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Venture Capital Giant Sequoia Spins Off China and India Units

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Venture Capital Giant Sequoia Spins Off China and India Units

Sequoia Capital, one of Silicon Valley’s most prominent venture capital firms, is breaking itself up, spinning out its Chinese unit into an independent company at a time of rising tensions between China and the United States over investment and access to advanced technologies.

The firm announced on Tuesday that it planned to split into three independent partnerships, with its businesses in China and India adopting new brands and the firm in the United States and Europe retaining the Sequoia name. The firm’s global footprint had become “increasingly complex” to manage, said a statement from Sequoia’s managing partner Roelof Botha; the firm’s China head, Neil Shen; and its India head, Shailendra Singh.

In an interview, Mr. Botha said that Sequoia had evaluated whether a centralized model made sense “over the years.” The issue came to a head in the past couple of months, and “it just became clear to us that the cost of holding it all together and background wasn’t worth it,” he said.

“Increasingly, we deal with portfolio conflicts across entities because founders really now have global ambitions,” Mr. Botha said. “And the brand confusion was just starting to chafe at everybody.”

Sequoia’s China business will be called HongShan. Sequoia’s business in India and Southeast Asia will be called Peak XV Partners.

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Sequoia has more than $53 billion in assets under management in the United States and Europe, $56 billion in China and $9 billion in India and Southeast Asia. The firm’s business in the United States and Europe has generated returns of more than $30 billion over the past five years, according to a person familiar with the fund’s performance.

Since it entered China, in 2005, Sequoia has played a prominent role in the rapid and lucrative rise of China’s tech giants. Its notable investments include ByteDance, the owner of the video app TikTok; the fintech company Ant Group; and the fast-fashion retailer Shein. The firm has invested in over a thousand companies in China, including in rising tech sectors such as electric vehicles and biotech.

Mr. Shen, Sequoia’s China head, sits on the board of ByteDance, a company that has drawn scrutiny as TikTok faces the ire of U.S. lawmakers for its purported ties to China’s government, with executives from the hugely popular app facing questions about whether it spied on Americans on behalf of Beijing.

Lately, venture capital investors have grown wary of pouring money into China: Deal volume fell by half last year to about $69 billion, the lowest level in six years, according to PitchBook, a research firm. Not all of that can be tied to geopolitical tensions, with China’s economy slowing sharply while under strict “zero Covid” restrictions until late last year.

But doing business in China has become more complicated, particularly in sensitive industries like technology, as the United States and China compete for economic primacy.

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The United States has been weighing restrictions on investments into China, which has generated strong pushback from some major investors, and hesitations from some Biden-administration officials who are concerned that overly broad measures could lead to unintended consequences. The possible restrictions are also being drafted while the administration also seeks to lower tensions with the Chinese government after a period of strained relations.

In a hearing before the Senate Banking Committee last week, Paul Rosen, the assistant secretary of the Treasury for investment security, said the administration was “working to craft a narrow and focused program” to restrict investment into certain sensitive technologies with national security implications, such as advanced semiconductors, artificial intelligence and quantum computing.

The U.S. government already prohibits domestic companies from directly selling certain technologies to China, and it monitors the investments that Chinese companies make in the United States for security risks.

The Chinese government has recently targeted advisory and consultancy firms with foreign ties, raising the alarm of executives in the West. These firms help foreign businesses assess investments, playing a particularly important role in China, where reliable information is hard to secure for companies looking to invest in the country.

Chang Che Ana Swanson and Michael J. de la Merced contributed reporting.

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Tesla sued for ‘widespread and ongoing’ racial harassment at California plant

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Tesla sued for ‘widespread and ongoing’ racial harassment at California plant

The U.S. Equal Employment Opportunity Commission is suing Tesla Inc. for “widespread and ongoing” racial harassment of its Black employees and for retaliating against workers who spoke out about the problem, the federal agency announced Thursday.

Since at least 2015, “Black employees at Tesla’s Fremont, California, manufacturing facilities have routinely endured racial abuse, pervasive stereotyping, and hostility as well as epithets,” the commission said in a statement.

The EEOC added: “Black employees regularly encountered graffiti, including variations of the N-word, swastikas, threats, and nooses, on desks and other equipment, in bathroom stalls, within elevators, and even on new vehicles rolling off the production line.”

The lawsuit was brought by the EEOC’s San Francisco District Office, which has jurisdiction over Northern California, northern Nevada, Oregon, Washington, Alaska, Idaho and Montana.

EEOC officials said the lawsuit is seeking compensatory and punitive damages “and back pay for the affected workers, as well as injunctive relief designed to reform Tesla’s employment practices to prevent such discrimination in the future.”

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EEOC Chairperson Charlotte A. Burrows said the lawsuit “makes clear that no company is above the law.”

“The EEOC will vigorously enforce federal civil rights protections to help ensure American workplaces are free from unlawful harassment and retaliation,” she said.

Attempts to reach officials at Tesla for comment were unsuccessful.

Tesla, the world’s most valuable car company, faces similar action on several other fronts.

In February, the California Department of Fair Employment and Housing filed a lawsuit on behalf of more than 4,000 current and former Black Tesla workers — the largest racial discrimination suit ever brought by the state based on number of workers affected.

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In that suit, three former employees alleged that racist slurs in English and Spanish were often aimed at Black employees by co-workers and supervisors. They said Tesla segregated Black workers into separate areas, gave them the hardest tasks and routinely denied them promotions. And they alleged that when they informed the company about racist treatment, their complaints went ignored or they were fired.

Tesla disputed the former employees’ accounts, stating that the three workers did not complain to the company about racism and that any discipline they received was the result of their own workplace behavior.

“Race plays no role in any of Tesla’s work assignments, promotions, pay or discipline,” attorneys for the company said in a statement at the time. “Tesla prohibits discrimination, in any form.”

Thursday’s lawsuit puts a different kind of pressure on Tesla, said attorney Clifton W. Albright, founding partner and president of Albright, Yee & Schmit, a labor and employment law firm in downtown Los Angeles.

“The EEOC’s preference is to resolve issues quietly…. They don’t have a dog in this fight,” he said, unlike lawsuits filed by private firms or civil rights organizations.

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“For the EEOC to come out so strongly, they must think there is significant evidence that the employer refuses or fails to recognize or address.”

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The unionization wave hits L.A. area bubble tea cafes

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The unionization wave hits L.A. area bubble tea cafes

Six Boba Guys locations in Los Angeles County will become the first unionized boba stores in California after a successful election, the union said Wednesday.

The bobaristas will join the California Retail & Restaurant Worker Union, which also represents workers at Genwa. The Los Angeles Korean barbecue restaurant chain unionized in 2021.

“When companies remain neutral and do not interfere with anti-union campaigns … the workers will overwhelmingly support unionizing of their workplace,” said CRRWU President José Roberto Hernández.

Hernández said the union had been engaging with workers for the last six months. They filed for a union with the National Labor Relations Board in July and counted the results of the mail-in ballot election Wednesday afternoon. Boba Guys will be the first unionized boba stores in California, if not the country, Hernández said.

CRRWU also represents workers in ongoing unionization efforts at Korean grocery outlet Hannam Chain and at air purifier manufacturer Coway.

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“We want to publicly express our support of the labor vote conducted by the National Labor Relations Board and [CRRWU],” Andrew Chau, co-founder and CEO of San Francisco-based Boba Guys, said in a statement. “We have always believed in the right to organize and have cooperated with CRRWU and the NLRB throughout the entire process.”

Chau encouraged other businesses to “follow suit and open up the conversation on the much-needed dialogue surrounding labor in this country.”

Last fall, the boba chain — known for its drinks made with organic milk, loose-leaf teas and homemade syrups — faced backlash after firing a worker from its flagship store in San Francisco’s Mission District; the worker said Boba Guys told her it was because she had made “inappropriate, disparaging” comments to co-workers that were sexual in nature, but she believed she had been fired for posting about unions in a company Slack channel.

At that store, several workers publicly complained of reduced hours, a decrease in time given to open and close stores, and fewer people working per shift. They also spoke of working through heat waves without air conditioning, dealing with vermin and having their hours cut when they took their concerns to management.

The company eventually permanently closed that location.

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Carmen Lau, a former manager at Boba Guys’ Culver City shop, said workers had been unhappy for months about their working conditions but weren’t sure what they could do about it.

“How do you fix it? How do you do more than just talk to the people in charge who have heard your complaints a number of times, acknowledge [them], but there’s no follow through?” Lau said.

She left the company in May for another professional opportunity, but also because of increasing demands at work and issues that remained unaddressed, she said.

“The increasing expectations for work, just having less time to prepare and prepare all the ingredients for opening — I found that it was getting really impossible to meet those expectations,” Lau said.

News of what happened at the Mission District store spread rapidly and drove a lot of the desire to push for increased benefits and protections, said Stephen Lightfoot, who works at the Boba Guys location in North Hollywood.

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As an actor and sound designer, Lightfoot was well aware of the benefits joining a union could bring workers and was active in spreading the word to his colleagues, who were “very excited,” he said.

Los Angeles has become a center of labor activity as screenwriters, actors, hotel employees and city staffers went on strike over the summer, and there are unionization efforts underway at companies including Starbucks, Amazon.com and Trader Joe’s.

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Column: The FTC is right about Amazon’s monopolistic practices, but struggles with what to do about them

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Column: The FTC is right about Amazon’s monopolistic practices, but struggles with what to do about them

Few Amazon customers or sellers could be surprised by most of the allegations in the massive lawsuit filed against the company Tuesday by the Federal Trade Commission and 17 states.

The lawsuit accuses Amazon of a host of anti-competitive practices, all aimed at exploiting its enormous footprint in the online retail market.

These include price manipulation and punitive and coercive behavior against sellers with the temerity to use competing retail platforms or to set their own prices or engage in non-Amazon methods to serve their own customers.

The harms here…have basically created a really distorted and competitive landscape….That may require significant relief.

— FTC Chair Lina Khan, contemplating an Amazon breakup

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Then there’s the degradation of the Amazon shopping experience by the infusion of “sponsored” — that is, favored — products that may be inferior or more expensive than those a buyer may be seeking.

The company’s public response to the lawsuit is that it would result in “fewer products to choose from, higher prices, slower deliveries for consumers, and reduced options for small businesses,” its general counsel, David Zapolsky, said in a prepared statement, adding that the agency is “wrong on the facts and the law.”

But most of the FTC’s allegations are familiar enough. Consumers know how hard it is to determine whether Amazon’s prices are the lowest available. They know that when they’re searching for an item on Amazon.com, the varieties pushed at them most assiduously are those from Amazon’s commercial partners or marketed by Amazon itself.

They feel the pressure to sign up for Amazon’s Prime service, now $139 a year, necessary to receive one- or two-day, or even overnight, delivery, in addition to the company’s video and music streaming services.

Sellers who have marketed their merchandise on Amazon are certainly aware of the cost — a share of as much as 50% taken by the company.

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They know the consequences of flouting its rules or trying to discount its products from Amazon’s price, which include banishment from the website’s one-click “buy box” or the burying of discounting sellers “so far down in Amazon’s search results that they become effectively invisible,” to quote the lawsuit.

The question is what to do about it.

That’s the question implicit in every one of the FTC complaint’s 174 pages. It’s the same question raised any time the government tries to rein in a big, powerful corporation, but it’s especially important in this case, because there are so very few corporations that dominate their markets so powerfully.

The FTC points to Amazon’s ability to leverage its various businesses, which include its “fulfillment” services — the warehousing, packing and shipping of sellers’ merchandise — and Prime eligibility, which gives sellers’ products preferential placement on the website and by eliminating shipping charges lowers the cost of their products for buyers.

That suggests that one answer would be to break up Amazon, say by forcing it to divest its fulfillment operation. FTC Chair Lina Khan dodged that issue in her statements about the lawsuit, possibly because she knows that the remedy to Amazon’s misdeeds, assuming it’s found guilty, would be in the hands of a federal judge.

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“At this stage, the focus is more on liability,” she told reporters in a briefing session Tuesday. On Wednesday, during an appearance at a Washington, D.C., conference sponsored by Politico, she noted that in the lawsuit “we don’t specify any one type of remedy.”

She also observed, however, that “the harms here are really mutually reinforcing, and have basically created a really distorted and competitive landscape … that may require significant relief.”

The lawsuit isn’t entirely silent on possible remedies, mentioning, among other options, “structural relief.” That could only mean a breakup.

Some disclosures are proper here. I am, like many other customers, a willing prisoner of the Amazon ecosystem, or perhaps more accurately, an addict. The books I read for pleasure are almost invariably ebooks, which means they’re Amazon ebooks; I blindly buy the latest version of the company’s Kindle e-reader (up to and including its new large-format Kindle Scribe).

If I’m interested in a book that doesn’t come in a Kindle version, I’ll wait until it does. I can’t remember the last time I bought an ebook not on Amazon. All but two of the books I’ve written come in Kindle versions, for which I’m thankful.

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Outside of food and gasoline, I probably do 70% to 80% of my shopping online, and the vast majority of purchases are on Amazon. I’ll make a purchase on Amazon even if the product is available at a store less than a mile away, and especially if it will be delivered the next day or even (increasingly) overnight.

That doesn’t mean that I’m an uncritical fan. I’ve had to train myself to look past the “sponsored” products Amazon thrusts at me when I’m searching for a product. I’ve avoided its Echo/Alexa devices, because I know they exist to push favored products my way, and who wants a device in the home with the capability of listening in to private conversations?

I’m not happy that I can’t own an ebook purchased on Amazon, but only purchase a license giving me the right to read it (but not give it away, like a physical book). Nor that this arrangement gives Amazon rights over my ebook library that I may not even know about, as when it stealthily deleted from customers’ Kindles versions of George Orwell’s “Animal Farm” and “1984” after copyright issues arose with those versions.

An Amazon ebook generally can be read only on an Amazon Kindle or an Amazon app — another pair of mutually reinforcing near-monopolies.

Quite obviously, Amazon could never get away with such restrictive rules if it had genuine competition in the ebook or e-reader markets.

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Amazon and its mouthpieces in Congress have made much of the fact that Khan has had Amazon’s number for years. Exhibit A is her 2017 article in the Yale Law Review titled “Amazon’s Antitrust Paradox.” Amazon and Meta (then Facebook) tried to use it to force Khan to recuse herself from FTC proceedings against them. Wisely and properly, she turned them down.

The article delved deeply into Amazon’s anti-competitive strategies, which consisted chiefly in undercutting competitors’ prices and consequently taking losses; the company’s expectation that this would drive rivals out of its markets and leave the field clear for it to turn to extracting profits from consumers by exploiting its near-monopoly bore fruit in the long term.

Khan homed in on, among other tools, Amazon’s fulfillment services. But she noticed how Amazon leveraged its Prime membership by bundling “other deals and perks” into it, turning Prime into its “biggest driver of growth.”

The discussions in the FTC lawsuit of Prime and fulfillment as anti-competitive tools replicate Khan’s 2017 analysis with astonishing fidelity, showing that Khan understood Amazon’s business strategy very well indeed.

The remedies Khan offered in 2017 wouldn’t be adequate to rein in the Amazon of today. She recommended applying especially close scrutiny to merger deals reached by companies that already dominated their markets — but that might not work with a company such as Amazon, which has the ability to expand its market dominance without having to acquire other companies.

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What most people overlook is that the 2017 article was a critique not so much of Amazon, but of the failure of antitrust regulators to recognize that the new online retail market was fundamentally different from bricks-and-mortar retailing, and that Amazon had been able to exploit that failure.

The best example, Khan pointed out, involved the efforts by major book publishers to counteract Amazon’s policy, rolled out in 2007, of pricing bestseller ebooks at $9.99, undercutting the publishers’ hardcover and ebook prices. Within two years, Amazon’s share of the ebook market was 90%.

The publishers struck a deal with Apple allowing them to set their own ebook prices for sale on Apple’s iBooks app. Amazingly, the Justice Department sued Apple and the publishers for colluding to fix prices. As Khan noted, the DOJ found “persuasive evidence lacking” that Amazon had engaged in predatory pricing.

Apple eventually settled the lawsuit for $450 million, the three largest publishers — Hachette Book Group, Simon & Schuster, and HarperCollins — settled for a combined $69 million, and the last two, Macmillan and Penguin, settled by agreeing not to set ebook prices. Apple never became a significant player in the ebook market.

As Khan perceived, old-school antitrust regulators failed to understand how the retail market had evolved and Amazon was poised to take advantage: “How steep discounting on a platform … creates a higher risk that the firm will generate monopoly power” than discounting in physical stores, and how Amazon’s business had become so big and varied that it could undercut rivals’ prices, take a temporary loss, and recoup its red ink in multiple ways.

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The lawsuit that her FTC filed against Amazon sends a clear signal: She doesn’t intend to make the same mistake.

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