Sam Peterson's Profile
I’d like to address two question from this article:
Is it possible for Pioneer to fully eliminate the use of fresh water given their growth plans?
–I’d actually like to re-pose this question as follows: “Is it safe for Pioneer to replace the use of fresh water in its operations with non-potable, brackish, and effluent sources?” My (albeit largely uninformed) understanding here is that the jury is still out on the safety of fracking in general (e.g. reports of flammable tap water on properties allowing fracking abound). Consequently, I’m concerned that such safety concerns could be exacerbated by the use of non-freshwater liquids by Pioneer. Thus, is there really an ecological benefit to employing “lower-quality” or dirty water in these operations? Might the risks of such practices exceed those of depleting freshwater supplies?
Additionally, will water recycling, which would allow for water generated from oil and gas activities to be used in other industries such as agriculture, ever become economical?
–I think this ultimately depends on the futures markets for both petroleum, agricultural products, and water itself. Essentially, I think freshwater would need to become scarce enough to justify high prices of recycled water (while agriculture remains profitable enough, if at all, to be able to afford such prices). The margins on recycled water would also need to be high enough for oil and gas companies to invest resources in said recycling, and I don’t think this is likely should oil prices fall to a point where energy firms cut back on capital expenditures (such as investments in water recycling programs).
My two concerns with this otherwise promising business are as follows:
Will China seek to regulate this disruptive technology by introducing more stringent controls on drone usage (as has occurred in the US?).
–This does not seem to be a company concern at the moment, but I could foresee a series of mishaps motivating changes to current rules (or the lack thereof). For example, if a drone crash resulted in, say, a fire or significant property/ecological damage, this might prompt regulators to intervene. That said I see no reason to believe Farm Friend poses such dangers and would encourage them to track metrics to this effect in order to be able to prove their relative safety should this ever come under question by the public or government agencies.
How defensible is this technology against competitive entrants?
–While I don’t think other startups could catch up with Farm Friend in China at this point (given its well-established partnerships with local retailers and ability to recruit offline customers, i.e. its relative defensibility against smaller entrants) I am concerned that agricultural powerhouses like Monsanto (which maintains significant operations in China) could have the resources necessary to drive Farm Friend out of the market through a price war (especially given such companies lower costs of supplying pesticides in this market).
Two concerns stand out to me with this telemedicine model:
Will the quality of patient care be on par with that of in-person services?
–Guiding three surgeries remotely (as suggested in the article) intuitively seems less safe than focusing on one operation at a time. I don’t have data from the post to support this assertion but would want to ensure quality of care remains consistent before rolling this out more broadly. While I understand patient comfort in the hospital has been shown to improve (quieter environments, larger patient rooms) under telemedicine, I think American consumers will be reticent to digitalize high-risk procedures like surgeries without more evidence supporting their safety.
Payments to physicians and the broader US health insurance market
–Should compensation for telemedicine activities lag in-person procedures, I could foresee physicians lobbying against this trend to protect their income. They could justify aversion to this trend by citing any available data suggesting reductions in quality of care. If this should occur, it could pit doctors seeking to maximize their earnings against insurers seeking to cut costs while maintaining premiums comparable to today’s.
I’d like to address two questions raised by the author:
What can a company do when the political conflicts are beyond its control?
–I’m susceptible to the strategy of focusing on other markets as mentioned in the post (e.g. Russia, Vietnam, and Indonesia). I think Lotte risks falling victim to the sunk cost fallacy, having already invested $600MM in Chinese operations with really nothing to show for it. I realize the Chinese market potential is massive, but the political/trade risks strike me as too volatile and unpredictable to successfully operate there. One means of re-entering the Chinese market could be a long-term play wherein Lotte continues to build its brand in neighboring countries to the point where Chinese consumers are willing to travel abroad to purchase its products. I think that if the Chinese government realized this trend it might sway back toward inviting Lotte to operate in China so as to capture revenues currently being diverted to other economies.
What is the best way to mitigate the unpredictable political risk?
–Lotte could also perhaps avoid political risk by going one step further from partnering with local firms to actually establishing an independent entity wholly-owned by Chinese investors and heavily reliant on new manufacturing operations in China employing local workers. This could assuage Chinese regulators’ fears that Lotte is merely taking advantage of the Chinese market. One downside, of course, is that this approach minimizes Lotte’s brand control in China and could subject it to eroded perceptions of the company should Chinese managers stray significantly from the model that accounted for its initial success in Korea.
I’d like to address the last two questions raised, namely:
Is the rising dominance of China fundamentally changing Hollywood?
–I would argue that Hollywood blockbusters are continuing to perform well in China under the status quo (and, as the author states, profits in the Chinese market often subsidize losses that films incur in other markets). From the facts presented, I don’t see signs of a major shift within Hollywood itself for the time being (it seems Hollywood is continuing to produce similar films to past ones that, while successful in China, aren’t geared toward that market — with the exception of toning down politically charged content). That said, the point about potential trade limitations in the future could change this. Should that occur, I think Hollywood might focus its efforts more on films appealing to Western markets, given the increased difficulty of marketing them in China and the consequent need to maximize profits elsewhere.
Does moving to a local production model creating locally relevant content mean that budgets for US movies will decrease?
–Given the high growth-rate of the film industry in China, I believe there is space for a number of players in this market. Should WB partner profitably with local producers, I believe this will generate incremental revenue streams that could allow these projects to fund themselves, as opposed to diverting capital away from Hollywood budgets. That is, if WB-China partnerships are profitable and don’t cannibalize WB-Hollywood revenues in China (which seems possible, given China’s appetite for more content — 144% growth in three years) then I think this strategy could actually improve revenues for WB as a whole.