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On December 1, 2017, MC commented on Can Protectionism Save Auto Jobs in the US? :

I think the response of manufacturers to Trump’s policies and rhetoric is pretty fascinating. Still, I wonder if we sometimes overplay the importance of Trump in decisions on where to build a plant. Manufacturing plants like this obviously involve costs and revenue that span a significant period of time, and I think (though perhaps this is my personal bias) that the likelihood of the US staying as protectionist or more than today is pretty low. Thus, while it might seem that these policies have massive implications for these decisions, I would tend toward the idea that automation and macro-economic changes are more important to companies than their read on the likelihood of any of Trump’s policies actually materializing.

Really great article, and also enjoyed reading the comments here. I completely agree with the comments that Toyota’s increased investment right now is confusing – I would probably just call it a bad decision, given that clarity should be emerging so soon on how this actual affects them. I also agree with the idea that this may be a way to curry favor with the government during this period of policy re-definition. For better or worse, Toyota already has made significant investments here, and now needs to do its best to squeeze profits out of it.

The broader question I am grappling with is how Toyota should respond to this as it plans its future investments. For example, I know the US still has a large auto manufacturing industry, but we too are getting hit with the impact of isolationist / nativist political movements. Much of the decision for new plants then, might depend on where Toyota sees favorable free market winds blowing. Despite Toyota’s further investment in the UK recently, I still would believe that their future manufacturing facility decisions are going to steer away from countries like the UK that show these isolationist tendencies.

On December 1, 2017, MC commented on Big Missiles + Big Data = Small(er) Price Tags? :

One concern I have with the increasing digitization of supply chains, especially in the case of Raytheon, is the cybersecurity implications. I’m sure that this is already a massive expense for a defense company like Raytheon, and rightly so. This is probably the highest risk situation for stealing trade secrets that one could imagine. But of course, much of Raytheon’s information is already available digitally. What concerns me is the increasing digital connections to their >10,000 suppliers. Surely these companies currently don’t deal with the same level of cybersecurity risk that Raytheon does, so increasing the amount of digital information sharing between them opens up a whole new world of cybersecurity risk. These concerns don’t change the potential benefit from supply chain digitization, but they certainly make me worried about the amount of cost required to implement these changes.

Reading this article, I wonder how digitization changes STC’s “edge” in this industry. This reminds me of our case on Li & Fung. This is another B2B business that has been around for a while and has significant market share. One of Li & Fung’s biggest advantages was its relationship with upstream providers, which made their position defensible even once digitization arrived. Otherwise, digitization could have democratized this industry, disintermediating Li & Fung, or spreading demand among competitors. Whether STC is threatened here also might depend on if their current edge is based on 1) relationships and 2) managing significant complexity for customers. If it is mostly based on cost and quality, digitization could only serve to amplify that advantage.

Love this topic, and great analysis. To your last question, of whether there is enough community interest in this, there are a few different stakeholders to consider. Several comments discuss consumers, which obviously are vital in driving demand and thus revenue for this company. You also brought up investors and whether they would tolerate the long march required to get to a mass market product. I definitely believe there have to be investors in the market that can tolerate these long timeframes given the significant potential rewards (assuming the company is hitting targets along the way). One route this company may have not considered is looking to impact investors, philanthropies, or specific high net worth individuals who are willing to tolerate this long-term risk. Concern over the environmental impact of food supply chains seems to be growing, and if this company can generate significant enough hype and confidence among these socially / environmentally conscious holders of capital, this may be a great group to partner with for the long journey ahead.

On December 1, 2017, MC commented on Enjoy your morning espresso (while you still can). :

This was all really well laid out, and this is certainly a problem that Nespresso and Nestle will need to pay attention to. As alluded to above, multiple stakeholders will be needed to address a problem like this. Whenever we encounter these collective action problems, I usually fall on the side of believing that the government has a huge role to play in the solution. The question is what solutions they implement and how.

From Nespresso’s point of view, working to minimize their own environmental impact (e.g, by planting trees on coffee farms) is great, but unlikely to move the needle on global climate change. The other option is to invest in technologies or innovations to reduce the impact of climate change on coffee production unilaterally. This is not particularly attractive, given that Nespresso makes the investment, but everyone benefits (including their competitors). This leaves us with the option to work with competition – e.g., through industry groups or lobbying groups – to influence government regulation in a way that benefits the whole industry (and hopefully smallholder farmers in particular). One additional possibility is to work with the non-profit sector: many philanthropies, like the Bill & Melinda Gates Foundation, invest significant amounts of money to benefit smallholder farmers.