This is a really interesting read! The amount of emissions from the aviation industry are almost the same as those produced by several developed nations in totality and traditionally aviation and shipping industries avoided strong targets in United Nations climate agreements . The effects of climate change such as high temperature operating environment, are now manifesting in actual manufacturing challenges for aircrafts. This might be a blessing in disguise as it will lead to concerted efforts by Boeing and others to reduce emissions and innovate in fuel or efficiency.
I feel the real challenges would be to consolidate the supplier base and reduce net environmental impact at each stage. The value chain for this industry is very broad and spread and each component (example metals as raw material), is responsible for high emissions during its manufacturing stage. The investments of Boeing in lighter aircrafts and fuel efficient technologies is certainly a step in the right direction.
This is a really interesting article, Nico. I worked in India in the same city where TATA steel headquarters are based and had close friends working at TATA steel who told me about a conscious and deliberate shift in Tata’s strategy to invest in technological improvements in cutting down carbon emissions. Just to give some context, in the recent decade, the Indian government has given guidelines to large corporates to focus on “Triple Bottom Line” in performance which includes financial, social and environment impact performance. This along with the growing awareness in consumers and the market has given impetus to many CSR and environment oriented initiatives by large market cap firms.
Tata Group is certainly making the right strides in this direction and recently purchases a smelter technology from Rio Tinto which is intended to reduce carbon emissions by at least 20 % [link below]. To the broader risk of cutting out of a commoditized market, I feel one way that commodity manufacturers can approach this issue is by lobbying with the government to create strong barriers to entry in the market based on environmental impact and emissions. This will not be a hard sell given the government’s current focus and they can agree to restrict the market to only those players whose emission levels are a certain threshold for example. This will drive the competition to follow suit and invest in environmental friendly technology. Given TATA steel’s investment might and influence, it might be a good strategy to invest and develop clean technology and dictate the trends in the market through government interventions.
Very nicely written article Kamau. You bring a compelling argument against isolationist trade policies. However, I feel it would be difficult to make breakthrough technological modifications to drastically reduce manufacturing cost in the US, given the scale of cost difference in labor rates: $25 per hour in US vs $2 in Bangladesh/India. This can result in premium prices being passed on to consumers, and from a macro context, the extra value generated by in country manufacturing is being actually paid for by the American middle-class consumers. This can be a good argument to present in front of the government.
Also, another key stakeholder in these isolationist policies is the government of the sourcing country. Isolating trade can severely impact foreign policy and strategic relations between large nations. For example, the Prime Minister of India, has taken up the issue of visa for Indian immigrants, and impact on US proposed policies on limiting outsourced services (specially I.T) and manufacturing in India, in his several meetings with the U.S government officials and has asserted confidence in the interactions thus far. The source company governments will also lobby against these regulations and political decisions on protectionism and trade isolations will have to factor potential relation and strategic tensions between nations.
This is a really insightful article, Chris! The issue of social responsibility vs profitability is complex but I agree with Mohamad’s comment that for an organization of this magnitude that is truly global, social responsibility should transcend the entire world as well.
I can offer the Indian context and example. India is the world’s second largest smartphone market growing at a healthy rate of 20%, but Apple has not been able to capture more than even 3% market share. This is primarily because of very high prices due to India’s protectionism laws that put heavy import duty on iphones and prevented apple from opening retail stores, forcing it to tie with resellers and thus increasing cost-to-serve to Indian market by 15% to 20%. These checks apply to Apple because it doesn’t source or manufacture any parts from India. Even though these might be labeled as protectionist measure, in this case, the role of the government is crucial as it is preventing drainage of wealth from the country specially when the economic and social environment of the nation doesn’t benefit from a foreign company looking to capture the market.
Governments, therefore do have an active responsibility to work with corporates and balance both stakeholder value and social prosperity. From the company’s perspective, if it calls itself a global firm, it needs to adopt a truly global perspective about value creation too.
This is a really insightful article, Sarah. Initially, Industry 4.0 in manufacturing related to process automation, data integration and usage of Internet of things (IOT) to improve cost, product quality and process integrity. Its interesting how manufacturing innovations in prototyping, product development can impact supply chain responsiveness and become a competitive advantage in industries such as fashion.
One concern as factories use external automation or digitization tools such as 3d printing is the dependency on external manufacturers and dilution of competitive advantage in manufacturing. For example, in Adidas’ case, its 3d printer supplier/manufacturer can have access to prototyping methodology and design principles of Adidas which can be transferred to other competitors of Adidas. I feel it is imperative for big companies to invest in not only adopting industry 4.0 technology, but also developing and establishing their own platforms whether it is digital infrastructure or process automation technology to create strong barriers for competition.
Another factor would be the perceived and actual difference in quality and performance of product when this technology is used for bulk manufacture. Surely, Adidas must evaluate any such tradeoff if there is, given its brand reputation of superior functionality and performance of its footwear range.
This is an interesting post Kimberley and I have asked similar questions from a different point of view in my article. With its disruptive innovations in supply chain, Amazon is not just pursuing the consumer needs but evolving and shaping them. The idea of convenience has moved from ‘delivery to my home’ to ‘immediate delivery at no fee’ for consumers. This can easily be seen from the increasing market for same delivery in the US .
My concern with this evolution of consumer demand is that Amazon’s promise might not be financially sustainable for the company. Studying your recommendations, whether it is investing in warehouses and deeper penetration, or building innovative models such as drone delivery, the capital investments in development and operational expenses will either have to be passed down to consumers (as higher shipping rates) or absorbed by the company (leading to lower profitability).
The threats? We saw in the Fasten vs Uber case that a disruptive entrant can steal market share from the incumbent and take advantage of the market development cost that the incumbent has incurred. Even though Amazon is a behemoth, it cannot discount threats by disruptive ecommerce models promising customers same day delivery (specially in low value items such as grocery) by connecting local retailers with consumers. For example, in India, few hyperlocal delivery startups such as Grofers, Peppertap emerged and their business model relied on building an ecommerce platform for connecting (or transporting goods from) nearby retail stores with consumers, without owning any inventory or investing in warehouses. Their biggest advantage was the existing consumer education about using ecommerce with respect to apps, payments and existing consumer demand for same day delivery.
Amazon is certainly defining and driving consumer expectations but at what cost (to itself and consumers), is an important question to consider.
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