What are the origins of China’s leverage in the trade war? And why are China’s exports disrupting markets across the world? That China has a strong hand is largely because it has picked up lessons from Silicon Valley and deployed the tactics at every level of the supply chain.
Just as Silicon Valley companies “hacked” markets by upending traditional notions of best business practices and industry dynamics, many Chinese companies are doing the same with the global economy – and transforming policymakers’ understanding of scale.
The Silicon Valley paradigm includes four key dynamics. First, companies focus on “blitzscaling” – growing as fast as possible, even at the expense of profit. Social media platforms, ride-sharing companies, artificial intelligence (AI) developers and others burned through billions in start-up capital to establish markets of scale long before they made a penny in profit. Once scale was achieved, other market actors had no choice but to build atop or in relation to these new platforms and infrastructures.
Second, with penetration pricing, companies offered free or low-priced products to create a large market and/or network. Why pay for news, for instance, when you can browse Facebook, Reddit or TikTok for free?
Once everyone is on one or two social media platforms, media companies and advertisers have no choice but to operate within that network. Ride-sharing companies like Uber and Lyft offered impractically cheap prices for years. Every major model developer offers at least one free version. These companies ignored the laws of supply and demand for a time so as to emerge as practically the only supplier for a market.
Third, Silicon Valley’s business environment gave rise to massive network effects: the winners became super rich and powerful, able to influence the economies and politics of entire countries, while the “losers” were bought up or otherwise faded away.
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