Philippa Kaur

Questions are usually more interesting than answers. If you had to identify the most important person in your organisation, there is an obvious answer, a trite-and-untrue answer and a wrong-but-useful answer.The obvious answer is “the chief executive”. No cheese is bigger, no dog is more top. The most important decisions about the long-term direction of a company lie with the CEO; the hardest calls land on their desk; and the biggest pay cheques head their way. A board of directors might control their fate but no one wields more power. That is especially true of a startup: up to a certain point in its history, founders are the company.The trite answer to the same question is “the customer”. This is the kind of thing someone delivering a TED talk would say, after a suitably meaningful pause. It is the kind of thing that people in the audience would nod wisely at. An analysis of earnings-call transcripts of S&P 500 firms by Nandil Bhatia and Stephan Meier of Columbia Business School finds that executives talk about customers ten times more than they do about employees.But it is also untrue. The customer is patently not in your organisation. Many employees care more about who took their mug from the kitchen than anything else. There is a reason why firms sometimes have someone play the role of “customer advocate” in meetings.The third category of answer will almost certainly be wrong but it will be the product of an instructive thought process. Firms routinely identify their most talented people across departments, and offer retention bonuses to get them to stay. But they don’t usually ask what might qualify someone for the title of most important person in an organisation (setting the CEO to one side).If you think customers trump everything, then you might start by looking at the people who interact most with them. In some industries—rainmakers at investment banks, for instance—these folk have lots of status. But in many others, front-line employees suffer from low wages, job dissatisfaction and burnout. The effects can be pernicious, particularly in the public sector: turnover among child-welfare workers in America is persistently high, to take one example, and associated with worse outcomes for kids.Your search might lead you to the cutting edge: an executive, programmer or researcher working on your most promising new product. It might also take you back in time. The vital employee might be someone who knows the technology equivalent of Sanskrit. A report published in 2021 found that almost half of the British government’s tech spending was devoted to maintaining outdated IT systems. A 60-year-old programming language called COBOL is still in widespread use in many banks; according to Reuters, the average COBOL programmer is between 45 and 55 years old.Your products might owe their character to one person in particular: the designer who makes the curves of a luxury car distinctive, say. Or, if you think the secret sauce of your company lies in something amorphous like its culture, you might alight on people who embody it. Amazon anoints a special cadre of interviewers known as “bar raisers”, whose purpose is to participate in hiring processes as a kind of culture warrior. Their job is to ensure that successful candidates embrace the firm’s code of leadership principles.You might think of importance in terms of influence within the company—the person who may not have the longest title but does have the most tacit knowledge and social capital. They have the ear of the boss on important issues, but they also know everyone and everything: who is a nightmare to work with, why the firm cut ties with that supplier and who can help you order a new laptop. They are the Panama Canal of the organisation. Things can get done without them, but it takes a lot more time.This thought exercise is no more than that. As with organs in the body, the fact is that most departments have to run well for the whole company to thrive. You may not think much about your spleen but you would miss it if it suddenly disappeared; the same goes for your head of compliance. And the obvious answer is almost certainly correct: the CEO does matter more than anyone else.But asking the question might lead you to adjust a bonus here or document how things work there. It might lead you to spot a gap between where value is created and where it is being recognised. Just don’t tell everyone where they rank. ■Read more from Bartleby, our columnist on management and work:Networking for introverts: a how-to guide (Sep 7th)The best bosses know how to subtract work (Aug 31st)How to get the most out of mentoring (Aug 24th)Also: How the Bartleby column got its name More

Few events in the tech calendar create as much buzz as the release of the latest iPhone. On September 12th Tim Cook, Apple’s boss, unveiled what he called “truly incredible” new devices. Yet it was an earlier, quieter launch of a rival gadget that left the tech world gobsmacked. In late August, with no forewarning, Huawei showed off the Mate 60 Pro. As the first fully Chinese-made smartphone that can tap into 5G networks, it was an instant hit. The processors inside it were made by SMIC, China’s chipmaking champion. It is exactly this type of technology that America has been trying to stop Huawei and other Chinese companies from getting their hands on.If being upstaged by a Chinese rival was not enough to sour Apple’s mood, days later news broke that some Chinese government departments and state-owned firms may be banning iPhones. The American giant’s share price fell by 6%, wiping around $200bn from its market value.A ban’s direct impact on Apple would be minimal. A tiny fraction of China’s 7m or so public servants can afford iPhones, reckons Jefferies, an investment bank. Still, the rumours—and they are still that—signal that not even Apple, whose relations with China have long been cosy, is invulnerable to geopolitics. What is more, China’s targeting of America’s most valuable company, combined with SMIC’s newfound chipmaking prowess, may provoke hawks in Washington to tighten anti-Chinese controls. The Chinese may respond, and so on up the escalation ladder. No wonder investors are spooked.So far the tit-for-tat has rocked semiconductor firms the most. Last year America restricted exports to China of advanced chips and the tools to make them. Nvidia, a specialist in processors for artificial intelligence (AI) whose market value surpassed $1trn this year, said that trade controls will cut its quarterly revenue by 6%. Tighter controls could hurt its sales of data-centre AI chips. Between 20% and 25% of these go to China. In August Nvidia said that America’s government was controlling exports of its most advanced AI chips to the Middle East, possibly to prevent Chinese firms from procuring them there.The chipmakers have also suffered from Chinese retaliation. In May China barred memory chips made by Micron from certain infrastructure projects. The Idaho-based company said this could cut annual revenue by more than 10%. Talk of the Apple ban has pulled down the share prices of the iPhone-maker’s American chip suppliers, such as Cirrus, Qualcomm and Skyworks. Chinese regulators have also been dragging out the approval of big American acquisitions, points out Stacy Rasgon of Bernstein, a broker. As a result, in early August Intel, another chipmaker, gave up its attempt to buy Tower Semiconductor, an Israeli firm, for $5.4bn.The situation of American makers of chipmaking tools is more mixed. LAM Research and Applied Materials, two such firms, each warned last year of a $2bn hit to sales in 2023, equivalent to around 10% of revenue. But some of that may be offset by rising sales of equipment used in manufacturing less advanced semiconductors. American companies can keep selling these to China, which is stockpiling them while it still can. According to New Street Research, a firm of analysts, Chinese purchases of such tools have increased roughly four-fold between 2019 and 2023.Further escalation may bruise America’s tech giants, and not just Apple. According to the Wall Street Journal, President Joe Biden’s administration is considering curbing China’s access to American cloud computing. That would bring Alphabet, Amazon and Microsoft into the firing line.The biggest losers were, in American eyes, meant to be Huawei, SMIC and China’s other tech titans. They have certainly suffered. But today they are taking advantage of the techno-nationalism that is a byproduct of the geopolitical strife. Huawei’s share of domestic smartphone sales grew from 7% to 13% in the year to the second quarter of 2023, reckons IDC, a research firm. The new 5G device, which sold out in two days, may boost it further—as would an iPhone ban. Huawei also benefits from SMIC’s efforts to innovate around the American controls. In the week after the Mate 60 Pro’s launch, meanwhile, the chipmaker’s share price jumped by 10%. Not quite what the China hawks in Washington had in mind. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

Flashy temporary pavilions in Munich’s city centre displaying the latest models from bmw, Mercedes-Benz and Volkswagen were the public face of iaa Mobility, Germany’s biennial motor show, which ended on September 10th. German automotive might was less in evidence in the show halls a few miles away, where the Chinese electric vehicles (evs) that are making inroads in Europe vied for attention and floor space. The fear of a flood of well-made, decently styled and better-value evs from the east outcompeting those from Europe’s established carmakers has now jolted the eu’s lawmakers into action.image: The EconomistSuspecting foul play, on September 13th the European Commission announced an “anti-subsidy investigation” into Chinese car firms. Those found guilty may be hit with tariffs far above the 10% now levied on Chinese imports. These imports are small but growing fast. In the first seven months of 2023, 189,000 Chinese cars were sold in Europe, equivalent to 2.8% of all car sales. But Chinese pure battery cars made up nearly 8% of sales for this type of vehicle, reckons Schmidt Automotive Research, a consultancy (see chart). These sales have trebled in the past two years, led by Polestar and mg. Brands like Aiways, byd, Nio, Ora and Xpeng are also on sale. Others, like Leapmotor, are poised to join them. ubs, a bank, reckons China’s share of all cars sold in Europe could hit 20% by 2030. All will be electrified.China’s advance is in part a result of its government’s desire to create a global force in carmaking. A slowdown in ev sales at home as the economy weakens and lots of spare capacity have encouraged Chinese producers to look abroad. With America’s market protected by heftier tariffs and subsidies favouring domestic carmakers, they are eyeing Europe instead. The more compact Chinese models are anyway more suited to European tastes.Undoubtedly the Chinese carmakers have benefited from government largesse such as cheap loans. But making anti-dumping charges stick will be tricky. Complaints from a European industry that has long been hooked on all manner of state support look hypocritical. More important, as ubs notes, the 25% cost advantage over European rivals for the byd Seal, a mid-market ev that will go for as little as €45,000 ($48,000), are mostly the result of the firm’s high degree of vertical integration and the low-cost Chinese supply chain, not government handouts.Europe’s carmakers are split on the wisdom of the commission’s move. At the top end of the market, where brand loyalty is strong, Chinese firms like Nio are unlikely to challenge Mercedes and bmw, with or without subsidies. But by enraging the government in Beijing, the investigation endangers European companies’ Chinese profits. Half of German car firms’ net profits come from China, according to Bernstein, a broker. By contrast, marques such as Renault, which do not rely on China but face a daunting challenge in the cut-throat mass market, will probably cheer. Swingeing tariffs may spare them from having to cut costs to compete with a Chinese influx. European car buyers, who probably don’t care if China’s government had a hand in keeping down the price of evs, will be the ones to suffer. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

AMERICA’S trustbusters have long had their sights set on big tech. On September 12th in Washington they at last fired their opening shots in the first courtroom battle of the modern internet era. The Department of Justice (DoJ), along with 38 state attorneys-general, accuses Google of abusing its online-search monopoly to extract bigger profits, snuff out competition and slow innovation.The case hinges on Google’s deals with smartphone makers and other firms that, the DoJ claims, perpetuate its dominance of search. Google allegedly pays more than $10bn a year to companies like Apple to make its search engine the default on devices. Although the arrangements are not exclusive, they add friction for those who might have preferred another search provider. More users bring more data, enabling Google to improve its products and lock in more users still. This flywheel, as Silicon Valley types refer to the notion that digital scale begets more scale, “always turns to Google’s advantage”, intoned Kenneth Dintzer, the DoJ’s lead courtroom counsel in the case.The stakes are most obviously high for Google and its $1.7trn corporate parent, Alphabet. In the first half of 2023 Google search generated $83bn in revenues, accounting for 57% of the group’s top line and virtually all its profits. Although Google’s loss would be unlikely to result in its break-up, the company may need to change its ways. No more deals with smartphone-makers, for example.The threat of such an outcome to Google’s business is hard to gauge but unlikely to be existential. In early 2020 Europeans won the right to pick their default search engine when they set up new devices powered by Google’s Android mobile operating system. Since then Google’s share of European search has edged down from 94% to 90%. Assuming Americans behaved similarly, and given that a percentage point of global market share in search equals some $2bn in annual ad sales, a few billion dollars could be shaved off Google’s top line over several years.The DoJ too has a lot riding on the outcome—perhaps even more. Its lawyers must first prove that Google is in fact a monopoly. Although the company processes more than 90% of the world’s search queries, Alphabet argues that its competition extends beyond just browsers: Amazon, TikTok and ChatGPT are all in the business of search, too. Second, trustbusters have to show that Google is abusing its monopolistic position. The firm says that users have lots of choice, and choose Google because it is a superior product.A defeat for the DoJ could undermine the aggressive approach to tech that it and its fellow trustbusters at the Federal Trade Commission (FTC) have pursued under President Joe Biden. Another DoJ lawsuit against Google, over its ad-tech business, could go to trial in January. The FTC is seeking to break up Meta’s social-media empire. Amazon and Apple are also under investigation. The result of the Google trial will set the tone—and the precedent—for a lot of trustbusting to come. ■ More

BIG TECH keeps getting bigger. So far this year the combined market value of America’s five digital behemoths—Alphabet, Amazon, Apple, Meta and Microsoft—has soared by half, to around $9trn. That is almost a quarter of the total for the S&P 500, an index of America’s largest companies (which has risen by just 17% in the period). The five account for almost 60% of sales, profits and spending on research and development of all the technology firms in the index. They are widely expected to be the main winners from the artificial-intelligence (AI) revolution.Governments view this dominance with increasing trepidation. On September 12th America’s Department of Justice began a courtroom showdown with Google and its corporate parent, Alphabet, in the biggest antitrust case in two decades, accusing it of abusing its internet-search monopoly. This month an eU law labelled the big five as digital “gatekeepers”, which bars them from bundling certain services and discriminating against third parties on their platforms, among other things. The tech giants have grown so gigantic, the world’s trustbusters argue, that they suck all the oxygen out of the technology ecosystem, driving challengers to extinction or, at best, making it hard for anyone else to prosper. Just ask Snap, Spotify or Zoom.Like natural ecosystems, though, commercial ones present opportunities for newcomers. To keep growing at the blistering rates their investors expect, the big five pay most attention to markets vast enough to make a meaningful difference to their revenues, which collectively touched $1.5trn last year. That means they ignore certain areas that are smaller but potentially still lucrative. The ingenious companies that identify such niches and are able to exploit them don’t just get by, but thrive in the shadow of the giants.Take Garmin. Founded in 1989, the company pioneered the commercial use of GPS-navigation systems. By 2008 it had nabbed almost a third of the market for portable navigation devices, mostly dashboard-mounted units for cars, which accounted for some 72% of the company’s sales. Then Google released its Google Maps app, first, in 2008, for Android smartphones and then, four years later, for the iPhone. At this point motorists could simply use their phones to find their way, rather than forking out for a dedicated device. By 2014, Garmin’s revenues from its automotive segment had slumped by half compared with six years earlier, to $1.2bn.image: The EconomistA year later big tech delivered another blow. Apple launched its first smartwatch, which risked undermining Garmin’s growing business of selling devices for fitness and outdoor enthusiasts. This time, though, the smaller company withstood the assault (see chart 1). It focused on high-end watches and fitness trackers, some of which sell for several times the price of the top-end Apple Watch. In doing so it has built a loyal user base of mountaineers, runners and other assorted fitness fanatics; in April Mark Zuckerberg, Meta’s exercise-fanatical boss, posted a photo of his Garmin watch after finishing a 5km run in good time.image: The EconomistGeorge Livadas of Upslope Capital, an investment firm, believes that Garmin is one of the few companies that has created a premium brand in a market with an available Apple alternative. Today its total annual revenues of almost $5bn are roughly twice what they were when the first Apple Watch hit the shelves. Smartwatches and fitness trackers contribute almost 60% of the firm’s sales (with most of the rest coming from professional navigation systems for ships and aircraft, see chart 2).Another company to successfully exploit an underserved tech niche is Dropbox. Steve Jobs, Apple’s co-founder, once dismissed the San Francisco-based cloud-storage firm as a “feature, not a product”. Founded in 2008, the company has battled Apple, Google and Microsoft (and for a while, Amazon) throughout its life. Its bigger rivals all bundle cloud storage with other services; customers that sign up for Google’s Gmail, for instance, receive some free online storage. But those offerings, though often free of charge, lack Dropbox’s functionality.According to Rishi Jaluria of the Royal Bank of Canada, early on Dropbox recognised that many users needed more than just a place to stash files. Photographers and other creative types want to store high-resolution files without worrying about file size, to cite one example. These demanding users are often ready to pay for the convenience. By developing features that appeal to them, most recently an AI-powered search tool to find and summarise documents, Dropbox has continued to attract new subscribers.An exploitable niche can also be geographic. MercadoLibre, an Argentine e-commerce firm, is a case in point. Its days might have seemed numbered when Amazon entered Brazil and Mexico, its biggest markets, in 2012 and 2013, respectively. Not so. A decade later MercadoLibre accounts for a quarter of all e-commerce trade in Latin America. The closest Amazon has come to challenging the regional shopping giant is in Mexico, but even there its market share is half that of its rival.MercadoLibre has succeeded by adapting its business model to local conditions. It quickly identified poor infrastructure, which raised costs for sellers and degraded the buying experience for shoppers, as a hindrance to growth. Over the past decade the firm has invested in its own logistics network, which transports 90% of its parcels. Its payments service, MercadoPago, is a popular option in a region with rampant fraud. Small innovations like offering points towards free delivery have helped it win over price-conscious Latin Americans. The company also plays up its local roots to win over customers. Ariel Szarfsztejn, its head of commerce, describes it as “built by Latin Americans”. In April, as Amazon was slashing its workforce worldwide, MercadoLibre announced plans to hire 13,000 people.Witness the fitnessFinding your niche is not enough to guarantee success for big tech’s challengers. Garmin, Dropbox and MercadoLibre have other things going for them. All three still have at least one of their founders in executive roles. Winning against big tech requires an obsessive focus on product development and the stomach for long-term investments. It helps to have experienced operators at the helm who aren’t swayed solely by quarterly targets.Crucially, the three companies also make money—a big selling point for investors at a time of rising interest rates, which make the promise of tech hopefuls’ future profits less attractive than earnings in the here and now. In 2022 Garmin, Dropbox and MercadoLibre raked in $974m, $553m and $480m, respectively, in net income. That is a fraction of Alphabet’s $60bn or Apple’s $100bn. But the trio’s operating margins look healthy for smart-watch, cloud and e-commerce businesses. The market capitalisation of Garmin has tripled since 2015, to over $20bn. MercadoLibre’s has quintupled, to $70bn. Dropbox is worth $10bn, not too far off its peak amid the pandemic-era mania for all things digital. Who said anything about extinction? ■ More

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