LISBON, Portugal — Before Andy Mooney took the reins at guitar maker Fender, he was an executive at two other companies — Nike and Disney. And it was during his time at Disney that he met iconic entrepreneur Steve Jobs.
Mooney says the Apple co-founder was “one of the first people” he met at Disney. Jobs joined the entertainment giant’s board as a result of its acquisition of animation studio Pixar in 2006.
“He grilled me on our very first meeting about what my point of view on brands was,” Mooney told CNBC in an interview at the Web Summit technology conference. According to Mooney, Jobs agreed with his perspective that “great brands are the accumulative effect of great products,” but there was a “but.”
Mooney recalls that Jobs told him: “Every single product that you make, that you put your brand on, is either a deposit or withdrawal from the bank of brand equity.”
That is, the product has to speak to the success of a well-known brand by being an instantly recognizable part of the company’s lineup.
Jobs, who died in 2011, was the face of Apple at a time when the company released some of its most iconic products, including the Macintosh family of computers and the iPhone.
“I’d say that every single guitar we’ve made over 70 years — and electric guitar amplifier — was pretty much a deposit in the bank of brand equity,” Mooney said — although he admitted the firm could “do more” in other categories like acoustic guitars and effects pedals.
‘I’m a heavy metal guy’
Fender has for decades been seen as one of the most iconic names in the guitar industry and — inevitably — rock music. Fender’s guitars have been used by everyone from rock pioneer Jimi Hendrix to Pink Floyd’s David Gilmour.
When asked about what his favorite guitar was — whether from Fender or one of its rivals such as Gibson — Mooney began by stating: “I’m a heavy metal guy.”
He admitted his current go-to guitar is the signature Telecaster used by Jim Root of U.S. metal outfit Slipknot, which Mooney said has a more “simplistic” setup in terms of electric components because “in his outfit, he sweats so much during every show that the guitar would short out and literally go quiet on stage.”
But all has not been rosy in the guitar sector of late, with headlines around Gibson’s filing for bankruptcy protection last year adding to concerns the industry may be struggling due to changing musical tastes and technology. The firm has since appointed a new team of senior executives to help it return to financial health.
Mooney, however, said Gibson’s bankruptcy was more of an isolated case. “Gibson’s bankruptcy had nothing to do with the guitar business,” he said. “The bankruptcy was brought about by ill-considered acquisitions in the consumer electronics space.” One notable acquisition was the firm’s $135 million deal to buy Philips’ audio unit in 2014.
“The fretted instruments segment has been growing robustly for over a decade now,” Mooney claimed, adding 2019 “will be a record year for guitar sales worldwide.”
Online music ‘nothing but a positive’
The strategy for Fender more recently has been updating its product line to reflect a digital-native demographic. The company has been launching a handful of new apps, including one that lets people learn how to play and another for tuning guitars.
Streaming services like Spotify and Apple Music have faced criticism from some musicians, who argue it’s squeezing artists’ income. But Mooney countered that school of thought, claiming the revenues from digital distribution have actually benefited music artists as well as record labels and publishers.
“Today the revenues from digital distribution for the labels and the publishers accounts for 60% of the total revenue,” he said. “They’re making more money now than they have ever made in their history. The same percentage of revenues that go back to the artists and creators is the same that it was.”
The Fender boss said the rise of online distribution in the music business has been “nothing but a positive in the sense that consumers worldwide are listening to more music than they ever have in history.” He cited the example of his 13-year-old daughter listening to The Beatles as a testament to the success of music’s digitization.
Mooney said that when reading one of her essays from school, she wrote that a fact that would surprise her classmates was the fact that she liked the English rock group. Not only that, she also claimed that if the band were around today, “they wouldn’t have a genre on Apple Music,” according to the executive.
Vietnam exporting more to US, but still isn’t a full China substitute
A mechanic works at factory in Hanoi, Vietnam.
Chau Doan | LightRocket | Getty Images
Vietnam may have appeared to replaced China in selling certain goods to the U.S., but the Southeast Asian country still has a long way to go before it can fully substitute China as a manufacturing hub for the world.
In the first nine months of this year, U.S. imports from Vietnam jumped 34.8% year on year, accelerating from a 5.8% gain in all of 2018, according to a Thursday note by consultancy IHS Markit. In comparison, U.S. imports from mainland China shrank 13.4% year on year in the January-to-September period, the note said.
Tariffs were a major reason behind the decline in U.S. imports from China, said Michael Ryan, IHS Markit’s associate director of comparative industry service, who wrote the note.
He added that Vietnam’s fastest growing export categories to the U.S. are computers, telephone equipment and other machinery.
Those products were among the U.S.’s top imports from mainland China, Mongolia and Taiwan in 2018, according to the United States Trade Representative. That suggests that Vietnamese exports of those goods to the U.S. may have replaced the reduction in flows between China and America.
Challenges for Vietnam
Vietnam is often named as one of the largest beneficiary of the trade war because of an increase in its exports to the U.S. In addition, Southeast Asian country has seen a jump in foreign direct investments from manufacturers looking to circumvent elevated tariffs between the U.S. and China.
But the U.S. has not invested in Vietnam in a big way, noted Ryan. He pointed out that American investments into Vietnam only accounts for 2.7% of total FDI the Southeast Asian country received.
One reason is the U.S. doesn’t have a free trade agreement with Vietnam and the broader Association of Southeast Asian Nations, according to the IHS Markit report. But that’s just “one of many factors tempering the pace and magnitude of supply-chain diversification” into Vietnam, Ryan said.
Vietnam is also faced with a shortage in skilled labor, he said. The country’s talent pool has not been able to support the influx of inquiries, as many multinational companies are looking to relocate parts of their manufacturing supply chain outside of China, he explained.
“Simply, demand is outpacing the current ability to supply,” he said, adding that infrastructure in Vietnam is not yet up to standards for many international firms to establish shops.
Specifically, that means finding local business partners and fulfilling government requirements to obtain permits could be major obstacles for foreign companies, according to Ryan. In addition, Vietnamese roads were poorly built and ports are already congested, which add to the time needed to travel and move goods around, he said.
“Taken in combination, these factors are lengthening the delivery cycle to consumers and point to a drawn-out process of extricating operations from mainland China’s orbit,” said Ryan.
WeWork lays off 2,400 employees
A pedestrian walks by a WeWork office on October 07, 2019 in San Francisco, California. Days after withdrawing its registration for an initial public offering, WeWork also warned employees that the company could be set to lay off nearly 2,000 people, about 16 percent of its workforce.
Justin Sullivan | Getty Images
WeWork is laying off 2,400 employees as it works to cut costs and right-size the business, the company confirmed to CNBC.
In a statement, a WeWork spokesperson said the cuts were being made as part of the company’s efforts to “create a more efficient organization” and refocus on the core office-sharing business. The job reductions represent 19% of WeWork’s total workforce, which amounted to 12,500 employees as of June 30, according to an SEC filing.
“The process began weeks ago in regions around the world and continued this week in the U.S.,” the spokesperson said. “This workforce reduction affects approximately 2,400 employees globally, who will receive severance, continued benefits, and other forms of assistance to aid in their career transition. These are incredibly talented professionals and we are grateful for the important roles they have played in building WeWork over the last decade.”
Leading up to the announcement, reports of forthcoming job cuts had been circulating for weeks. The New York Times reported on Sunday that WeWork could cut at least 4,000 jobs across its core office-sharing business and some side ventures. In October, Marcelo Claure, WeWork’s new executive chairman, warned that layoffs would be on the way but didn’t say how many would be announced.
Claure said in a memo to employees earlier this week that the company will hold an all-hands meeting at 10 a.m. ET on Friday to address the changes slated for the company.
The layoffs come after several tumultuous months for WeWork. In September, the beleaguered start-up pulled its IPO filing after investors balked at its mounting losses and unusual corporate governance structure. The scrutiny forced WeWork co-founder Adam Neumann to step down from his role as CEO, with Sebastian Gunningham and Artie Minson stepping in as co-CEOs.
WeWork was poised to run out of money in a matter of weeks, but secured an 11th-hour bailout deal from SoftBank, its biggest investor. With a new owner in place, WeWork is expected to make sweeping changes to its business, including divesting noncore businesses and focusing on enterprise customers, instead of small and mid-sized clients. However, the company continues to bleed cash, reporting $1.25 billion in losses for the third quarter, widening sharply from the same period last year.
Beijing sees opportunity, but concerns linger
As investors and technologists worry that the U.S. is falling behind in the race for dominance in blockchain, Beijing is trying to get ahead.
“In a bear market for crypto we make friends; in a bull market we make money,” said Rae Deng, founding partner of Du Capital, a crypto investment firm based in Singapore.
Deng said at CNBC’s East Tech West conference in the Nansha district of Guangzhou, China she sees another flourishing crypto scene coming, with more Chinese investment striding to the market after Beijing suddenly announced plans to embrace blockchain technology.
“China is eyeing for a thorough digital migration,” she said. “The policy signal will definitely bring a lot of incremental capital into the market.”
She argued that Beijing’s public support will drive “traditional money” – corporate investment in Chinese traditional sectors — to become a big player. These investors previously shied away from the crypto market due to its sensitive status. Initial coin offerings (ICO) have been banned in China since 2017.
“The magnitude and appetite of the traditional money will definitely change the status quo of the crypto community,” she added. “That’s a total game changer.”
China’s blockchain opportunity
In late October, the global crypto market surged after Chinese President Xi Jinping said the country should “seize the opportunity” blockchain technology presents.
The price of bitcoin briefly soared above $10,000 following Xi’s remarks. That pop was mirrored by similar spikes in the prices of more than a hundred Chinese stocks with blockchain exposure as well as a bunch of other cryptocurrencies.
While Beijing’s unexpected move came after Facebook announced its Libra cryptocurrency project in June, the policy change did not happen overnight, according Edith Yeung, managing partner at Proof of Capital, a blockchain-focused venture capital fund.
“They have been working on and studying this for the last 5 years so this is not just ‘because of Libra therefore we do this’,” Yeung told CNBC.
China is moving full speed ahead while Facebook defends the cryptocurrency project against skeptical regulators. The social media giant has also seen many key payment partners, including Mastercard, Stripe, Visa, PayPal and eBay, pull out of the project.
Industry experts predict that China could start rolling out its state-backed digital currency as early as the next two to three months. Government grants have been set up to help blockchain projects. For example, Guangzhou’s city government launched a 1 billion yuan (about $140 million) subsidy fund to support development of the blockchain industry.
What’s the rush?
China’s crypto initiatives are strategically significant, according to Xiao Wunan, executive vice-chairman of the China-backed Asia Pacific Exchange and Co-operation Foundation (APECF).
“Blockchain is the technology field that China started to develop almost at the same time as other countries in the world,” said Xiao, who used to work in the Chinese government. “It’s hard for China to claim technological supremacy on fields like Internet Plus [China’s initiative on information technology] or artificial intelligence, but the blockchain technology would be a perfect fit for China’s technological dominance.”
“It’s called ‘corner overtaking’ strategy in Chinese,” Xiao told CNBC in Mandarin, indicating that the practice could be risky yet effective.
To be sure, China’s digital currency might be very different from bitcoin or other tokens, which emphasize anonymity and decentralization. A state-issued digital currency would help the Chinese government fight issues like counterfeiting and product safety, but it also raises privacy concerns.
Internationalization of the yuan
First, a state-backed digital coin could “further facilitate the internationalization of yuan,” Du Capital’s Deng said.
“It could run in parallel with the SWIFT [Society for Worldwide Interbank Financial Telecommunications] system and also the One Belt One Road initiative could be a carrier of that,” said Deng.
A digital currency would also be able to tap into China’s massive, and largely cashless, payments system.
“WeChat Pay has one billion transactions a day and footprints in 60 countries,” Deng told CNBC. “China has the digital payment infrastructure of that scale and also domestically as China is moving towards a cashless society. It only makes sense for the central bank to adapt to that digital revolution reality.”
China is the world’s largest e-commerce market, accounting for more than 50% of global transactions, according to a July report from the U.S. Department of Commerce’s International Trade Administration. In 2018, third-party mobile payment transaction volume hit 190.5 trillion yuan, according to China-based analytics firm iResearch. That figure amounts to about $28.78 trillion, based off the 2018 average exchange rate from the U.S. Internal Revenue Service.
Safer food and fewer counterfeits
A state-backed digital currency could give regulators greater abilities to track money flows and product logistics within that massive e-commerce market. That would better equip them to tackle issues like counterfeit goods and product safety concerns, APECF’s Xiao explained.
“The prime application would be in the agriculture sector because food security is one of the most crucial issues in China,” said Xiao. “Regulators would be able to track and identify origins of products. Also, if we apply the blockchain technology to Chinese e-commerce site, it would be much easier to address fake goods issues.”
His comments come as China grapples with skyrocketing pork prices as African swine fever kills millions of hogs.
“Similarly, it would be important to the healthcare sector too, as China may soon allow entry of Indian generic medicines in the country,” he added. “Traceability is best cure for fake medicine.”
Experts also see potential for a state-backed digital currency in China’s business-to-business (B2B) market. Currently, the country’s payment leaders – WeChat Pay and Alipay – focus on person-to-person or small payments, with little B2B exposure.
“Blockchains have a huge potential to reduce cycle time in business transactions,” said Paul Brody, head of blockchain at Ernst & Young.
That B2B e-commerce market totaled 20.5 trillion yuan ($3.07 trillion) in 2017, according to statistics site China Internet Watch.
“Adding B2B payment into the blockchain transaction in a strong global currency would have a big impact in accelerating B2B [activities],” Brody told CNBC. “You could have the first Chinese B2B payment infrastructure that could be very, very large.”
Concerns about fraud and a cryptobubble
But as cash floods into the latest crypto boom, concerns about fast-rising valuations and potential fraud also crop up.
“I hope we will avoid repeating some of the mistakes here in China that happened in the rest of the world,” said Brody.
Cryptocurrencies hit staggering highs toward the end of 2017 and the beginning of 2018, only to plunge to a fraction of those levels. Bitcoin has recently been seen trading around $8,000, far below its all-time high of nearly $20,000 in late 2017.
“Seventy-five percent of the companies in the [previous] ICO boom never produced any product. Most of them never got auditors and that’s why we got a lot of the fraud,” he told CNBC.
Valuations of Chinese crypto start-ups and projects are surging, making it harder for potential investors to negotiate.
“Some of the companies we spoke to immediately raised their valuations by more than 50% shortly after Xi’s speech,” Du Capital’s Deng said. “It has become harder for us to get deals at reasonable valuations because competition is heated.”
“I think there will be bubbles for sure,” she added.
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