Our Stuff is Made Up from Geographically Locked-up Resources
Impact on geopolitical environment, trade, manufacturing, transportation and energy consumption.
Look around you. Every man made thing that you see came from somewhere. I am on a plane right now on my way from LA to Detroit. In front of me, I see a seat, a screen to watch movies, my metal water bottle, my book, and all the other stuff you see in a plane. All of this stuff came to be in our world somehow. Before this stuff was ‘born’, it did not exist in its current form. So how did it come to be?
Let’s take my water bottle for an example.
[By the way, I love this water bottle especially when I am traveling to places where it is hard to find clean water on the go without biological contaminants. I used it during my last trip to India and Sri Lanka with my family, and for the first time of all our trips back to my birth country (India), nobody got sick the entire trip. Not once. I highly recommend it.]
It is primarily made of metal. On the inside of the cap, it has UV-C source that activates at the press of a button and bounces around within the bottles walls while zapping biological contaminants. The cap also has an integrated Li polymer battery. The bottom of the bottle says it’s designed in California and manufactured in China. OK, so now we know that the bottle came from China. Great! But that is where the bottle was manufactured (assembled). Where did the stuff to assemble the bottle come from?
Let’s now look at the metal casing. The LARQ website states:
The LARQ Bottle is double-wall vacuum insulated made with electropolished, 18/8 food grade stainless steel (contains nickel). It is BPA and phthalates free.
So we don’t know how the Chinese manufacturer got the 18/8 Stainless Steel but we know that it is an alloy that is made up of mostly iron, 18% Chromium and 8% Nickel. There are a dozen or more other elements in small amounts which are added on purpose or are inevitably present that we will ignore for now. Quick research on Wikipedia [on iron and iron ore] shows that iron is the 4th most abundant element in the Earth’s crust (5% by mass) after Oxygen, Silicon and Aluminum. Iron is present in iron ores. It has been argued that iron ore is "more integral to the global economy than any other commodity, except perhaps oil.” The chart below shows world iron ore production in 2013/2015.
So basically the iron to make my bottle could have come from a lot of countries and most continents of the world. Irrespective, this iron first had to be extracted, and then had to be transported to a facility where it is transformed in to usable 18/8 stainless steel. We will not discuss all what it takes to transform the iron from the ore to stainless steel but suffice to say that the process consumes a lot of energy which is generated by primarily burning oil or coal. So the iron had to be extracted from Earth and then was transformed into stainless steel using energy extracted from Earth.
Now let us take a look at the Li polymer battery in the water bottle as another example. I know something about batteries because I worked on battery materials for quite some time [Quick Fact: I was responsible for the battery cell technology that is in Chevy Bolt which at the time of its release was the first mass-market EV that got almost 250 miles range]. The battery likely consists of metal casing, metal connectors and is mostly made up of Lithium, Graphite, Nickel, Manganese, Cobalt, organic and inorganic compounds. The metals are extracted from the Earth, Lithium is extracted from brines and mines that are naturally present in the Earth, Graphite is either extracted from the Earth as natural graphite or made from carbon which in turn is made produced from oil which is extracted from Earth, Nickel, Manganese and Cobalt are mined from the Earth, and organic chemicals are generally made from a variety of compounds for which oil is generally the key starting point which is also extracted from Earth.
Let's take a few more examples that I mentioned in the beginning of the post. The seat is made up of metals, hard plastics (oil), seat covers that are organic polymers (oil), seat cushion and supports made from foam (polymer from oil, rubber from trees). The screen is primarily made of plastic casing (oil), glass (Silicon), electronics (Silicon and metal). My book is made of paper which is made from trees.
💡Everything has been transformed from what once was a resource locked up in Earth in to a finished product. These resources are locked up in Earth in certain geographies. They need to be extracted, transformed via processes into usable materials, then into components, and then these materials and components need to be finally assembled into products. All the while, all the elements, chemical compounds, all of the processed materials and components have to be transported to facilities where they are brought together to be assembled into products that our economy creates and consumes.
The fact that these resources are locked up geographically have vast and lasting implication on our geopolitical environment, trade, transportation, manufacturing and energy consumption. Let’s look at them with slightly more detail one by one:
Geopolitical Environment: There has always been a fight between groups (from-tribes-to-countries) to get preferential access to resources from land. This drives the group’s behavior and its investments. Many a time, it also is the key driver for violence.
Trade: Today, a lot of the discussions around trade revolve around finished products and trade tensions come and go. However, trade of raw materials that are locked up geographically, and the fact they need to be transported from one part of the world (where it is found) to another (where is it ultimately assembled in to consumer goods) is not going anywhere. Our economy depends on it.
Transportation: All of these materials (raw or processed) move in bulk from one part of the world to another all the time. The infrastructure that the world has built on land, sea and air is crucial to our economy. All of the digital efficiencies are driving more effective use of the infrastructure but needless to say the infrastructure will continue to grow as the economy grows. One fun anecdote: I hear all the time in my job that we would not need the roads that we have built if we take all of the cars of the road and never build a single car (or any mode of consumer transport) again. However, given that we still need to move stuff from A-to-B, most, if not all, of the road infrastructure will still be necessary for the economy to function.
Manufacturing: The location where our stuff gets manufactured is dependent on a lot of factors. One of the key factors is where the raw materials that goes in to making any one thing are locked up geographically. The other key factor is the geographic location of the consumer. Both these factors, along with a careful balance of transportation considerations, generally decides where consumer goods are manufactured. My school of thought is that the best strategy is to build-where-you-sell. This is not always possible but it does have a lot advantages such as protecting your consumers from disruptions around the world, giving back to the community where you do business, regulatory framework that is usually favorable, use of as much local resource as possible which is a flywheel for the economy, etc. One of the rebuttals I often get is that this strategy is somehow anti-trade. It is not. One still has to get the raw materials and processed materials into a facility where these consumer goods are manufactured or assembled. My hunch is that this strategy will likely increase trade, not decrease it. Irrespective, all of these manufacturing decisions of where stuff gets manufactured gets mostly figured out at the micro-level but one of the key factors always is where the raw materials are available and processed. This has probably the most significant impact on the world’s manufacturing footprint.
Energy Consumption: Energy consumption while making any one consumer product is dependent on where the raw materials are available, how they are processed into higher-and-higher value materials, and how all of these materials are transported and consumed. Again, the geographical location of raw materials, processing facilities and manufacturing facilities all matter significantly, especially as it relates to energy consumption during transportation.
Once we intuitively start to look at the world around us with a lens that focuses on the Earth’s resources, and how these resources were combined into components of higher-and-higher value to produce consumer and industrial goods, one can understand where the value in the value chain ultimately lies. For me as a venture capitalist in the automotive/transportation/mobility industry, this insight has deep implications of how I think of investments in startups. For the world and our society’s progress, the implications are grand in every dimension that matters.