Trump’s Tough Talk on Chinese IP Theft: Too Little Too Late?

trumpDonald Trump made some questionable remarks this week that have rightly caused an almighty backlash. But one thing he did that may have more support, is sign an executive memorandum which will most likely lead to a lengthy investigation into alleged widespread Chinese theft of US IP. This is a big deal in Silicon Valley and something that has irked US business in general for years.

The question is, will this latest strategy actually result in any concrete changes on the Chinese side? As you can see from this new IDG Connect piece, I’m not convinced.

Years of theft

There are few things Democrats and Republicans agree on, but one is that China has had things far too long its own way when it comes to trade. The US trade deficit between the countries grew to $310 billion last year, helped by the growing dominance of Chinese businesses. Many of these have been able to accelerate their growth and maturation thanks to IP either stolen by hackers from US counterparts or take via forced joint ventures and tech transfers. Many of them are selling back into the US or their huge domestic market, undercutting American rivals.

Chinese firms don’t have the same restrictions around forced JVs and tech transfers to enter the US market. In fact, the likes of Baidu even have Silicon Valley R&D centres where they’re able to recruit some of the brightest locals, while government-backed VC firms have been funding start-ups to continue the seemingly relentless one-way IP transfer.

There are, of course, more nuances to the dynamic, but you get the point.

All talk

So, will this investigation get us anywhere? After all, it will empower the President to take unilateral action including sanctions and trade embargoes. Well, on the one hand, little gain can be made from stopping Chinese IP hackers, as they have stopped outright theft ever since a landmark Obama-Xi deal in 2015, according to FireEye Chief Intelligence Strategist, Christopher Porter.

“If anything, discontinuing straightforward theft of intellectual property for strictly commercial purposes has freed up Chinese actors to focus more on these other targets than ever before, so the risk to companies before and after the Xi Agreement depends heavily on what industry that company is in and what sort of customer data they collect,” he told me via email.

That’s not to say the Chinese aren’t still active in cyberspace, but it’s less around IP theft, which is the focus of this investigation, Porter added.

“We have seen an increase in cyber threat activity that could be Chinese groups collecting competitive business intelligence on US firms selling their products and services globally—several companies that were targets of proposed M&A activity from would-be Chinese parent companies were also victims of Chinese cyber threat activity within the previous year, suggesting that they may have been targeted as part of the M&A process to give the Chinese company a leg-up in negotiations,” he explained.

Which leaves us with JVs and tech transfers, which have provided Chinese companies with vital “know-how” and “know-why” over the years. To my mind, if there’s any area where the US can and should focus its diplomatic and negotiating efforts, it’s here. However, as reports in the past have highlighted, it took China years to construct a gargantuan, highly sophisticated tech transfer apparatus, and it won’t be looking to bin that anytime soon, especially with the Party’s ambitious Made in China 2025 strategy now in full swing.

Neither side will want to become embroiled in a trade war. The US has too many companies which count China as a major market – it’s Apple’s largest outside the US, for example – and Chinese firms are doing very well selling into the US, as that huge trade deficit highlights.

In the end, my suspicion is that this is just another bit of Trump tough talk which will actually produce very little.

“This long-awaited intervention should also probably be viewed in the larger picture of the way the Trump administration operates: in terms of ‘carrot and stick diplomacy’,” Trend Micro European Cyber Security Strategist, Simon Edwards, told me.

“It is also well documented that the US administration is trying to use trade deals to get action on the situation in North Korea; and perhaps this is more of a stick to be used with the accompanying ‘carrot’ of a greater trade deals?”

Time will tell, but it’s unlikely that US tech companies operating in China, and their global customers, will be any better off after this latest test.

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Is this the beginning of the end for Twitter?

twitter logoWith the long-time-coming resignation of CEO Dick Costolo, the continued lack of profitability and the reported slowdown in growth of monthly active users (MAUs), there’s been a lot of talk recently about the decline of Twitter. So is the firm just treading water until it’s acquired, or does it still have fight in its belly?

These are some of the questions I’ve been asking a range of social media analysts of late for an upcoming feature for IT Pro in Hong Kong. The answers were surprisingly positive for the firm. And I can summarise them thus:

  • The firm certainly made mistakes in the past, by failing to develop a revenue generating business model early enough. It hasn’t helped that several founders have had fingers in other start-up pies
  • It’s still true that outside of marketers and media types, not many people use or “get” the service
  • It’s been slow too to offer big brands a genuinely rich ad engagement platform to get their teeth into
  • Its failure to tackle the problem of online abuse and trolling on the platform continues to concern many people
  • It’s never managed to come up with an effective plan to challenge rival messaging products like Whatsapp, or photo-based social networks, like Instagram
  • In Asia things are even tougher, given the strong local rivals, the need to localise in so many different flavours and its exclusion from a market of 6-700 million internet users (yes, that one)

“The problems with Twitter right now are around its growth. Today Twitter’s user base isn’t growing as fast as the company would like, and compared to the other major social networks the growth of Twitter’s user base isn’t at all comparable and could be classified as slow,” Gartner research director, Brian Blau, told me.

“It’s clear that Costolo has to take some of the responsibility as he has been at the helm of the company for long enough to leave a lasting imprint. Given that the CEO has resigned at this point it’s clear that there’s some amount of responsibility that he is taking for the situation that the company is in today.”

However, the company can still turn things around, according to Ovum principal analyst, Pamela Clark-Dickson.

For one, it added 50 million MAUs from Q1 2014 to the same time this year – an 18%v increase – and its revenues went up by 74% to $436m, with ad revenues growing 71% to $388m, she told me. Quarterly losses have also been reduced from $511mn in Q4 2013 to $162.4mn in Q1 2015.  

It’s therefore still too early to write off the Silicon Valley poster child, she said.

“I think that Twitter has a solid financial base on which to build, but I think that in 2015 the company does need to focus on growing its user base into new markets/demographics, and it needs to continue to provide its brand partners with the tools and data that they need to increase their engagement with Twitter users,” Dickson-Clark added.

“If Twitter can’t successfully execute on these two key requirements, then user growth will continue to dwindle, and brands will turn elsewhere. And at that point, Twitter may become an acquisition target for another company that has the vision and the resources to revitalize Twitter’s business and bring it back to growth.”