Commercial Awareness Update – W/C 1st June 2020

The round-up of the stories that a budding Student Lawyer should be aware of this week. Sign up here to get these updates in your inbox every week.

Facebook introduces new Shops

Article by Gina Asadi (recent BPP LLM Legal Practice (Solicitors) graduate)

CEO of Facebook, Mark Zuckerberg, has recently announced Facebook’s new e-commerce venture, Facebook Shops, which will allow small businesses to create online stores on Facebook and Instagram. The new venture will enable Facebook to directly compete with e-commerce giants, Amazon and eBay, providing new profits and data for Facebook to utilise.

Facebook Shops will allow businesses to sign up for free and sell products on their Facebook page, Instagram page, stories or in ads in exchange for a percentage of each transaction. With a vision of growth in mind, Facebook Shops intends to allow businesses to sell products to customers via the messaging features of WhatsApp, Messenger and Instagram Direct. Mark Zuckerberg has explained that the e-commerce business is a ‘one simple and consistent experience across this family of apps, which means it is easier for people’. Customers will be able to view the products, contact businesses regarding purchases and may be able to buy them from the online checkout feature.

It has been reported that the e-commerce initiative had been accelerated for the business to take advantage of the boom in online sales during the Coronavirus pandemic. Further, Facebook is set to benefit from the Facebook Shops business, as it intends to use the data collected from Facebook Shops to improve its advertising service which has been on the decline since the Coronavirus outbreak. Facebook’s view is that the rise in sales from small businesses through Facebook Shops will also mean a rise in businesses paying for Facebook’s advertising offering; as without such ads the products offered by such businesses may be lost in news feeds. However, Facebook and struggling small businesses are not the only stakeholders benefiting from this e-commerce initiative. Online shopping platform, Shopify, is one of the partners in the Facebook Shops venture that has benefited from this move. It has been reported that Shopify’s shares have increased by 2% since the news broke out and is predicted to continue rising.

This initiative is seen as a move to improve the economy, that has been severely hit by Covid-19. Facebook will be connecting its loyal users with businesses that have been struggling to trade in these new conditions, and in turn reviving these businesses. The improvement of the economy means deals for law firms as they will be advising Facebook, Shopify and the businesses signing up to Facebook Shops on the different aspects of the deal.

You can read more here and here.

Bain Capital Looks to Takeover Virgin Australia

Article by Jamie Adair (1st year LLB student at Warwick University) 

Boston-based private equity group, Bain Capital, is preparing a second-round bid for Virgin Australia.

The airline, Australia’s second-biggest, was considered to be on the brink of collapse after failing to secure a relief package from the government. The airline industry has been facing severe problems due to a collapse in demand for air travel because of the ongoing pandemic and Virgin Australia is no exception to the trend, having grounded most of its fleet. Last month the company entered voluntary administration with debts of nearly $4.6 billion.

Richard Branson, founder of the Virgin Group, had come under heavy criticism for seeking state aid for his airlines but defended his position, stating that some “will need government support” if they want to avoid bankruptcy.

The leading investment firm, Bain Capital, sees itself as the “strongest” suitor to help save the airline and recently stated that it was “preparing a second-round proposal to become the owner and operator of Virgin Australia”. Bain’s Sydney managing director, Mike Murphy, said in a statement on Sunday that his firm “bring experience, certainty, and stability to Virgin with a long-term mindset and a commitment to a well-funded, successful airline”.

Bain Capital is one of four potential buyers shortlisted by administrators Deloitte as well as Indigo Partners, BGH Capital and Cyrus Capital Partners and a deal is expected to be agreed by the end of June.

The Boston-based group has big plans for Virgin Australia and intends to bring back some parts of its low-cost origins when it used be called Virgin Blue, rather than continuing to offer a full-service model.

There are many doubts about whether the air travel industry will ever fully recover from the pandemic with such pessimism highlighted by Warren Buffett’s decision earlier this month to sell all his positions in airlines such as Delta, Southwest Airlines, American Airlines and United which in turn caused their stock prices to sink even further.

Despite this initial lack of faith, their share prices have since rebounded and could even be worth more now than when the “Oracle of Omaha” sold them.

You can read more here.

‘Travel bubbles’ set to become the new norm?

Article by Sofiya Stanchak (Third Year LLB student, University of Surrey)

2019 was the most mobile year yet, with 4.6bn flights taken, this year in April however, there were only 47m flights which sets the level of mobility to a level that was seen in 1978. The halt to travel has caused many complications in trade, business as well as devastating the tourism industry, so it’s no wonder that countries are desperate to fix these issues. One of the ideas to overcome these issues is the concept of ‘travel bubbles’, binding together countries that have coped well against the coronavirus. The first ‘bubble’ opened on May 15^th between Estonia, Latvia and Lithuania, who are among Europe’s best performers against the virus. The citizens will be free to travel inside the ‘bubble’ without a quarantine.

Another ‘bubble’ proposed is a trans-Tasman ‘bubble’ tying New Zealand to Australia’s state of Tasmania, both who kept cases of coronavirus down to lows of 21 and 97 deaths respectively. China and South Korea have launched a ‘fast track’ entry channel for business people and a ‘travel bubble’ may be in the works as well. Based on an analysis of infection data, The Economist sees two large zones that could emerge as ‘bubbles’ subsuming the smaller ones that are now being formed. The economic benefits would be far greater if the ‘bubbles’ were expanded to more countries that just the 2 or 3 proposed in each ‘bubble’.

The first ‘bubble’ proposed by The Economist is the Asia-Pacific region, linking together countries from Japan to New Zealand which have in the past week recorded fewer than ten new infections per 1 million residents. The second region would be Europe, the ‘bubble’ could reach from the Baltic to the Adriatic and take in Germany. Based on these two models, the Asia-Pacific region would account to 27% of global GDP and the Europe one would make up 8%.

Exploring the positive impacts of the ‘travel bubbles’ one potential value of the concept is their degree of trade integration. For the countries in the Asia-Pacific bubble, and average of 51% of their overall trade is with each other and in the Baltic-to-Adriatic bubble, it is 41%. Small countries would gain the most by reconnecting with larger neighbours and creating bigger bubbles. Free movement in the ‘bubbles’ would be helpful for countries such as Thailand and Greece which rely on tourism. Factories in Asia also rely on workers moving around. Before the pandemic hit, on a normal day, up to 3.5m people would cross an international border in Europe and 700,000 would go between Hong Kong and mainland China.

‘Travel bubbles’ provide a good alternative for countries to recover their trade, economies and tourism without opening up their border to the whole world and may very well become the new norm as countries begin recovering.

US sanctions amid trade war

Article by Aleksandra Nowicka (LLM graduate & Legal Blogger | Founder of fromlawyerslife.com)

The so-called ‘trade war’ between the United States and China continues. A year ago US forbade American high-tech companies from selling to Huawei, as a consequence of the risk of using data to spy on America (according to American officials, even though the company denies any allegations). However, the embargo had holes in it, hence the companies, including Google, Microsoft, Broadcom and Qualcomm, found a way to supply the Chinese tech giant from overseas factories.

Ineffectiveness of measures undertaken by the US government led to the introduction of a new sanction on May 15th. The US announced new rules that target Huawei’s in-house microchips, which power many of the firm’s products. They specify that no American tools can be used to make Huawei’s products, and since every big chipmaker uses some American tools, the effect is to freeze Huawei out completely, states ‘The Economist.’ It might, and probably will, create a huge financial and logistics problems not only to Huawei but also all the companies which supply it. The introduction of new and more rigorous controls constitutes a threat to all global chipmakers supplying the company, such as Mercedes which exports from the US to China and depends on US chipmaking tools.

On May 20th the US Senate passed a bill that calls for a company to be barred from listing securities on US exchanges if it has not complied with the US accounting board’s audits for three consecutive years. It would also require listed companies to disclose whether they are owned or controlled by a foreign government.

Nevertheless, Huawei boosted its spending with US suppliers by 70 per cent last year, despite being placed on a blacklist by the White House that forbids American groups to sell to the Chinese telecoms company, according to Financial Times. With the new measures in force such situation might change, with a great detriment not only to the Chinese giant, but also its suppliers, many of which are US-based companies.

Green Start-ups to Benefit from a new £40m Clean Growth Fund

Article by Jamie Howarth (Second Year LLB at ULaw)

‘The need for innovative and ambitious ideas across green industries has never been greater. I am pleased that with the help of this fund, promising clean growth start-ups will be able to step up to accelerate the UK’s recovery, while supporting our path to Net Zero by 2050.’ – Alok Sharma, Business Secretary.

Last Thursday (21 May), the Department of Business, Energy, and Industrial Strategy (BEIS) announced a new £40m Clean Growth Fund, with the aim of investing in clean, low-carbon technologies across multiple sectors. The fund consists of £20m of Government investment matched by CCLA, a large charity fund manager, and will be managed by Clean Growth Investment Management LLP (CGIM). There is speculation that the fund could become worth over £100m by autumn 2021, with CGIM now seeking investment from the private sector.

By investing in businesses with a prototype product or service demonstrating a clear contribution to reducing greenhouse gases, the Fund looks set to assist in the UK’s plan to reach Net-Zero by 2050. Deborah Harvey, head of Energy Innovation at Osborne Clarke, stated that the Fund reiterates ‘the importance of innovation within the energy sector to both the attainment of our net zero ambitions and the future of a sustainable supply’. This sentiment is reflected by lawyers at Pinsent Masons and Gowling WLG who advised CGIM and BEIS, respectively.

For some examples of projects that could be offered support and for details on how the fund can be accessed, visit the BEIS Gov.uk website.

Digital yuan to beat Bitcoin?

Article by Aleksandra Nowicka (LLM graduate & Legal Blogger | Founder of fromlawyerslife.com.)

 With blochchain and cryptocurrencies not being only weirdly-sounded inventions any more, but in fact a quite popular ways of structurizing your finances, it was just a matter of time when one of the biggest economies will introduce its own digital currency.

The plan was introduced in 2014, and since then China’s central bank has been working on a “DC/EP”: Digital Currency/Electronic Payments” project. The aim was not to create a new digital currency, but simply to at least on some scope digitise existing monetary system, as well as cash circulation in China.

Whereas, the authorities around the world address concerns as to Libra and the fact that it would leverage Facebook’s yet enormous user base, in late April 2020, China reached a significant milestone: after more than five years of research by its central bank, China became the first major economy to conduct a real-world test of a national digital currency. The pilot project, which is occurring in four large Chinese cities, is a clear sign that China is years ahead of the United States in the development of what is likely to become a central component of a digital world economy. The DCEP had been formally adopted into the cities’ monetary systems, with some government employees and public servants to receive their salaries in the digital currency from May.

Chinese citizens are not new to online ways of payment, and such platforms as Alibaba’s Alipay and Tencent’s WeChat Pay are commonly used, though, they do not replace existing currency. The new system, unlike mentioned platforms, supports online transactions even without internet connection. The function called “touch and touch” allows two users to simply touch their mobile devices together to make a transfer, leaving no payment record with a third party or the banking system.

The main difference between DCEP and bitcoin is that the former does not use blockchain technology, but instead operates through the two-tier operating system. The People’s Bank of China (PBOC) issues the DCEP to commercial banks and other commercial operating agencies without using blockchain, but the lenders and other agencies are allowed to use the technology to distribute the digital yuan to the public.

The advent of digital currencies might degrade the efficacy of US sanctions, limiting the country’s options to respond to national security threats from Iran, North Korea, Russia, and others. It might also hamper the ability of US authorities to track illicit financial flows, according to Foreign Affairs. Digital currencies further the goal of avoiding dollar transactions and US financial oversight, since they provide a scalable cross-border mechanism that circumvents the current system. And undoubtedly, the digital yuan could play an especially important role in advancing such efforts, bolstered by China’s clear interest in facilitating international commerce in a way that undermines US influence and expands its own. Nevertheless, it will take several years for the digital yuan to replace just about 10% of all physical cash in China, according to Financial Times.

You can read more here, here, and here.