In the Financial Times, Ian Harnett of Absolute Strategy Research makes the case for capital heavy businesses. He writes:
The trend towards more capital-heavy companies is driven by four structural themes: investment in “reshoring”; a shift from investment in information to infrastructure; the need to develop climate-transition technologies and, finally, investment in technologies needed to secure geopolitical leadership. These all require shifts from investing in ideas and information to investing in stuff.
Reshoring is an investment in independence and resilience. The fragility of long, thin supply chains was exposed by both the financial crisis and Covid-19. National governments are increasingly focused on supply-chain security to ensure cyber security, biosecurity, financial security and national security.
Some companies have already recognised the potential gains. Tesla describes itself as “absurdly vertically integrated” as a way to secure rapid growth and to make copying its vehicles by buying from a catalogue of its suppliers difficult. Amazon has also invested to control its end-to-end business, with its own web service and air-cargo businesses.
Investing in infrastructure, not information, is a theme for governments, companies and investors. The Global Infrastructure Hub estimates global infrastructure needs $94tn of investment over the next 20 years to keep pace with demographics and replacing ageing infrastructure. After decades of neglect, this will boost demand for commodities and capital-heavy companies.
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