 recording your life. Welcome back global supply chainers. So we are going to start with the we have received very good questions about Samsung, Hanging and Brexit. We are going to start with the Samsung case study, Professor Sheffi. So first thing, why did you think that this Samsung disruption happened? Hi everybody. Samsung was an interesting case, still is an interesting case and I will compare it or talk about it in relationship to the Volkswagen scandal because in many ways both of them happen for the same reason. Samsung tried to beat the iPhone 7 and go out with the Note 7 before the new iPhone came out. So instead of worrying about quality and making sure that everything works, they tried to get to the market too fast. By the way, they repeated the same mistake. After the problem with the batteries was discovered, they took only less than two weeks in order to say they found the problem, they fixed the problem, they can supply worldwide the new Note 7. They have a whole new system of replacing the phones and again it was too fast, turns out it was still a project. So they ended up with first a recall and then they stopped selling it. The stock dropped by more than 10%. They lost by some estimate between two and three billion dollars but more importantly is the long-term hit to the company's reputation. It is the same thing that happened with Volkswagen. Volkswagen was pushed very hard rather than worrying about the cars and the quality and the customer service. They tried to beat Toyota. They tried to make sure that they are the number one volume car producer in the world and they took their eyes off the ball in that sense and added to this, to the vanity that caused all this is the fact that they did not want to use the diesel technology used by BMW and Mercedes. They want to develop their own and the engineers simply couldn't do it. So they were pushed to the limit and at the end they simply cheated and got costs and again a huge loss. They are facing tens of billions of dollars in fines all over the world. For example in South Korea you cannot buy now a Volkswagen diesel car. The government dumps allow them to sell it in the South Korea. They are fines in the US, Europe, Asia and again the long-term problem is the hit to the reputation. So in both of these cases the company leadership took their eyes off the real reasons for being in business and tried to hit goals that had nothing to do with business like being first to the market doing things very quickly or beating Toyota instead of being the number one car server in the world with bad results. Yes I fully agree. Fully agree with this long-term impact and in terms of the impact on the competitors what are your thoughts? With Hanjin, with Samsung it's the best thing that could have happened to Apple. Most people are not likely to switch from Samsung which is based on the Android system to Apple which has it on iOS, it's on operating system because it's so different and it's tied to the whole ecosystem of Apple. But as it happens at the same time that Samsung had its trouble with the Note 7, Apple came up with a new phone that is the latest Android system. It looks very similar to the Samsung phone, it's an Android phone and it looks like it's going to be very successful in the marketplace because a lot of people are going to go want to stay with the Android system but lost some trust in the Samsung. As an aside by the way Samsung is offering $75 to anybody who returned the Note 7 and buy any other product of Samsung trying desperately to keep hold of the customer and don't let them defect. We'll see how that works. So then let's say that Google was one of the most. Google is the one and of course every other Android the LG or the Chinese ones but Apple came out with this very high-end phone the Note 7. So it's the people who buy high-end phones. These are the people who will buy the Apple, the no Google phone. Okay, so then let's move now to the Brexit. One of our students are interested in knowing about how will this breeding exit affect the trade especially with the European Union in terms of this global economy and barrier to take. Yes, Brexit was obviously a surprise to many people because a lot of the polls leading to the Brexit vote did not indicate that the levers the people who wanted to leave the EU will be successful but they were and right now it looks like we are heading towards what's called a hard Brexit. The problem is that the EU would like to keep its trade relationship with EU. The breeds need the EU. This is the biggest trading block that they have but not only this through the EU they have their trading agreement with all the rest of the world. They don't have their own trade agreement at all. They all have it through the EU but the main reasons the the levers voted to leave the EU was they wanted to control immigration into Britain and this is just incompatible with so they want to stop the free movement of people and this is one of the tenants of the EU. If the EU will give up to Britain on this the EU might as well not exist so the EU is not going to give up on this and the breeds given the vote cannot give up and cannot agree to allow immigration in which means that there will be no agreement and the chances are my estimate is we are 60 70 percent that we are heading towards what's called a hard Brexit which means Britain will not have access to the EU and we'll have to renegotiate all its trade agreement. We're starting to see the first effect of this after the initial effect of the pound losing a lot of its value and making British trade relationship more competitive. This was the first few weeks after the after the Brexit vote. Now we see reality setting in. First of all inflation is in in the UK is starting to to perk up. Some of it we saw in the relationship between Unilever and Tesco but this is just this is absolutely the start. Lots of even most of the goods that are being manufactured in Britain use parts that come from from the EU from Germany from Spain from France. Now think about what will happen. Those parts will have tariffs on them and then when car or product comes out of Europe to the EU they'll have another tariff on them. So we will have the the British product that just not going to be competitive. By the way we saw it when Carlos Ghosn the CEO of Nissan and and I know and had a meeting just last week with the new Prime Minister of England May and he came saying that she agreed to make Nissan whole if Nissan would keep investing in Britain. This means that by the way this is another thing that's illegal based on the EU rule because this is government subsidies to manufacturing. The EU does not allow this. So none of this is going to happen and in fact if they offer subsidies that you will raise the tariffs or so if Britain I believe Britain is a knowing situation and the problem is that at the beginning the real effect takes a long time and furthermore at the beginning people still were toying with the idea that Britain that the UK can retain its access to the to the EU but given the EU response to date and given the fact that for any trade agreement all 27 countries have to agree you can always count on at least five of them not to agree to anything. It's inconceivable to me that Britain will be able to get access to the to the EU and by the way they lose so-called passport rights which means the financial industry in London will take a huge hit and already we see you know I'm working in Luxembourg now and we always see people in Luxembourg in France in Germany wooing bankers in London to try to come with giving them lots of tax inventors and other in order to come in and it looks like if London is going to lose its place as the financial capital is Europe manufacturing is going to take a hit. In my estimate the Brits are up for a generation I'm talking about 25 30 years of decline unfortunately it will also impact Europe it will also impact the rest of the EU and we see we'll see problems in in the EU as well. Now I must say this will take May the the prime minister announced by end of March 2017 they'll invoke article 50 which means they have two years or two years to negotiate it's hard to imagine how ridiculous this sounds. In the last seven years the EU has been trying to do a trade agreement with Canada where both countries wanted it they still don't have it and now it looks like it's dead so it is seven years of people who are you know professional negotiators Britain by the way because doesn't have any trade negotiators they have to train somebody to do they have to train hundreds of people to do it it is hard to imagine anything but so-called hard Brexit where Britain leaves the EU has no trade agreement the country plunging to bad recession close to a depression and we'll see to me that only two options that are realistic one of them is so-called hard Brexit recession depression another one is a year and a half into the process somebody in Britain wakes up and says this was the stupidest thing they have the mechanism to do you heard it here first because Parliament has to decide on final decision on Brexit and Parliament can absolutely revoke what the with the referendum suggested so I see only two possible I would say 90% the first one maybe less than 10% the second one because the second one requires unbelievable leadership the second one requires telling people we know what you want but you were wrong and we are the Parliament and we will make the decision as good for everybody but the world is general is so missing such leadership anywhere I'm talking in the United States in Europe anywhere that it's hard to imagine anyway I give you a long answer to a short question no this is good no but connect very well with the Ajay question Ajay is one of our students he's working in Unilever and he wants to ask you what is how should companies plan for this kind of disruption what can I do I work for Unilever I just saw the dispute between Tesco and Unilever so what can we do just for those who don't realize this Unilever told Tesco that they tried to raise the price of some stuff that's actually made in England but using components that are made in Europe so the of course the average British voter said why are they raising the price it's made right here in England well but it has ingredients that are brought from Germany from France from the rest of Europe and so because of the weak pound they don't get enough to cover their costs so Unilever wants to raise the price my guess at the end of the day this is just the tip of the iceberg you'll see price as inflation going up in in pound terms we're just seeing the beginning of this and my guess we will see bad inflation companies will raise prices they have no choice but doing this there companies cannot lose on every item and make it up and it just doesn't work I mean you just lose more companies cannot for the long term they can sustain some losses to lose to keep market share and by the way you see it happening in luxury goods so if you want to buy a Prada pocketbook or some other or a world watch the cheapest place to buy today is London because you buy it in sterling and in order to keep the market share all these companies the huge margin they can withstand this when you sell something in Tesco supermarket you have very very limited margin you cannot withstand it so the most of the British population will feel it because they cannot withstand these companies that sell in Tesco and in you know any department store cannot withstand the low pound the low pound so they'll have to raise the price and the problem is the problem with the Unilever is that they had to go first but it will be a wave and it's not going to affect Unilever because everybody else will have to do it they cannot withstand it for long term yeah great answer so let's move now to the handling case our ceiling are interested in knowing the long-term effect of the handling problem perhaps yes and the question actually mentioned some of this first of all the context the handling case happened when the situation of most maritime companies is very shaky the prices are extremely low and they don't cover replacement cost companies do not do not replenish the capital to be able to replace assets or keep assets so because of these low prices this is just the first this is the the canary there are many many smaller companies that are tittering on the verge of bankruptcy which means and shippers know it so the response shippers is to make it even worse because there's a as the personal asset there's a flight to quality you want to make sure that the your cargo does not get stuck like the hunting shippers for weeks and months when you cannot take it out so you don't go to the lowest price you don't go to the small ocean carrier you go to the big one you go to mercy you go to and all these guys can expect their market share to go up which means it will only accelerate the plight of the smaller carriers the result can be you can be two results with support because of them there may be some more carriers that will go down and we'll see a wave of consolidation the small carriers will sell themselves basically to the larger carrier so we will expect the mercy of the world and the sea and others to grow and not make much money because the price is still low but in the long term the growth can help them control more more the market and actually reduce capacity and stabilize i don't increase the rates stabilize the rate the problem with this the underlying issue is that trade is not for the first time in decades trade is not growing at the level that gdp is growing trade is growing trade used to grow twice and three times faster than world gdp it's not the case furthermore you have to look at the political system in the united states both parties are against trade now both parties democratic republicans are against trade you see this you see brexit is actually a vote against trade there's a lot of parties in the in the EU who are on the right and they've become more more nationalistic more more against trade you see what's happening in the south china sea the companies are becoming leery of what's happening with china and may affect the trade so trade in general is going down which means maritime shipping is going down because that's the main engine of trade the main engine of economic growth so we are we are up for a few years of trying time all over the world okay so we have one question for an expert in supply chain mastery this is what is the difference between resilient company and an agile company okay let's define define the term resilience is the ability of a company to bounce back after a disruption resilience is a term taken from a material science it's the ability of a material to get back its former shape after it gets some type of to recover basic so we're talking about we're talking about resilient company we're talking about its ability to get back to the former level of production level of service customer service whatever after it after it's being it's being disrupted agility is one of the ways that companies can achieve it companies can achieve that by having lots of inventory it's expensive but there's a way way to achieve it companies can achieve it by having you know several you know multiple suppliers company can there are many ways that companies can achieve it being flexible and agile which means it's the ability to move fast it's a it has several elements it's a structural element of how the supply chain can be structured it has cultural element of how people in the company think about and prepare for anything that can happen i would say that one of the best quotes it's from Andy Grove who used to be the CEO of Intel to say only the paranoid survive Intel is a company that always looks behind behind its back to see if there's somebody coming coming at them and it helps them keep keep on their toes and there's one of the best companies to read some of my writing and i talk to dozens of companies i always put Intel as the good standard in terms of always being ready always thinking that they they now think on top of the world but they can be top of any any means so they watch it they try that they might try to go to a to cell phone to internet of things because they see that the pcs are going down even though they had a very good quarter last quarter pcs actually went up but they are getting into automotive big time they're getting into many other markets it's part of always looking behind the shoulders and seeing somebody's coming together even though it's amazing because they have like 80 percent of the market in most markets but they are absolutely not sitting on the lawn and just waiting for something to happen so they've been they've been in some places they've been relationship with extra suppliers they they have a lot of software that looks at everything that happens around the world to get ready for something they have a whole system of emergency operation center in each one of the plane they have a corporate emergency operation center that they communicate between all these and coordinate response to disruptions they have communication system and every one of the plane from telephone and internet the satellite phone and and hem radio in every one of them so they can always communicate they're ready they are they always expect something to go wrong and so as I said this is not only supply it is a control it is at the same time very much so very much so okay so I think we are on time thanks a lot professor today thanks for sharing your thoughts thank you everyone for joining us I hope you enjoyed the event good luck with the final exam see you soon bye see you guys good luck