Certainties of yesterday will not be evidence of tomorrow!

The april 07, 2020

In the mid-1980s, Michael Porter, an American economist, put forward, through his books and analyzes, the principles of competitive advantage.

To summarize his thinking, let's say that according to him, a company can have a competitive advantage thanks to 2 points of differentiation:

1. By the costs of the offer: this happens when, for a similar offer, a company has a lower cost of production (therefore a higher margin) than its competitors and this in a sustainable way,
2. By the uniqueness of the offer: as soon as a company presents an offer with unique attributes which gives it a position of quasi-monopoly which allows it to freely determine its price (take Apple, Google, Microsoft, etc. …).

The second point is mainly based today on public power and its strategic decisions in respect of national sovereignty and independence. Just look at how the Trump administration has torpedoed Huawei’s rise by banning American companies from trading with the Chinese giant, thereby depriving the latter of Google’s technologies. But we are not going to play politics here.

At Wealth A7, we are mainly interested in studying the first point concerning costs.

Until recently, many have accepted the principle that it is better to import tomatoes from a distant country because they have an adequate climate for production. The interest is obviously not to have on your table vegetables that have grown in the sun... The objective is much less noble: the production being bloated under these conditions and the volume lowering the prices, the buyer benefits more attractive prices. We therefore choose in this system to import a distant product rather than to produce it locally, and this, for reasons of profitability. But at what cost to the environment knowing the colossal carbon impact of air, sea and land transport?

This principle has governed world trade for decades, but it showed its limits during the Covid-19 health crisis. With trade slowed down or even stopped, goods which circulate less and less quickly, the interdependence of the States posed on the populations the risk of shortage. And if until then we had overlooked a fundamental aspect of this system of production and consumption - the cost of the carbon footprint on the planet linked to these exchanges - today we see on the one hand that we cannot neglect its impact, on the other hand that one can function differently.

At Wealth A7, we are convinced that from now on, the carbon impact will be an essential element in any prospect of business development. It will be in the DNA of tomorrow's companies. This impact will be quantified, scored and above all communicated, and in a society seeking ethics, e-reputation will be the vector of the growth of a company analyzed and monitored by the entire population.

This will significantly change the world trade situation. The certainties of yesterday will no longer be the evidence of tomorrow.

Conscious of this for years, Wealth A7 in Toulouse has completely challenged Porter's theories which never took into account the cost of the carbon footprint. Such theories are over. A model that completely neglects the cost of the carbon footprint is obsolete.

This is why Wealth A7 has surrounded itself with several management companies which select in stock-picking, with a company by company analysis, the companies which are anchored in this ESG or even SRI approach, in order to compose funds. which will be in perfect harmony with the economy of tomorrow.

Again in this changing world, Wealth A7 experts will always be by your side to bring your desires to life.

Forward to the new economy with more ethics and values!

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Article by : Etienne KAJOIN

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