The Impact of Decoupling on Technology

and China to coupling. We talked about that with Eric Shatzker based on his conversation with Ken Griffin over at Citadel. Yeah, he's he said that, and he reminded us that Griffin warrened that the U S should not decouple from China. Right, exactly, pretty adamant about it. So let's see what Anne Hecker has to say. She's head of America's Technology and Cloud Services practice, uh, and also ahead of the Semiconductor group

based in Silicon Valley. She is on the phone and this is over at Bain on the phone in Palo Alto, California. And Uh, Tim and I been looking forward to this conversation. Welcome to Bloomberg. Thank you. Hey. Tell us a little bit about when you guys put together a report, Uh, you probably get a lot of information, a lot of research that's done. Is there something though, that just rose to the top, like this is going to be at the top of everyone's mind when it comes to anything

and everything in the technology space. Yeah, that's a great question. And as we looked at our Technology report this year, what we really did was take up fact based view to look at all of the different trends which we've been following for years, and really trying to understand what was the impact of COVID nineteen in the global pandemic that we've all been experiencing. And one thing that we found was it really was an acceleration of a lot

of the technology trends that we've been following. And a lot of that's based on not only the research we did for this report, but over the past eighteen months, we've been talking to our CEO COMPS clients, talking with a lot of ce i os to understand how are they seeing different technology trends as it played out during the pandemic kind of quarter over quarter, and what we saw was really an acceleration of a lot of trends

like cloud based infrastructure, based security, AI as a service offering, and then you know accelerations of some like PC and hardware sales as a service UM for remote work is everyone transition to work from home and school from home. It's really just an acceleration across the board and a

lot of the different textrins we've been following for years. Well, how much of that was pulled forward for you know, because of the pandemic into what extent is they're sort of going to be a pause in because people did a lot of those upgrades. That's a great question, and it probably varies a little bit by sector within technology. I think some of the big ones where we saw

a lot of growth. So again, cloud based security moving towards the cloud based infrastructure was a trend that we've been watching for years, and if anything, this just accelerated it and we think it will continue to accelerate. So it pulls it forward some of the adoption UM. But now I think just the use of those new technology trends will continue to expand as as adoptions has just spread across many different in markets and use cases. Hey, and I think there are oh, go ahead for forgive bab,

please finish. And then I think there are areas where we're looking at closely around you know, um, some of the things you think of, like PCs or peripherals that people bought a lot of to to enable you to work in school from home. Now we have those. Are you going to see that same spike? Those sales have actually held up better than expected. Um, but those are ones that might come back down socially on the peripheral set.

So what's interesting too is, you know, we talk a lot about the decoupling of US and China, and we mentioned on the introduction to this um our air Shafts are caught up with the chief investment officer of its Soros, who said, you know, now is not the time to be investing in Chinese companies. On the other hand, he also talked with Citadels Ken Griffin, who said, you know, we should not be decoupling the United States from China,

that we should be having that relationship. We know just a little bit earlier today, President Biden city plans to meet virtually with President g before the end of the year. We know tensions between the two largest economies have been rising once again, and are you anticipating there you are in Silicon Valley, what are the conversations that you have

with people from different parts of the tech community. Are we going to have kind of two separate huge Chinese um not Chinese, two huge tech movements those aligned with China or China just on its own developing technology, and then kind of the western world, the US and others

moving ahead on technology. Yeah, it's it's a great question and one that we have spent a lot of time thinking about for quite a few years now around just the relationship between US and China and how does it evolve, And it really has accelerated, I think over the last

couple of years. So when we think of this and the coupling, even you know, two or three years ago, we used to lay out three scenarios that you know, we used to be in a world is more globalization, and then we moved to one of globalization, which is a term I think the economist coined where there would still be global trade, but there'll be more tariffs, more sanctions that would flow some things down. And then the third would be do we moved into a more decoupled world?

Where you really do start to see the development of independent economies and supply cheese that really just have fewer linkages across those And we used to debate up how fast would you be moving towards that more decoupled scenario, And I think we've moved faster than anyone expected. UM, I don't think it's going to be linear. I think will probably move some to the left sum to the

right over time. But a few data points that have really I think show this is if you look at foreign direct investments UM tech related foreign direct investment has dropped from and if you click under that, Chinese investment in the US bell off very quickly kind of around to seventeen and the US has been a more strait decline. Hey, and hang on a second, because we've got to do a little bit of news. But we'll come back and uh,

continue our conversation. And Hecker ahead of BAN America's Technology and Cloud Services Practice. Will get back to her in just a moment right here on Bloomberg. I want to get back to our conversation still with us is and Hecker she's head of Ban's America's Technology and Cloud Services Practice. Uh, and UH she's still with us on the phone in Palo Alto, California. And you know what's great about talking with folks like you. You guys talk with a lot

of different companies. A lot of them are your clients. You do the research to try and figure out, you know, what's coming uh And and then I think about our audience who's listening to it, their investors, They're trying to figure out what are the next next waves. We love talking with the CEOs. Who are the disruptors, the innovators or the investors in the disruptors and the innovators. Who do you think are ultimately based on the latest tech report that you guys put out, who are the winners

and losers? Yeah, that's a great question when we look at it. Um part of the report we looked at was just how much technology has really um broadened in

its impact across all industry. So sometimes we look at, you know, the tech companies, but we also looked in this report about how companies outside of traditional tech channels, so your retail companies, financial service, healthcare, consumer products, and the research there we showed that companies across all industries that take a more tech driven strategy or have a lot of um tech as an underpinning in their business

model are actually outperforming others in their own industry. So, while we can think of technology companies as a vertical in and of itself the enabling aspect of technology and embracing that across all different industries, companies that have successfully done that are outperforming their peers that haven't done that yet.

And can you give us just for the sake of case study or or or so so people understand examples, can you share historical examples where one company has embraced that type of shift and one hasn't and we've seen

our performance. Well, sure, so you can see some of some of the examples would be would be on your listeners are very aware of like companies like an Amazon or an Ali Baba kind in the consumer space that it really just are kind of what we would call born check right that they were born with the technology underpinning.

And then I think you can see some examples in industrials and financial services where more traditional companies have really embraced technology, either whether it be payments or how do they think about telehealth, where they've now added new lines of business or new ways of delivering their goods to the consumers that they've kind of embedded technology into their delivery even if they weren't kind of a born in

the cloud type company. Well I do. It is really such an interesting time, and I guess we just keep wondering, you know, what is the next big thing in terms of our world and what happens? Um if there is a decoupling, I'm want to go back to that because that's where we started. If we have that decoupling, uh, And it does seem like we're moving towards that because we are already seeing just a strained relationship. But we've

been there before re China before. If we are in terms of the tech world, it just means kind of too tech development verticals. That's how it plays at And that's okay because there's still a lot of money to go around and still big markets to play in. That's where this a whole coupling gets very challenging because if you actually look at the technology value chain, UM, no

one country can do it alone. Right now, we are still a very global supply chain and there's um it's a very unique value chain and that it's very segmented and highly specialized. So each country has areas where they're quite strong, and then also key competencies or parts of the value chain that they're missing. So, for example, um China really needs semiconductor capital equipment that's nasfully in the

U S or Europe. They need access to leading edge manufacturing process technology for semiconductors, which is strong in the US, Korea, and Taiwan. The US really is needs ode in capacity um PCB capacity, which is very heavily in China right now. The US also needs more leading edge silicon capacity, which again you know the US has some, but a lot of it's in Taiwan, a lot of it's in Korea.

And then if you keep going down the value chain, there's different areas where different countries have quite a bit, but everyone is still very dependent on each other, which is what one thing that just makes the coupling so tricky is it's very hard to do right now. So I think companies and countries are starting to take steps and starting to make investments to try to make their own supply chains more resilient to these risks. But it's impossible right now for any one country to do it

all on their own. All right, We're gonna have to stop on that note, Hey, and thank you, and Heck our head of Beans America's technology and cloud services practices, joining us on the phone from Palo Alto, California, you know, to we talked about it and beyond the bail some of the big macro stories you and I. I mean, energy is definitely going through some changes as we move away from carbon too much more alternative energy supply chains

are we you know, significantly changing the equation in terms of how companies manage them. Do we see big changes following what happens what happened with COVID and what happened with the supply chain crunch with some companies building facilities here in the US. But it's a year's long process. It's a long process, and that's why maybe to some extent you're seeing that discomfort in the markets and dislocation because it does take a while to do some of this.

Uh So, we will certainly stay up to date on it.