RC Tom 313

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On December 1, 2017, RC Tom 313 commented on Samsung, “America First” and the Washing Machine Wars :

Just this past Tuesday, the U.S. International Trade Commission formally sided with Whirlpool on this debate, issuing guidance that called for a 50% tariff on imported washing machines. [1] Interestingly, the tariff would take effect if imports were to exceed 1.2 million units within the next three years. It is worth noting that the ITC’s recommendation is subject to President Trump’s approval. However, given the current political environment and the upcoming mid-term elections, President Trump has little incentive to block the tariff. In light of these facts, Samsung seems to have the right strategy by localizing production within the United States. Samsung’s price $50-100 price advantage could easily be wiped out by unfavorable trade policies. Perhaps just in time, the company’s plant in South Carolina is expected to open next month and is currently expected to employ 1,000 Americans by the end of 2018. [2] While the plant is not expected to have sufficient production capacity to serve the entire U.S. market, it does create positive press headlines that will help mitigate any future unfavorable trade policies. By all appearances, President Trump seems to care more about press headlines than actual trade policy. A headline declaring the creation of 1,000 American jobs might be enough to appease the Trump Administration, at least for the time being.

[1] De Lea, Brittany. “Whirlpool vs. Samsung, LG: US trade court calls for 50% tariff on imported washers.” FOX Business. 21 Nov 2017. http://www.foxbusiness.com/markets/2017/11/21/whirlpool-vs-samsung-lg-us-trade-court-calls-for-50-tariff-on-imported-washers.html
[2] Ibid.

On December 1, 2017, RC Tom 313 commented on Casa Luker: Unveiling the sweet future of Colombian Cocoa Production :

The strategy that is most likely to enable Casa Luker to continue to delivery on its customer promise over the long-term while remaining in the cocoa business would be to diversify production geographically. Casa Luker could look to expand production outside Colombia in order to diversify its production regions. In this way, if any one region were to be negatively impacted by an extreme weather event or a change in climate, the company would still retain production assets. Potential regions include other countries in Central and South America as well as countries in Africa. In addition to capturing the benefit of diversification, Casa Luker could proactively invest in production capabilities in regions that the company expects to become more fertile for cocoa over the medium- to long-term in light of the warming climate. This strategy, however, involves a great deal of speculation, and it is possible that such a region may not exist.

Given Casa Luker is owned by a Colombian family, the company may not be interested in international expansion. If that were to be the case, then Casa Luker should continue its R&D efforts in the near-term and aggressively pursue product diversification over the medium- to long-term. The company’s R&D efforts should focus on new production technologies as well as genetic engineering to make crops more resilient in expected future climes (given changes in precipitation, temperature, pests, etc.). La Granja Luker seems to be a great start. Over the medium- to long-term, the company should investigate alternative products that could be grown in Colombia that would be more resilient to the impact of climate change. Both the near-term strategy as well as the medium/long-term strategy could be achieved organically, as described, or inorganically via M&A.

On December 1, 2017, RC Tom 313 commented on Dark Skies Ahead for US Solar Panel Installation Industry? :

Trade restrictions on the solar industry’s supply chain raise some very interesting questions, given the the geopolitical implications. It is in the U.S. government’s interest for the country to be as close to energy-independent as possible; however, given the Trump administration’s close ties to the Oil & Gas industry, it is unlikely that trade policy and other commercial regulation in the near-term will favor the solar industry. Recently the solar industry has experienced a “circle of death” – global overcapacity has driven down prices, which in turn has incentivized firms to pursue scale economies, further driving down prices. [1] These low prices have enabled the solar industry to compete on a price basis with natural gas. Therefore, the Trump administration would potentially welcome the higher prices that are sure to follow protectionist trade measures. In light of this, Sunrun should engage in active conversations with Congress, both regarding trade policy as well as environmental regulation, in an attempt to stall or block the proposed tariff. Furthermore, Sunrun should proactively pursue M&A, rather than waiting until the passage of the tariff. Strategic M&A targets would be firms with domestic supply chains as well as firms with complementary technologies / IP that would allow Sunrun to diversify its product portfolio.

[1] “A Trade Dispute Threatens America’s Booming Solar Industry.” The Economist. 17 Aug 2017. https://www.economist.com/news/business/21726733-civil-war-breaks-out-between-two-troubled-firms-and-many-their-solar-peers-trade-dispute

UNICEF definitely has its work cut out for itself. As demonstrated above, it is imperative that UNICEF invest in its supply chain in order to get ahead of the potentially disastrous impact of climate change and the increased prevalence of extreme weather patterns. [1] While localizing production would reduce lead time and delivery costs, this strategy faces two challenges: (1) by nature of the impact of climate change on pests, crop yields, and public infrastructure, the areas of the world in need of RUTF are also those where production has been negatively impacted; and (2) localizing production would require significant capital investment and could prove to be prohibitively expensive given the needed investment in public infrastructure. Given these considerations, UNICEF should aggressively invest in R&D to develop new formulations with raw materials that can be sourced from various regions across the globe, and thus diversify the raw material portfolio. Additionally, UNICEF could partner with global food companies and university researchers to learn best practices for agricultural production (one of which may involve the use of GMOs) as it pertains to protecting a global food supply chain against the threat of climate change. These seem to be the most capital efficient strategies for UNICEF to combat climate change.

[1] United States Environmental Protection Agency (2016). Climate Change Indicators in the United States. Fourth Edition. pp.7-8.

Amazon’s retail business strategy is one of centered around an efficient logistics operation. The good news for Walmart is that Walmart has both the scale and purchasing power to match Amazon prices and an existing distribution network. In order to compete against Amazon, Walmart needs to supercharge its distribution system. As consumers shift from in-store purchasing to online purchasing, Walmart should simultaneously shift the orientation of its distribution network. While Walmart is investing in new, larger-format distribution centers, it will also be important to re-tool existing DCs. Not only should Walmart invest in warehouse automation, but it can and should leverage purchasing data to do predictive delivery, a core practice for Amazon. In order to solve the last-mile delivery problem, in the short term Walmart could leverage store associates to make deliveries across the existing brick-and-mortar footprint while relying on third party logistics providers (UPS, DHL, FedEx) for more urban areas outside of the existing footprint. By repurposing its existing assets and investing in new technologies, Walmart should be able to align itself with changing customer demands.

The analysis points to the benefits of digitization to all members of the supply chain via data capture and analysis. Two questions this raises are: (1) to what extent can Haier control the information systems through which data is transferred, and (2) what are Haier’s rights and responsibilities when it comes to customer usage data.

One of the main challenges to the realization of the Industrial Internet of Things is the lack of industry standard when it comes to information systems. In order to leverage data up and down the supply chain, each player’s information system must be able to communicate. Should Haier develop and implement its own proprietary information system? Or should it leverage a third party’s platform (i.e. General Electric’s Predix platform)? Then, once Haier captures manufacturing data from the supply chain as well as usage data from the customer, is it in Haier’s best interest to share the data with other members of the supply chain in pursuit of operational efficiency? Given the data has value, would Haier benefit from trying to monetize the value of the data? What is the risk of competitors gaining access to the data from mutual suppliers/distributors?

It is particularly interesting to think through these questions in the context of a state-owned enterprise. Haier is arguably better positioned to affect regulatory policy within China than any of its international competitors.