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Cover Your Business
While your recommendation for Hyundai to erect plants in foreign countries to mitigate the risks of isolationist policies is very logical and innovative, I think one must also consider the negative externalities as well.
1) Increased raw materials and labor costs
Building plants in Mexico or Alabama may mean higher costs. If Hyundai is importing a large portion of its raw materials from neighboring Asian markets today, building a plant oversees will see a significant jump to accommodate for transport costs. Furthermore, labor costs may be higher in the Americas compared to Asia.
2) Lack of relationships
As seen in the Asahi case, relationships with suppliers are critical in ensuring production process efficiencies, lowering inventory levels, and ensuring quality. If Hyundai wants to enjoy these efficiencies, it would need to source new suppliers locally, and build these relationships from scratch, which would take time.
3) Cultural differences
There are material differences in the way people work and communicate at work between different countries. Hyundai would need to invest in bringing a significant number of experts from its current plants to new plants over seas to train local personnel. This requires time and a financial investment, with risks that new plants will never attain the same levels of efficiency, as we saw in the Fuyao Glass case. Hyundai needs to assess whether it is worth it to take this financial hit to build plants in these markets.
Marissa, you raise a great question about how WFM can protect itself FROM climate change, not just how it can protect the earth.
I would say that these two are intricately linked. While the academic community is very aligned on the evidence that supports climate change today, actions to slow or reverse the change is unfortunately highly political. The scientific evidence often points of the economic costs of climate change, but often these costs mostly do not become material for another 50-80 years. This takes away incentives from those in government to make major investments or major economic sacrifices today. I do agree that the diversifying sources of food products, teaming up with Amazon and gaining top management support will alleviate the pains from climate change in the short and medium terms. However, in the long run, only consistent government lobbying for commitments to alleviate/reverse climate change will ensure that WFM’s business model will endure.
I think Chipotle is in a difficult place. Chipotle’s challenges with digital on demand food delivery services is similar to Marriott’s challenges with Airbnb. On the one hand, Chipotle does not have the strong value proposition that Marriott has, which is the in-hotel experience. While travelers may pay a premium to stay in a Marriott for the comfort and amenities, a Chipotle brick and mortar restaurant really does not offer quite the same delight (I’d much rather stay in my living room). On the other hand, having Chipotle delivered home does not offer any price savings as does an AirBnB. In fact, it is even more expensive. So Chipotle straddles a difficult place. While customers may like its food, I would not be surprised if over time, more people get it delivered to their home/office, making brick and mortar restaurants less relevant.
One advantage it does have is that actual standing restaurants that I can touch and feel gives me comfort that the food is clean and high quality. As a customer, I would be less trusting of virtual restaurants, given I have no idea if their kitchens are clean or if their food is good quality. Even if Chipotle had a ghost kitchen that exclusively served delivery orders, I would still have no doubt that it is just as clean as their restaurant kitchens.
As such, while I support the ghost kitchen model, I think Chipotle needs to retain a number of brick and mortar stores to maintain their brand image.
Justin, this is extremely well articulated and really gets to the heart of the inefficiencies in agriculture in SSA.
There are a number of information transparency platforms for agriculture in the region (e.g., E-Soko, Precision for Agricultural Development, M-Farm). I think they have provided incremental gains in efficiency due to infrastructure constraints and lack of access to financial services for subsistence and small farmers. Farmers may understand the price that the market is buying their produce for, but they still cannot command fair prices from the middle men that come to their arms to buy their goods. This is because the farmers do not have the means to buy/rent vehicles and transport their own goods to the market, leaving them at the mercy of what middle men are willing to pay.
I second your emphasis on targeting cooperatives and aggregating supplies. There have been a lot of proven use cases of this model in India, where cooperatives successfully aggregate goods from farmers to sell to larger buyers. This also provides the benefit of improved ability to forecast demand and stabilized pricing. Only when the buyers are secured, can information transparency really start to benefit small farmers. I would also just add that this model can be adapted to other products beyond agriculture, like crafts, or clothing makers. Small business owners can also benefit from transparency of market information, aggregated goods, and improved access to financing and buyers through cooperatives.
I completely agree that Africa is uniquely placed to test out last mile drone delivery. In fact, I think that such a delivery model adds even more value in Africa than it does back home in North America.
Many e-commerce platforms have struggled to reach scale in Sub-Saharan African countries due to 1 problem- postal systems do not exist. At least they don’t exist the way we understand them in North America. Mail does not just come to your door. In Kenya, mail comes to a Post Office box at a Post Office near by. Each individual house is not labelled with a number. Most apartment complexes simply have a name (e.g., Tropical Towers), but no street number. Informal dwellings like slums or shanty towns are even more complex. Here, homes are often made out of temporary materials like corrugated iron sheets, or wood, and streets do not have names or are changing regularly depending on where temporary dwellings are erected. Even if mailmen could hypothetically find a house, road infrastructure is so poor, many towns are cut off for weeks at a time during rainy season because a bridge or a road is flooded.
At the same time, internet penetration, especially mobile web, is growing rapidly each year. For e-commerce platforms, drones make it possible to address these markets. For drone delivery, customers can simply input their coordinates, and drones can deliver a package to their home, even during rainy season. It allows these countries to leapfrog in technology, by passing the postal system, and move forward economically.
ADMARC can do more to provide an appropriate social safety net to address food supply chain issues in Malawi.
1) Improve storage
Many low-income developing nations like Malawi see high wastage in the agriculture process. Small holder farmers are far more inefficient than mechanized or industrialized farmers. This makes small holder farmers even more susceptible to external risks like natural disasters. Some things the country can do to mitigate this risk beyond just investing in irrigation is increase the number of storage facilities. These facilities act as buffers for food stuffs. Instead of each individual small holder farmer travelling to the city on poor road infrastructure to sell their goods in local markets, they can just bring it to local storage facilities, pool their produce. Goods can then be aggregated to sell to larger buyers. This eliminates the amount of days between harvest and sale, which reduces the amount of food that spoils and is wasted.
2) Encourage foreign direct investment through the private sector
As you mentioned, Malawi lacks the financial means to increase production through improved irrigation and decrease the risk of stock outs. I think it can also raise funds through improving its regulatory environment to make the country more attractive for foreign investors to bring capital into the country. Unlike some of its neighbors, Malawi does not have a wealth of natural resources like precious minerals and oil. At the same time, it has low levels of education attainment and skilled labor force. Investors are unlikely to come to Malawi, unless its policies are more attractive than other countries. If Malawi can institute a no tax or low tax trade zone, more investors may come into the country, bringing with them capital to fuel economic growth, thus creating a greater social safety net for its citizens.