Will Exxon Mobil be less competitive by being more transparent ?

Posted on May 18, 2012 by aviyer2010

An article in Bloombergbusinessweek (May 14, 2012) describes efforts by ExxonMobil, among others, to eliminate a 1305 requirement under the Dodd Frank bill requiring timely disclosure of payments to countries when oil is extracted by US corporations. Such data would permit the press and public to, for example, know payments made to the government of Chad, and thus enable demand for it to be used for poverty alleviation rather than guns. Currently governments are opaque in their disclosure of payments received, this law will require the payees to disclose. Since such laws are not required by global competitors, will it make companies like ExxonMobil less competitive ? Should US rules adjust to global standards or should it reflect US preferences ? Will more information alone align incentives for better decisions in the least developed countries or should US laws go even further to do the right thing ?

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Why did Amazon.com decide to provide Harry Potter e-books free ?

Posted on May 18, 2012 by aviyer2010

An article in the Wall Street Journal (May 11,2012) describes a decision by Amazon.com to provide Harry Potter e-books free to libraries, while paying book publishers the wholesale price. The article argues that Amazon will obtain profits from other purchases by customers from their website – shirts or bug spray. The new strategy will also promote use of the Amazon website by library patrons. Could the costs to Amazon be covered by the margins from incidental purchases ? Is this a strategy to expose ecommerce ease of use to a potentially new segment of customers or do you expect that these customers are already ecommerce savvy ? What other loss leader strategies might Amazon consider to compete in the future ?

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Apple’s global supply chain flow choices and tax impact

Posted on May 3, 2012 by aviyer2010

An article in the New York Times (May 2,2012) describes choices made by Apple in the organization of its product flows to avoid taxes. Apple’s distibutors in Germany are called “commissionaires” and do not take possession of inventory. Thus German sales are booked in Singapore and avoid German retail taxes. Similarly, Apple’s Double Irish strategy books patent royalties to its manufacturing location in Ireland, then allocates pat ownership of the Irish location to a subsidiary in the Virgin Islands to avoid taxes, then flows profits through the Netherlands given European treaties. Given these global supply chain flows follow legal means, is Apple’s tax avoidance strategy an effective supply chain practice or something that should be disallowed ? Is the link between global plant location and flows and associated taxes something that will impact plant location decisions ? Is the claim that digital goods flow easily across national borders reason enough to permit such supply chain adjustments ?

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Private Equity Efficiency Improvement and the Toyota Production System

Posted on May 2, 2012 by aviyer2010

An article in Bloombergbusinessweek (April 26, 2012) describes the efficiency improvement generated by a private equity firm Monomoy Capital Partners. Examples include reducing forklift times by 10 minutes, finding lost inventory, streamlining operations etc. The company claims to runs kaizens repeatedly to extract improvements. Visual management through reduced inventory, one piece flow etc all release efficiencies that the firm extracts and thus reduces the headcount required to run operations. Does the role of private equity in releasing value using the Toyota Production system suggest its value creation role for ailing manufacturing firms ? If so much value exists to be released, can it be acheived without the need for private equity firms to take over ? Does the article suggest the need for finance curricula to incorporate the basics of operations management to release value for firms ?

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Possible reasons for Microsoft to invest in the Nook – Barnes & Noble’s ereader

Posted on May 1, 2012 by aviyer2010

An announcement of Microsoft’s investment in the Nook, Barnes & Noble’s ereader, was described in an article in the New York Times (May 1, 2012). But there are many possible reasons for this investment. Does the use of the Microsoft Windows software enable the Nook to compete more effectively with the Kindle, which used Google’s Android operating system. Does the Nook enable Windows to push its Windows 8 out to more ereaders and tablets and thus compete with Google more effectively?. Or is the funding of the Nook by Microsoft, a way for Barnes & Noble to compete in the books market with Amazon ? Or is the real possible goal for Barnes & Noble to get in the textbook market and compete against Apple for publisher attention ? Or will Microsoft be getting into the hardware business of ereaders to compete wit Apple ?

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Oversupply of steel pipe in the supply chain ?

Posted on May 1, 2012 by aviyer2010

An article in the Wall Street Journal (May 1, 2012) describes a plant expansion by Timken in Ohio and a new plant in Texas to be opened by Tianjan Pipe, both focused on steel production for pipe used by the energy sector. But as gas prices fall, prices of steel pipes etc used by the energy industry are leveling off and associated warehouse inventories are increasing. Will the low gas prices impact industry expansion and create a glut of steel pipe, just when new plants are coming online ? Or will the continued high prices for petroleum encourage oil drilling and sustain demand for steel pipe ? Will imports of cheaper steel, discounted by 15 % below US prices, dampen demand for US steel ?

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Harmonizing trade regulations and supply chain impact

Posted on May 1, 2012 by aviyer2010

In an article in the Wall Street Journal (May 1,2012) Cass Sunstein, administrator of the White House Office of Information and Regulatory Affairs, describes steps taken by the US government to harmonize regulations across countries to reduce costs. Examples cited include standardized labeling of chemicals (estimated to save US manufacturers $475 million annually), recognition of “organic” labels between the US and Europe and standardized vehicle emissions recognition with Canada. Will the cost of this standardization always be reduced costs for US manufacturers ? How should these standards be negotiated i.e., should they be done by trade associations or the US government ? Should the US government just focus on cost reduction for both countries, or consider the US employment benefit of unique regulations that foster local manufacturing ?

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Rising palladium prices and drivers

Posted on May 1, 2012 by aviyer2010

An article in the Wall Street Journal (April 25, 2012) describes rising prices of palladium, a metal used in gasoline car exhausts. It is the sister metal of platinum, used in diesel car exhausts. Rising sales in the US and China have driven up demand for palladium, while weak sales in Europe have flattened platinum demand. Russia has indicated that sales of palladium from its stockpiles will be decreased, thus potentially shrinking supply. The resultant 2 % rise in palladium prices has resulted in a forecasted rise in prices per ounce from $ 665 to $ 1000 by 2013. Given these different drives of palladium prices, are the forecasted price increases credible ? During past palladium crises, technological innovation decreased demand for palladium in car exhaust systems – would you expect a similar impact this time ? Will the planned Chinese vehicle emissions standards (thus requiring more palladium content in cars), which will boost palladium demand in China, further push up palladium prices or would you expect the regulation to be delayed given current conditions ?

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Delta Airlines going upstream to save costs – are there risks ?

Posted on May 1, 2012 by aviyer2010

An article in CNNMoney (http://money.cnn.com/2012/04/30/news/companies/delta-oil-refinery/index.htm?hpt=hp_t2) reports on a plan by Delta Airlines to buy the Trainer oil refinery in Philadelphia to produce jet fuel. The claim is that the purchase of the refinery for $ 150 million will allow Delta to reduce its costs of jet fuel by $ 300 million annually. Getting the shuttered plant to product jet fuel will require changes in its product mix, trading of products at the plant with other oil companies, exposure to input prices etc. Delta is an airline that has not operated refineries. Do you think that vertical integration by Delta i.e., owning a refinery will permit the firm to lower its supply chain costs ? Will the control of a dedicated refinery provide better cost control than buying products in the market that is spread across many customers and competing manufacturers ? If new technologies emerge that can improve production yields, will it be more difficult for Delta to justify upgrading than other companies that are diversified both upstream and downstream ?

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The “Swissness” of watches made in Switzerland

Posted on April 28, 2012 by aviyer2010

An article in the New York Times (April 28, 2012) describes plans to change the current “Swiss-made” labeling requiring 50 % of the value of movement to be made in Switzerland, with new 80% requirement. Swiass watches account for 3 % of the units but 50 % of the $40 billion watch market. But Swatch dominates the Swiss movement manufacturing and has announced plans to cut supply of components (described in earlier blogs). In addition, luxury watch sales in China are booming. So is this new law an attempt to protect the Swiss watch industry or enable further dominance by Swatch ? Will increasing the need for smaller players to invest in capital equipment in Switzerland enable the industry to become more globally competitive or will it increase costs and cause a fall in variety and thus competitiveness ? Will such Swissness constraints hurt the opportunity to sell in China or will it increase the benefit given the new Chinese consumers need for genuine luxury products ?

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