Case Study: TikTok as a Financial Threat to the USA

Factors in the external environment that led to Trump assessing TikTok as a threat to America:

PESTELE Model

Political factor: China’s legal system allows it to request user data from tech companies. China’s laws require TikTok to share the US data from American residents with the Chinese government. In other words, Americans' private data are in the hands of the Chinese government. TikTok was reported to record user content that are sensitive to the Chinese Communist Party, such as content concerning protests in Hong Kong and China’s treatment of Uyghurs and other Muslim minorities. TikTok is also used for disinformation campaigns that benefit the Chinese Communist Party, such as when TikTok users spread conspiracy theories about the origins of the 2019 Novel Coronavirus. TikTok is now used as a political force where its users post to support their favorite candidates and comment on certain events that take place. TikTok has been used several times as a political tool. For example, hundreds of teenage TikTok users claimed credit for low turnout at a rally for Trump in Tulsa, Oklahoma. Furthermore, America and China have experiences in the past with each other that served as a threat to the US economy, causing the Trump administration to fear for it to happen again. China has been known as a rule-breaker. The Trump administration accuses China for interfering in America’s culture and politics, of stealing intellectual property and trading unfairly, and of seeking not just leadership in Asia, but also global dominance. There are records of China violating human rights at home and showing an aggressive attitude towards business expansion abroad.

Economic factor: Tiktok is an American start-up that is subsidized by a successful Chinese technology company. Its parent company is ByteDance, which is based in Beijing. TikTok has been downloaded nearly 200 million times in the US and about 9% of the app’s downloads are outside of China. Trump wants TikTok to be owned by an American company. The Chinese economy is growing more than twice as fast as America’s and China is continuously investing money into advanced technology, such as artificial intelligence, quantum computing and biotech. This serves as a threat and urges Trump to impose an order to sell the Chinese company to an American based company for boosting economic purposes in America. TikTok users have increased from 27 million users in 2019 to 52.2 million users in 2020. The business is growing massively in size. TikTok was reported to be downloaded over 175 million times in the United States and over one billion times globally.

Social factor: ByteDance is considering making changes to its corporate structure. ByteDance is establishing headquarters for TikTok outside China. TikTok claims that it is storing US citizens’ data in Virginia, with backup in Singapore and that it has softwares that separates TikTok data from ByteDance. Moreover, Trump’s perception about Chinese business and innovation may serve a threat to Trump’s business plans and position at the presidential level. An action against TikTok could be an attempt to further the president’s anti-China political campaign. For instance, Trump had ordered ByteDance to sell its US assets to an American company. This may have been done in order to boost the American business economy in terms of competition with China. Chinese people have been suspecting that America has secretly wanted to block China’s rise.

Legal factor: The Chinese government is storing all of the information collected from tiktok users and their contents. The Chinese government could use these personal data from TikTok users to obtain political and military information and other privacy matters of the US government. This serves as a US national security threat. The Commerce Department said that TikTok collected information from their users including location data, network activity and browsing histories, violating American privacy laws and evaluating Americans preferences and local behavior without the US government consent in another country. The Department of Justice indictment in December 2018 found China’s ministry of state security having ties to a long-standing campaign by the hacking group. China was found to be stealing secrets from American firms in aviation, space, pharmaceuticals, oil and gas, maritime and other technologies.

Technological factor: TikTok as an advanced application with additional tools and highly advanced settings could be manipulated by the Chinese government. TikTok as a Chinese company poses a threat to American technological advancement. TikTok, which does not directly operate in China, has become a wildly popular platform for sharing viral videos in the United States.

Ethical factor: TikTok collects everything including people’s IP address from the device people are using to access the app. TikTok also collects the messages that were exchanged with other users on the TikTok app. TikTok automatically saves information from its users, including Internet and other network activity information such as location data and browsing and search histories. This data collection threatens to allow the Chinese Communist Party access to Americans’ personal and proprietary information, potentially allowing China to track the locations of Federal employees and contractors, build dossiers of personal information for blackmail, and conduct corporate espionage.

Oracle’s partial ownership of TikTok and agreement to host data of American TikTok users in the US satisfy Trump’s national security concerns:

Opportunities and Threats does for Oracle

As TikTok forms an agreement and offers partial ownership to Oracle, an American software-maker, the Commerce Department would remove the prohibitions that were previously imposed only if the partnership would resolve the administration’s national security concerns. This partnership would provide Oracle the opportunity to become TikTok’s secure cloud provider and a minority investor with a 12.5% stake. However, the threat is that TikTok’s Chinese parent company, ByteDance will own the remaining 80% of TikTok. The partnership will avoid TikTok from shutting down. Oracle will serve as a trusted technology provider for America. It will be responsible for controlling all US user data and securing associated computer systems to ensure US national security requirements are fully satisfied.

Moreover, about 40% of ByteDance is owned by US venture capital firms, so the Trump administration can globally claim that the majority of TikTok Global is now owned by US money. TikTok will now maintain and expand its headquarters in the US, while bringing 25,000 jobs across the country. This will satisfy Trump’s national security concerns. Furthermore, TikTok will have the opportunity to join the TikTok Global pre-IPO financing round where it can take upto 20% stake in TikTok. Oracle stated that TikTok Global will pay over $5 billion in new taxes to the U.S. Treasury Department. Oracle and TikTok investors would build and provide online videos to teach kids about history, science and other subjects.

Trump said the companies would also make a $5 billion contribution toward an education fund. The end result would boost Oracle’s position as a company that can handle challenging computing workloads and would help it to resolve a geopolitical dispute between the U.S. and China. This greatly improved security and privacy in the US will enable for a continued rapid growth of the TikTok user community. This rapid growth of TikTok users will benefit all stakeholders. Oracle already has a competitive advantage because it already provides cloud infrastructure to online video services to 8x8 and Zoom. However, a potential threat could be in the revenue aspect of the business. According to estimates found from an industry research company, Gartner, Amazon and Microsoft were found to have more cloud revenue than Oracle in 2019. Moreover, ByteDance will have no stake in TikTok Global. Another threat is that the partnership with TikTok Global does not award total control to Oracle and Walmart.

Walmart’s partial ownership of TikTok represent a strategic opportunity for Walmart

Walmart’s partnership with TikTok has provided Walmart with an opportunity to purchase 7.5% stake in the business and allow its CEO, Doug McMillon, to serve as one of the five board members of the company. Walmart has planned on working towards an initial public offering of TikTok in the United States to bring more ownership to American citizens. Moreover, Walmart will have the opportunity to join the TikTok Global pre-IPO financing round where it can take upto 20% stake in TikTok. Walmart stated that TikTok Global will pay over $5 billion in new taxes to the U.S. Treasury Department.

Walmart and TikTok investors would also build and provide online videos to teach kids about history, science and other subjects. Trump said the companies would also make a $5 billion contribution toward an education fund. An advice for Walmart is to take great advantage of studying consumer behavior and preference in the US on what a potential trend is to develop within TikTok and attract viewers on a certain feature of TikTok. Just as how TikTok draws on recommendation systems to select videos to show each user, it should be able to develop other interesting features, tools, and other animations that US teenagers and influencers would be interested to use to advertise business.

Walmart’s partnership with TikTok has provided Walmart a strategic opportunity to have a stronger market to compete with Amazon in social commerce. TikTok also serves as a fast-paced activity and better online-purchasing encouragement app, where people are influenced to purchase products through advertisements by users. Users can swipe up to take them to a certain website for the particular product that was advertised on TikTok. TikTok is an attention grabbing app where people, particularly Generation X and Z are introduced to products. Moreover, Walmart’s partnership with TikTok provides opportunities and ways for Walmart to reach and serve Omnichannel customers and grow their third-party marketplace and advertising businesses. Walmart bought the partnership with TikTok in order to take advantage of the prevailing political circumstances of the United States.

Oracle, Walmart, and TikTok deal could potentially impact US based tech companies such as Facebook and Google that also have generated their revenue from individual consumer data.

The partnership will allow social commerce to become a popular business model in the United States. TikTok has been growing its business through social commerce and other US based tech companies like Facebook and Google will start to develop similar business models to match the new behavior and shopping behavior of consumers. The arrival of TikTok encourages Facebook and Google to use a new Live Shopping feature and other social features that will let businesses go live on either platform and feature products from their shops. Customers will then be able to purchase directly from the video. As Oracle and Walmart partner with TikTok, they will compete with other US companies like Facebook and Google through marketing strategies and budgets. Facebook and Google are facing antitrust lawsuits because of their heavy concentration on marketing.

Walmart’s and Oracle’s partnership with TikTok brings competition in the US market with Amazon in social commerce. The partnership will allow for an omnichannel customer approach, connecting facebook and google products all together and introducing other products that can be directed through facebook and google links. Google helps TikTok find out what people are searching for, what videos they want to watch, and what they put in their calendars and emails (Crowley, 2021). Google uses such data to help brands target ads on TikTok via its advertising exchange. Both Google and Facebook capture its users to help connect advertisers to a certain interested group of people (Crowley, 2021). Google and facebook assesses its users content and search engine and finds a targeting audience to collect data from them. Then this data is transferred to other social media platforms, helping them learn about a user’s activity and interest. It can be said that Google and Facebook serve as brokers of targeted ad space on their platforms (Crowley, 2021).

Personal Opinion whether TikTok was a threat to America (prior to Oracle and Walmart becoming partners)

Yes, I agree that TikTok was a threat to America because China is starting to have rising powers. China has the competitive advantage in tech industries and is top in its business strategies amongst apps like TikTok. The Chinese economy is growing more than twice as fast as America’s and the country is investing money into advanced technology, such as artificial intelligence, quantum computing and biotech. China is known as a rule-breaker and with strict regulations and policies that could potentially expose Americans’ private data from TikTok. China has used its state-directed commercial clout in smaller countries to influence foreign policy like influencing the European Union. China has the power to change foreign policies and exercise different business practices to boost its market economy.

As TikTok remains a Chinese based company, the Chinese government will continue to demand information from the app that would transmit illegal private information to China without voluntary consent. China would be using TikTok’s information to assess several things about the US economy. As TikTok forms partial partnerships with Walmart and Oracle, it would fully have access to be protected under US laws and data will be maintained within the US. Otherwise, America would be forced to work with the European Union and Japan to press China to change and negotiate on its decision, law, or order about TikTok matters. When Trump had ordered ByteDance to sell its US assets to an American company, it had done so in order to boost the American business economy in terms of competition with China.

On the other hand, I also agree that Walmart and Oracle as partners of Tiktok would actually help preserve and protect the data in one country, America, while still having to go through software updates by Chinese tech experts that founded this app. When American companies partner with a Chinese company, there will be less trade cheating from China and other Chinese behavior of stealing commercial secrets. The majority of Chinese policies favor domestic companies and provide better opportunities to them only, while foreign companies operating within China are faced with harsh regulations. American companies have the right to protect their privacy and maintain data within the boundaries of their country despite the harsh regulations and strict behavior the Chinese government shows toward American companies when operating in China.

Moreover, the partnerships would be responsible for controlling all US user data and securing associated computer systems to ensure US national security requirements are fully satisfied. The partnership would no longer make TikTok Global a threat to America because ByteDance has reported to pay $5 billion for TikTok Global taxes. It will pay to the U.S. Treasury based on estimated income and other taxes the company will need to pay over the next few years. Moreover, $5 billion would be invested in the U.S. education fund as part of the partnership. Walmart, Oracle and some ByteDance investors stated that they would sponsor an educational initiative for online courses for children in the suburbs and inner cities.

Moreover, The Department of Justice indictment in December 2018 found China’s ministry of state security having ties to a long-standing campaign by the hacking group. China was found to be stealing secrets and spying on information from firms in aviation, space, pharmaceuticals, oil and gas, maritime and other technologies. This served as a threat to America to keep Chinese based companies from gaining commercial advantage and other profitable gains in America.

References

Crowley, M. (2021). How TikTok could turn Walmart into an advertising powerhouse. Retrieved from https://www.fastcompany.com/90544478/how-tiktok-could-turn-walmart-into-an-advertising-powerhouse

Walmart bought the partnership with TikTok in order to take advantage of the prevailing political mood of the United States