Comment on " Danish businesses unhappy with govt"

I’ve tapped on the Danish product boycott issue earlier in one of my posts, but the question of whether the boycott could lead to anything was left pending. As I was searching for blog material this week, I found this article in Khaleej Times Danish businesses unhappy with government

The article states that Arla Foods, the Danish food company targeted by consumer boycott in the Middle East, reported that it might encounter losses of $64 million. Especially that the Middle East turnover accounted for $368 million and Saudi Arabia alone accounted for almost two thirds of that.

As for the performance, we can see a decrease in its profitability. The determinants for that are: the losses incurred due to sharp decline in sales, and share in the Middle East market. Reported by the company itself, some of its excess products were sold at loss. In addition to that determinant, the company has spent heavy money in public relations. Arla Foods has been lobbying its representatives and showing intense appearance in television, newspaper and other media that is all to express the company’s view of the issue.

This also recalls Porter's five-force model of industrial structure analysis. The two apparent forces here in this case are

· Intensity of rivalry among competitors
We cannot estimate the intensity of competition in Middle East food market. However, it is certain that the withdrawal of the Danish company products has opened a big window of opportunity to other domestic and regional competitors to improve their position and enlarge their market share based on Arla Foods losses. Saudi Arabia is already has well established market for Dairy products and it exports cover almost all of the Middle East. What improves the situation also, Arla Foods lacks differentiation, and when a product lacks differentiation it wouldn’t be easy to build customer loyalty. Therefore, it wouldn’t be costly or time consuming for customers to shift to other products that provide the exact function and satisfaction.

· Buyers Barging Power
The Middle East segment of the company customer base as stated, accounted for $368 Million in its turnover alone and foreseeable losses are estimated to be $64 Million. In porter’s language, a powerful buyer is one who purchases large volumes relative to seller sales. Another estimate of buyer powerfulness and as I mentioned previously is the level of differentiation. Arla Foods offers dairy products offer no differentiation. Infact, they are standard and could be easily substituted by other domestic products. That also implies that the switching costs are pretty low, especially if the market is already saturated with these products.


Based on the article, the boycott has resulted in losses for some companies. However, there are still no apparent impact on Danish economy. The company has made it clear that it had nothing to do with the blasphemous caricatures and it was totally against the insult of religions. Doesn't that raise a question of ethicality, of is it fair to punish an independent company for actions taken by local entities within?

Comment on “Coke gets real” by Andrew Ward, Financial Times

Gulf News
Published: 09/29/2005 12:00 AM (UAE)
Article link: http://archive.gulfnews.com/articles/05/09/29/184242.html

Coke Cola, the most valuable brand in the world ($67.5 billion) ahead of Microsoft, had faced a slump period characterized by declining demand on their “flagship” product Cola, which resulted in a huge drop in sales to single digit revenue.

What led to that fallback is a sequential of events including increase health awareness among developed countries, where Cola was very slow to acknowledge. That put its rivals, like Pepsi, ahead in introducing healthy beverages among its product line. Another reason could be the emergence of the energy drinks niche by new beverage producers.

It’s later then when Cola realized that it should take a step to “recapture the former glory”. In regard to the change in consumers health concerns, Cola quickly recognized its error and followed by introducing wide range of non-carbonated products and bottled water. Another step was to lower the company growth targets and to increase their advertising and marketing campaigns. Cola also intensified their activities in the Asian markets where they had the largest slice of market share among its competitors.

We could analyze Cola’s stand in this case against Porter’s five-force model.

Intensity of Rivalry among Existing Competitors.
Clearly, there was a very intense competition from within the industry by Cola’s main business rival “Pepsi”. Pepsi seized every opportunity to improve its position. An apparent example is when they took the advantage of launching healthy beverages first in the market. Despite the fact that Cola has the most valuables brand name in world, Pepsi is sort of equal in size and power to Cola. Moreover, due to the similarity of the beverages offered by the two firms, the switching costs wouldn’t be high at all unless there was strong band loyalty from some customers. It’s important to understand that Pepsi is the only competitor, and the industry is saturated with many other soft drinks.

Barging Power of Buyers
As I’ve mentioned earlier, Cola lacks switching costs or in other words the product is undifferentiated. Therefore, consumers could move on with Pepsi if the firm did not meet their expectations or meet their demand. It is apparent how buyers are powerful in this case given they are the tool for growth and success. Its true Cola had the net worth, but it could not survive from long slump in revenues when buyers concerned had changed, only after they had offered what was expected.

Pressure from Substitute Products
Coke Cola explained the decline in sales by the emergence of the so-called energy drinks. “An array of smaller, niche beverage producers, such as Red Bull, the Austrian energy drink, have further chipped away at Coke's sales as consumers are confronted with an ever wider choice of products”. Therefore, Cola as part of the soft drink industry was threatened by the appearance of this new energy drinks market.

In conclusion, I believe that anticipating changes before they happen is something Cola shouldn’t have missed. If they have accounted for possible changes in consumer needs or the emergence of new trends, they would’ve never fallen the way they did. Given Cola’s 119-year history, they should be ashamed of being dwarfed by Pepsi and other competitors from the soft drinks market. However, it’s good that they were able to stand up and put themselves back in the game, but it’s not always the case.

Comment on “Al-Maya Group expansion plan” by Saifur Rahman

“Al-Maya Group expansion plan” by Saifur Rahman, Staff Reporter

Gulfnews

published: 09/06/2005 12:00 AM (UAE)

Article link :

http://archive.gulfnews.com/articles/05/09/06/180424.html

This article illustrates the intended expansion plans by AL-Maya group which include investing more than Dhs 40 Million in setting up 8 new supermarkets and at least two of t fashion stores. The article also discusses how hypermarket sector in particular is rapidly growing and so as the competition.

From a strategic prospective, AL-Maya group, running more than 30 retail stores, realized the aggressive competition in the hypermarket sector and decided to specialized in the more neglected sector which is the mid-sized or “convenient supermarkets” sector. In fact, the AL-Maya spokesman wanted his business to operate just like the famous Tesko in the UK. That is really promising! Tesco operates at very high level of efficiently and top levels of customer supports. Would AL-Maya be able to do the same?

AL-Maya Group strategy in the mid-sized supermarkets could be further analyzed against Hamel (BCI) framework. Under core strategy, their mission is apparent in the article and it is to offer “convenient shopping” stores around in different neighborhoods. Their Product/Market scope are defined in the article also as “a growing number of consumers will shop at the neighborhood retail outlets which offer them a great deal of convenience”. So, we do not have any plans to enter the hypermarket race." Basis for differentiation is created for several reasons. They are resisting the hypermarket trend sector and moving against the tide operating in a new ground. Many factors would contribute to the possible growth in this market segment. One of them is expectation for gas prices to rise, and traffic as well. Sense these so-called neighborhood stores for convenient shopping; they will be very close from consumers living places, so there won’t be a need to use their vehicles to get there, waste gasoline, and then waste even more time in the parking lots trying to find one.

Under strategic resources, AL-Maya group clearly has strategic assets since it has more than 30 different retail stores and its even expanding. If the company takes a step forward in following the pattern of UK's Tesco Express, it should learn certain skills and unique capabilities (core competencies) to operate at Tesco’s level. Not only that, For AL-Maya to copy Tesco it should offer similar level of customer support (under customer interface): like Tesco’s convenient online grocery-shopping and overnight delivery.

In conclusion, Al-Maya has been doing a great job in the retail sector “All our supermarkets have witnessed a strong double-digit growth year on year in retail sale, which proves that we are on the right track”. However, a project like fixed chain of neighborhood stores, the one they are heading for, should really be based on some market studies that monitor consumer needs and shopping behavior in the market. I mean neither previous revenue estimates, nor the expectation of increase in traffic and gas prices are enough to go ahead with such project.

Comment on “Selfishness Has Its Value to the Economy”By Peter Brown

Community members and labor unions in New York City have made a stand to prevent the break-in of Wal-Mart to their market. A clear intervention in the market, and what astonished me the most is that the same New Yorkers wouldn’t mind shopping at one of Wal-Mart branches if they had the choice!

What are they trying to do? Customers have the absolute right to shop for the best barging no matter what and that’s what market competition is all about!

According to Porter’s five force model, “buyers compete with the industry by forcing down prices, demanding higher quality or more services and playing competitors off against each other- all at the expense of industry profitability”.

In my view, authorities wouldn’t put much effort to resist Wal-Mart if they did not acknowledge the buyers’ powerfulness in the “big apple” market at the first place. Furthermore, several characteristics would make a certain buyer group powerful in a particular industry. Some of these characteristics perfectly match the retail business, and they are (1) if the product demanded was standard or undifferentiated (2) if the product is purchased in large volumes relative to seller sales.

Peter Brown also mentioned some examples from countries that were dominated by socialism like Russia and compared them to the behavior of multinational corporations like Wal-Mart. In those socialist countries, competition was barren due to the political structure there, which led to bad economy and even worse living standards.

It has been always this way; customers would always be “selfish” and focus on their interest and that is what constituted a competitive market. Therefore, I am totally with the author had to say, little customer “selfishness” is required if not necessary to drive the market and improve the economy.

Comment on"Effect of Danish Boycott Patchy"
By Roger Harrison & Maha Akeel, Arab News

While it is nice to see the huge food retail managers in Saudi Arabia joining their efforts to pull out Danish products from their shelves, and emphasizing the condemnation of the entire Muslim world towards the Danish Government, their strategies in doing so could also be seen as an opportunity to enhance their customer relationship.

According to Hamel's Business Concept Model (BCI), what all the supermarket managers have been doing regarding this issue lays in the areas of “Strategic Resources” and “Customer Interface”

"Strategic Resources" compromises into: (1) Core competencies, (2) Strategic Assets, (3) Core Processes. It is the third element, Core Processes that is most apparent in the Saudi mangers actions. Core Processes are “methodologies and routine used in translating competencies, assets and other inputs into value for customer”.

In this case, the immediate actions of large chain managers to withdraw all Danish products from their stores and to stop any imports from the mentioned country. That is all to show their support to the Muslim world. Not only that, they have come with creative ideas to emphasize their position like keeping the shelves of the withdrawn products empty to make people notice. Others have distributed flyers all over the place to indicating that they’ve stopped importing any Danish products. Therefore, food retailers have differed in the actions taken to show their contempt.

The third component of the BCI, Customer Interface, applies here as well. Customer Interface includes (1) Fulfillment and Support (2) Information and Insight (3) Relationship Dynamic (4) Pricing structure. All the firms thorough their boycotting have shown sympathy and support to the Islamic world in spite of the harm caused to their revenues. The level of support varied from company to another, like for example the author mentioned that one of the supermarkets respected their customer’s demand of cash refund for some Danish product he had purchased before the news. The previous instance could tell us about the nature of interaction between the company and its customers. Also another company was mistakenly thought to be under Danish management, the manager had made a public appearance to emphasize that his company is 100% national, that piece of information should've been necessary for customers' pre-purchase decisions

Comment on “Google Is Destined To Fail in China” by Perry Wu

Google tried multiple times to enter the Chinese market and those tries did not seem to be close to success. The reason for that could be based on the nature of the Chinese market itself, where Oligopoly dominates the search- engine industry, and foreign firms are not welcomed. Another reason could be the Chinese way of handling business issues away from publicity. Therefore, it would not be as easy for a foreign Company like Google to adapt to the Chinese market.

Michael Porter’s five competitive factor models could be applied here.

Threat of new entrant
Given the case, we could describe the threat of any new entrant to the Chinese market as pretty low. That is because the barriers to entry are set high due to Product differentiation: “Established firms have brand identification and customer loyalties, which stem from past advertising, customer service, product differences, or simply being the first in the industry”. For example Chinese internet-users are more likely to favor the existing search engines Moreover; another barrier of entry would be sharp retaliation from Chinese competitors to any foreign newcomers given their history with Yahoo, Lycos, MSN, and Netscape.

Rivalry among existing competitors
As the article describes the market in china as Oligopoly, Existing Chinese search-engine companies are three major ones which are known and sort of equal in size and power

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