Entry 7 - Jumeirah’s expansion plans

In an attempt to expand its worldwide presence, luxury hotelier Jumeirah has recently purchased Essex House property for $400 million. The company plans to widen its portfolio of 9 hotels to a total of 40 within the next five years so that it can compete with hoteliers such as the Four Seasons, Ritz-Carlton and Mandarin Oriental. While most of the hoteliers are avoiding building new hotels in the US due to high construction costs, Jumeirah plans to build about 70% of its US hotels so that it has greater control over the design and layout of the hotels.

Applying the Hamel BCI framework:
Through this news, it is evident that Jumeirah is expanding its product/market scope. By increasing its global presence, the company not only aims to cater to the needs of its existing customers but also wants to attract new customers. Moreover, by having hotels around the world, the amount of loyal customers will also increase. This is because those customers who are aware of the standards of Jumeirah will know that they will have the same standard in every hotel that it owns and so they would not like to switch to any other hotel.

Another interesting strategy is the fact that the company is constructing 70% of its hotels in the US whereas the other hoteliers are paying high prices for coveted hotel properties and renovating them. This move can be seen as a basis for differentiation. By constructing its hotels, Jumeirah is differentiating itself from others as it will offer bigger and more spacious rooms to its customers. By having control over the design and layout of the hotels, the company can also have a standard design so that every time a customer stays in a Jumeirah hotel, he/she knows how things work and where everything is located. This will also increase the loyalty of the frequent Jumeirah customers.

In conclusion, the company has to weigh the benefits of having control over the layout and design with the costs of building the hotel rather than renovating an existing hotel. In my opinion, building the hotel would give the company a competitive edge. In order to compete successfully with the other hoteliers, the company needs that basis of differentiation that will help the company in developing a better perception in the customers mind.

Entry 6 - Etisalat’s takeover of PTCL

After months of negotiations, it was finally announced that Etisalat has taken control of Pakistan’s biggest telecom company, PTCL (Pakistan Telecommunications Co Ltd). Through an agreement, Etisalat has to pay $2.6 billion to have a 26% stake in PTCL. By being government owned, PTCL enjoyed a virtual monopoly on Pakistan’s land lines. The company also provides cellular phone and internet services.

This move is seen as another step forward in Etisalat’s aim to become one of the top ten global telecom players. The company aims to have a strong presence in this region and this recent takeover is certainly an evidence of their long-term objectives.

By expanding into the Pakistani telecom market, Etisalat is expanding its product/market scope as it will now serve a wider customer base in a different geographical location. Moreover, this takeover will also expand the strategic resources that Etisalat possesses. The company will be able to expand the strategic assets that it owns.

Furthermore, by applying the VRIO framework, we will see whether the expansion into the Pakistani telecom market valuable for Etisalat or not.

-Question of Value: It is evident that this takeover is valuable for Etisalat. The telecom industry in Pakistan is booming. By taking control over PTCL, Etisalat has a big advantage over any other new entrant. The fact that land lines all over Pakistan are under the control of Etisalat now is a big asset for the company. Furthermore, Etisalat also has a lot of support of the Pakistani government and the company can use this to its advantage. By entering into a completely different market, Etisalat is diversifying its operations and this is certainly better for the company in the long-run.

-Question of Rareness: This takeover is definitely rare as there is no multinational company operating in the Pakistani telecom industry.

-Question of Imitability: The physical resources that Etisalat possesses such as the control of the land lines are certainly not imitable by another company. Furthermore, certain resources such as the support of the government are also not imitable.

-Question of Organization: Since Etisalat has such a strong control in the UAE market, it would be safe to say that the company is organized enough to capitalize on the valuable benefits of entering into the Pakistani market.

In conclusion, Etisalat’s takeover of PTCL can be a huge advantage for the company but it not going to be an easy task for Etisalat.

The real reason for the delay of PS3

Recent news came out in the New York Times that Sony Playstation 3 would come into the market in November rather than in the first quarter of 2006. Sony is portraying this move as a marketing decision. However, this news is being criticized by analysts who are skeptical of this explanation.

Sony is planning on differentiating itself from other gaming consoles by introducing two new technologies: the Blu-ray/HD DVD format and the powerful cell processing chip which is co-developed by IBM and Toshiba. By adding these technologies to their gaming consoles, analysts believe that the production cost of the console will be much higher. Furthermore, by delaying the launch, the company is buying time to bring down the production cost of critical components. Moreover, loading the console with so many technologies also increases the risk of potentially costly and embarrassing recalls.

By applying the Porter’s framework, it can clearly be seen that this delay in the launch will increase the rivalry in the gaming console market. By delaying the launch till November, the company will be a year later than their rivals, Microsoft. Furthermore, the expected release of Nintendo’s gaming console “Revolution” will also make thing worse for Sony as they will have to face stiffer competition. Moreover, as a result of this delay, Microsoft’s Xbox 360 will also be able to have an increased market share as consumers who were waiting for PS3 would go for the new Xbox 360.

Another reason that can be associated with the delay is that Sony is facing problems in developing copyright protection for the Blu-ray technology which is compared with the HD-DVD of rival Toshiba. The question to consider is the fact that is it worth it for Sony to include this new technology when other companies such as Toshiba are already planning on introducing it. To answer this question, we will look at it from a VRIO perspective.

-Question of Value: It is evident that this new technology is valuable as there is no other gaming company that has this technology in their consoles and this technology will certainly add value to Sony’s PS3.

-Question of Rareness: It is evident that this technology is rare as no other gaming company has something like this.

-Question of Imitability: Since this technology is also available from Toshiba, direct duplication remains a threat as Toshiba can provide this technology to other gaming console companies such as Microsoft.

-Question of Organization: In my opinion, Sony is organized enough to use this technology to their advantage.

To sum up, this new technology is a valuable resource for PS3 but is can be easily duplicated even though it may be costly to do that. In my opinion, Sony is risking a lot at stake by delaying the launch of this new gaming console.

Tags: PS3 | Sony | Microsoft

Entry 4 - Gulf Air under some pressure…

It was the end of last year that news came out in the Gulf news that the Abu Dhabi’s government was withdrawing their stake from Gulf Air to concentrate their efforts in promoting Etihad Airways.

In reaction to this announcement, the Chief Executive of Gulf Air James Hogan commented,

"There will be no change to Gulf Air's core approach to business or to its on-going business strategy as a result of the withdrawal of Abu Dhabi as a shareholder in the airline"

One might wonder that how can such a news not affect their business strategy. In my opinion, this news will definitely affect the strategic assets that the firm owns which will lead them to make changes in their overall strategy in order to successfully adapt to the market.

One of the key assets that Gulf Air had was the fact that they were owned by three different governments. This gave them a strategic advantage over those airlines that were based in just one single location as Gulf Air was able to operate flights from three different locations in the GCC region. Moreover, they had the support of three different governments that gave them a strategic advantage over its competitors who are operating from the GCC. The company was able to utilize resources that were provided to them by the three governments. It might be the case that the Abu Dhabi government would have been providing them with resources either free-of-cost or at a low cost such as a certain portion of the land at the Abu Dhabi airport etc. On the other hand, it can be expected now that Gulf Air would have to pay a high amount for every service that will be provided to them.

Furthermore, this new situation can also lead to increased rivalry between Gulf Air and Etihad Airways. Etihad Airways will have an added advantage now as the Abu Dhabi government will concentrate their efforts towards developing this airline. This is why, in the long run both the firms can have a high level of rivalry between them. In the airline industry, exit barriers are high. This is because the specialized assets and the fixed costs are high. Moreover, governments don’t want such businesses to close down as it provides employment to a lot of people living there. When such barriers to exit are high, then companies that loose competitive battle do not give up. This can also lead to low profitability for other firms in that industry as well. In this particular case, Etihad Airways can cause a lot of difficulty for Gulf Air as it will now have full support from the Abu Dhabi government.

To sum up, Gulf Air would certainly have to make a lot of changes in their business strategy in order to proactively react to the upcoming changes in the industry. Only time will tell on how successfully they are able to do that.

Entry 3 - The battle between Microsoft and Sony

Last year Microsoft started talks of launching a new generation gaming console, the Xbox 360. Bill Gates revealed the new gaming console and stated that “it will be more of a digital entertainment hub than its predecessor”.

It is a known fact that in the gaming console market, Sony Playstation is by far the leader in the market. According to Bill Gates, previously their aim was just to survive in the market. However, with the launch of this new console people will look at both the companies at pretty much an equal basis and that this new console will beat Sony.

If we apply the VRIO framework, then the first thing that we have to ask is the question of value. The answer to this is yes. This is because the new Xbox has wireless gaming controls which are not available in any other gaming console. The answer to the question of rareness also seems to be yes. This is because Xbox has used a unique technology in the developing this console. The user interface of the new Xbox is also unique which differentiates it from its competitors. With regards to difficulty to imitate, it seems that the new console will be difficult to imitate. According to Gates, Microsoft has spent more than $2 billion to develop and market this product. This is a very huge amount and not every company can afford to spend such a huge amount. Lastly, regarding the question of organization, Microsoft is organized to exploit the resources and capabilities that it possesses. The company has the experience as they have been in this industry.

After applying the VRIO framework, it can clearly be seen that the new console will be a big strength for the company. However, the fact that Sony is also coming up with a new console makes it difficult to predict whether Xbox 360 will be able to beat Sony’s Playstation 3. Only time will tell whether Steve Ballmer’s (CEO, Microsoft) prediction that Microsoft will beat Sony will be true or not.

Link to the article

Entry 2 - “Effect of Danish Boycott Patchy”

This article is describing the current situation of the recent boycott of Danish products in Saudi Arabia. One element that can be seen is the power that the buyers hold. According to Porter, a buyer can be powerful as a result of a number of reasons. A few of them are

1. If the buyer purchases large volumes.
2. The product which they are purchasing is standard in the industry.
3. There is a low switching cost.

It is known that the majority of the products that are exported from Denmark are Dairy products. The fact that a Danish company Arla Foods is afraid of the boycott suggests the importance of the units that are sold in Saudi Arabia. Moreover, the dairy products from other countries are readily available which indicates that there is low switching cost. As a result of all this, it can be concluded that the boycott will affect the Danish companies and their business.

Another important element mentioned by Porter is the power which the wholesalers and retailers have over the manufacturers. The fact that they can influence consumers’ purchasing decisions is very essential for the success of any product. Therefore, the fact that a number of big chains such as Panda have withdrawn all the Danish products from the shelves shows the intensity of this boycott.

On the other hand, there are a number of other outlets that have not taken any action and have not removed any of the Danish products from their stores. In my view, this could affect the perception that the consumers have regarding that store. The sale of that store can get negatively affected in the long-run. The reason for this can be attributed to the fact that the people in Saudi Arabia are more attached towards their religion and therefore, they would react to this incident.

The stores that are boycotting are using this incident as a basis to differentiate themselves from their competitors. They want to have a positive image in the minds of the consumers. By boycotting, they will have to bear some losses in the short-run. However, such a step could lead to consumers having a good perception of their store which will lead to positive results in the future.

Link to the Article

Entry 1 - "The Real Cost of Google's Sellout to China"

The article “The Real Cost of Google's Sellout to China” talks about the decision made by Google to help the Chinese government. In the US, Google is refusing to help the government enforce online pornography legislation passed by Congress to protect children stating that it is against the right of the people. On the other hand, Google has agreed to help the Chinese government in filtering unwanted material.

In one country, Google has such a control that it is going against the government. On the other hand, the same company is co-operating with the government inorder to get an entry in to the Chinese economy. This shows the dual policy that the company is following. It seems as though the company changes its policy by looking at its own benefit.

According to Porter, one of the six main sources of barriers to entry is the government policy. In the case of Google, they had to help the Chinese Government inorder to survive and compete effectively in the Chinese market. The important question is that was it absolutely necessary for google to enter the Chinese market by going against its own policy that it follows in the US?

In my view, such a decision can be effective in entering the Chinese market. However, such a decision can also cause problems for the company in the US market. The US government will not be pleased to hear that the company has decided to help the Chinese government and has refused to do so with them.

Link to the Article

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