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Dennis
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SEA, very well-written. This article reminded me of the cases we did on Nike and IKEA in class. In the case of Nike, they went ahead with jerseys made from recycled plastic bottles [1], whereas IKEA went with more particle boards in their furniture. As you mentioned in your article, Starbucks purchases 99% of its coffee beans from suppliers that meet sustainable sourcing standards. These three companies are clearly being part of the solution, which is great. However, I still feel that there is a severe lack of education on the part of the end-consumer.
Few customers know that IKEA tables use particle board to reduce wood-usage, and fewer fans know that Nike jerseys are made of plastic bottles. My guess is that the majority of Starbucks customers don’t think about climate change or the sustainability of the coffee farming industry. I’d argue that the $100 million that Starbucks cumulatively invested to “support coffee communities and improve the resilience of coffee supply chains” is not enough. Companies such as Starbucks, Nike and IKEA need to take their efforts further, by focusing their vision, brand, and message on sustainability and mitigating climate change. Will taking a clear stance against climate change result in them losing some customers? Maybe, but my sense is that it will be worth it in the long run.
Footnotes:
[1] https://www.huffingtonpost.com/2015/04/23/nike-recycled-plastic-bottle-uniforms-uswnt_n_7122056.html
Eleonora, this was a great read. First of all, I was shocked at the statistic that manufacturing in China was now only one percent cheaper than the US – I definitely thought that the delta was a lot larger. At a high level, I believe that isolationism in this globalized era may not be the best solution for GM. Below are a few reasons that you did not get the chance to touch on in your post.
(1) Oxford Economics released data that showed labor costs adjusted for productivity in China are only 4 percent cheaper than in the U.S. today [1]. CNN further explained that this small gap is due to wages in China rising much faster than increases in productivity [2]. CNN then states that “productivity has doubled in India and China, but the U.S. remains as much as 90% more productive than the two developing countries.” One could posit that productivity in China doubles again, and this will significantly close the gap with U.S. productivity. If wages in China doesn’t increase commensurately, then labor cost adjusted for productivity in China will again be significantly cheaper than the U.S. In a world like this, it would again be very economical to locate GM’s manufacturing in China.
(2) The USD/CNY exchange rate will meaningfully impact the costs of locating manufacturing in China. The Dollar has strengthened meaningfully against the Yuan since 5 years ago, but more recently, has exhibited a weakening trend [3] due to policy moves and intervention by authorities. Despite this recent phenomenon, analysts are still expecting the Dollar to continue strengthening against the Yuan in the coming years. If this turns out to be true, then wages in China will also get cheaper relative to the U.S.
Both of these examples show how isolationism might hurt GM, at least on the labor cost aspect.
Footnotes:
[1] http://www.oxfordeconomics.com/about-us/oxford-economics-in-the-media/press-coverage/made-in-china-not-as-cheap-as-you-think
[2] http://money.cnn.com/2016/03/17/news/economy/china-cheap-labor-productivity/index.html
[3] http://www.xe.com/currencycharts/?from=USD&to=CNY&view=5Y
Charis, this was a great read. Acciona is clearly a vision-oriented energy company, and I applaud their efforts in bringing affordable renewable energy to many parts of the world that need it. That said, a few things came to mind when I was reading about their rapid expansion:
(1) I’m not sure if Acciona has seriously considered the decommissioning and deconstruction (D&D) of some of their renewable assets. For example, per a recent news article [1], their wind turbine blades “are a high-tech wonder of composite material, which most experts agree cannot be separated into its component materials and is thus worthless for recycling”. “The landfills are going to be filled with blades in a matter of no time.” The article goes on to talk about the costs of maintaining these wind turbines, especially as technology rapidly advances in the space of wind energy. There could be a future where it simply doesn’t make sense economically to maintain, upgrade, or take down these old wind turbines.
(2) Many of these renewable energy solutions are unable to maintain 100% up-time, and some may be significantly affected by natural factors such as wind speed, sunshine, cloud cover, etc. You mentioned this briefly at the end of your article, but the amount of redundancy required might make the entire renewable solution uneconomical. Should Acciona then partner with traditional coal producers for redundancy then?
Kate, this is very well-written. A few things come to mind:
(1) I belong to the same camp as you, and I do believe that client service jobs like consulting will be mostly disintermediated by digitalization and automation, given enough time for artificial intelligence to become more sophisticated. Whether that is 10, 20, 50, or a 100 years, remains to be seen. Like Ray Kurzweil in his book, “The Singularity is Near” [1], I believe it will probably take 20-50 years.
(2) I worry a lot less about the near-term, as I see the merits in having a dedicated team of consultants providing time-sensitive advice to their clients. Some ex-consultants (and cynics) even make the claim that CEOs hire consulting firms to simply validate their own conclusions with a stamp of approval from a prestigious third-party consulting firm [2]. These CEOs would likely not want to pay for a crowd-sourced opinion for two reasons: (i) it carries less prestige and weight when presented to his board, and (ii) he might not be able to steer the opinion to validate his preconceived conclusion. Obviously, this is a cynical view, but if true, then prestigious consulting firms should continue to prosper, so long as they maintain their brand and image.
(3) IDEO is very forward-looking in this case, and is getting ready to disintermediate itself when the time comes. This reminds me of the “Innovator’s Dilemma” [3], as presented by Clay Christenson in his book, where innovators need to decide if they want to invest in technology that cannibalizes on their current business.
Footnotes:
[1] Kurzweil, Ray. “The singularity is near: when humans transcend biology”. Viking, 2005.
[2] https://www.forbes.com/sites/timworstall/2012/02/03/why-do-companies-hire-management-consultants/#7e45b71e2e4f
[3] Christensen, Clayton M. “The innovators dilemma: when new technologies cause great firms to fail”. Harvard Business Review Press, 1997.
Adi, you raised some great questions. I do agree that a shift from wholesaling to DTC does require some major retooling of their supply chain and internal processes. A few things come to mind:
1) How has Canada Goose been keeping track of end-demand historically? Have they been gathering data from the wholesalers, and has there been meaningful patterns observed? My thought is that if they have not been gathering data before, they might struggle with predicting end-demand when shifting to a DTC model. My hope is that their omni-channel model will allow them to gather meaningful customer data, and hence be able to improve their DTC demand forecasting going forward.
2) That said, the Barilla case surprised me to the upside, where they successfully forecasted end-demand better than the distributors, despite the thousands of pasta and non-pasta SKUs. Given that Canada Goose has much less SKUs, with the classic parkas being the majority, I would not be as surprised if they have been able to forecast demand rather accurately. In fact, I’d imagine that one reason Canada Goose doesn’t ever give discounts [1] is because they have been able to predict inventory rather accurately, and are not sitting on massive amounts of unwanted inventory. This gives me confidence that the seasonality of Canada Goose jackets are more predictable than we imagine, and as such, a DTC model might be less troublesome as we might worry about.
3) You didn’t touch on this, but I wonder how the collaborators in the Canada Goose supply chain have reacted to this shift to DTC?
Footnotes:
[1] http://altitude-blog.com/en/cheap-canada-goose-doesnt-exist/)