David Ortiz's Profile

Thanks for the interesting article! The threat of isolationism is clearly a massive threat to manufacturers like Toyota that sell to a wide range of countries. Unfortunately, politicians who advocate isolationist policies like this fail to weigh the end impact on consumers: if Toyota has to set up a separate factory in each country, then the overall scale benefits they achieve at each factory will be lower, costs will be higher, and thus the final price that consumers pay will be higher. Alternately, Toyota can choose to just manufacture in one country and pay a tariff when they ship products across borders, but directionally this will have the same impact on costs and consumer prices. This reality makes me skeptical that isolationism is here to stay, as I doubt voters will be happy to pay more for most products over the long run.

Governments are threatening a lot of negative impacts (mostly tariffs) if companies manufacture in foreign markets, but it’s also worth remembering that governments are offering some positive incentives for countries to manufacture within their borders. Wisconsin’s subsidy to Foxconn, as described in Danny’s great article, is a great example of this. Toyota has the potential to benefit from this as well, and should seek significant government subsidies any time they open a new plant. Toyota has been wise to keep a close and friendly relationship with many governments, as this puts them in a better position to receive these subsidies.

Great article Danny–thanks for your take on this interesting issue. The fact that the government will spend $250,000-$1,000,000 per $54,000/year job created, and that they won’t break even on the project until 2042, is extremely discouraging. I suspect that even these numbers may be too optimistic, as there is a risk that Foxconn will move to automation more rapidly than currently forecasted (and indeed are likely incentivized to do).

I am a bit more skeptical than other commenters about the magnitude of “spillover” effects from this investment. The logic is sound: if Foxconn opens a facility in Wisconsin, then some of their suppliers should also relocate to Wisconsin to supply that facility, and additional consumer-serving businesses (restaurants, etc.) should open to serve the Foxconn employees. However, I am skeptical the magnitude of these effects will be enough to justify the initial investment. Spillover effects are often used as an argument in favor of government investment in private enterprises: for example, you often hear these arguments when cities are offering subsidies for NFL stadiums. However, studies have shown that new sports stadiums don’t contribute meaningfully to broader economic development [1]; I suspect the same will hold true for Foxconn’s Wisconsin plant.

On the whole, I am very skeptical of government programs like this that effectively bribe private companies to relocate to their country or state. I think that Wisconsin would be much better off if, instead of using the $3B as a handout to Foxconn, they used the money to invest in education, training programs, regulatory reforms, infrastructure, and other initiatives that make Wisconsin a more attractive place to manufacture and do business.

[1] https://research.stlouisfed.org/publications/page1-econ/2017-05-01/the-economics-of-subsidizing-sports-stadiums/

Thanks for this very interesting article!

I think the critical challenge with getting companies to take climate change seriously is the free rider problem you mention. A company like Intel has such a small individual impact on greenhouse gas emissions and overall environmental outcomes, but must incur a high cost (typically) to reduce their impact. What is their incentive to implement programs like the ones you describe?

A cynical answer would be that this is just a PR play. Intel knows that both their customers and shareholders care about climate change, and also likely recognizes that their use of fluorinated gases puts them particularly at risk of being criticized in the media as a bad climate change offender. By enacting and advertising these programs, Intel can control the narrative about whether they as a company are having a positive impact on the environment, and avoid potential criticism from customers and investors.

A less cynical answer would be that there are fundamental business reasons (beyond PR) that make these initiatives sensible for Intel. The PASS initiative in particular could be a good example of this. By getting greater transparency on their suppliers, Intel can better understand which suppliers will be fundamentally threatened by climate change, and be prepared to replace those suppliers if needed.

In all likelihood, their motivations are likely a combination of PR and fundamental business needs. However, regardless of their motivations, it’s great to see a company tackling these important problems.

Thanks for the great article Matt. As a big believer in the benefit of having market and private company incentives aligned with broader societal goals, it’s in some ways encouraging to see an example of a company that has a core business incentive to reduce climate change and its impacts (even if the underlying problem is unfortunate and scary!).

I like your action plan a lot, in particular your idea to develop modified (genetically or otherwise) crops that are drought resistant (and potentially also able to thrive in a wider range of temperature conditions). Beyond protecting against climate change, making such crops available could result in several cost savings for ABInBev. If the new crops made it possible to grow barley and hops in a wider range of geographies, that should increase the number of farmers interesting in growing barley and hops; this increased supply could actually decrease prices for these crops. In addition, the flexibility these crops give could allow ABInBev to buy barley and hops that is grown much closer to their manufacturing facilities, thus reducing transportation and supply chain costs. If ABInBev could pull off such crop innovation, I’d expect them to reap benefits in both the short term as well as the longer term (as climate change gets worse).

I am a bit more skeptical of ABInBev’s ability to successfully lobby for meaningful political change, either in reducing carbon emissions or in getting more government support for farmers. Both of these are extremely contentious political issues that no one company (or even group of companies) is likely to move the needle on. While it certainly doesn’t hurt for them to lobby for policies that benefit them, I think ABInBev should be prepared to respond to climate change without government assistance.

Great essay–thank you for your take on this extremely interesting topic!

The initiatives you describe give me greater confidence that Walmart can not only compete with Amazon, but actually beat them for a subset of orders and customers. The major built-in advantage Walmart has over Amazon in fulfilling online orders is their nearly 5000 US stores [1]; if they choose to use all of these as online fulfillment centers, they will have nearly 100x the number of fulfillment centers as Amazon [2]. As a result, their fulfillment centers are closer to their customers on average (and in the case of more rural customers, likely significantly closer); thus, the only part of the delivery problem they have to solve is the “last mile” (or last few miles) of delivery. Both of the major new fulfillment methods you describe (customers picking up their online orders themselves in stores, and employees dropping off orders on their way home from work) represent “last mile” fulfillment methods that should be cheaper than the traditional UPS/FedEx shipping services that Amazon relies on. Thus, Walmart should have a structural cost advantage (for at least a subset of orders) that should keep them relevant in the online retail game.

[1] https://www.statista.com/statistics/269425/total-number-of-walmart-stores-in-the-united-states-by-type/
[2] https://www.amazon.com/p/feature/98dnmkwyztuv8ur

Thank you for a very interesting look at how Mayo Clinic is using technology to manage their inventory and improve their supply chain. This essay made me think about whether vendor managed inventory (which we saw implemented successfully in the Barilla case, and which is common in many retail supply chains today) would ever make sense in a hospital setting. In theory, both of the key benefits that we saw in the Barilla case (reduced inventory holding costs and reduced out of stocks) would also apply in a hospital setting if the suppliers took over responsibility for forecasting and scheduling deliveries. The addition of RFID technology would make this transition even easier, as suppliers would have full visibility on how much inventory remained at the hospital, and how much inventory was used each day. I can imagine hospitals being hesitant to make this change, as any resulting out of stocks could have a significant impact on patient outcomes, but if suppliers managed to prove an improved supply chain performance, this could be an interesting win-win-win for suppliers, hospitals, and patients.