Making cars in high cost Brazil in response to import taxes

Posted on October 1, 2011 by aviyer2010

The Economist (Sept 24, 2011) describes a 30 percent increase in tax on cars with an exemption for cars made in Brazil, Mexico or the Mercosur trade block. Thus, even though labor costs in Brazil are 60 % higher than that in China, the high import tariffs will encourage domestic production.  Associated domestic changes such as reduced payroll taxes for domestic manufacturing are supposed to ease the impact of labor costs. But the short notice (1 day) before the taxes were imposed provides little time for product rampup. Other than increased costs in the auto supply chain, and thus higher consumer prices, what manufacturer response do you anticipate? Will a Mercosur focus result in a dispersed auto supply chain across all the member countries or local supply chains that make all components ?  How does the absence of a common currency across Mercosur countries complicate supply chain decisions ?

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The logic of producing cellphones in Tierra del Fuego

Posted on October 1, 2011 by aviyer2010

An article in the Economist (Sept 24, 2011) describes the decision by Brightpoint, an Indianapolis manufacturer, to spend 15 times labor cost in Asia to set up a manufacturing plant for Blackberrys in Tierra del Fuego at the tip of Argentina and the closest point for ships to Antartica. But this was in response to a cap on phone imports into Argentina set at a level well below demand.  Similarly a Porshe dealer launching a new line of wines to export in order to cover the trade deficit associated with importing Porshes into Argentina from Germany.  Given the impact of trade restrictions on the supply chain in Argentina, will the associated increased product costs impact demand from the associated market segments ?  Given that the focus is just on trade deficits across imports and exports – what might be the unintended supply chain consequences of these regulations i.e., would new products introductions in Argentina suffer as a result ? Some economists argue that even though $ 5 billion of exports have been replaced by local production, the number may have been higher without these trade rules – how might the “road not taken” be estimated ?

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Amazon Fire tablet pricing and capabilities and associated competitiveness

Posted on September 29, 2011 by aviyer2010

An article in the Wall Street Journal (Sept 28, 2011) described the $ 199 pricing for the Amazon Fire – a color tablet that works using wi-fi, has a smaller screen (7 in) than the iPad, has free access to the Cloud for Amazon content and can be used to read, check email etc. Described by Amazon’s CEO Jeff Bezos as a piece of hardware that enables customers to access services it provides i.e., music, books, movies, games etc – the device’s choices enables it to enter the market at a substantially lower price point than the competition.  Given the iPad’s dominance of the tablet market, is a significantly lower price stripped down capability entrant the optimal strategy for Amazon ? Given the Fire’s dependence on Google for the Android operating system, does that decrease Amazon’s ability to control the Fire and its impact ? What do you expect from a Microsoft operating system based tablet in the future – given the impending launch of Windows 8 ?

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Should the Indian govt squeeze foreign acquisitions of its drug companies ?

Posted on September 27, 2011 by aviyer2010

A Wall Street Journal article (Sept 27, 2011) describes worries by the Indian govt regarding the future impact of foreign acquisitions of its local drug firms – Abbot buying Piramal Healthcare and Daiichi Sankyo buying Ranbaxy Labs Ltd. The worry is that the growing Indian generic manufacturers will be replaced by higher cost drugs both in Indian and abroad.  How should US drug firms respond to the low prices set by Indian generic manufacturers – buy them or establish supply arrangements for global demand ? Given a growing Indian market, with an associated price point, would it be optimal for a foreign owner to raise prices in India and thus hurt demand ? How would potential intellectual property concerns of global firms be alleviated by ownership of drug firms in India ?

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Preventing cholera in Bangladesh by used folded saris

Posted on September 27, 2011 by aviyer2010

A New York Times article (Sept 27, 2011) describes the historic levels of cholera that persisted when sweetened drinks were strained using a sari (made of cotton fabric) because microorganisms are smaller than the pores in the fabric. A research team found that folding a sari four times will provide the required straining capability to decrease the plankton in contaminated water. An experiment in 27 villages showed a 50 % drop in cholera rates – a far cheaper way to decrease cholera than other schemes. How should health care supply chains be incented to improve performance using low cost schemes such as this idea ? Given that no one benefits from such solutions, should exploration of such solutions be done by students being trained to innovate in trying conditions ? Or should innovators be paid based on the costs saved by WHO and governments as a result of such innovations ?

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Village Health volunteers and health care success in Thailand

Posted on September 27, 2011 by aviyer2010

A New York Times article (Sept 27, 2011) describes the role of Village Health volunteers – one million strong in a nation of 65 million, who watch for disease outbreaks, spread warnings wen detected and thus curb infectious diseases. These volunteers make Thailand the lowest in infant mortality compared to its neighbors and operate at low costs ($2.70 per person), with each volunteer assisting 15-20 households.  Is the volunteer aspect of this low cost service a key ingredient of its success ? How should one expect this system to evolve as prosperity has improved in Thailand and life expectancy has increased from 55 to 70 years ? Will the same techniques that helped with leprosy work for affluent society illnesses like diabetes and blood pressure ?

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Lost cost diagnosis and Supply Chain Impact

Posted on September 27, 2011 by aviyer2010

An article in the New York Times (Sept 27, 2011) describes efforts in a lab to use small postage size paper bits to diagnose mold and bacteria.  One impact of a low cost test for mold is diagnosis of aflatoxin, a mold produced poison that grows on corn, peanuts etc.   A disease free crop can enable the farmer to earn higher prices.  Similarly testing milk from individual farmers whose mixed output if collected by cooperatives can enable diseased cows to be identified and treated instead of spoiling the entire batch.  Will improvement of crop yields in developing countries require a focus on low cost detection methods ? Does  the method used in this case, a $ 10 million grant from the Gates foundation, suggest a role for developed country governments to act as externalities in the poverty elimination and supply chain improvement ? Given the large benefit to such methods, what prevents the for-profit companies from devising such low cost solutions ?

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Nokia volume drops and supplier impact

Posted on September 27, 2011 by aviyer2010

A Wall Street Journal article (Sept 27, 2011) describes the declining fortunes of Nokia and its impact in suppliers. These suppliers are described as finding that Apple and Android based smartphones are using custom built components that are closed to these suppliers. What is a possible alternate approaches that suppliers could consider to survive ? Will suppliers have to morph to become OEMs of phones to permit the supply chain to persist ? Will there be a collateral impact of failure of these suppliers on prices charged by component manufacturers to current smartphone OEMs ?

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FDA responsible for generic drug shortages ?

Posted on September 27, 2011 by aviyer2010

An article in Forbes (http://www.forbes.com/sites/aroy/2011/06/24/drug-shortages-the-new-death-panel/) describes strong FDA enforcement of Good Manufacturing practices with zero tolerances for generic manufacturers. Any violation causes shut down of a production line, with alternate suppliers requiring lengthy permissions to ramp up to compensate. In other words, an attempt to overregulate by the FDA and prevent adaptation by competitors may the cause of a shortage, which the FDA now has to solve.  Should the FDA be required to balance its regulation with consequences for availability of drugs ? Should the approvals required by audited competitors to ramp up production be eased ? Should distributors be given advance notice to build up inventory ahead of inspections to reduce potential shortages ?

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Europe rules regarding airline emissions

Posted on September 27, 2011 by aviyer2010

A New York Times article (Sept 26, 2011) describes new European rules that restrict airline emissions to 97 % of their emissions from 2004-2006 with a free emissions 85 % of this limit. This number will drop to 95 % by 2013-20 with the free limit dropping to 82 %. The emissions not free will be generated by trading with other industries.  Should the European Union have the right to restrict emissions for all nonEuropean carriers who fly to Europe ? Is the claim that an increase in free emissions frees up cash to invest in new airplanes reasonable in the associated time frame ? Can the estimated ticket cost impact of $ 2 to $ 12 euros per ticket be expected to hurt airline demand ?

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