Philippa Kaur

ANTHONY ALBANESE, Australia’s prime minister, has called it “completely unacceptable”. Jim Chalmers, his treasurer, is “furious”. The object of their ire is PwC. The professional-services giant is in hot water over allegations that, after helping the government design a new system to make foreign multinational firms pay more tax, it used its inside knowledge to help global clients circumvent those same measures.Listen to this story. Enjoy more audio and podcasts on More

NEIL SHEN has god-like status in the Chinese private-equity industry. The lead dealmaker at Sequoia China placed big, early bets on some of the country’s most successful technology companies, such as Meituan, a delivery super-app, and Pinduoduo, an e-commerce giant. Now Mr Shen’s investment firm is planning to go it alone, dropping the Sequoia name and eventually severing all connections with its Silicon Valley parent. On June 6th Sequoia Capital, a 51-year-old stalwart of the venture-capital industry, announced it would split into separate American, Chinese and Indian businesses. Sequoia China has operated with a high degree of autonomy for a while, with Mr Shen calling most of the shots. So has Sequoia’s Indian and South-East Asian business, led by Shailendra Singh. By March 2024 the entities will no longer share investors or returns, as they have done for years. The Chinese branch will be known as HongShan, the mandarin word for redwood. Sequoia says the split is part of a “local-first” approach designed for a world where it has become “increasingly complex to run a decentralised global investment business”. Many of Mr Shen’s investments were indeed made for a globalised, connected world. He was an investor in Didi Global, a Chinese ride-hailing company whose listing in New York was hobbled by China’s government in 2021. He hoped to make American social media work in his home country by investing in the Chinese arm of LinkedIn, a networking platform for professionals—before growing censorship and onerous rules forced LinkedIn to give up almost completely on the country. Meanwhile in America, where bashing China is just about the only thing that Democrats and Republicans can agree on, Sequoia and other investors face mounting political pressure to quit China. Montana has just banned TikTok, a short-video app in whose Chinese parent, ByteDance, both Sequoia Capital and Sequoia China have stakes. DJI, a big Chinese dronemaker part-owned by Sequoia China, is on an American investment blacklist.Investors and bankers in China have seized on Sequoia’s decision as a sign that the country is losing important business connections with the rest of the world. The environment for foreign businesses has indeed turned dark. Raids by Chinese authorities on several Western consulting firms have put multinationals on edge. So has the glum outlook for the economy, which has been boosted less than expected by its reopening after hard pandemic-era lockdowns. Imports and exports both slumped by more than forecast in May. A two-year government campaign against China’s digital giants, though now supposedly over, has left deep scars. The Communist Party is taking ever larger stakes in promising technology companies. Fraught geopolitics and heavy-handed domestic politics are taking a toll on investments in Chinese private assets. Funds that focus on such bets raised just $25bn last year worldwide, down by 77% from the year before, according to Bain, a consultancy (see chart). Greater China’s share of fundraising relative to the rest of Asia has fallen to a 15-year low. Deal value for private equity in China tumbled by more than half last year, more than anywhere else in the region. Sequoia is unlikely to be the last to step away. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

Many a business deal is sealed on the golf course. So it was on June 6th, when America’s PGA Tour and Europe’s DP World Tour, the biggest organising bodies in men’s golf, said they had agreed to merge with LIV Golf, a Saudi Arabian upstart. The deal, which will reportedly see LIV’s backers invest around $3bn in the combined entity, ends a costly split in the game and gives the Saudis membership of one the most august clubs in sport.LIV Golf teed off last June, financed by Saudi Arabia’s $650bn sovereign-wealth fund. It brought made-for-TV razzmatazz to a normally genteel game. Shorter tournaments feature teams with names like Crushers. Polite applause gave way to whooping. Star players were paid a fortune to take part, despite misgivings that the Saudis were “scary motherfuckers”, in the words of Phil Mickelson, one who took the money. To hang on to talent, the old tours More

LAWYERS are a conservative bunch, befitting a profession that rewards preparedness, sagacity and respect for precedent. No doubt many enjoyed a chuckle at the tale of Steven Schwartz, a personal-injury lawyer at the New York firm Levidow, Levidow & Oberman, who last month used ChatGPT to help him prepare a court filing. He relied a bit too heavily on the artificial-intelligence (AI) chatbot. It created a motion replete with made-up cases, rulings and quotes, which Mr Schwartz promptly filed after the bot assured him that the “cases I provided are real and can be found in reputable legal databases” (they were not, and cannot). Lesson learned, a tech-sceptic lawyer might conclude: the old ways are the best.That is the wrong lesson. Blaming AI for Mr Schwartz’s error-filled brief makes no more sense than blaming the printing press for mistakes in a typed one. In both cases, fault lies with the lawyer who failed to check the motion before filing it, not the tool that helped produce it. For that is what AI is: neither a fad nor an apocalypse, but a tool in its infancy. And one that could radically change how lawyers work and law firms make money. The legal profession is hardly the only field about which one could say that. But few combine as clear a use case with so high a risk. Firms that get it right stand to reap rewards. Laggards risk going the way of typesetters.According to Goldman Sachs, a bank, 44% of legal tasks could be performed by AI, more than any occupation surveyed except for clerical and administrative support. Lawyers spend an awful lot of time scrutinising tedious documents—the sort of thing AI has already shown it does well. Lawyers use AI for a variety of tasks, including due diligence, research and data analytics. These applications have largely relied on “extractive” AI, which, as the name suggests, extracts information from a text, answering specific questions about its contents. “Generative” AIs More

“CERTAIN PRODUCTS…shift the way we look at technology,” said Tim Cook, Apple’s boss, as he unveiled the tech giant’s latest gadget on June 5th. The Vision Pro, a headset for virtual and augmented reality (VR and AR in the lingo), whose development has been rumoured for years, will be available early next year. With more than 5,000 patents, Apple dubbed the sleek glass goggles “the most ambitious product we’ve ever created”.It may also turn out to be one of their lowest-selling. The company had reportedly hoped to shift some 3m units in the first year. But expectations have been scaled back; some analysts now expect Apple to ship fewer than 200,000 units in 12 months, an order of magnitude less than any other big product launch. The Vision Pro’s first iteration may be a commercial flop. Yet it is also the first step on the way to something that Apple hopes will be much bigger.The tech, which Apple has yet to let the public get its hands on, looks impressive. Unlike other headsets, which tend to require hand-held controllers, the Vision Pro is controlled by hand gestures, voice commands and eye movements. It tracks eyes like a mouse, and recognises irises in lieu of a password. It is a “pass-through” device, which uses front-mounted cameras to show the user a video view of the world around them. And to make them appear more normal to others, it projects a video image of their eyes onto the front of the glass. (An Apple ad shows a man making his children breakfast while wearing it, something you would struggle to do with most headsets.)The chief reason for the projected low sales is the price. At $3,499, the device is more than three times as expensive as Meta’s rival VR and AR headset, the Quest Pro, and more than ten times as expensive as the Quest 2, the social-media firm’s widely used VR device. Even at this price, Apple’s gadget has had to make some technical compromises. It has a clunky external battery, connected to the headset by a cable, which lasts only two hours. And though Apple’s designers have done their best to make it as sleek as possible, it is still an awkward thing to strap to your face.Such challenges have forced many competitors to rethink their involvement in virtual and augmented realities. Meta seems to be scaling back its enthusiasm, following investors’ complaints about its spending and, reportedly, weak sales of the Quest Pro despite a steep price cut since its launch in October. Microsoft, a software giant, has put on hold the idea of making another HoloLens, an AR device that is mainly used by corporate clients. Snap, another social-media firm, seems in no hurry to bring out a new version of its AR Spectacles. Tencent, a Chinese digital titan, abandoned its VR hardware plans in February.It isn’t unusual for new products to take time to take off. Apple’s past hits mostly took several years before they really caught on (see chart 1). Sales of the Apple Watch were low until people decided that its key use was for monitoring their health. The iPhone didn’t really take off until its fourth generation, in 2010, by which time the App Store was populated with thousands of apps that made people realise what the phone could do. Discovering more use cases for the iPhone also helped to justify its price. The device was considered ludicrously expensive when it launched at up to $599; these days a top model costs $1,599, a price people are willing to pay because it can do so much. Perhaps Apple can normalise paying thousands of dollars for a pair of glasses in the same way.Still, the Vision Pro is launching at a particularly early stage. Rather than a true consumer product, it is more like an “expensive developer kit”, says one maker of AR components. Releasing a developer-oriented product at this stage is a “new frontier” for Apple, says George Jijiashvili of Omdia, a firm of analysts. There are two reasons for it wanting to get the product out early. One is competitive pressure, chiefly from Meta, which despite retrenching a little has been on a hiring and acquiring spree in its aim to make the “metaverse” into reality. As well as hoovering up talent, Meta has been recruiting users. Already about 10% of Americans use a VR headset at least once a month, according to Insider Intelligence, a data firm. Most of those sets are made by Meta, which has been flogging its Quest 2 at a loss to build up a critical mass of users. This autumn it will release the Quest 3, a pass-through device which will be far less capable than Apple’s but, at $499, a more realistic prospect for most consumers.The second reason Apple wants to get its product out is because it already has its eye on what comes next. Tech types have long speculated that it will eventually be possible to have a pair of AR glasses as thin and unobtrusive as a pair of sun shades, at which point headsets will stop being clunky things for nerds and start becoming something that normal people might wear all day. Such devices might even replace the smartphone as the next big tech platform. “I don’t think there’s a doubt in anyone’s mind that AR is the future,” says Jitesh Ubrani of IDC, another data company. Apple’s presentation characterised the Vision Pro as “the start of an entirely new platform”.Glasses half fullThe strategy is not without risk. Apple has a reputation for releasing perfect, polished products. Releasing a $3,499 device with a two-hour battery life could amount to what Steve Jobs, Mr Cook’s late predecessor, used to characterise as a “brand withdrawal”.It is also not yet clear what people will do with their devices. So far VR headsets have been used mostly for gaming: nearly 90% of VR content spending last year was on games, estimates Omdia. Meta’s Quest Pro has failed to excite professionals with its promise of in-person video conferencing and the like. Apple’s Vision Pro presentation, though characteristically slick, had nothing resembling a “killer app”. There are some exciting features, such as the ability to take 3D photos and videos, turning the device into a “nostalgia generator”, says Mr Ubrani. But most of Apple’s suggested uses for the Vision Pro seem to involve treating it as a sort of giant virtual desktop, using floating windows of Zoom chats or Excel spreadsheets, or watching a film on a giant virtual screen. None of this is anywhere near as innovative as the technology itself.Still, Apple enjoys big advantages over its rivals. It has a huge existing user base, with 2bn devices in circulation. The Vision Pro presentation showed how the headset synchronises with Apple’s other gadgets: users can do FaceTime video calls with friends on their iPhones or project a MacBook laptop screen into the headset just by looking at it. Apps for the iPhone and iPad will be compatible with the Vision Pro, meaning there will be hundreds of thousands of apps available at launch—albeit ones not optimised for the device.Apple’s strategy is also straightforward: make the best headset and charge consumers a lot of money for it, and, presumably, also charge developers a slice of their app earnings, as happens in the App Store. Although the firm seems focused on the eventual goal of AR, that is quite different from the VR-centric metaverse that Mark Zuckerberg, its boss, has talked so much about.Apple also has a trusted brand among consumers. In a survey in 2021, three times as many people said they would buy a headset from Apple as from the second-placed company, Google. Meta came sixth. It has leverage with developers, too. It will have apps from Microsoft, as well as Zoom and Webex, and a partnership with Unity. Bob Iger, Disney’s chief executive and a former friend of Jobs, made a surprise cameo in the presentation to praise Apple’s “revolutionary platform” and show off how the headset might allow audiences to watch a “Star Wars” movie before being transported in virtual reality to the planet of Tatooine, or watch 3D replays of a basketball match in VR on Disney’s ESPN sports network. Having Mickey Mouse, or even the Disneyland castle, appear in the sitting room—“Bring[ing] Disney to our fans in ways that were previously impossible”, as Mr Iger put it—is the sort of thing that might excite people more than virtual conferencing.Few people are likely to cough up for the Vision Pro, at least initially. But Mr Cook, who compared it to the launch of the Mac and the iPhone, said it was the “beginning of a journey”. It may yet be that the journey leads somewhere profitable. As Mr Ubrani puts it, “When Apple enters a market, it completely changes the trajectory of the market.” ■ More

Since the launch in November of ChatGPT, an artificially intelligent conversationalist, AI is seemingly all anyone can talk about. Corporate bosses, too, cannot shut up about it. So far in the latest quarterly results season, executives at a record 110 companies in the S&P 500 index have brought up AI in their earnings calls. ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

GO FIRST, an Indian low-cost airline, collapsed in May under the weight of four years of losses, citations for safety lapses and operating confusion that, in January, resulted in a flight from Bangalore to Delhi carrying baggage but forgetting a third of its passengers. At least the carrier held valuable assets in the form of 45 or so aircraft stranded at Indian airports. And, as a high-priority case, it was supposedly subject to expedited bankruptcy hearings. A prompt liquidation and redeployment of assets has obvious benefits for the aviation industry, its creditors and, possibly, for rivals keen to snap up its planes to add capacity in response to packed flights. Not so fast, the court hearing Go First’s case now appears to be saying. Rather than allow easily identifiable assets like the company’s aeroplanes to be reclaimed while more complicated financial ones are unwound, it has placed a blanket hold on all the airline’s assets. The Go First roadblocks are indicative of longstanding problems with bankruptcy in India. These were meant to be solved by a new insolvency code introduced in 2016. That code’s provisions shifted power from indebted companies, protected by a morass of earlier rules, to their creditors. It allowed some interminable bankruptcy proceedings at last to come to an end, for example forcing the sale of Essar Steel, an industrial giant which had been in default to various creditors as far back as 2002. A smooth journey through the court system was meant to send a bigger message—that the risk of lending to Indian businesses could be mitigated by ensuring that collateral is readily transferable. This, the argument went, would help reduce borrowing costs for corporate India more broadly. Despite a few successes such as Essar, however, the regime has not lived up to its promise. One persistent problem has been the low recovery rate for creditors’ claims. In the past seven years lenders to a company that presented a successful resolution plan received a paltry 32% of their claims, on average. And only one in four bankrupt firms present such a plan; the remaining three-quarters of cases end in liquidation, for which creditors’ average recovery rate is a dismal 7% of what they are owed. The official figures may overstate the actual returns of what creditors are owed. They take no account of the time and effort involved in the process—the second problem with the code as applied in practice. Under the law, cases are to be resolved within 330 days. The latest quarterly update by the law’s administrator, the Insolvency and Bankruptcy Board of India, indicated that cases leading to a liquidation took an average of 456 days to conclude. The average for cases in which the company survived through a resolution plan was a gobsmacking 614 days. The number of applications that are taking more than two years rose to 85 in the 12 months to March 2022, from 15 a year before. Bankruptcy lawyers grumble that submitting an application in the first place is becoming harder, and can itself now take a couple of years. Fixing India’s bankruptcy process may require revisions to the law. It could, for instance, do with a clearer distinction between tangible and less tangible assets of the sort that has historically allowed things like railway carriages to be repossessed quickly and leased out in jurisdictions such as America. The bankruptcy system also needs more resources. As the number of cases keeps rising, so does the backlog (see chart). Unlike India’s older courts, often ensconced in palatial buildings, the country’s busiest bankruptcy forum in Mumbai occupies an upper floor of a dilapidated old building owned by MTNL, an ailing state-owned telecoms provider. In theory, its five courtrooms operate six hours a day. Lawyers say that in practice four hours is more common. Without enough judges to man all five benches, some courtrooms remain empty. As an exasperated banker involved in many insolvencies puts it, “No one is winning now.” ■To stay on top of the biggest stories in business and technology, sign up to the Bottom Line, our weekly subscriber-only newsletter. More

IF AUSTRALIA AND Canada were one economy, this “Ozanada” would be the world’s fifth-largest, bigger than India and just behind Germany. Considering the two in tandem is not as nutty as it seems. Weather aside, they have a remarkable amount in common. Both are vast land masses populated by comparatively few people and dangerous wildlife. Both are (mostly) English-speaking realms of King Charles III. Both export their rich natural resources around the planet. And both are magnets for immigration.Their worlds of business, too, are near-identical. Macquarie, an Australian financial group, is the world’s largest infrastructure-investment manager. Brookfield, a Canadian peer, is the runner-up. Fittingly, Australia has produced a number of top surf-clothing labels, just as Canada has developed a niche in parkas and other winterwear. And, of course, both are home to commodities giants. But the main thread that connects Ozanada Inc is less fetching. As Rod Sims, former head of Australia’s competition watchdog puts it, his country’s firms have “forgotten how to compete”. So have their Canadian counterparts.Many hands have been wrung in recent years over oligopolies in America. Yet next to Ozanada, the world’s largest economy looks like a paragon of perfect competition. Coles and Woolworths, Australia’s biggest supermarkets, sell 59% of its groceries, according to GlobalData, a research firm. Loblaws and Sobeys peddle 34% of Canada’s—more than the combined share of the top four grocers in America. In both Australia and Canada the four biggest banks hold three-quarters of domestic deposits, compared with less than half in America. In both countries domestic aviation is a duopoly and telecoms a triopoly. The list goes on.Part of the explanation for Ozanada’s oligopolistic tendencies is benign. If companies need to be of a certain scale to be economically viable—to afford the necessary investments in computer systems, for example—then a small economy may be unable to support more than a few players in many industries. Ozanadian national champions, notably its grocers and lenders, are, however, meaningfully more profitable than their American counterparts. That points to other, less innocent causes. Toothless antitrust regimes in both countries set a high bar for blocking mergers, permitting consolidation. A lack of openness to foreign investment doesn’t help. Of the 38 members of the OECD, only three—Iceland, Mexico and New Zealand—are less open to foreign investment. Stringent screening, ownership caps and various other hurdles make setting up shop in Ozanada a hassle for foreigners. In 2013 Naguib Sawiris, an Egyptian telecoms tycoon, swore he would never again invest in Canada after his bid to acquire the fibre-optic network of Manitoba Telecom Services (MTS), a Canadian carrier, was rejected by the government with little explanation. Four years later MTS was purchased in its entirety by Bell Canada, a local rival.All this may reflect a unique Ozanadian spin on the “resource curse” that has brought political instability and underdevelopment to commodity-rich countries in Africa and South America. Ozanada’s natural bounty has weakened its incentive to build globally competitive industries in other areas. That may explain why, beyond commodities and outdoor apparel, the list of successful Ozanadian multinationals is so short. Canada’s banks have dipped a toe in America, but remain small fry. Its life insurers have fared only a bit better south of the border, mostly thanks to big acquisitions. Vegemite, a divisive Australian spread, has yet to win over foreign sandwich-eaters.Ozanada Inc’s limitations are particularly acute at the cutting edge of technology. Products deemed “high-tech” by the World Bank, such as computers and drugs, represent more than 7% of the combined exports of OECD members, but only 4% for Canada and less than 2% for Australia. Patents granted per 10,000 people are a mere 5.9 in Canada and 6.7 in Australia, compared with 9.9 in America and 28.2 in South Korea. This is not for want of well-nourished brains; Ozanada is home to world-class universities and boasts some of the highest rates of tertiary education in the OECD. Rather, the problem is an underfed innovation system. Spending on research and development comes to just 1.7% and 1.8% of GDP in Canada and Australia, respectively, against an OECD average of 2.7%. Total venture-capital investment in Ozanada was a mere $16bn in 2022, roughly half the level in Britain. Atlassian and Canva, two Australian technology successes, and Shopify, a Canadian one, have not prompted a lot of fresh prospecting for the next generation of tech winners.Dormant animal spiritsTo Ozanadians, this may all seem academic. After all, among citizens of countries with at least 20m inhabitants, only America’s are richer. But they used to be better off than Americans: after soaring in the first decade of the 2000s thanks to rising commodity prices, their GDP per person briefly surpassed America’s in the early 2010s in dollar terms. And a fate tethered to demand for commodities may prove particularly volatile in the decades to come. Canada, with its reliance on oil and gas exports, could be dragged down by decarbonisation. Australia will be somewhat insulated by its vast deposits of copper and other minerals needed for the green transition. But it could suffer from its dependence on shipping commodities to China. In 2020 China began introducing restrictions on Australian coal, timber and other products, seemingly in retaliation for calls by Australia’s then government for an inquiry into the origins of covid-19. Australia weathered those restrictions, which have since been loosened, surprisingly well. A long-term slowdown in China’s economic growth, though, which many economists now expect, would weigh heavily on the country. Ozanada’s economic model is not about to collapse. In time, though, its corporate weaknesses may come back to bite it. ■Read more from Schumpeter, our columnist on global business:Why tech giants want to strangle AI with red tape (May 25th)America’s culture wars threaten its single market (May 18th)Writers on strike beware: Hollywood has changed for ever (May 10th)Also: If you want to write directly to Schumpeter, email him at [email protected]. And here is an explanation of how the Schumpeter column got its name. More