Why Do Tech Titans Sprout from Big Nations? A Fresh Look at Economies of Scale

Hi Friends,

Ever found yourself pondering why tech giants like Meta, Amazon, Google, Tencent, and Tiktok seem to originate primarily from China or the United States? You might attribute it to their top-notch education, robust infrastructure, and innovation-friendly government policies. While you wouldn't be wrong, I'd like to present a different perspective: economies of scale.

What’s Economies of Scale?

You've likely come across the concept of economies of scale during your high school or undergrad economics education. If not, imagine this: economies of scale is like getting a discount for buying coffee in bulk from a chain like Starbucks, instead of a single cup from a boutique coffee shop. Here's the deal: if a business has certain costs that don’t change whether they serve 1 customer or 1000 (think rent, machinery, or the coffee beans), the more customers they serve, the less these costs contribute to the price of each cup of coffee. It's like magic! Suddenly, each cup of coffee is cheaper to make, giving the business a serious edge.

How does the scale of a nation relate to the growth of its tech giants?

Ok, still you might wonder, how does the scale of a nation relate to the growth of its tech giants?

The first factor to consider is the specialization and efficiency of the workforce. With tasks becoming more divided and specialized, each company or workshop can focus on a single task, leading to increased efficiency. This concept is not new. In the early 20th century, Ford capitalized on the large workforce from the US population. After performing the same task countless times, workers turned into experts, and this significantly boosted the overall efficiency of the factory. Today, the principle of specialized labor can be seen in action in China, known as the world's factory with 3-4x population of the US. The large population of it contributes to a even more detailed division of labor, enhancing both flexibility and efficiency. This sizable, adaptable, and skilled workforce underpins their companies with a unique competitive edge.

"But what about smaller nations like Denmark?", you might ask. "They've created international brands like Lego!" You're absolutely right. Companies from smaller countries can indeed make a global impact by exporting standardized manufactured products. Lower transportation costs and reduced trade barriers have made this significantly easier.

Power of Networking Effect?

Okay, but remember what’s our initial question? Lego is a global brand, but it's no tech giant. Why not? Well, tech companies tend to lean heavily to start with a massive domestic market. The reasons? Most tech companies core competitiveness relies on the networking effect. The more obvious layer of this would be for platform business like Facebook or Uber - the more users they have, the more valuable their network becomes.

And there's more. These platforms also build their capabilities through big data. The more they're used, the better they get. Users are not just consumers, but they also contribute to the creation and improvement of these services. The key ingredient for artificial intelligence algorithms? A massive amount of real user data. The more users, the more data, the stronger the AI.

So, what we see here is that the economies of scale in the internet platform and artificial intelligence fields are stronger than in other industries. The winner may even end up owning the domestic or even global market.

How does that relate to me tho?

• Consider working on projects that can scale effectively with low marginal costs. For instance, could you consolidate your learnings from a project into a user-friendly checklist? This is why I started this newsletter and chose to write in English, the most popular language globally, instead of my native Cantonese.
• Utilize the power of social media to increase visibility and establish a personal brand that highlights your skills and interests.
• Join a competitive and rapidly growing industry to hone your competitive edge at a young age. This will create a solid foundation for exponential growth in the future.

I hope you enjoy reading today's newsletter. Happy learning until next time!

Sherman

Things that I found interesting this week:

📚 Book — 《人口戰略 (Population Strategy)》 by 梁建章

This book was written by James Liang (梁建章）the ex-CEO of C-trip, a prominent Chinese Tech giant in the travelling industry. Liang is a research professor of Applied Economics at Peking University's Business School. He is also a scholar who graduated from Stanford in demographics and social studies. His book has inspired me to write this article, particularly about the significant importance of population size in creating a competitive market that nurtures tech giants. His other insights on driving innovation leveraging the large populations of China and the US are also incredibly inspiring.

📃 Blog — 商業高研院｜學一點《人口戰略》看人口如何影響經濟與創新

If you have no time to go through the entire book, reading this short blog from Sina will also help you grasp some of the most important ideas from Liang’s book

📃 Blog — Vitalik Buterin’s blog

I'd like to introduce you to a blog written by Vitalik Buterin, also known as the founding father of Ethereum. This blog serves as an excellent example of how clear and logical writing can effectively scale your impact. Vitalik has managed to share his key insights and deep understanding of crypto through his writing skills, attracting individuals to delve deeper into the subject. This broadens education and drives adoption.