the advantage of reducing the chance that the money has left the company before alleged misbehaviour emerges. Last month CVS Health, other pharmacy chains and even a few drugmakers (like Bristol Myers Squibb), agreed on a set of extended-deferral principles with a group of investors who had threatened to agitate over the firms’ role in the opioid crisis.
Clawbacks, too, will spread. For one thing, the pandemic recession has stoked anger over excessive executive pay—particularly perceived pay-for-failure such as Boeing’s $62m payoff to Dennis Muilenburg, who presided over the bungled response to two crashes of its 737 MAX passenger jets. And big investors like such provisions. In just a few years BlackRock, the world’s biggest asset manager, has gone from tepid to wholehearted support for them. What better way to focus executives’ minds than to make it clear that what the board giveth, the board can take away? ■
This article appeared in the Business section of the print edition under the headline “Red in tooth and clawback” More

“SUCCESS BREEDS complacency. Complacency breeds failure. Only the paranoid survive.” So said Andy Grove, the Hungarian emigré who helped turn Intel from a scrappy startup in the 1960s into the firm that did more than any other to put the “silicon” in Silicon Valley. They will be ringing in the ears of Pat Gelsinger, Intel’s new boss, who took over on February 15th. He takes the helm of a company that looks, from some angles, to be in rude health. With $78bn in revenue in 2020, it is the world’s biggest chipmaker by sales. It has a 93% share of the market for powerful—and lucrative—chips that go into data-centre computers, an 81% share in desktop PCs, and operating margins of around 30%.
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Yet Intel’s share price has underperformed those of rivals. Nvidia, a firm with one-seventh of Intel’s revenues, has a market capitalisation, at $370bn, that is half as high again (see chart). The manufacturing technology on which much of Intel’s success was built has fallen behind. It has missed the smartphone revolution. Some of its big customers, such as Apple and Amazon, are turning into competitors. Mr Gelsinger inherits quite the in-tray, then.

Start with production. Chipmaking is propelled by the quest for smallness. Shrinking the components in integrated circuits, these days to tens of nanometres (billionths of a metre), improves the performance of both the components and the microchip as a whole. For decades Intel led the way, its “tick-tock” strategy promising a manufacturing revolution every other year. Now “it has lost its mojo,” says Alan Priestley of Gartner, a research firm, who worked at Intel for many years. Its “ten nanometre” chips were originally pencilled in for 2015 or 2016 but did not start trickling out until 2019—an unprecedented delay. The technology is still not mature. In July Intel said the next generation of “seven nanometre” chips would not arrive until 2022, a delay of at least six months.
Manufacturing stumbles have cost it business. AMD, its most direct rival, outsources production to Taiwan Semiconductor Manufacturing Company (TSMC), whose technology is now ahead of Intel’s. That means AMD’s chips are generally faster, and consume less power; its market share has more than doubled since 2019.
A second challenge is the industry’s growing specialisation—a problem for Intel’s traditional forte of general-purpose chips, especially if desktop PCs continue to stagnate. Technology giants, flush with cash and keen to extract every drop of performance for their specific purposes, increasingly design their own semiconductors. In 2020 Apple said it would drop Intel from its laptops and desktops in favour of custom-designed chips. Amazon is rolling out its “Graviton” cloud-computing processors, also designed in-house and made by TSMC. Microsoft, whose cloud business is second only to Amazon’s, is rumoured to be working on something similar.
Intel has also failed to make any headway in smartphones, the most popular computers ever made. An effort in the late 1990s to build graphics chips, which have also proved handy for artificial intelligence (AI), and to which Nvidia owes its enviable valuation, petered out. Attempts to diversify into clever new sorts of programmable or memory chips—in 2015 it paid $16.7bn for Altera, which makes them—have so far not paid off in a big way.

Mr Gelsinger has yet to say how he plans to deal with the challenges. He does not look like a revolutionary. He began working at Intel aged 18, before leaving in 2009 to preside over EMC, a data-storage firm, and for the past nine years heading VMware, a software firm. In an email to Intel’s staff after his appointment was announced he invoked its glory days, recalling being “mentored at the feet of Grove, [Robert] Noyce and [Gordon] Moore”, the last two being the firm’s founders. Like them but unlike his predecessor, Bob Swan, Mr Gelsinger is an engineer, who in 1989 led the design of a flagship chip.
His first job will be to try to turn the firm’s ailing manufacturing division around. Intel already outsources the manufacturing of some lower-end chips to TSMC. Its production woes will force it, at least temporarily, to send more business to Taiwan, perhaps including some of its pricier desktop and graphics chips. Daniel Loeb, an activist investor with a sizeable stake in Intel, sent a letter to the firm’s management in December urging it to abandon factories entirely and restrict itself to designing chips that other firms, such as TSMC, would make. On paper, that looks attractive: Intel capital expenditure in 2020 amounted to $14.2bn, almost all of it on its chip factories. AMD, meanwhile, spun out its manufacturing business in 2009, and is thriving today. Nvidia has been “fabless” since its founding in 1993.
Finding a buyer could be tricky, says Linley Gwennap, a veteran chip-industry watcher, precisely because Intel’s factories are now behind the cutting edge. Most of the world’s chipmakers, which might be tempted by the fabs, are in Asia. Since chips are a front in America’s tech war with China, politicians may veto a sale to a non-American bidder.
In any case, Mr Gelsinger has said he will ignore Mr Loeb’s suggestion. In January the new boss said that, although the firm may use more outsourcing for some products, he intends to pursue the hard, costly task of restoring Intel to its customary position at chipmaking’s leading edge. He also seems minded to pursue his predecessor’s strategy of diversifying into new products, including graphics-to-AI chips. “Our opportunity as a world-leading semiconductor manufacturer is greater than it’s ever been,” he wrote. The direction of travel, then, is not about to change. Intel’s shareholders will have to hope that Mr Gelsinger can at least get it back on the pace.■
This article appeared in the Business section of the print edition under the headline “Hard reboot” More

WANDER AROUND Seoul’s residential neighbourhoods at dawn and you will invariably encounter a Coupang delivery van. In the past few years South Korea’s mini-Amazon has parked itself in a choice spot amid a crowded e-commerce market by steadily expanding the range of products it offers to deliver in time for breakfast, so long as customers order before midnight. Some items arrive the same day. The strategy looked sensible before the covid-19 pandemic. After 2020 it looks inspired. Coupang’s revenue nearly doubled from $6.3bn in 2019 to $12bn last year. It employs 50,000 people, twice as many as a year ago, and controls a quarter of South Korean e-commerce, up from 18% in 2019, according to Digieco, a research firm.
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The 11-year-old firm has yet to make money—its cumulative $4.1bn loss so far has been bankrolled by venture capital, notably SoftBank’s $100bn Vision Fund, which owns a 37% stake, according to estimates by Bloomberg. Cashflow has improved, says Kim Myoung-joo of Mirae Asset Daewoo, an investment firm in Seoul. But it needs more capital to grow.

Happily for Coupang, investors’ appetite for startups seems insatiable, as the boom in blank-cheque companies created to merge with them shows (see article). So on February 12th it filed the paperwork for an initial public offering (IPO) on the New York Stock Exchange. It may go public as soon as next month, at a market capitalisation that could surpass $50bn.

Coupang is the latest in a generation of young e-commerce stars nibbling at the heels of Amazon and Alibaba, a Chinese titan. The incumbents are being challenged at home (by Shopify in Amazon’s American backyard, and Meituan and Pinduoduo in Alibaba’s), as well as in places like Latin America (by Argentina’s MercadoLibre) or South-East Asia (by Sea, a Singaporean group). The upstarts’ sales have soared of late (see chart ). In the past 12 months they have more than quadrupled their combined stockmarket value, to $1trn.
With no known plans to expand abroad, Coupang’s prospects depend on fending off local rivals. These range from the e-commerce arms of big conglomerates such as Lotte and Shinsegae to internet platforms like Naver and upstarts like Baemin, a food-delivery service backed by Germany’s Delivery Hero. To extend its dominance Coupang must thus continue to nurture the customer goodwill it has garnered thanks to those pre-dawn deliveries. The firm prides itself on employing delivery workers directly, and has a newsroom section dedicated to correcting allegations, for instance over working conditions, that it deems false or distorted. But it has not escaped scrutiny of the e-commerce industry. Earlier this month it had to apologise after a government commission classified the death of a young contract worker at one of its logistics centres as an industrial accident.
Even if it manages to keep consumers on its side, as seems likely, long-term growth could require looking beyond fulfilment and logistics, thinks Ms Kim. MercadoLibre and Sea owe significant chunks of their rich valuations to adjacent businesses, from e-payments to gaming. To thrive in South Korea’s isolated online ecosystem, Coupang may need to occupy more than one niche. ■

This article appeared in the Business section of the print edition under the headline “South Korea’s baby Amazon” More