LB's Profile

The essay alludes to fascinating links between macroeconomic expectations and supply chain decisions. I agree that the Brexit primarily affects the Sourcing and Manufacturing parts of the supply chain. It is also evident that international sourcing becomes more expensive in the face of the weakening British Pound (GBP). However, given the complex interaction of many economic variables at work, Unilever might actually benefit from increasing its manufacturing footprint in the UK.

The relative weakness of the UK economy makes manufacturing in the UK more competitive. The GBP lost about 15% in value vs. the EUR since the Brexit [1], while median income of employees (and thus labor cost) remained largely flat [2]. Keeping other factors constant, this means that a buyer – e.g., in Canada – can now purchase UK products at a relative discount, which will increase international demand for UK products. More precisely, the weaker GBP has two opposing effects for a UK manufacturer:
(A) it increases raw material costs not incurred in GBP (“bad” for UK manufacturers);
(B) it decreases relative (international) market prices of goods manufactured in the UK (“good” for UK manufacturers).

The above thought experiment, however, only holds true if the net effect is positive, i.e. if effect (B) exceeds effect (A). A positive net effect is more likely if the local value-add as a share of total Cost of Goods Sold is high (i.e., if the raw materials portion of total COGS is low).

In sum, given the economic forces at work, Unilever might actually benefit from “over-indexing” in UK manufacturing and choose the UK over EU countries such as Poland or Hungary as a manufacturing hub. This decision, however, hinges on some key assumptions:
* Unilever can produce products in the UK that (i) require a significant local value add, (ii) incur relatively low international sourcing costs, and (iii) permit oversea (ex-EU) shipping, given potential trade restrictions from the EU.
* The GBP continues to be significantly weaker compared to the EUR.
* Availability of labor in the UK does not decrease significantly, e.g., through a “hard Brexit” that could curtail the free movement of labor, which would push up wages.

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[1] http://www.xe.com/currencycharts/?from=GBP&to=EUR&view=2Y
[2] https://www.ons.gov.uk/peoplepopulationandcommunity/personalandhouseholdfinances/incomeandwealth/bulletins/ nowcastinghouseholdincomeintheuk/financialyearending2017

(all accessed on Nov. 27, 2017)

While Brexit has come as a shock to many, Switzerland and Norway have shown that there is no reason to be overly pessimistic. Both countries are not members of the European Union (EU), but still many of their companies have successfully weathered some of the tough dynamics that will impact JLR going forward: instability of political boundary conditions, intricate trade agreements in a constant state of flux, and highly volatile exchange rates. During the days after Brexit, officials from the UK met with politicians from Switzerland to seek inspirations for potential political agreements with the EU. In a similar vein, JLR should draw lessons from Swiss and Norwegian companies.

I have seen Swiss companies taking action along three dimensions to become more resilient. All of them touch the supply chain in various aspects and could open up new opportunities for JLR:
* Operations: Investments in automation and offshoring of services that are not subject to tariffs or trade restrictions (e.g., internal white-collar staff functions) have taken a toll on short-term profits, but helped many companies to become more profitable in the long run. For JLR, these actions could mitigate some of the costs related to “reshoring” operations mentioned in the essay.
* Political activism: In Switzerland, difficult trade negotiations with the EU and tough macroeconomic conditions have increased the level of cooperation between private sector actors, government agencies, policy makers, and unions. These “roundtables” went beyond the reshoring-focused lobbying efforts mentioned in the essay; they have improved the overall business environment by reducing taxes, cutting red tape, adjusting labor laws, and paving the road to trade agreements with emerging markets that offer new export opportunities beyond traditional markets.
* Strategic re-evaluation: A relentless focus on the most profitable parts of the value chain has allowed companies to find the optimal degree of vertical integration. Rediscovering their “true edge” has enabled them to maintain – and in many cases, even to strengthen – their competitive advantage.

At first glance, Brexit poses many new hurdles for JLR. Lessons from corporations in Switzerland and Norway, however, provide ample reasons to be confident and optimistic about the British future of JLR.

Symptomatic of many digital technologies, the second question in the essay alludes to a key implementation challenge: Why might patients have concerns to undergo robotic-assisted surgery (RAS)?

Broadly speaking, four areas need to be addressed by Intuitive Surgical and other industry players:
* Responsibility for outcomes: Who is ultimately accountable and liable for adverse outcomes? Unlike traditional surgeries, RAS depends on multiple contributors, including the robotic manufacturer, healthcare professionals, and maintenance specialists.
* Ad-hoc interventions during surgeries: Similar to pilots disconnecting the autopilot in emergency situations, how can surgeons effectively step in if unforeseen complications arise during surgeries? Some cases of mechanical problems during RAS procedures have attracted much attention over the last years (e.g., [1]).
* Cyber-security threats: How can robotic systems be protected from cyber-attacks? Earlier this year, the WannaCry malware has shut down large parts of the National Health Service in the U.K., leading to thousands of canceled operations [2]. In addition, security experts have successfully hacked surgical robots in the past [3]. These instances might only be a foretaste of what is to come, which underlines the importance of cyber-security defense mechanisms.
* Omission of the “human element”: From a psychological perspective, many patients might be hesitant to undergo surgery performed by a robot. Even though this behavior might not be fully rationale, patients value personal interactions with surgeons before and after operations, which instills trust and confidence.

Without doubt, RAS is about to revolutionize the healthcare. However, RAS proponents would be wise to address the above concerns with a clear allocation of accountabilities, extensive training protocols for health-care professionals, close collaborations with top-notch IT security specialists, and patient education campaigns.
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[1] https://psnet.ahrq.gov/webmm/case/368/robotic-surgery-risks-vs-rewards-
[2] https://www.nbcnews.com/news/world/why-wannacry-malware-caused-chaos-national-health-service-u-k-n760126
[3] https://www.technologyreview.com/s/537001/security-experts-hack-teleoperated-surgical-robot/
(all accessed on Nov 20, 2017)

A train is rolling uncontrollably towards five people unable to move away from the tracks. You are standing next to the tracks between the train and the people. You can pull a lever that diverts the train onto a different track, saving the life of the five people. However, there is another person on the alternate track, unable to move away. Will you pull the lever?

Whether we like it or not: self-driving cars must be programmed to kill [1]. The famous “trolley problem” has originally been introduced as a purely theoretical thought experiment on ethical dilemmas in 1967. The emergence of autonomous vehicles has made this experiment much more real than originally intended [2]:
* In cases of potential crash situations, what decision algorithms should autonomous vehicles follow?
* Who is responsible for defining these rules?
* Who is accountable for the outcomes?

The essay underlines Tesla’s readiness to leverage its hardware for autonomous driving features. These features rely on Tesla’s propriety data that are portrayed as a barrier to entry for other industry players. In essence, industry players are now “competing” for more effective decision algorithms. While the desired outcome might be obvious in most situations, the answer to ethically loaded decisions touch on the values and fundamental belief systems of our society.

Tesla’s management should therefore think beyond the competitive aspects of autonomous driving mentioned in the essay. Given its leadership position in the tech space, the management bears moral responsibility to stimulate a much-needed debate: Envisioning a future of fully autonomous vehicles, how do we as a society deal with these ethical dilemmas? What are the rules we can collectively justify to the best of our knowledge and beliefs? And how can we collectively define a fair decision making process that allows us to reach these conclusions? Welcome to the real word, Tesla. Pandora’s box has just been opened…

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[1] https://www.technologyreview.com/s/542626/why-self-driving-cars-must-be-programmed-to-kill/
[2] https://www.theatlantic.com/technology/archive/2013/10/the-ethics-of-autonomous-cars/280360/

In the essay, the cooperation with the “Rainforest Alliance” certificate is celebrated as a successful and effective Corporate Social Responsibility effort by Unilever. This view ignores the fact that Rainforest Alliance has been repeatedly attacked by NGOs for “greenwashing”. It has been criticized as “a program unqualified to ensure farmworker justice” [1] and as “Fairtrade Lite – an attempt to benefit from the appearance of doing good, at less financial cost” [2].

This debate raises a fundamental question: In the light of major trends such as climate change, is it morally acceptable if management pursues CSR efforts mainly for the sake of financial profit, but without caring about the actual impact? Investigations repeatedly raised many concerns regarding Rainforest Alliance:
* Weak on-farm monitoring mechanisms: Reports of child labor, unprotected spraying of pesticides, widespread cases of gender discrimination, ethnic discrimination, sexual harassment, bad housing, hampered freedom of association and collective bargaining [2], [3]
* Missing enforcement mechanisms and audits to ensure compliance with prescribed standards [2]
* Insufficient focus on paying living wages [4] and on paying minimum prices [5]

There is ample evidence that Rainforest Alliance has weaker standards and less effective enforcing mechanisms than other Fair Trade labels. Yet, its marketing achieves the main goal of making consumer feel better about products such as Lipton tea: Given the “label”, they are willing to buy the products at a premium. Does management – in all seriousness – address the root causes of climate change and poor working conditions when partnering with a “Fairtrade Lite” label? Probably not. Does management live up to its obligations? Unilever’s shareholders might be happy for now, but consumers should be more skeptical.
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[1] http://fairworldproject.org/wp-content/uploads/2016/10/Justice-In-The-Fields-Report.pdf
[2] https://www.triplepundit.com/2010/07/greenwashing-profiteers-part-ii/
[3] https://www.somo.nl/certified-unilever-tea/
[4] https://www.revealnews.org/blog/beware-the-little-green-frog-logo-on-your-sustainable-food/
[5] https://benclapton.id.au/2013/04/17/fair-trade-rainforest-alliance-or-utz-seeing-the-wood-amongst-the-trees/
(all accessed on Nov 19, 2017)

The essay provides a comprehensive overview of risks related to climate change and suggests crucial steps for management to consider.
However, I would urge Rio Tinto’s management to look at climate change not only from a risk-mitigation perspective, but also explore this trend through an opportunity lens.

Some of these opportunities include:
* Expanded exploration of natural resources: With ice caps shrinking, accessing reserves of minerals will become possible in untapped regions such as Greenland where access has been challenging so far [1].
* Easier extraction of raw materials: Increasing temperatures and longer summers significantly reduce cost of operating machinery and extracting minerals in cold regions [2].
* Cheaper transportation: Reduced ice levels opens up access to arctic ports and new shipping routes such as the Northwest Passage, which will considerably reduce transportation cost [3].

How can Rio Tinto reap the benefits of climate change? The risk perspective is definitely relevant, but a successful mid-term strategy will also aspire to seize new opportunities.
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[1] https://qz.com/813742/climate-change-is-benefitting-greenland/
[2] https://www.bsr.org/reports/BSR_Climate_Adaptation_Issue_Brief_Mining.pdf
[3] https://accelfellowship.wordpress.com/opportunities-and-challenges-economic-social-and-political-impacts-of-climate-change-in-the-arctic/#_ftn1
(all accessed on Nov 19, 2017)