McDonald's sales up

http://news.bbc.co.uk/2/hi/business/4927716.stm

“Fast food giant McDonald's - which has revamped its menus - has said first quarter revenues are up”

Due to the strong rivalry among competitors in the fast food industry, McDonald’s has been working really hard to set itself apart from the completion and introduce something different to its customers. The fast food giant has been adding new food items and introducing healthier menus including salads over the past three years.

The sources of McDonald’s business innovation and competitive advantage can be identified using Hamel’s Business Concept Innovation (BCI) frame work.

The Core Strategy of McDonald’s is based on differentiating itself from other fast food retailers (Basis for differentiation). McDonald’s is trying to change the perception that people has about fast food retailers by offering healthy menus and a variety of food items.

Additionally, the customer interface of McDonald’s is developed through Information and insight. Since McDonald’s is an international brand with stores all over the world, the fast food giant is keen on providing innovative food items to its customer based on their own tastes and preferences. The fast food retailer conducts market research and gathers information about its customers’ preferences in each geographic area in order to develop new food items that can attract these market segments. A good example is Mac Arabia which has been introduced by McDonald’s in the Middle East. In addition to that, introducing Mcfalafel in the Egyptian market for a very competitive price was a very smart move by McDonald’s.

Amazon puts corn flakes on menu

http://news.bbc.co.uk/2/hi/business/4918968.stm

Amazon is trying to turn into the Wal-Mart of electronic retailing. The online store is offering 2,000 basic packaged foods as part of its drive to become the number one destination for online customers.

In spite of the fact that the internet giant Amazon.com has been expanding really fast into new market segments and making more sales, the company’s profitability has been declining over the past few months. I do believe that the company might loose its competitive advantage over other online retail giants if it continues the aggressive expansion in other retail segments.

Using Porter 5-forces model, we can analyze the decline in profits of Amazon.com and see where the company is trying to re-position itself. The online retail industry has a very strong rivalry among its competitors. There are numerous retail giants competing to gain market share. Some of these giants are online retailers such as e-bay; others are brick and mortar organizations offering online services such as Wal-Mart. Amazon.com shift from being an online bookstore to an online retailer basically selling everything has shifted the company’s focus from a niche market to the entire market. Targeting the entire market will put Amazon.com at a great disadvantage due to the fact that other big players have been in the field for a long time and the intense competition has been pushing profits downward.

On the other hand, the online retail industry is an attractive industry and has no barriers to entry which will definitely increase the rivalry and reduce profit margins even more. I do believe that Amazon.com should give a second thought to its expansion plans.

Air Arabia and the BCI framework

http://www.airarabia.com/million_passengers.html

Air Arabia, the first and the only low-fares airline in the Middle East and South Africa has announced that it has crossed the 2 million passenger milestone since its launch in October 2003. Air Arabia has been very successful since its inception with a financial break even in the first year and an exponential expansion to more than 25 destinations within 2 years. The success of the Airline and its competitive edge can be analyzed using Gary Hamel’s Business Concept Innovation (BCI) Framework.

Using Hamel’s BCI framework, Air Arabia’s main strategy revolves around setting itself apart from the competition in the Middle East and South Africa. In other words, the company’s core strategy is basis for differentiation. The area has a number of carriers but none of which is a low-cost carrier which gave Air Arabia the advantage of being the first to adopt such profitable strategy.

In addition, the customer interface of Air Arabia is based on its pricing structure. The airline offers Tickets for very low prices compared to other carriers in the same area. The company was one of the first airlines to use e-ticketing which eliminates agency costs and pushes prices downward. Competing on price is the main reason behind the success of Air Arabia and it does attract a huge segment of the market especially in the Middle East and South Africa.

Russian merger forms retail giant

http://news.bbc.co.uk/2/hi/business/4905860.stm

Two of Russia's largest food retailers are to merge in a $1.36bn deal. The Russian merger will from a retail giant that will operate 880 stores across Russia and have sales of more than $2.4bn. The merger will give the new retail giant a competitive advantage based on size over the existing firms in the industry.

Using porter 5-forces model, we can conclude that there is a intense rivalry among competitors in the Chinese retail industry. There are numerous competitors that are equal in size and power in the retail industry. The industry’s growth is very slow sense it’s a mature and a highly saturated industry. Products and services offered by retailers lack differentiation and switching costs are very small. Due to the intensity of rivalry among competitors in the retail industry, profits were declining. As a result, the two Russian retailers merged into a giant retailer to reduce rivalry in the industry and gain a completive advantage over other players in the same industry. Being the largest in size and capital will give the new retail giant access to more consumers and hence more market share. The new giant will operate outside the boarders of China and will increase its market scope. Targeting non-Chinese markets will increase the customer base of the retail giant and would hence increase its profitability.

Emirates Airlines - one of the most profitable airlines in the world

http://www.emirates.com/uae/AboutEmirates/EmiratesNews/GN_NewsDetail.asp?yr=2005&St=2


The soaring prices of oil has tremendous effect on the airline industry. Most of the airlines are suffering from fuel price hikes and are running out of cash. However, Emirates Airlines has proven to be the most efficient and profitable despite the extra costs.

Using the porter five-forces model, suppliers’ power (oil suppliers in this example) is playing a major role in threatening major carriers into bankruptcy. on the other hand, There are no barriers to entry in the airline industry due to deregulation, furthermore, the airline industry is already saturated and there are many big rivals competing to survive. All these factors prove that the airline industry is unattractive and definitely unprofitable under the current conditions. So, how could a small carrier like Emirates Airlines hit its target while giants like BA are loosing cash ?

Using Jay Barney’s VRIO Frame work, we can better understand the competitive advantage of Emirates Airlines and the reasons behind its success:

Value: Emirates Airlines has valuable human resources and a well experienced staff. The vice-chairman of the airline has more than 50 years of experience in the aviation industry. The airline provides excellent training to its staff and is keen on improving their skills regardless of the costs. In addition, Emirates Airlines is the international carrier of Dubai which is a politically stable area and has a strategic location especially for transit passengers. Human capital and the location of the airport play an important role in helping the airline exploit opportunities and avoid threats.
Rareness: I would consider the strategic location of Dubai a rare resource that provides the airline with an excellent demand for its services. Human capital is a rare resource too. For example, Sheikh Ahmed is a valuable and a rare resource and his image has a great contribution to the airline’s success. This is similar to Richard Branson and Virgin Atlantics.
Imitability: the location of Dubai is a resource that cannot be imitated easily since Dubai is the business capital of the middle east.
Organization: the collaboration between all the divisions of Emirates Airlines has achieved a lot of cost cutting and increased efficiency. Its management and policies of compensation is worth mentioning too.

To sum up, Emirates Airlines has a sustained competitive advantage based on the VRIO frame work.

Effect of Danish Boycott Patchy and buyers' power

http://www.arabnews.com/?page=1§ion=0&article=77011

The boycott of Danish firms across the Middle East region is having a severe impact on many Danish companies. This indicates that consumers do have the power to bring businesses down to their knees. Using the Porter 5-forces model, it’s evident that the bargaining power of buyers in the Middle East is the main force affecting the Danish industry these days. Buyers are competing with the Danish industry to force the Danish government to take an action with regards to the prophet (PBUH) illustrations issue. By buyers I mean both consumers which are the Muslim population in the Middle East and retailers such as Panda supermarkets and hypermarkets. Retailers have a great influence on the Danish industry because they can influence consumer’s purchasing decisions. Many retailers have pulled out Danish products from their shelves and stopped promoting Danish products in some of the gulf countries.

The bargaining power of buyers in the Middle East is very strong due to the fact that large volumes of Danish products are being purchased by those buyers. In addition, most of the Danish products that are sold in the Middle East are considered standard and undifferentiated products such as dairy products that can be replaced easily by any other product within the same category which means that switching cost is very low in this case.

Danish firms are suffering not because of something they’ve done, but only because they are in the same country as a news paper. However, these firms have – over the years - built their reputation on being Danish products which used to be an advantage and an indicator of high quality. SADAFCO is a good example here. Depending on one element is not enough to build a reputation, Danish firms should’ve improved their customer interface and their reputation through a better relationship with the community in order to avoid such situations. This could have been achieved by contributing to the community they sell to and would have strengthened their relationship with their customers in the middle east.

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