Smurfit Kappa provides a tangible example of the effects of Brexit, and you’ve raised some serious concerns about the long-term viability of their business model in the latest geopolitical landscape. I would argue against Miguel’s suggestion of a wait-and-see strategy. My intuition suggests that the risks associated increased costs and a developing regulatory environment are burdensome. Locating mills closer to the raw material supply in a more stable regulatory environment appears to be a slam dunk.
This example highlights how isolationist policy can lead to adverse consequences regardless of intention. The government’s policy may eventually yield an improvement in the economic status of Indonesia, but it is difficult to asses the progress of such legislation in the short term. Layoffs and reduced taxes may force Indonesia to reconsider their position on ore exports. In contrast, Freeport’s revenue is heavily dependent on the Grasberg mine. Freeport is likely to invest in the domestic smelting; the concentration of their profitability in a single asset necessitates either discontinuing operations or continued investment without superior alternatives.
Companies diversify among commodities to mitigate the risks associated with volatility among any individual component of their portfolio. Unfortunately climate change impacts every aspect of Cargill’s supply chain; this risk is strongly correlated among each of their commodities, and has placed an exceptional burden on their ongoing operations. Interestingly, this impact is variable based on where production comes from. For Cargill, diversification by geography may become a larger emphasis of their strategic planning.
Pascal raised the point that developed countries have the capability (and potentially the responsibility) to implement many of the emerging renewable technologies on a broader scale. However, investing in these new projects can be capital intensive and some companies may hesitate to fully shift their power generation to solar, wind, etc. In the interim, conversion from coal to natural gas fuel in power plants add another risk to Drummond’s operation. The global supply of natural gas has reduced prices on the gaseous commodity, thereby lowering the transition barrier for energy companies. Coupled with the fact that natural gas burns cleaner than coal, coal’s utility may eventually be limited to areas where natural gas supply isn’t readily accessible. At a minimum, this alternative represents a moderate risk to the short-term demand for Coal
Amazon’s influence on the adoption of Supply Chain 4.0 has been profound, but their pursuit of nearly instantaneous delivery has been obtained through substantial cost. Operating losses resultant from the infrastructure development and operation of Amazon’s Fulfillment Services (“Prime,” “Now,” and “Fresh”) has been subsidized by the profits derived from Amazon Web Services. Barrier to entry for competitors is enormous, but there are risks associated with the rapid growth Amazon has enjoyed. Antitrust legislation and drone regulations both threaten their ability to execute on future plans, as do competitors’ actions to claw back market share.
Adidas’ implementation of 3-D printing within product manufacturing has the potential to yield dramatic reductions in their time to market. Given the fervent appetite sneakerheads have demonstrated for new releases, I wonder how long customers will be satisfied with this improvement. As the design-to-distribution timing normalizes, I wonder which components of the product development cycle will be identified as the bottlenecks in the future. If the amount of time spent ordering raw materials is challenged, Adidas may be tempted to limit their raw materials list to simplify their inventory and eliminate that step in the process. Doing so would create tension with another pillar of future success: the company’s ability to develop new technology in conjunction with their sponsored athletes. If Adidas has limited their feedstock to certain raw materials, product innovation may be hindered.