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On December 1, 2017, EL commented on GM strikes back :

Great write up and very thought-provoking. It led me to think what would happen in the worst-case scenario.

If the US withdraws from NAFTA, and the US can no longer import cars from Mexico tariff free, in order for GM to stay competitive, it may decide to do the following:
– Only keep enough manufacturing capacity in the US to serve the domestic market
– Move all other manufacturing outside of the US
This will have the following consequences:
– Production of the high-value, technically sophisticated export-oriented models such as certain Cadillacs will need to be moved outside of the US.
– Cars sold in the US market will be more expensive because of higher costs of production.
– Many low-volume cars will no longer be available to US consumers because of high-unit cost to manufacturer in the US and high tariff to import into the US. For example, economy cars such as the Chevy Spark which GM has been trying to popularize in the US can no longer be offered at a reasonable price.

Extremely insightful and thought-provoking article. I have two thoughts.

First, I wanted to highlight the fact that commercial aircraft manufacturing is a relatively low-unit-volume business. Unlike auto manufacturers which can operate multiple plants globally and reach economy of scale in each one of them, commercial aircraft manufacturing for a given model is often located in once place, except a handful of high-volume models (e.g. Airbus A320). As such, I think it would be unrealistic to expect Bombardier to establish a US based final assembly line just to serve US customers. Given the political headwind and the likelihood of a change in direction in 5-10 years, what Bombardier chose is probably the best and only solution.

Secondly, I think part of the rationale for the Department of Commerce to levy a tariff might be that a greater percentage of the value of a Boeing aircraft is created in the US, compared to a Bombardier. However, the side effect of this decision is that with the US market secured, Boeing can no longer justify plans to develop a direct competitor to the Bombardier C series, which is smaller than the Boeing 737. While this decision may benefit Boeing in the US market in the short term, it could potentially make Boeing less competitive in the global market in the medium to long run.

Very interesting perspective and well written article. It is interesting to see how insurers are taking measures to reduce the risk of claims. On the point about vertical integration, however, I have a different view: while climate change leads more extreme weather conditions and causes more surge claims, I do not think it justifies bringing capacity in-house to serve surge demand. I think the criteria for bring services in house is frequency of usage and room for improvement. Chubb has limited expertise in firefighting and utilization of additional claim adjusters to cover surge demand could be very low. Therefore, I think Chubb should focus on its strengths – mitigating, forecasting and pricing risk in this new context of climate change.

On December 1, 2017, EL commented on Amazon’s Response to the OTT Universe :

This is extremely interesting! I have two thoughts:

First, I agree with Nivi that in the long run, the current model could be improved. Basically Amazon is creating a platform for people to sell bundled content and consumers need to pay for these bundles separately. Many of these bundles / channels are originally created as all-inclusive content offerings to consumers, while Amazon expects consumers to buy many of these channels at the same time. Consumers will end up buying a lot more than they can consume and are willing to pay for. I think ultimately Amazon needs to come up with a way to unbundle these content offerings and blend them into one content pool, and then pay the content providers based on consumption.

Secondly, as more content players emerge, platforms like this will become more valuable, which will attract more companies to attempt creating such aggregation platforms. What would be the competitive edge for a platform? The few things I can think of are its OTT device penetration, user base (not necessarily content users; could be Prime members for example) and proprietary content offering. Amazon has all three and a small number of other companies also do. Assuming the content supply market will be efficient and rational over time, a player like Amazon will have no issue acquiring content at reasonable prices once it establishes a consumer facing platform with a robust distribution strategy.

Thank you for sharing this interesting perspective on the impact of climate change on major airports. This article led me to wonder what are the key factors that may justify locating a major airport where JFK is despite the potential cost increases related to climate change. I would imagine that apart from the obvious reason of being close to a major metropolitan area (mainly drives passenger rather than cargo traffic), other reasons could include synergy between cargo facilities and passenger facilities (economy of scale), proximity to major road networks, railway and ports, existence of the surrounding cargo processing / forwarding infrastructure, etc. In other words, the switching cost could be way beyond the cost of decommissioning an airport and building a new one elsewhere. The entire supporting infrastructure may need to be recreated.

I am by no means arguing that the impact of climate change is insignificant. My point is that with the prohibitive switching cost of relocating a major air cargo hub, we may just have to deal with the increasing cost at JFK and of course do it as efficiently as possible.

Thank you for sharing this wonderful example of Industry 4.0 put into practice in the Indian auto industry.

While it was interesting to learn about how digitization helps to connect the key elements of the manufacturing process within the factory, I think another critical aspect of digitization / Industry 4.0 is the integration of the manufacturing process with the ordering and sales process. This is especially relevant in the context of “made-to-order” as you mentioned in the article. Historically, the CRM and ERP systems of a company are designed and deployed separately from the manufacturing system, making it difficult for the customer orders, order specs and product sales information to be flow into the manufacturing system seamless and for the manufacturing process to be adjusted and optimized accordingly. What has Mahindra done in this area and how effective has it been?