We recommend that everybody stay tuned to the conference calls, and pay particular attention to how the various management teams plan to react to the recent Japanese Black Swan.
The publicly traded companies will probably suffer a dramatic pull back in market capitalization, as a result of their inability to meet market demand for their finished products.
We are recommending to all our readers that they hedge themselves immediately with the appropriate options strategies for a declining market.
We have recently spoken to a number of economists, analysts, and chief financial officers in the KSA regarding financing and vertically integrating the industrialization of the region.
We clearly and concisely built the case for seizing the opportunity that the markets have created. For example we mentioned Jarir Bookstore might suffer from a lack of inventory in the near future.
In terms of the immediate impact to the import oriented companies in the Kingdom of Saudi Arabia, they should prepare themselves for sluggish supply of products that come for Japan.
In fact the importers should check their suppliers if the product comes from anywhere including America because it may have components that are made in Japan. The lack of components will subsequently halt the production of the finished products.
A recent example was an announcement on April 4, 2011, by Toyota Manufacturing in the US halting production because they could not get the various parts from Japan.
Another example can be found in Apple Computer, which has a number of components of the iPad2 and iPhone 4 coming from Japan also.
Our point is that this trend will have global ramifications.
In the US conference calls they may discuss their strategic alternatives, which can range from changing the location of their parts suppliers, all the way over too a fundamental change in their management style.
For example, in the latter scenario, they might include abandoning the lean management style of Just In Time JIT delivery methods. Companies might find themselves tying up their cashflows by hoarding inventory of components. If the Japanese delays persist, then this would be a very sad turn of events because hoarding supply parts will lead to a slow down in innovation. If a company has a huge number of components, then they are less likely to introduce new and improved product models that do not use the old components.
Prioritizing between satisfying customer demand and stifling innovation is an interesting dilemma to be sure.
We have written a series of articles in the past on the efficiency of the popular lean management styles, and the subsequent benefits to the consumers. The system made companies more responsive to customer demand, and more efficient in terms of supply management. However history is teaching us that these points are not absolute truths. The fact is that the Japanese black swan may be a short term hiccup that can be mitigated by yet another round of Japanese innovation, or it might force the corporations of the world to adapt. We believe they have to be more versatile and diversified in terms of relocating their respective plants to more risk averse locations.
For those of you loyal readers I hope you feel the electricity in the air. The vision of Custodian of the Two Holy Mosques King Abdullah, regarding the industrialization of the Kingdom is beginning to materialize in front of us. The brilliant systematic planning of the architects of the economic cities, and industrial zones are primed and ready to seize the market opportunities. We recommend that we all watch the international markets for buying opportunities. The list of acquisition candidates should include the finished products manufacturers and all their subsequent component manufacturers. The key is to highlight the synergies of the region and the KSA by mentioning that we have no natural disasters, we are ideally located between Asia and Europe, no labor unions, access to Islamic pools of liquidity, and a friendly liaison office called SAGIA (Saudi Arabian General Investment Authority).
— Khalid I. Natto, [email protected], is chairman & CEO of The KIN Consortium.