Abu Dhabi, UAETuesday 24 November 2020

TikTok is learning how to do business in a divided world

The TikTok office in Culver City, Los Angeles. The Chinese company is caught between two powerful governments. AFP
The TikTok office in Culver City, Los Angeles. The Chinese company is caught between two powerful governments. AFP

Kevin Mayer has stepped down as chief executive of TikTok just months into the top job after US President Donald Trump vowed to shut down the short-video app unless it sells its US business to an American firm in 90 days. Walmart, one of the world's largest retailers, has joined fellow US companies Oracle, Microsoft and Twitter in their desire to acquire this crown jewel at a healthy discount, with Walmart looking to bolster its e-commerce business through live-streaming on the TikTok app.

The appointment of Mr Mayer, a former Disney executive, as the all-American public face of TikTok was a way for a company with Chinese roots to mediate with the US, which accuses TikTok of threatening its national security. Clearly, Mr Mayer was biting off more than he could chew.

But if TikTok’s time is running out in America, it will not go down without a fight. Last week, the company sued the Trump administration over an executive order blocking it in the US – a move that the company's leadership argues was politically motivated and without due process.

TikTok’s hardiness has been nothing short of astounding. The unfolding drama is shaping up to be a classic case study on crisis management. There are key lessons that observers can take from the TikTok fallout, which could have big implications for the strategy of big tech.

The first relates to the company’s oracular anticipation of a crisis. Amid rising tensions between Washington and Beijing, TikTok has been shifting activities overseas, storing user data in servers in the US and Singapore. That lets it boldly claim that all of its data centres are located outside China, and therefore none of its data is subject to Chinese law. This is important because at the heart of the American crackdown on TikTok – and other Chinese internet giants like Tencent’s WeChat – are perceived threats to US economic and national security.

These apps capture vast data about US citizens (email addresses, phone numbers, even GPS co-ordinates), which Washington argues creates a risk that Beijing could demand access to personal information for espionage purposes. Legally, this is a grey area, but the allegation is that Chinese executives are expected to appease the ruling Communist Party.

TikTok’s parent company, ByteDance, denies this accusation. The data simply feeds its powerful advertising machine, it argues. As if to insist further upon its neutrality, it is opening a $500 million data centre in Ireland, placing the information generated by European users out of Beijing’s reach. However, back in China, ByteDance is coming under fire for appeasing the US amid increasingly frosty relations with Washington.

At the heart of the American crackdown on Tencent’s WeChat are perceived threats to US economic and national security. Reuters
At the heart of the American crackdown on Tencent’s WeChat are perceived threats to US economic and national security. Reuters

Not every company is caught up in a technology battle between two world superpowers. But in order to be successful, executives of all stripes will need to keep a finger on the pulse of political sentiment, and shift activities quickly before the political tide turns, by moving out of uncertain markets and into more stable ones.

Another lesson from the TikTok crisis, therefore, is the importance of separating research and development efforts across regions. Even though TikTok says it already stores user data outside China, ByteDance and its China-based engineers are the ones writing the code on which the TikTok app runs.

Herein lies the key point of contention with the US. The fact that TikTok is exporting technologies has – rightly or wrongly – aroused suspicion in America. Although the company insists that it limits access to US users’ personal data, its servers overseas are still managed by engineers based in China.

If TikTok is to survive in the US, it will need its own engineering team in America. And indeed, the company has over the past year been transferring some product managers from China to the US and beefed up hiring there.

Kevin Mayer, TikTok’s outgoing chief executive. His appointment in May was seen as a move to boost the app's American credentials. AFP
Kevin Mayer, TikTok’s outgoing chief executive. His appointment in May was seen as a move to boost the app's American credentials. AFP

With tensions rising between Beijing and Washington, other global technology companies may come under pressure to “wall off” their research and development activities in the world’s two largest economies. This suggests that building one product in one country, no matter how great it is, won’t guarantee global success. For that, tech companies may need to decentralise everything from R&D to product development. Technology is about to become a lot more localised.

This was not the role that Mr Mayer signed up for, especially after TikTok was banned in India, too, with the government there also citing national security. If technology companies are to successfully globalise, they will need to seriously consider decoupling their operations in an increasingly protectionist world. For TikTok, the clock is ticking.

Howard Yu is the LEGO professor of management and innovation at the Institute for Management Development (IMD) in Switzerland

Updated: September 7, 2020 12:29 PM

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