Bird flu affects UAE poultry market

Bird flu. These two words are all it takes to send a whole nation into a health frenzy. As countries in the Europe, Africa, Asia and the Middle East are stricken by this deadly epidemic, desperate measures are being taken to eliminate risks of human infections. In the UAE, although local poultry is not infected, measures are still being taken to safeguard against infected imports. For example, the government decided to stop importing poultry products from India and Cameroon, both having bird flu. Decisions like this are effective in mitigating public health concerns, but what effect do they have on the country’s poultry and meat markets? To answer this question, I will analyze an article called “Bird flu fears drive UAE egg prices up by about 30%” from a Porter perspective.

Bargaining Power of Suppliers: Since the government has limited imports from other countries, the local poultry market has begun experiencing shortages in poultry products, especially eggs. The article says that “the market could face a shortage of 57 million eggs each month because local production does not exceed three million”. Because supply is now less than demand, egg prices have gone up about 30%. This is a clear indication of the bargaining power of local egg suppliers, who are able to sell their products even at these high prices.

Bargaining Power of Buyers: Although the demand for eggs was not affected by bird flu fears, the demand for poultry has greatly decreased, leading to a decline in poultry prices. The article mentions that “even the decline in poultry prices is not inducing customers to resume buying”. The decreased prices can be seen as a reflection of the bargaining power of buyers, because if demands for poultry products were still high, the prices would not have gone down.

Threat of Substitutes: Another force that is influencing competition in the UAE poultry and meat markets is the threat of substitutes, specifically meat alternatives. The article says that due to bird flu fears "Red meat prices increased five per cent, and consumers are increasingly interested in seafood". This effect is seen in all the other countries that are facing bird flu risks.

Government influence: In addition to the above market forces, we must also recognize the influence of government regulations on industry competition. The decision to ban poultry imports from infected countries has worked to the advantage of local egg traders because they have fewer competitors and can raise their prices. However, the poultry traders still face plummeting sales and are forced to lower their prices because people are afraid to buy chickens.

In conclusion, these market forces can help us understand the fluctuations in the prices of poultry products (higher egg prices, lower chicken prices), and the increase in sales of substitute products, like fish and meat. Local poultry traders are facing increasing losses, despite the decreased competition coming from import limitations. The article warns of a “market collapse that would force small firms and companies to pull out before the end of this year”. Unfortunately, there is little that these local traders can do to prevent losses because their survival depends on the potency of the bird flu issue, an external force beyond their control.

Al Maya Group plans expansion

In this blog, I will analyze the article “Al Maya Group plans expansion” from a Porter perspective.

The article points out that Al Maya Group’s expansion decision comes from a foresight of an increased popularity of the “neighborhood store” sector. The company sees that with growing traffic and increasing gasoline prices, “most people will spare themselves the inconvenience of driving to hypermarkets where parking is a problem, for a few bucks”. In a Porter perspective, the company’s expansion decision can be viewed in the following ways:

Barriers to Entry: According to Porter, one of the major sources of barriers to entry is access to distribution channels. He says that “the more limited the wholesale or retail channels for a product are and the more existing competitors have these tied up, the tougher entry into the industry will be”. Al Maya currently operates 30 retail outlets and is planning on setting up ten more, and the article says that the company, along with Lal’s and Choithram, controls the convenience store segment. From this we can conclude that Al Maya has already tied up a considerable number of retail channels, and its decision to open up ten more stores is a strategy to increase the barriers to entry for the convenience store market segment.

Threat of Substitutes: Although Al Maya’s target customers and marketing strategy differ from those of hypermarket stores like Carrefour and Lulu, the hypermarket segment poses the threat of substitution. The article says that Carrefour has “opened 13 outlets in the GCC and Egypt, generating more than Dh3.67 billion ($1 billion) in sales revenue last year serving 35 million customers”, and that Lulu Hypermarkets “reported a Dh2.75 billion ($752 million) retail sale last year through 47 retail outlets across the GCC”. Obviously, these hypermarkets are eating up a big slice from the convenience stores’ profits and are veering away many of their customers.

Rivalry: Although the article says very little about Al Maya’s relationship with its competitors, we know that Al Maya considers its main competitors to be Lal’s, Choithram, and overseas, Tesco. These competitors are roughly equal in size and power, so Maya’s expansion decision could be seen as a way of jockeying for position by locking up more retail channels and locations before its competitors do.

These are the main reasons for Al Maya’s expansion decision. The article does not provide sufficient information to explore the influence of bargaining power of customers and suppliers. Nevertheless, this analysis shows how Al Maya Group is trying to position itself in a way that provides a defense against an existing array of competitive forces – new entrants, substitutes and rivals. This competitive strategy should strengthen Al Maya’s position in the retail industry, specifically in the convenience store segment.

DP World Faces Challenges

So much has been said about the Dubai ports deal that entices further analysis and debate. My contribution on the subject matter will be to analyze the article “Dumb and Dumberer” from David P.Baron’s non-market environment perspective.

According to Baron, the nonmarket environment of a firm or industry is characterized by four I’s: issues, interest, institutions, and information. For Dubai Ports World, the four I’s are quite obvious.

Issues: The main issue with the Dubai ports deal is US national security. Democrats and Republicans have caused an uproar in Congress saying that the deal would make the country vulnerable to terrorist attacks. Another issue is foreign investment in the US market. As the article states:

If America puts down an unwelcome mat for Dubai, it will also be sending a signal to foreign investors in China, Russia, and the Middle East that hostility to foreign investment is so great that they might wish to dump their hoard of dollars onto the currency markets, rather than invest them in U.S. assets.

A third issue, which is of most importance yet seems to be of lesser concern among public debate, is the “geopolitical consequences of telling a friendly Arab state that it is unwelcome in America after a widely publicized brawl about its suitability to replace another foreign investor (Britain's P&O) to which there were no objections”.

Interests: The people and groups who have an interest in the DPW deal are many. First, the Democrats and Republicans each have their own political agenda behind their opposition to the deal. According to the article, Senator Hillary Clinton and other Democrats, who are preparing for a presidential run in 2008, oppose the deal because “this is the best chance they have had to appear tougher on terrorists and national security than the Republicans since the twin towers were brought down”.

Other main interest groups include the Committee on Foreign Investment in the United States (CFIUS), the U.S. Coast Guard, and the House Homeland Security Committee. The specific motives of these organized interests are vague and complex, therefore I will only say that their deep involvement with the issue stands as evidence to their high political and economic stakes in the deal.

Another interest group (this time an unorganized interest) is foreign investors. The article says that foreign investment by companies owned by states hostile to the United States is a bad thing because such enterprises operate in the geopolitical interests of their countries, rather than solely in response to market forces.

Institutions: The institutions which serve as the arenas in which the competing interests of this case contest are mainly the Congress, State legislatures, the Bush Administration, the news media and public sentiment. These institutions possess the political clout and lobbying power that will ultimately define the verdict of the controversy.

Information: The different kinds of information about the Dubai ports deal available to all these interest groups and institutions plays a major role in defining their positions and preferences on the issue. Information about the UAE’s involvement in the 9/11 attacks serve as the main platform from which Republicans, Democrats, and the public derive their anti-deal arguments. The article says that:

Two of the attackers on the World Trade Centre were citizens of the United Arab Emirates (UAE), of which Dubai is a component state; Dubai is alleged to be home to some of the banks that laundered money for the attackers; and A.Q. Kahn's nuclear-smuggling network hid behind a Dubai front.

More importantly, the constant media rhetoric on the dangers of terrorists, and the growing public concern about U.S. national security during the past 6 years, have led to fervent opposition from the public and have added to the urgency of the issue.

As for those who support the deal, their arguments are based on the information provided by the early Coast Guard documents that concluded that the DP World’s acquisition of P&O does not pose a significant threat to US security. Also supporting their pro-deal position is the fact that the protection of port terminal operations ultimately lies in the hands of the Coast Guard, the U.S. Customs and Homeland Security, so there is no real threat to U.S. national security.

Conclusion: After briefly examining the 4 I’s that shape the nonmarket environment of Dubai Port World, we can discuss their implications on the firm’s current and future performance. According to Baron, “effective management in the market environment is a necessary condition for success, but it is not sufficient. The performance of a firm, and of its management, also depends on its activities in its nonmarket environment”. I believe that Dubai Port World’s cooperation with the U.S. government in allowing extensive investigations is an effective method in dealing with this particular non-market issue. The CEO, Mohammed Sharaf, tries to mitigate US concerns through prolonged talks and negotiations with US officials, and numerous interviews with the press and media. In acknowledging US concerns, he says “Obviously the American people have an issue, we would like to know that, and rectify if there are any security measures that we need to take which we have not taken yet. And we are very confident that we have met and will meet all the requirements”.

DP World is doing the best it can to resolve the nonmarket issues that interfere with their marketing strategies, but unfortunately, the fate of the acquisition deal is ultimately determined by those interest groups with the greatest political and lobbying power. This politically-controlled environment not only compromises DP World’s marketing strategies, but also has serious post-deal consequences for the firm. If the deal is barred, DP World’s legitimacy as a worldwide port operator will be undermined, to say the least. Uncertainties will arise among the firm’s existing contracts, and questions will be raised about the firm’s security credentials. On the other hand, if the deal is granted, DP World will be facing a new surge of criticism and attacks by angry Democrats and “anti-terrorist” activists. The company will have a hard time forgoing standard operations and procedures without facing obstacles of some kind. So we can see that for DP World, it’s almost a lose-lose situation. The problems of this issue will not go away until the United States recognizes that DP World is not a terrorist organization that wants to destroy and murder innocent Americans, but a legitimate and honest company that seeks to improve Arab-US relations and promote free trade.

DP world

David Baron

The Danish Boycott

Article: Effect of Danish Boycott Patchy

The boycott of Danish products in Saudi Arabia is a clear illustration of Porter’s “bargaining power of buyers” on two levels – the consumer level and retailer level.
Consumers were able to exert bargaining power because the boycotted Danish products are undifferentiated and because they are of the kind where quality is not important. Retailers had a significant bargaining power over manufacturers because their decisions to pull out Danish products from the shelves directly influenced the consumers’ purchasing decisions, and actually left them with no choice but to join the boycott.

The article can also be linked to Hamel’s “customer interface” concept in two ways. First, the retailers’ boycott greatly reflects the element of relationship dynamics. It seems that supermarkets were pulling out Danish products to establish a political and ideological stance that corresponds with that of their customers. One retail manager says “We have stopped promoting Danish products since early last week. This is a very important issue for us out of principle”. Indeed, the decision could have been a reflection of genuine principle, but ask yourself this… Would they have been so quick to stand by their principles if their customers were all Danish? Most likely not. Pulling out Danish products from the shelves and “leaving the shelves empty for the people to notice” are obvious efforts to establish an emotional affiliation with the customers and even to invoke a sense of loyalty to the store.

Second, a certain level of information and insight can also be observed in the retailers’ boycotting decision. The article says that “emails and text messages continue to circulate urging Muslims to boycott Danish products”. The supermarkets probably used this insight of their customers to make a decision that they would appreciate and like. Another example of information and insight is when SADAFCO, after noticing a drop in the stock price and being inundated with phone calls, decided to clarify its position to the public.

And finally, the article can be linked with Hamel’s “strategic resources” concept, in particular the core competencies element. The supermarkets’ knowledge about what its customers value and what principles they hold can be considered a strong competency that can be transferred (and indeed was transferred) to new opportunities. Knowing that most customers supported the boycott helped the supermarkets find a new way to strengthen its ties with its customers – and that is by joining the boycott as well.

Cement shortages raise questions in Dubai's current construction boom

DUBAI — The UAE currently faces a shortage in the cement production industry by about 5 million tonnes per year, forcing it to import cement to facilitate the needs of the construction industry, according to a recent report by the Middle East Economic Digest (MEED). Taken from: www.menafn.com/qn_news_story_s.asp?StoryId=100093

This article written by Khaleej Times talks about how the UAE is dealing with its cement shortage due to the current boom in construction projects. Before analyzing the article, let us take a glimpse at the massive scope of the current projects in the UAE, particularly in Dubai.

In 2003, the value of building projects under construction in the UAE were estimated at $28 Billion. The projects include new high-rise commercial/residential districts, hotels, houses, hospitals, schools, universities, public parks, large shopping centers, beach resorts, man-made residential islands, the massive expansion of the airports in Dubai and Abu Dhabi, and other commercial premises. Here is a selection of various projects taken from http://www.lightstyleexpo.com/MarketFacts.pdf


- The World Island ($4 billion)
- China Town ($650 million)
- Two Palm Islands ($6 billion)
- Dubai Lost City Project ($165 million)
- Gardens Shopping Mall ($200 million)
- Dubai Pearl ($820 million)
- Hydropolis Hotel ($500 million)
- Wellness and Hydrotherapy Center ($120 million)
- Burj Dubai
- The Marina
- New Dubai International Airport

The massive scope of these projects and the fast pace of expansion is giving rise to high demand for various building and construction materials, especially cement. As local cement producers are unable to keep up with demand, more and more cement is being imported from other countries. This cement shortage is part of the reason why rent rates have gone up more than 40% in Dubai in the past 6 months, and are still on the rise. The cost of cement has gone up 25%, making it uneconomical for some developers to build unless rent prices rise.

To remedy the situation, the UAE has resorted to imports. To encourage cement importation, cement suppliers are now allowed to use facilities and docks at Jebel Ali without paying duty. Also, local cement producers have begun upgrading and expanding production facilities and constructing new ones to compensate for the shortage of supply.

Although these measures solve the current shortage problem, they create a new dilemma for the future. Once the construction cycle slows down, Dubai will start to face a surplus, and will need to start exporting. And the exporting is a problem in itself because of high operating and logistics costs, and because there is nowhere to export! Neighboring countries, especially Iran, are facing a production capacity surplus themselves.

As we can see, the cement shortage in the UAE, brought about by the construction and real estate boom, has raised many questions and involves many issues. Rising building costs, rising rents, increasing local production and exports, possibilities of future surplus…these issues are just the obvious ones. The underlying implications of the problem need to be recognized as well. These implications will be discussed in light of Porter’s Five Forces of Competition.

For the local cement companies, there is an obvious threat of new entrants into the industry. Granting cement suppliers the privilege of using the Jebel Ali docks for free has made the import of cement more economical. This government policy has lowered the barriers to entry and thus increased the threat of new entrants into the local cement industry. As a result, the low prices of foreign imports have forced local producers to keep their prices so low that they have no chance to make profit in the long term.

Another issue that is implied by the article is the bargaining power of suppliers. The sharp rise in property rents in Dubai is attributed to the rise in building material costs, especially cement. Local cement producers are able to exert bargaining power because the cement industry is dominated by a few companies (the article says that currently there are six cement producers listed on the UAE financial market). Also adding to their bargaining power is the fact the cement has no substitute. So project developers are faced with the option of either paying the higher prices or abandoning the projects altogether.

The issues of this case can be looked at from many different angles. In the end, many questions still remain unanswered. For example, will the future surplus of local cement production drive cement costs back down? If yes, how will that affect the soaring rent prices? Will buyers (project developers) have more bargaining power when the surplus occurs? Only time will tell.

Google

Article: The Real Cost of Google’s Sellout to China à Relating to Porter’s government policy as barriers to entry

Google refuses to cooperate with the Department of Justice’s court action which wants Google to allow a surveillance of its users in the US marketplace for the ostensible reason of “protection of user privacy”. Yet at the same time, Google accepts to assist the Chinese government in barring access to thousands of Web sites and search terms which might destabilize its authoritarian power. Relating this article to Porter’s five forces, it’s quite obvious that Google is trying to penetrate the Chinese market despite all the barriers to entry. The Chinese government’s policies and restrictions imposed upon Google have harmed them by slowing their search speeds, making them undependable, and keeping them at a competitive disadvantage. These Chinese regulations have raised the barriers to entry for many other foreign internet companies as well, but Google is willing to sacrifice its image and even its profits because it sees an immense commercial opportunity in the Chinese market.

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