Bloomberg Businessweek

April 1 — April 7, 2013 | businessweek.com
Samsung’s
Secret
How did the company that makes
everything win at smartphones?
Size—and the paranoia of
Chairman Lee Kun Hee
p58
Bloomberg
Businessweek
Contents
Opening Remarks
April 1 — April 7, 2013
Bloomberg Businessweek
Handling it
Hardworking
attachés p78
10
Bitcoin, the anarchist virtual currency, may just
be the global economy’s last safe haven
Bloomberg View What the EU must do in Cyprus;
gay marriage and the power of public opinion p12
Global
Economics
15
Companies &
Industries
23
Stumped at the gas pump
Despite a U.S. oil boom,
gas prices are still high—
partly because refiners are
boosting exports
The cost of cost-cutting
After trimming store staff,
Walmart is having trouble
stocking its shelves,
angering customers
Saudi land shortage The rise of the wearable
machines p24
China is lovely for L’Oréal
p25
p26
Is the Fed counting its
money right?
p17
p18
The U.S. shadow economy p19
Tom Keene’s EconoChat p19
Sunset for the Sun’s
Page 3 girls?
The week ahead p20
Briefs: Dell’s job insecurity p27
Politics &
Policy
29
Technology
35
The Pac-Man sequester
Phil Gramm’s efforts in
the 1980s to force better
budgeting may hold
lessons for today
All huffy at AOL
The company bet
$315 million on Arianna
Huffington’s distinctive
brand. Is it paying off?
A break on student loans
p30
China’s Internet originators p36
Obama’s green land grab
p30
Amazon’s pilot season
p37
Rand Paul woos Dad’s fans p31
DIY drones
p38
Chris Christie: Outearned
Innovator: Adieu, passwordsp39
by his wife and cool with it p32
Charlie Rose talks to Yahoo!
A dim policy on headlights p33
teen tycoon Nick D’Aloisio p40
Markets &
Finance
Health Care
42
51
A $25 billion beating
Brazilian billionaire Eike
Batista is having a very
bad year as stocks in his
companies slide
Prescription nannies
Companies are trying
an array of high-tech
solutions to get patients
to take their meds
What M&A boom? Obamacare scare: Double-digit
premium hikes?
p52
p43
The troubling return of CDOs
and their ilk p44
The crashing carbon marketp46
Bid&Ask: Picasso’s Le Rêvep47
Anti-Apple Samsung’s Galaxy models now outsell iPhones p58
Features
58
The Samsung Era
How the South Korean conglomerate became
the No. 1 smartphone maker—and its plans
to stay on top
p58
Screwed in Cyprus
With the €10 billion bailout deal, Europe’s leaders
say they’ve averted yet another crisis. Cypriots on
the street don’t see it that way
p66
Fall Guy or Crook?
A Chinese functionary is charged with embezzling
$14.5 million from the government. His story
shows how insidious corruption is among low-level
officials in China p70
Etc.
75
YouTube, the Star Maker
A new breed of musical outliers is parlaying fame
on the site into mainstream success
Fashion The brief on briefcases
p78
FAQ Will sponsors like Tiger Woods more? Is Lindsey Vonn aware of his past?
Everything you wanted to know about the new sports power couple
p80
Branding What Lululemon’s inadvertent transparency reveals
p81
A Chinese startup takes aim
at market leader Cochlear p53
Conspicuous Consumption The HBO series Game of Thrones beats any business
book at illuminating corporate power struggles
p82
Doubts about a promising
Parkinson’s treatment p54
Hard Choices Michael Graves on ending his partnership with Target and following
Ron Johnson to J.C. Penney
p84
cover: thomas traum; this page, from top: bobby doherty; michael nagle/bloomberg
5
Page
32
April 1 — April 7, 2013
Bloomberg Businessweek
A
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Abe, Shinzo
19
ABI Research
24
Adcock Ingram Holdings
(AIP:SJ)
47
Aetna (AET)
52
Affiris
54
Agassi, Andre
80
Air France-KLM (AF:FP)
27
Akamai Technologies (AKAMI) 39
Alekstra
58
Aleph Objects
38
Alnylam Pharmaceuticals
(ALNY)
54
Alwazir, Mohammad
17
Alzumaie, Mohammed
17
Amazon.com (AMZN) 23, 37, 42
American Express (AXP)
75
American Residential
Properties
47
Amtrak
27
Anastasiades, Nicos
66
Anderson, Chris
38
Angelo Gordon
32
AOL(AOL)
35
47
Gramm, Phil
29
L’Oréal (LRLCY)
Chang Sea-Jin
58
Graves, Michael
84
Lululemon Athletica (LULU) 81
Parsons
17
Cheil Worldwide
58
Grupo BTG Pactual
Lyne, Susan 35
Paul, Rand
31
Christie, Chris
32
(BBTG11:BZ)
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Macklemore
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Paul, Ron
31
Christie, Mary Pat
32
Haier (1169:HK)
58
Mad Decent
75
PayPal (EBAY)
39
Hammer, Jan
75
Mahone, Austin
75
80
Malas, Stavros
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Perakis-Valat, Alexis
25
Petrobras (PZE)
42
Phillips 66 (PSX)
15
Pimco
10
Poe, Ted
38
Popdust
75
Citigroup (C)
15, 19, 43, 44
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Clark, Duncan
36
Hamm, Mia
Claybrook, Joan
33
Hangzhou Nurotron
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53
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Marks, Craig
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Martin, George R.R.
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53
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39
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Heckman, James
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May-Treanor, Misty
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Conant, Douglas
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H. Lundbeck
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Mayweather, Floyd
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HBO (TWX)
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Cowell, Simon
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Huang, Guangyu
70
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CSM (CSM:NA) 47
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37
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MediSafe Project
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Hyatt Hotels (H)
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66
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D E F
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33
Merkel, Angela
66
Miami Heat
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Parker, Jim
82
PricewaterhouseCoopers 52
TNK-BP
47
Primus, Wendel
29
Toyota Motor (TM)
58
75
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80
Prince
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25, 58
Trudeau, Garry
37
38
Tumblr
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51
Twitter
10, 26
Psy
75
Protei
●●●
80
Qiming Venture Partners
53
27, 43
Mintel Group
25
Rhodes, William
19
52
Mizrahi, Isaac
84
Rhone Capital
47
42
Moe, Jeff 38
Riff Raff
75
Argo Medical Technologies 24
De Juniac, Alexandre
27
Innovation Works
36
Moelis 43
Rihanna
75
Instagram
10
Mohan, Dominic
26
Roberts, Chris
53
36
Monsanto (MON)
20, 38
Dell, Michael
27
Intel Capital (INTC)
Rolex
80
Audi (VOW:GR)
33
Del Rey, Lana
75
Interscope Records (VIVHY) 75
Morgan Stanley (MS)
43
Rosneft (ROSN:LI)
47
Australian Broadcasting 53
Denters, Esmée
75
Ireland, Peter
18
Morse, Ed
15
Rousseff, Dilma
42
De Oliveira, Luma
42
IronFX
66
MPX Energia (MPXE3:BZ) 42
RWE (RWE:GR)
46
●
51
Van Eck Associates
42
47
Vassiliou, George
66
Safeway (SWY)
23
Verizon Communications (VZ) 43
Salazar, Ken
30
Verizon Wireless 27
Vickers Capital
36
Johnson, Ron
84
27, 84
N O
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Nakamoto, Satoshi
10
Bank of Cyprus (BOCY:CY) 66
Dooney & Bourke
78
JPMorgan Chase (JPM)32, 44, 47
Bank of Japan (8301:JP)
20
Driscoll, James
18
Karmali, Abyd
46
National Commercial Bank 17
Duke Energy (DUK)
30
Kennedy, Anthony
12
Nestlé (NESN:VX)
27
37
36
37
Bell Potter Securities
53
Ben Minkoff
78
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31
Berkshire Hathaway (BRK.A) 43
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52
Best Buy (BBY)
27
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37, 42
Bidvest Group (BVT:SJ)
47
Bieber, Justin
75
Billy Reid
78
Bitcoin
10
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58
Blackstone Group (BX) 27, 43, 47
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46
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33
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38
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32
BP (BP)
47
Brown, Sherrod
44
Buffett, Warren
43
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10
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BuzzFeed
10
C
●
Campbell Soup (CPB)
82
EBay (EBAY)
10
Kesanupalli, Ramesh
39
Netflix (NFLX)
EBX Group
42
Kimbra
75
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81
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17
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58
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51
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46
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26
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19
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15
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75
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23
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58
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19
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39
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54
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42
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80
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27
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42
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25
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46
Facebook (FB) 10, 26, 66, 80, 81
25
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Northrop Grumman (NOC) 38
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NXP Semiconductors (NXPI) 39
L M
Obama, Barack
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12
24
Goldman Sachs (GS)
43
32
Google China (GOOG)
36
Carlsberg (CARLA:DC)
46
Google (GOOG)
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10, 35, 58
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36
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75
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70
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17
36
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75
Sequoia Capital
82
70
80
44
47
Seacrest, Ryan
Southwest Airlines (LUV)
Li Huabo
Genworth Financial
Warren, Elizabeth
WeChat Schroders (SDR:LN)
47
Life Technologies (LIFE)
58
58
Otsuka Holdings 54
33
Walt Disney (DIS)
58
Fox, Michael J.
38
15
58
40
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23
Schork, Stephen
Sony (SNE)
Li Ka-shing
38
Wal-Mart Stores (WMT)
42
32
General Electric (GE)
Walgreen (WAG)
15
OSX Brasil (OSXB3:BZ)
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47
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53
General Atomics
23
●
P
44
SARcode Bioscience 39
Li Fangping
58
80
(OGXP3:BZ)
78
80
43
Vonn, Lindsey
Onset Ventures
44
Gartner (IT)
Vodafone Group (VOD)
58
Sanford C. Bernstein (AB) 58
58
Fisher, Richard
51
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39, 58
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58
Filson + Apolis
Garciaparra, Nomar
58
36
Lenovo (0992:HK)
●●
OGX Petróleo e Gás
(005930:KS)
Samsung Heavy Industries 58
Lee, DJ
Lee, Kun-Hee
G H
30, 46
Samsung Electronics
Lee, Kai-Fu 18
Fayyad, Salam
Cantor Fitzgerald 17
78
39
SAC Capital Advisors
82
Begley Jr., Ed
Valextra
Validity Sensors
RxAnte
Dinklage, Peter
BDA China
42
75
75
42
15
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26
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42
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36
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12
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Uucun
75
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18
75
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24
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44
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78
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75
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43
75
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Bally
43, 46
Universal Music Group
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Baauer
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●●●
U V W
Q R S
ING (ING)
B
46
25
Ignagni, Karen
27, 51
38
Tillerson, Rex
Tmall
39
AT&T (T)
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37
44
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39
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T
●
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6
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36
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80
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47
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x yz
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70
32
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Index
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A Chinese Hearing Implant Takes Aim at Cochlear - Businessweek
9 of 14
http://www.businessweek.com/articles/2013-03-28/a-chinese-hearing-im...
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Illustration by Joe Magee
Devices
A Chinese Hearing Implant Takes Aim at Cochlear
By Bruce Einhorn and Natasha Khan on March 28, 2013
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3/30/2013 6:14 PM
A Chinese Hearing Implant Takes Aim at Cochlear - Businessweek
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Special Report
Focus On Health Care, March 2013
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Pharma Pipelines, by the Numbers
Obamacare Scare: Double-Digit Premium Hikes?
A Setback on the Road to a Parkinson's Cure
Companies Mentioned
COH
Cochlear Ltd
$68.05 AUD
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After suddenly going deaf at age 30, Ke Liu, a civil servant in China’s eastern Jiangxi province, didn’t have many options. A cochlear implant might’ve restored his
hearing, but the imported device cost tens of thousands of dollars. In 2010, Ke learned about a clinical trial for an implant made by a Chinese company, Hangzhou
Nurotron Biotechnology. That year he had one surgically implanted and has since recovered nearly all of his hearing. “I have my old life back,” says the 38-year-old.
Unlike hearing aides, which simply amplify sound, cochlear implants translate soundwaves into signals sent directly to the brain. Nurotron has received approval from
China’s health regulators to sell its implant on the mainland. At 98,000 yuan ($16,000), the price of its devices is less than half that of imported implants, says Nisa
Leung, a board member who is a partner at Qiming Ventures Partners, a venture capital firm and an investor in Nurotron.
That price gap threatens companies that dominate the estimated $1 billion market for cochlear implants. The leader is Australia’s Cochlear (COH), which sold more than
$600 million of the devices in its 2012 fiscal year ended June. Cochlear has enjoyed “a virtual monopoly,” says Stuart Roberts, an analyst with Bell Potter Securities in
Sydney. He notes the price of cochlear implants has barely budged over the years, while other sophisticated electronics—such as computer chips—have gotten less
expensive even as quality has improved.
That’s what motivated Fan-Gang Zeng to try to come up with a cheaper alternative. The Chinese native, who has a Ph.D. in hearing science from Syracuse University, is
director of the Center for Hearing Research at the University of California at Irvine. Zeng, who launched Nurotron in 2005, says finding researchers to work on his
project was not a problem. “Cochlear made a lot of enemies along the way,” Zeng says of the company’s pricing. “So when we asked for help, we got help.” Cochlear
declined to be interviewed for this story.
Nurotron also got plenty of assistance in China, where there are 28 million deaf people and 30,000 babies born without hearing each year. The government, the Chinese
Academy of Sciences, and state-backed hospitals contributed about 75 percent of the startup’s initial funding of 30 million yuan (about $3.7 million at the time), Zeng
says. Mainland authorities were also willing to fast-track the approval process, which usually takes three to five years. After wrapping up clinical trials in 2010, Nurotron
secured permission in less than a year to have its cochlear implants used in patients aged six and older.
If low-cost options such as Nurotron’s make cochlear implants as popular in China as they are in the U.S., “we are talking about 100,000 devices a year,” says Zeng, who
now heads development at Nurotron. The company is focused on basics, such as building a sales team and training Chinese doctors to perform the operation. It’s also
contemplating expanding into Latin America, according to Li Fangping, a former real estate developer who’s now the company’s president. Zeng says Nurotron will
“eventually” consider applying for approval in the U.S. and hopes the U.S. Food and Drug Administration will accept data from the Chinese trials.
In India, government-backed researchers are starting clinical trials of a locally developed device, says Dr. J.M. Hans, chairman of the ENT and cochlear implant
department at the Rockland Group of Hospitals in the New Delhi area. It will take “another two years before trials are done and we are sure the thing works,” says Hans.
If it does, a made-in-India implant could cost as little as $2,500.
Cochlear’s Sydney-listed shares are down 13.5 percent this year, compared with a 7.4 percent increase for Australia’s benchmark index, amid sluggish sales in the U.S.,
Europe, and developed Asia. “China offers a huge opportunity,” Chief Executive Officer Chris Roberts told the Australian Broadcasting Corp. on Feb. 10. But only if
Cochlear has a solution for the local competition.
Nurotron’s Li says his company’s low-cost manufacturing base gives it an edge over its Australian rival. “The raw materials for our products are the same,” he says. “The
difference is, if it costs us 3,000 yuan per worker, it might cost them $3,000 per worker.”
The bottom line: A Chinese startup threatens to upend the $1 billion market for cochlear implants with a low-cost alternative.
Einhorn is Asia regional editor in Bloomberg Businessweek's Hong Kong bureau. Khan is a reporter for Bloomberg News in Hong Kong.
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by Taboola
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O_Pinion
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2 days ago
Interesting to note that Chinese authorities were able to grant this company an approval in 12 months when it would usually takes 3-5 years. What does that tell
you about how local companies are "favored" by the Chinese government. While it would be a step too far to say this is evidence of corruption it does indicate that the
Chinese regulatory regime has a long way to go before it can be classed as robust and independent.
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James LaCroix
O_Pinion • 3 hours ago
Any other government would do the same.
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