Thursday, February 16, 2012

Kia and Nokia

We were on our way to school yesterday when Cindy called: she found the book Alejandro was looking for. I turned around and drop by the house to pick it up. Paco got nervous because he had swimming first thing in the morning and couldn't be late. But we had time to spare: we normally arrive 5 minutes early so even with the detour we were on time. This got us talking about the importance of having margin for error (a topic we discussed last year). I asked the kids for examples of situations in which such margins were important. Ale said that if he needed to get a certain grade to get a certain reward, say 16/20, it was better to aim higher rather than trying to get just 16 and risk missing it by just a little (this actually happened to him!). Paco spoke about his Lego robotics competition and the need to have extra time for the routines in case something didn't work as planned (this also happened to him!).

I spoke to them about profit margins. Companies with small margins risk lossing money if their costs unexpectedly increase and they can't raise their prices. That is why investors love high margin businesses. I asked them what they thought it took for a company to be able to sustain high margins and Nico correctly pointed out making products that were clearly superior to their competitors' products. We spoke about Apple as an example of such a company. This got us talking about phones and their operating systems. I mentioned Nokia, which I believe remains the largest (by volume) phone maker in the world and was a bit surprised to find out that the kids had no idea who Nokia was. Nico asked if that wasn't a car manufacturer (he was thinking about Kia of course).

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