The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Peter Thal Larsen
LONDON, Nov 23 (Reuters Breakingviews) - Welcome back! Cryptocurrencies have been the big winners under the Trump administration, but bitcoin and other tokens are tumbling. A blip, or a broader loss of confidence? As always, email me with your thoughts. If this newsletter was forwarded to you, sign up here to get it every weekend.
OPENING LINE
“A single word often makes a big difference in Chinese policy.”
Read more: China’s trade clout can quicken the yuan’s rise.
FIVE THINGS I LEARNED FROM BREAKINGVIEWS THIS WEEK
SoftBank investors appear to be valuing OpenAI at $750 billion.
Deutsche Bank expects its corporate bank to grow by 8% a year, double the rate forecast by analysts.
India’s leading e-commerce companies are all still making losses.
Ferrari’s 2022 SF90 Stradale model has lost 34% of its value over the last two years.
Corporate venture capital investments tend to peak just before stock market corrections.
VERTICAL SHIFT
Not that long ago, vertical integration was something of a dirty word in business. The idea of companies controlling all parts of their production process was deeply out of fashion. The vogue was for executives to focus on the things they were good at – what consultants dubbed “core competencies” – and rely on others to do the same with other links in the chain.
The vision of lean, specialised enterprises seamlessly interacting with each other never fully caught on. Oil giants, to pick one example, persist in pumping the black stuff out of the ground, refining it, and selling it directly to drivers at filling stations. Covid and trade wars exposed the downside of excessive specialisation. Core competencies aren’t much comfort when critical components get stuck in a warehouse, or when tariffs force a distributor to source its products closer to home.
Companies have other reasons to dabble in adjacent industries. Take the recent rush by companies like Microsoft MSFT.O and Meta Platforms META.O to boost development of their own semiconductors. As Robyn Mak explained, Big Tech firms are worried they depend too much on Nvidia NVDA.O for the graphics processors that power artificial intelligence data centres. Making chips in-house could help them lower costs, be more efficient – and perhaps provide some much-needed leverage when negotiating with the $4.4 trillion AI juggernaut.
The idea is not that new. Apple AAPL.O started installing custom-built chips in the iPhone back in 2010. Indeed, the company run by Tim Cook has long thumbed its nose at conventional business wisdom by also managing its own global chain of retail outlets.
Pioneering companies often end up doing things in-house. Elon Musk’s SpaceX makes rockets and owns its launch sites, while Tesla produces batteries. Rival carmaker BYD builds power packs and semiconductors and even holds stakes in Chinese miners. In doing so it’s mimicking auto pioneer Henry Ford, whose eponymous company spanned quarries, forests, and – less successfully – a Brazilian rubber plantation.
Yet vertical integration often goes badly wrong. Just consider Google’s $12.5 billion acquisition of handset maker Motorola in 2011, discarded at a hefty loss a few years later. Or telecom giant AT&T’s doomed attempt to get into the media business by merging with Time Warner. Overconfident executives often persuade themselves they have what it takes to make it in an adjacent industry. But even if corporate focus is now out of fashion, the most outmoded business ideas have a habit of staging a revival.
CHART OF THE WEEK
Rich countries have a budget headache: their populations are getting older, living longer, and retiring no later than before. Not all governments are equally on the hook, however. Many European countries fund their retirees with transfers from existing workers. Others like the Netherlands, United Kingdom and Australia depend more on occupational pensions. Yet private retirement schemes are far from a fix-all solution.
THE WEEK IN PODCASTS
On Wednesday Rachel Reeves, Britain’s chancellor of the exchequer, will present her annual budget. It’s always a big moment in the country’s economic and political calendar, yet this year’s edition seems even more significant than usual. The run-up to the announcement has prompted intense speculation about possible tax rises and spending cuts, as well as reports of last-minute government U-turns. Jon Sindreu and I joined Jonathan Guilford on the Viewsroom to debate Britain’s fiscal predicament and what Reeves might do about it.
Over on The Big View, our very own Aimee Donnellan joined me to talk about her work on weight-loss drugs. She’s spent the past few years researching and writing a book about the race to cure obesity, so it was good to quiz her about the origins of drugs like Ozempic, and the broader social and financial impact of the blockbuster treatments.
PARTING SHOT
For most of the past few decades, the coffee business looked like an unstoppable juggernaut. There seemed to be no limit to the willingness of people to queue to get their daily flat white or sample the latest exotic cold brew. Now, though, weak crops, tariffs, and rising costs are testing consumers’ desires: the price of a pound of ground coffee in the U.S. has doubled since 2021. Companies like Starbucks SBUX.O, Nestlé NESN.S and the investment fund JAB, which bet big on coffee, are having to water down their ambitions.
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Older people get their income from very different sources across countries https://www.reuters.com/graphics/BRV-BRV/klvyjdqenpg/chart.png
(Editing by Neil Unmack; Production by Oliver Taslic)
((For previous columns by the author, Reuters customers can click on LARSEN/peter.thal.larsen@thomsonreuters.com))