• The Chinese economy has until recently been growing exponentially.
• Bullish behavior from the US has had a negative effect on the Chinese economy.
• It will probably take a lot more to upset the country’s growth long-term.

It’s no secret that China’s recent economic performance is a far cry from its persistent high growth patterns over the last three decades. In those thirty or so years, China’s economy transformed into an upper-middle-income status from one that was low-income. Just a quick glance at market exchange rates shows a GDP of $18.3 trillion in 2022. This was 73% of the United States’ GDP, with China’s per capita income now approximately $13,000. This equates to around 17% of the United States’ per capita income. When we consider China’s was less than two percent of the US’ 34 years ago, the country’s economic growth has been remarkable.

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What goes up tends to come back down, though, and economists have long forecasted an economic collapse for China due to various fragilities. For instance, the country’s growth has been powered by investments in physical capital, particularly real estate. This, in turn, has been financed by a banking system that lacks certain efficiencies. Now, it seems those forecasters were correct, as China struggles with rising debt levels, crashing stocks, weaker consumer confidence, a diminishing labor force, and an unraveling property market.

Despite the country’s economic struggles, China still sits at the top of the pile in terms of being the world’s leading manufacturing force, according to Eurizon strategists. Compared to its rivals, China’s manufacturing capacity is far greater. Coupled with the fact that export prices have risen by 30% and 31% in Mexico and Vietnam respectively over the last three years, two of China’s most prominent competitors, it seems China will continue to reign supreme as the world’s most dominant manufacturer.

China’s labor force far outweighs the combined economies of the US, Japan, Canada, the EU, India, Korea, Vietnam, and Mexico, estimated to be around 212 million. This backs up a point made by Eurizon strategists, Stephen Jen and Joana Freire. “We believe the fact that export prices have risen more rapidly than general inflation – a remarkable fact in a period of a strengthening dollar – indicates stresses and pressures on the manufacturing capacity in these countries, including shortages of appropriate workers, infrastructure, and transport.”

Yes, other countries may start to gradually shift away from China in global manufacturing, but it is unlikely smaller nations will have the power and abilities to adapt to rapid changes to be on par with China’s dominance. Jen and Freire agree that there is little evidence of deglobalization, stating, “no other country has the manufacturing capacity to supplant China.” Even countries that are exporting more to the US in place of China, such as Mexico, are importing more than ever from – you guessed it – China.

Economic growth prospects

Predicting China’s growth is a challenging task, with only a crystal ball offering any glimpse of accuracy right now. Nevertheless, productivity may be the engine to power future economic success. Although the country has faced struggles, and continues to do so, its total factor productivity (growth not attributed to increased inputs) has averaged a respectable 3% growth over the last few decades.

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However, productivity growth has dropped to about one percent a year over the last decade. If this trend continues, China may face further economic challenges. This is why China must improve its productivity growth, as relying solely on increased inputs, like capital and labor, may not be sufficient for long-term economic success.

The Chinese government has recognized the need for improvements in productivity, moving away from low-skill manufacturing. The government’s answer is a “dual circulation” growth policy, one that enhances worldwide finance and trade, relying more on domestic demand, homegrown innovations, and being technologically self-sufficient.

This policy faces some difficulties though, as China can only upgrade its industries by relying on foreign technology. The issues lie in geopolitical and economic conflicts with the West and the US. Therefore, access to such technologies and export markets may become strained and limited. Add to this the government’s clampdown on private companies in areas like education, health, and technology, and it’s clear that entrepreneurship in the country is also facing tight constraints and negative impacts.

Sectors, including electric vehicles, green energy, technology platforms, and electronics continue to be bright beacons of hope in a tumultuous Chinese economy, with slight recoveries after substantial drops in July and August 2023.

The Chinese economy – surging or stalling?

We mustn’t forget that China remains the world’s second-largest economy, still a center for manufacturing and supply chains, global exports, and home to some of the biggest brands, like TikTok, Tencent, and Alibaba. So, maybe all this worry is a bit far-fetched?

Not if we look at Japan.

The Japanese example

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30 years ago, Japan was leading the way with technological innovations and leadership. But, even with this, the country faced significant economic turmoil, mass debt, and institutional weaknesses; all of which undermined the country’s prosperity and growth. Being a technological powerhouse did not prevent Japan from facing difficult decades; there is little reason why the same should not apply to China.

To help stabilize the country’s economy, 2024 is expected to bring tax cuts and fee reductions for businesses, with additional support for the struggling housing market.

Right now, there do not seem to be any stringent measures planned to improve consumer demand or boost household incomes. Instead, the government is working to strengthen public opinion and economic propaganda. The goal? To promote a more positive view of the Chinese economy, even if it is beleaguered.

The key interest area of focus is between China and the United States. In November, Chinese President Xi Jinping met with Joe Biden, with both hoping to stabilize their external diplomatic relationship. Xi also met with EU Commission officials in an attempt to maintain a close relationship for access to technology and trade. This doesn’t rule out an upcoming trade war between China and the EU, though; instead, it’s Xi trying to smooth out his country’s economy.

China’s industrial policy is centered around access to foreign technology, the widespread use of large-scale industrial funds, and state subsidies. Previously, this has led to an oversupply of production capacity, particularly in sectors like renewables and steel. This is now evident in China’s battery and electric vehicle production.

The auto industry in China has been operating at less than 60 percent of its total production capacity. In addition, approximately 12% of its current production of 27 million units have been exported, with the production of electric vehicles notably increasing. Excess capacity in sensitive areas, like renewables and steel, can lead to economic inefficiencies and trade tensions are ever present. But having access to foreign technology could be a key solution to accelerating China’s innovations and technological advancements, potentially positioning China as a continuing leader in various sectors and technologies.

When compared to the US, the EU has significantly lower tariff rates, offering more opportunities for Chinese exports of vehicles. However, an anti-subsidy investigation has been initiated by the EU, which may lead to tariffs and restrictions on Chinese electric car imports. With the U.S. also taking measures to boost the manufacturing capabilities in renewables, electric vehicles, and semiconductors, China may have to face some tough stances, particularly in trade policies, as 2024 progresses; even more so if Trump gets reelected.

For now, China remains the world’s largest exporter, boasting an estimated global market share of 15%. This marks an all-time high when the Chinese economy is facing one of its lowest points in recent history.

The post Chinese economy likely to remain strong long-term? appeared first on TechHQ.

• Price increases feel inevitable as Asian manufacturers raise wages.
• The price rises will correspond to Gen Z demands in Asian factories.
• The prices of consumer goods have been minimized by very low wages.

Price increases on items manufactured in Asia are coming to a toy store near you!

Americans have grown used to a wide range of products being available at (relatively) cheap prices, including clothes, electronics, furniture, and toys. The rise in online sellers from China have only reinforced this snese of continual availability at inexpensive prices.

The issue with this model of relative cheapness is that for all of those things to be so affordable, they have to be manufactured at an even lower cost. For years, that’s meant that stores in America have lined their shelves with items made in factories in Asia.

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For the past couple of decades, cheaper overseas manufacturing costs in Asian countries like China have kept prices low in the US and Europe.

However, the younger generation in Asia don’t want to be factory workers. So, factories need to represent better prospects; manufacturers are raising wages and offering other perks.

The average age of factory workers in Asia has gone up. Source: EPA-EFE via South China Morning Post.

Yoga classes, better cafeteria food, and subsidized kindergarten for workers’ children are all good news for Asian factory workers. They will all also inevitably drive up the cost of manufacturing. To offset that, there have to be price increases in retail.

Price increases a result of staff shortages

The rising costs in factories haven’t come out of nowhere: in China, manufacturing workers’ wages have more than tripled in the last ten years. Japan, Vietnam and Malaysia have also seen notable bumps.

“For US consumers that have been used to having goods at a certain and relatively stable part of their disposable income, I think that foundation is going to have to be rejigged,” Manoj Pradhan, a London-based economist, told the Journal.

It’s hard to feel that much sympathy for Westerners who will be upset about price increases when those increases will represent fairer employment practices in Asia.

The labor shortage in Asia’s factories is attributed to several factors. Firstly, young workers are pushing back on working conditions, while others hold out for higher-paying jobs in line with their education levels.

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“After a while, that work makes your mind numb. I couldn’t stand the repetition,” former Chinese factory worker Julian Zhu told VOA News last November.

Even though many factories are in need of workers, unemployment rates among China’s 16-24-year-olds hit 21% last quarter. In 2001, Nike’s typical Asian factory worker was 22. Today, the company’s average Chinese worker is 40, and in Vietnam the standard age has reached 31 years old.

As an effect, price increases have already begun. Companies like Nike, as well as toymakers Hasbro and Mattel have attributed price hikes to elevated labor costs in Asia.

The pandemic and Russia’s invasion of Ukraine caused supply chain trouble that made businesses consider how far their products had to travel before going on sale. The broader decoupling between the US and China, dating back to the trade wars of the Trump administration, hasn’t helped, either.

What can be done about price increases?

Some companies might move operations from Asia onto home soil. This would have the advantage of creating American jobs, and of improving supply chain resiliency – but it isn’t going to stop price increases.

And before we roll our eyes at Asia’s Gen Z workers, asking their employers for more money, better conditions, and better prospects than their mothers’ and their grandmothers’ generations, it’s worth considering how much an American manufacturer pays its staff.

Even given the absurdly low wages of most American factory workers, products are always more expensive when they’re Made in America due to relative living standards.

The Asian economies remain a production juggernaut…but…

Late in 2022, Apple, Walmart, Intel and Lockheed Martin were among corporations that were reported to be taking steps to “reshore” or “onshore” their supply chains. The moves caused warnings about the inflationary implications of a Made in America economy: in November 2022, a Goldman Sachs report said that among the efforts made by US companies to improve supply chains, “reshoring poses the risk of boosting prices.”

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Ynon Kreiz, CEO of Mattel IRL. Source: CNN.

Another option is “nearshoring.” Companies including Mattel are shifting supply cahins to countries closer to the US: in 2019, the company closed two of its Asian factories and spent US$50 million on the expansion of an existing plant in Mexico.

Will Ferrell as Mattel CEO in the Barbie movie.

According to Mattel’s Latin America managing director, Gabriel Galvan, “being able to have product close to your consumer and not having to transport it from Asia, that’s going to be more profitable and more competitive when you take costs into account.”

Mexico offers cheaper labor than the US and lower shipping costs than Asia. Whether that’s enough to offset price increases remains to be seen.

Barbie is a revolutionary movie. But real-world economic and personal aspirations in Asian manufacturing mean This Barbie could cost Americans more money, sooner rather than later. Maybe put the Dream House on hold…

The post This Barbie was made in the USA – or nearby appeared first on TechHQ.

Climate change is already starting to affect the world in cataclysmic ways. Climate science from the likes of the World Resources Institute gives us a generation or two to radically change our ways before the impacts become unalterable and serious on a systemic level in terms of human life as we’ve known it for the last machine-enabled hundred and fifty years. That has led to a real focus on pushing down our carbon footprints on an industry-wide level to achieve “Net Zero.”

In Part 1 of this article, we spoke to Paul Mackay, Cloud Director, EMEA at Cloudera, to ask whether getting to the notional “Net Zero” target – a state of overall carbon neutrality – was possible by 2050 (a goal set by the UK government).

Paul seemed optimistic that advances in technology and processes meant it was at least on some level feasible – though he highlighted the fact that it was going to be more difficult for public sector organizations to achieve than it was for private sector businesses.

Profitable zero?

While we had Paul in the chair, we asked him about the cold, hard business of cash.

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THQ:

We’ve spoken to people in the data center world recently, and encountered the competing interests of planet vs profitability. Is that going to be a factor in hitting Net Zero targets?

PMcK:

Spend is a question that will absolutely come into it, yes.

I remember previous organizations where we’ve responded to an RFP and we’ve talked about sustainability. In some of those organizations, there was a recognition that they may need to spend more money in order to drive that agenda, and that by buying a more carbon-neutral or energy efficient or Net Zero-friendly technology, there’s an associated uplift in cost in that that may also be prohibitive for instance to a public sector organization that is working on even tighter budgets and is severely restricted by that.

Virtual zero?

THQ:

Let’s talk technology. In fact, let’s talk virtualization. How can virtualization help get us closer to Net Zero?

PMcK:

Virtualization has been around for a significant amount of time now – 15-20 years.

I remember walking through London when it was snowing. And if you walked past some of the banks, you’d see snow everywhere, except for on the paving stones outside the banks. That was because the data center was underneath the building, and the heat coming up from that data center would melt the snow.

Virtualization in its initial value proposition was aiming to solve that sort of problem – we don’t want physical servers losing all that energy, so let’s collapse those on to fewer servers, but use software to segregate them so that you get the look and feel of the physical server, but it’s virtual. And we saw this huge adoption. As organizations reduced rackspace, they started to reduce floor space in their data center and become more efficient with their hardware that allowed them to do that.

It made a massive impact. What we’re doing now with containers takes that even further, breaking down workloads and applications even further.

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One of the problems with virtualization though was that all of a sudden it became really easy to spin stuff up. So whereas previously, if I had any projects, I’d have to go out on procurement and buy my hardware and rack and stack it and so on, now, all of a sudden, I could just spin up a VM, and have access and start to deploy software on top of it.

And so we saw VM sprawl. And I remember as I transitioned out of being on the technological side of things into a leadership role, that was becoming a big thing. Help reduce VM sprawl, because VM sprawl was causing those data centers that you’ve stripped down to grow back up.

And so virtualization as a technology, plus the introduction of cloud technology and how I can then break that down even further and start to do things like containers or start to do things that are microservices-based, plus the ability we have now to instantly go on and get access to it – that’s absolutely a fundamental way of reducing our traditional on-prem footprint.

I will say, though, that you can’t virtualize everything. There is stuff that that data center that I talked about, with the melted snow, still has to do. In the case of big banks, their systems are 40 years old. There are mainframes in there that are still functioning – when we log on to our internet banking app, at some point, we’re still talking to a mainframe that will always need to remain in that data center, because it’s too risky to move it, and it’s too expensive to move it.

A zero balance?

So you have to find the balance between virtualization, physical infrastructure, and cloud. And, you know, we see this shift now as organizations move to hybrid. They’re all wondering how they live in these different environments, in this combination of technologies, and get to a point where they’re running as efficiently as possible.

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And then I’d add to my earlier point, when you start to add on more automation, you can actually start to reduce human interaction and start to do things in an even faster, more scalable way, which absolutely has a knock-on effect in terms of your carbon footprint, or the amount of energy you’re using.

In Part 3 of this article, we’ll talk about performance economics, and the role that hyperscalers can play in the fight towards reaching Net Zero targets.

The post Net Zero and the role of virtualization appeared first on TechHQ.

In Part 1 of this article, we spoke to Martin Bradbury, Regional Director, Financial Services UK & Ireland at Dynatrace, a cloud provider that enables digital services for commercial clients (including providers of cashless transactions), about the drift towards the long-fabled cashless society in the UK. In Part 2, Martin outlined for us the issues of public trust that currently stand in the way of a truly “cashless society.”

While we had him in the chair it seemed only right to ask Martin for his map from where we are now – a situation in which there’s significant public distrust of the idea of a cashless society even in the UK – which is considerably further down the pathway than is the US – to the place he predicts that at least the UK will be within a decade, with cash purchases down from around 15% of cases to just 6%. What does the roadmap to at the very least a cash-lite society look like?

MB:

Well, as we said in Part 2, what’s likely to happen is that digital service providers, upto and including banks, are likely to respond to moments of system failure much faster, in the first instance – either to put things right, to guide service users through a process they might not have understood, and/or to compensate them for the inconvenience of a breakdown in the system-

THQ:

Does that mean a vast army of new, human, transaction-watchers, so that Steve in South London gets a call when his card gets declined at an automatic register in a gas station?

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The cashless society – A UK perspective

MB:

Ha. There probably isn’t a huge appetite for ramping up that kind of human interaction in a lot of businesses, but actually, the levels of automation and artificial intelligence that we can apply to these things now actually can deliver quite a good connected experience without having to have that human interaction, necessarily.

THQ:

To be fair, any spectacular rise in human automatic support would probably only lead to an uncontrollable wave of scammers, calling and pretending to be that support team.

So how do digital service providers actually move the dial on this and get more and more people comfortable with the idea of the oncoming cashless society?

MB:

It all starts with education – and that extends to those sorts of scams you mentioned, too. The more people know and understand, hopefully, the less often they’ll be caught by those trust-based scams, even though the level of sophistication there is rising. Education has to continue to outpace that.

THQ:

And is that the cornerstone of the roadmap to the cashless society – or at least the cash-lite society – of the future. Education, education, education?

MB:

I think so, yes. It’s a continuation of what the high street banks have been doing for some time, it’s having specific educational programs in place, it’s having people in branches that are trained specifically as digital champions to help customers onboard into the services.

One UK bank had an initiative a year or two ago, where they gave the elderly laptop tablets, they gave them education specifically around using digital services, helping them to get more comfortable with those services and that tech.

There will always be an element that just won’t like anything, that will be resistant to change, and that’s their prerogative, right? That means we still have to have the facilities for the people that don’t want to adopt those services, aren’t comfortable with using them, or particularly aren’t comfortable with the privacy aspect of them – because the consequence of having more traceability in a cashless society is that there will be more privacy concerns from people, for sure.

THQ:

That’s a visceral reaction, no? What are you tracing me for? I’m not a criminal. What do you want my data for? Why would you? Why should I give you that? What are you going to use it for?

Is there anything that can be done about that? Or is that just a natural built-in data point? There are going to be those people. Don’t attempt to solve for X, just build systems that accommodate them?

MB:

I think organizations can be very clear about what they do with data and what people’s privacy rights are, but frankly, I don’t necessarily think that makes a huge difference. I think the reality is that it’s largely a generational concern – not entirely, but largely – and I think that as the younger generations come through, who have had their whole life online with access to things digitally, naturally they will become more comfortable with it.

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The cashless society and consumer trust

The counterargument for financial transaction knowledge is that it means the bank can use that to identify patterns and hopefully prevent fraud. That’s a valid argument that can be made to older generations, but whether any argument can outweigh that sense of intrusion that comes with service providers having intimate access to their data seems unlikely.

THQ:

What sort of timeline are we looking at for the UK to be as cashless a society as it’s going to be? Any idea how long it will take to make “peak progress” towards a cashless society, given that in Part 1, we saw that there’s no political capital to be made out of pushing for the UK to become a cashless society?

MB:

I don’t think anyone’s setting out a timeline for it, I think the forecast currently is that it will shift from 15% of payments made in cash right now down to 6% over around the next 10 years, which makes for a fairly gradual transformation, rather than a sudden jolt.

It all comes down to looking at countries that are further down the line on this journey and asking what’s the ultimate benefit here? And what’s the downside?

THQ:

So it’s more a kind of magnetic drift, you think? More and more places offering cashless options, just gradually shifting the landscape of what’s “normal”?

MB:

Yeah. I think there will be more and more services digitized so it becomes the default option. That will facilitate a gradual drift towards cashlessness. But I think as we do that, more thought will need to be put into the protection of the infrastructure and the certainly the environment to enable cash to still be a viable means of payment.

Going back to what we spoke about in Part 1, the cost of running the ATM infrastructure is about £5 billion pounds a year, and it’s largely borne by the banks. I’m sure, given the option, they’d like to reduce that cost burden. And as cash gets used as a default option less and less, clearly, that cost stands out more and more, so we might start to see a reduction of the network.

But that will take a kind of gentle pressure from governments – allowing retail outlets to give cash back without purchase, for instance. Things like that can help to mediate against that.

One interesting thing is that a leading UK building society last year saw an increase in ATM use, that it directly attributes to the cost of living crisis and the fact that people want to use cash to more effectively budget, because we know that that is one of the downsides of digital – the speed and ease it gives you to spend money and go over budget.

THQ:

You can’t stack up invisible money and say “This is what I actually have.” Whereas if you’ve got a pile of notes in front of you, you know exactly.

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MB:

Absolutely. The UK’s certainly ahead of the US in that, and in terms of the speed of digital transactions showing – in the UK, it’s more or less instantaneous, whereas in the US, the lag is several days long in certain instances. But you’re absolutely right, you can’t guarantee what you actually have in digital terms right now, whereas with cash you have precisely the amount of cash you see in front of you.

THQ:

Hit us with a key takeaway. What’s the important psychological shift we’re going to need to undertake to make the journey towards a more cashless society?

MB:

The concept of taking a digital experience and thinking about it less generically and more in terms of its demographic, and how to optimize it for that demographic, I think is a really key thought process that we’re going to see more and more of as we progress down on this journey towards something that looks significantly more like a cashless society.

THQ:

So – gradual magnetic pull, a slow shift in the norm of society, and more contextually-optimized digital experiences. Sounds like a plan.

The post The cashless society – a roadmap appeared first on TechHQ.

In Part 1 of this article, we spoke to Martin Bradbury, Regional Director, Financial Services UK & Ireland at Dynatrace, a cloud provider that enables digital services for commercial clients (including providers of cashless transactions), about the drift towards the long-fabled cashless society in the UK.

We discussed where the UK sits in the rankings of nations on the cashless society journey – around ten years behind the early adopters, but still ahead of countries like the US – and whether there were in fact any convincing arguments that would make the shift to a cashless society particularly appealing (either for the UK or for any other nation).

While only around 15% of transactions in the UK of 2023 are made in cash, there emerged the idea that any political party that campaigned hard on the idea of speeding up the journey towards a cashless society would probably be on a hiding to nothing, as it would radically impact some of the poorest people in the country, without necessarily reaping any political benefits, irrespective of the technical usefulness of gradually transitioning to a cashless society.

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The cashless society – A UK perspective

That gradualness appears to be key to the process – at least in the UK.

While we had him in the chair, we asked Martin why that might be.

A matter of trust.

THQ:

In Part 1, you mentioned the idea that there’s a lack of consumer trust in the idea of cashless society. Does that lack of trust seem fair, unfair, proportionate?

MB:

I think you’re only ever as good as your last mistake. And while we’re working for a world in which digital services work perfectly every time, the reality is that today, they don’t in every case, and everyone’s experienced that failure, probably at a very inconvenient time.

I’ll give you an example – my local town moved to cashless parking meters. When that happened, a whole bunch of people unfortunately ended up getting billed for hundreds and hundreds of pounds of parking charges they never actually incurred.

Immediately when something like that happens, the trust is damaged. And once that happens to someone, they’re going to be reticent about using the service again – and they’re going to talk. So I think that trust gap is inherently valid. And it’s natural that when there’s a problem, it’s much more widely broadcast than the billions of transactions that were executed perfectly. That’s just human nature.

So I think it’s valid, and I think financial organizations have to be on top of these issues. They have to have visibility of them, and they have to react quickly when there’s a problem and remediate the issue quickly.

Taking the initiative.

But also, they have to be more proactive. Some of our forward-thinking customers are trying to proactively capture when an issue has happened. So let’s say you’re trying to make a payment, and it’s not gone through.

Rather than that being a scenario where they’re just in it for your money, so nothing is done about the issue, they’re actually reaching out to proactively go, “Hey, look, we’ve seen you tried to complete this transaction, we can see it didn’t work. Can we help you with that transaction? And can we compensate you in some way? Can we give you a voucher for a coffee?”

Some of our forward-thinking customers are doing that already – perhaps not around payments at this point, but certainly around other financial transactions.

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Is the UK prepared to be a cashless society?

THQ:

That starts to answer our next logical question, which is what can digital service providers, and in some respects what can banks actually, fundamentally do about the public trust gap?

Because as you say, the idea is that you’re only as good as your last mistake. And any mistake that happens becomes that circle of negative reinforcement, doesn’t it? People tell people, “Oh, I had this trouble. Don’t use this technology, this thing happened to me….” And so it becomes much bigger than it necessarily is – a kind of urban legend of techno-failure. How do you combat that?

MB:

There’s a combination of strategies, I think. We’ve seen high street banks doing this for a while – they have digital champions in branch (where there is a branch, as you say), which means there’s a source of digital-specific help, delivering advice and customer services for elderly people, for example, to help them with the transition in the way things are done. So there’s an education and a customer care element to it, from a digital perspective.

I’m interested in the concept of what a great digital experience is, for me, or someone that’s 20, or someone that’s 70, because the answers in all three of those cases are going to be different.

A lot of our customers focus on page load speed – has the application performed quickly. And has it completed the task it was it was there to do. Those metrics are valid, and for me, speed is a big thing.

For an older person going through the same transaction, speed is possibly far less relevant, compared to the ease with which they were guided through the process.

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As The Swiss Vote Against Becoming A Cashless Society, Will Other Countries Follow Suit?

Beyond one-size-fits-all.

So forward-thinking customers are looking now at the digital experience as something other than a one-size-fits-all process. Being able to measure and understand the digital experience as it relates to different demographics is really important, and being able to tailor the customer journey to the needs of that demographic makes a huge difference.

We’ve been in a world for years now that understands accessibility considerations for partially sighted or hard of hearing people, and this is really just extending that out into your broader demographic. So I think certainly, that’s got to be considered, because you see a lot of financial apps now that have taken on the characteristics of the more common social media apps and started looking fairly similar.

And that’s great if you’re using those apps. But if you’re not, it’s not helpful at all, it’s entirely alien to some of your customers.

THQ:

And arguably, it falsely advertises who your premium users are – those of an age and a culture to use those social media apps.

Is there a place for the use of personas in training those systems?

MB:

Very much so. Certainly with our customers, we use AI to benchmark what a good experience looks like. But that’s a generic kind of experience – it’s how the application performs on a good day or a Tuesday afternoon, given certain conditions. So what customers can then do is build upon that to say, “Well, actually, based on this category of customer, this is the experience we’re looking for.”

We care about whether people can do what they want to do, every time, with the ease they’re looking for from their digital transactions. Ultimately, it’s better for everyone if, when there is a problem, rather than it being on the consumer to reach out and say, “Hey, I’ve got an issue,” or come back tomorrow and try again, that the institution reaches back out to that customer to say, “Hey, look, we spotted a problem, we’ve actually reviewed what you did, and we see what the issue is. We can either help you or we can attribute a problem on our side, and we’re gonna do something about that, and we’re gonna give you a voucher” or something.

It’s down to companies, digital providers, and banks, to do something about it. Instantly, if we do that, trust levels become infinitely higher.

In Part 3 of this article, we’ll follow the journey from where we are now – with digital providers just beginning to manage the aftercare of people’s tech failures with cashless technology – into how the world (and the UK in particular) will look when the daily reality is, if not an entirely cashless society, then at least a society in which cash has fairly specific and potentially limited uses.

The post The cashless society and consumer trust appeared first on TechHQ.

The idea of the cashless society has long been a staple of Utopian science fiction, a kind of paradisal conquering of the old Biblical idea that money – or the love of money, for the purists – is the root of all evil.

But, like many other science fiction concepts – robot warehouses, a connected network of all human information, communication devices that can unite us all over the world from the palm of our hand – the potential for a cashless society to cross the line into our reality has never been closer than it is right now.

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As The Swiss Vote Against Becoming A Cashless Society, Will Other Countries Follow Suit?

Several countries around the world, including Norway, Sweden, Brazil and most significantly by far, China, are becoming early adopters of the cashless society – or at least the cash-minimum society, as the electronic transfer of numbers in digital data vaults pushes “cash” ever further towards being an entirely theoretical concept, increasingly divorced from the reality of wads of notes and pocketfuls of toll change. Across Europe now, the World Economic Forum claims that only 28% of people say cash is their “favorite” way to get their transactions done.

The upsides of going cash-free.

Other countries, like the US and the UK, have been significantly slower to adopt the technologies that make a cashless society a realistic possibility. We sat down with Martin Bradbury, Regional Director, Financial Services UK & Ireland at Dynatrace, a cloud provider that enables digital services for commercial clients (including providers of cashless transactions), to explore the state of the cashless society in the UK (a country which famously refused to change its own longstanding currency to the Euro while it was a member of the European Union, maintaining the difficulties of cash-based travel to the country).

The UK is a country that’s further down the cashless line than, say, the US, so it acts as a useful case study, somewhere between the early adopters and the latecomers. As such, our first question to Martin seemed essential.

THQ:

What are the arguments in favor of going towards the cashless society? And what are the benefits it’s supposed to bring?

MB:

There are a few to consider. First of all, there’s obvious traceability around digital transactions that simply doesn’t exist in cash. That means cash is connected to a significant element of criminal activity, specifically because it’s harder to trace.

There are associated benefits in terms of simplifying foreign travel, too – digital payments have made that experience a lot easier for the vast majority of people that travel internationally. So there’s a simplicity and convenience argument of always being able to pay for what you need, when you need it with digital means.

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Is the UK prepared to be a cashless society?

There’s a cost saving argument as well, in terms of the logistics of maintaining the cash infrastructure. The ATM infrastructure in the UK runs to around £5 billion a year just to maintain, and that’s largely borne by the banks, so clearly, the closer the UK gets to being a cashless society, the easier the banks will sleep. The longer the ATM infrastructure has to be maintained, the more it becomes a cost that looks disproportionate to the usage of those facilities. So there are some strong arguments, for sure.

THQ:

But we can have all those benefits within a mixed economy including cash, can’t we, rather than going particularly cashless? Apart from the ATM infrastructure costs, which would disappear.

MB:

We can, largely, yes. Today in the UK, around 15% of payments, in terms of transaction volume, are made through cash. The forecast is for that to be more like 6% within the next ten years. So that, broadly speaking, puts the UK around ten years behind the early adopters on the cashless trajectory. Countries like Norway have obviously been the leading lights in this area for a while.

The consumer trust balance.

There are interesting lessons to learn, though. I wouldn’t call the UK a fast follower in this area, though a follower, certainly. In Norway last year, there was quite a major payments infrastructure outage ahead of a public holiday. So hopefully, we don’t get that today or tomorrow here [ahead of the coronation of Charles III, and the public holiday that follows that event].

But there’s a big consumer trust issue that was created by that outage. And in response to that, the Norwegian government is actually increasing some of the consumer protection around an inability to pay with cash. So I think, if we learn from that experiment, we can say that the future probably won’t be entirely cashless. But it will be a society that’s significantly less dependent on cash than the one with which we’re familiar. And, keeping that reducing percentage in mind, we’ll use less cash over time. But I very much doubt that cash is going to go away in the foreseeable future, at least in the UK.

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THQ:

We were going to raise similar edge cases like tourist towns, rural villages and the like. Increasingly, banks are closing down their branch networks, so often there will only be ATMs and maybe a post office, and then come a public holiday or a holiday season, the ATMs will break down with a reliability that’s like clockwork, so that sort of infrastructure outage you mentioned from the Norwegian example resonates.

Special factors?

That raises the further question of why some countries have been quicker to adopt this pathway to a cashless society than others. Are there peculiarities in some economies that allow the journey towards cashlessness to be a faster thing in some countries? Is the UK inherently more circumspect about it, or is it just not up to speed with the likes of Norway?

MB:

I’m not sure there’s a key difference between cases. The governments in the early-adopting countries simply grabbed the initiative and ran with it. I don’t think that’s something the UK government wants to do. In fact, in its recent Financial Services and Markets Bill, the UK government actually makes similar provisions to Norway in terms of protecting the access to pay in and withdraw cash, and making sure that that infrastructure is in place. Of course, that only goes so far – if you can’t actually do anything with cash once you’ve withdrawn it, then it’s a fruitless effort.

That was debated in parliament this year, the question of whether specific legislation should be introduced to mandate the acceptance of cash, because we’ve seen certain outlets reduce their acceptance of cash in the post-Covid era.

I don’t think the government at this point is going to go that far. But some of what happens and how fast it happens is down to the mandate from the government, and some of it is down to recognition of the minority groups that this affects most – because moving away from cash does create an issue around financial inclusion.

And actually, there are several groups that are disproportionately impacted by the shift. It’s not just the elderly, which is a classic use case. It’s also the 1.2 million people that are unbanked in the UK. 90% of that unbanked population is below the poverty line, and has arguably already been left behind by society. So anything that increases that gulf of inclusion is not welcome, I don’t think.

A political hand grenade?

THQ:

We know there are technical arguments in favor of moving towards a cashless society in the UK. Are there any political points to be won by being the government that pushes it forward?

MB:

I would probably say the opposite, if I’m brutally honest. I think actually that it would have a detrimental effect if the government were deemed to be pushing hard for a cashless society in the UK. There’s still a very significant portion of the electorate that would be negatively impacted by that.

Statistically speaking, there are about 10 million people in the UK that would be very severely impacted by a removal of cash. And I think that while, interestingly, there’s a much bigger percentage of people that say they very rarely use cash, people still want the ability to use it. People get a comfort factor from having some cash in their pocket as a backstop.

And, as with the Norwegian example, we all had a payment card outage in the UK a few years ago, and that was a big deal. It affected everyone and their ability to pay for the essentials of life – gas for their cars, a pint at the pub [It is the UK, after all…], anything that was deemed critical. For a few hours, it was impossible to buy those things, and that was shocking.

THQ:

We’re just thinking – at the moment, the UK has a more right-wing government that has been in power for a long time and has championed increasing freeing of financial markets and that kind of thing.

If that government can’t win political points from pushing for a cashless society, there will presumably be no political points in it for any more left-wing government that follows it. So in a way, the cashless society hits its own drag factor in terms of political mandate in the UK, doesn’t it?

MB:

Correct. I mean, potentially you could campaign for it as a method of tackling tax evasion, because it probably would be better on that than a society which includes cash – again, it’s that traceability of transaction – but I don’t think any party will ever campaign on that basis.

In Part 2 of this article, we’ll delve deeper into consumer trust – and distrust – as a defining factor on the road to a cashless society, and who needs to do more to empower the drift towards that kind of future.

The post The cashless society – A UK perspective appeared first on TechHQ.

Samsung Electronics, currently second in the world when it comes to smartphone sales (behind only Apple), saw the falling demand for tech devices hit it hard in January-March 2023, with a profit plunge of 95% compared to the same quarter in 2022.

The plunge means the January-March 2023 quarter saw Samsung register its smallest profit overall for 14 years. Admittedly, Samsung being Samsung, that still leaves the company in the black to the tune of 640 billion won ($478.6 million) for the quarter, so it’s not as though markets will especially crash in panic at the news, but it is both significant and indicative of a wider trend that’s both driving and, perversely, following the recent geopolitical and socioeconomic upheaval in the worldwide market for high technology.

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Also, it’s worth noting the true scale of the Samsung plunge – 640 billion won is all very well, but for the same quarter in 2022, the company rakes in profits of 14.12 trillion won. The company’s revenue fell 18%, but still looked healthy at 63.7 trillion won.

Samsung’s chip division in particular took the brunt of the impact, going from a 8.45 trillion won profit in 2022 to a lost of 4.58 trillion won in 2023.

The trend behind the figures.

That is probably the most cogent expression yet of a trend that manifested in 2022 and continues in 2023. A combination of geopolitical elements like Russia’s illegal invasion of Ukraine and the subsequent economic warfare that’s been waged between President Putin’s Russia and much of the NATO bloc has led to difficulty with price rises above wages, and inflation has become an increasingly depressive factor on the purchase of new high-tech equipment.

Added to that, the forced necessity of the Covid years, when sales of high-tech chip-based technology were at a premium as the world moved into a stay-at-home, work-from-home basis, means that an unprecedented number of people around the world were driven to buy new technology within the same period, and that naturally, much of it is still under warranty and so the urge to buy replacement kit has been artificially supressed by exactly the same conditions that previously saw it artificially inflated.

That reduction in tech-buying as a result of the inflationary pressures in the market and the previous buying spree has led companies to run down stock, rather than particularly over-invest in new product buys (with the iPhone 14 being a notable exception to that rule, because it’s a new iPhone, you could make it a smoothie and call it Kool-Aid).

For all the sardonic pops at Apple though, this running down of stock has had a serious effect – as Samsung is feeling. Chip prices have dropped around 70% across the last nine months. Samsung, along with some smaller rivals (which, to be fair, means most of the chip producing world) announced it would be cutting its own production of chips in April 2023, with at least the intention of stimulating re-growth.

Wary consumer syndrome.

Will that work?

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Analysts are at least a touch sceptical – while inflationary pressures persist (largely depending on international economic conflict, which is currently the alternative to international military conflict), the likelihood is that consumers will remain wary of buying anything with any hint of frivolity about it – which includes new tech.

That said, it’s expected that by the second half of 2023, stocks will be running down and the chip market will begin to rise again – albeit at a slower pace than expected while inflationary pressures persist.

In preparation for either the rebound, or more likely the slow hill-climb ahead of the chip market later in the year, Samsung spent 9.8 trillion won on chips, while setting up two new production bases – one in Texas and one in Pyeongtaek, South Korea.

“Samsung Electronics will continue to invest in memory semiconductors at a similar level to the previous year … to secure mid- to long-term competitiveness,” it said, by way of explaining both the investment and the new factories.

We mentioned that Samsung is currently the world’s number 2 smartphone maker, and that’s borne out in the company’s mobile business in Q1, despite its overall 95% profit plunge. While last year, the January-March quarter saw it pull in 3.82 trillion won profit, this year it just edged ahead, at 3.94 trillion won.

A struggle for survival.

The trend is important to the whole industry of course, and by no means all chip-reliant businesses will have the billions or even trillions of won cushion that Samsung does. The question will be whether, given the relative nosedive of profits in firms like Samsung, and the reasons behind them, how many smaller firms will find themselves going to the wall before the demand for chips and advanced technology crawls its way back out of its current doldrums.

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Samsung expects to make a “slight” recovery in the next quarter, and to pull laboriously back to something like its former strength, doubtless buoyed by its mobile arm until the chip sector begins to move in the right direction again. The same will be true of other tech behemoths – even if, as we’ve seen throughout late 2022 and early 2023, they have to lose staff like chunks of hot dog during a margarita bender to do it.

The question is how much of the sector will have the resilience to bounce back across the course of 2023. And the Samsung results show one thing above all – the rollercoaster of Covid, post-Covid, geopolitics and inflationary economic spirals that dominated the last few years is not quite done with the tech industry just yet.

The post Samsung profits drop by 95% as gadget buying slumps appeared first on TechHQ.

Times are at least uncertain, and for many companies, they’re getting increasingly tough. Little wonder then that many firms are looking for ways to trim their sails, cut costs ideally without either losing staff or dropping standards, and find a way through an economic and increasingly geopolitical minefield. One way that companies are using to cut their costs is switching to the consumption charging model for SaaS. But does it work? Does it save companies money? And if so, quite how does it operate?

We spoke to Chris Federspiel, CEO and founder of Blackthorn.io, a payments app on the Salesforce AppExchange, which has had some experience of the shift to the consumption charging model, to get our questions answered.

The upside of the consumption charging model.

THQ:

What advantage does the consumption charging model bring over existing models like per user, or per unit of time? What’s the selling point of the consumption charging model particularly?

CF:

There are two answers to that – one for the customer and one for the company. Overall, the downside of a usage-based model is that the company doesn’t get the money upfront necessarily. The upside for the customer is they only pay for what they use.

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Now, in the Salesforce world, people are used to buying on a per user basis. But we have an events app, and similar apps have historically charged by registration. We give people the option to charge by registration or by user – and usually, they’re adamant about one or the other. The problem when you charge by user is that you have different user personas.

So in the case of our events app, you might have 20 people making events, but up to 500 people who need to do something with the event data, so there isn’t the same value for them. But from a technical perspective, we can’t actually meter the different uses people are making of the app, so it’s a lot easier to use a per registration model. Then there are different permissions you can assign to people, where if it’s just by registration, everybody can have all the permissions, and you don’t run into that complexity issue.

So a lot of usage-based companies don’t have this user problem. AWS for instance has no user limits. Whereas with our usage-based stuff, we still try to charge an annual contract based upon assumptive usage. If someone says “I think I’m going to use a million widgets, API calls, tickets sold, credit card transactions processed and the like,” we’ll charge them for 800,000 widgets, and we’ll bill that on whatever the payment frequency is.

And then we’ll eventually bill for any extra they’ve used – so if they actually use a million, we’ll bill for the additional 200,000.

That means as we see them getting closer to their initial limit, we can contact them to say “Hey, you’re about to exceed what you’ve got.” And then we’ll bill it up front.

Now, I have a friend that runs an enterprise team at AWS, and usage is baked into their contracts. They’ll say “You’re using this much time of compute against these 17 services. We’re going to bill you for this and then here’s your overage.”

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The benefit of pre-buying is that usually your usage rate goes down. So if you’re usually getting billed 10 bucks, and you’re prepaying for a year, maybe you’re overage then goes to 9 bucks. So for the customer, it’s a lot better to never commit to anything and just pay by usage unless you’re trying to decrease the spend.

But if your business has been working pretty consistently for three years, you can judge what to pay and do it now.

And if, at the end of the contract, someone hasn’t consumed what they’ve paid for, they’re not going to renew. We try to build in some kind of fairness to the system, so if someone exceeds the contract, we won’t necessarily bill them just because it spiked. If you’re an organization that has three events a year and you expect 10,000 people, but you actually get 15,000, we’re not going to just all of a sudden cut you off. That would be a customer service nightmare.

So your company develops this measure of net revenue retention (NRR), which is where a customer starts off spending say 10 bucks on January 1^st. Now, if they bought 3 bucks of stuff throughout the year, that’s 13 bucks at the end, meaning you ran 130% NRR with that customer.

When you go to market to sell, as a B2B SaaS company, you want to target your NRR at at least 120%. Big players like Snowflake will run 130, 135, 140 plus percent NRR. They’re basically tapping existing customers to go far beyond what their existing spend is, because that then proves to markets that there’s room for growth. You’re introducing either additional products, or people are getting so much value from you that they’re increasing their usage.

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So for example, when we go to market to sell our company, we’re going to get a much higher multiple if our NRR is above 120%, rather than being 100%. And this is a major problem with SMB-focused companies, because their NRR doesn’t tend to get into this realm.

THQ:

So it’s better because it can be simpler, slightly more flexible, and potentially, over time, cheaper? It’s complicated in practice by the nature of the business and the depths of the economics involved, but that sounds like what we’re saying, right?

CF:

Yeah.

The scaling boost.

THQ:

There’s talk that a consumption charging model actually helps companies to scale more easily. Does it do that? And if so… how?

CF:

Well, it makes it easy because you don’t have to deal with salespeople.

THQ:

Ah. That’s a very much more straightforward answer.

CF:

Yeah. In big organizations, if you have to go through some formal process, it’s a pain in the neck. You have to create a new contract, you need a new purchase order. You need all these…

THQ:

Shenanigans?

CF:

Shenanigans, absolutely. We just rolled out this new functionality where you can just log in and add users, but even there, there are some technical limitations. If you’re using a true usage-based or consumption charging model, and you just start having more usage, it’s seamless, there’s no hurdle to get over before you can deal with that.

Protection money.

Right now, companies are dealing with inflationary, unfriendly economics, where costs are being cut, leading to cashflow problems.

Think about it. If you’re on a consumption charging model, whatever happens in your market pulls your costs with it. If you’re in some travel product business and Covid hits, travel stops, and where you may have been spending a million a year, now you’re spending just 100,000. You don’t have to do, or re-do anything to register that effect in your spending.

But for the company selling you the service, that’s a disaster. All of a sudden, 900,000 of their revenue from you is gone. They have to layoff people, otherwise their company’s going out of business. For us in that position, selling annual contracts has given us a protection. Sure, we got lucky, the products we sell haven’t seen any kind of usage changes. But for companies that do, that will really hurt your ability to employ people or ensure adoption.

THQ:

So again, there’s a degree of relative simplicity, and it helps protect against upset, meaning it’s easier to scale?

CF:

Yeah.

For instance, there’s Cloudflare. They’re a company that people put in front of their website to do DDoS and hacking protection. But they have other services like load balancing, to help companies scale their apps or websites. And they pretty famously switched to a NRR-based model, and were really hurt because their revenue tanked while they did it, but it also really hurt investors, but they said “Look, we know this is going to be righteous, stick with us.” And it took a year, and then their revenue went way up, higher than it used to be.

So it takes a big hit for cash flow, and if there’s a way to balance contract with usage base, that really helps. And we’re trying to go with more usage-based, with this consumption charging model, but we’ll probably still end up doing contract mixed with usage, because it helps with cashflow, and it helps customers too. It finds a balance.

In Part 2 of this article, we’ll explore the potential of mixing the cashflow fuel, so that companies can both survive in the short-term, and thrive in the long.

The post Is the consumption charging model the best way for SaaS? appeared first on TechHQ.