Trying to Work the Unworkable Boycott of - Starbucks this Time!

With the Israeli aggression against Lebanon and Palestine, rumors have been circulating that Starbucks supports the Israeli Army. In the company I work with I was recently asked by some fellow colleagues to boycott Starbucks.

As you know from a previous blog I made, I’m not a big fan of boycotting; simply because they don’t work, especially if it is with a company such as Starbucks.

The reason I say this, is because contrary to many people’s beliefs, Starbucks doesn’t franchise, in addition, the company is publicly traded on the NASDAQ exchange. However, in order to penetrate certain markets or locations, Starbucks may license certain companies to operate their stores.

One such market is the local one, and even the GCC market as a whole. Where local companies own and operate the stores. As such, if we were to boycott the local Starbucks, we would in fact be hurting the local companies as well.

Even with the word going around boycotting Starbucks here, the stores are still packed; sometimes the line to order is very long. The purpose of a boycott is for everyone to stop buying products or services from a certain store or country. It seems as though we are the only people not drinking from Starbucks. If this is the case, we would only be making a statement, one that no one will notice if everyone else is still buying from that place.

Besides, how could Starbucks justify sending a part of their revenues to Israel, to the many different ethnic and religious backgrounds of their shareholders? Unless this expense would somehow disappear from their financial statements, but any financial analyst that digs into their financial statements would be able to see this funding but with all the regulations going on in the US since the collapse of Enron and their accounting gimmicks, that would not go unnoticed.

Additionally, Starbucks closed down all six of their stores in Israel due to the lack of their success, as confirmed in their 2005 annual report. In fact, stores in GCC countries have been doing so well, it would be a shame to lose these stores in order to fund Israel’s army, a fact that Starbucks has classified as a rumor, and posted its response to this rumor on their website.

So to conclude, there is no motive or opportunity for Starbucks to fund Israel’s army. The motive is absent because Starbucks is enjoying the success of Arab nation stores. The opportunity is also not there, because, unless they hide it. But the SEC would soon discover such, unless some of you will say the SEC is involved in this, which would classify this as a conspiracy theory. As such, I will continue to enjoy my daily Starbucks Lattes, while everyone who wants to boycott Starbucks will have to settle for second best.

An Analysis of the Saudi Arabian Banking Industry

The Saudi Arabian banking industry is regulated by the Saudi Arabian Monetary Association (SAMA), which is the country’s government owned central bank, who carries out the following functions:

· Issuing national currency, the Saudi Riyal.
· Acting as a banker to the government.
· Supervising commercial banks.
· Managing Kingdom’s foreign exchange reserves.
· Conducting monetary policy for promoting price and exchange rate stability.
· Promoting the growth and ensures the soundness of the financial system.

No analysis of an industry is complete without referring to Porter’s five forces, each of which will be discussed in turn:

Bargaining Power of Customers: We will define customers here as depositors to a bank. Since they also supply the bank with funds through the deposits they make, they are also suppliers to the banks. Customers have somewhat high switching costs; it is somewhat difficult for a customer to move to a new bank, this is especially true if they have had an account with a bank for a long time, and are very accustomed to their services. Other reasons are locational for example; a customer might like a particular bank because of its convenient location. As customers, they have low bargaining power with the banks. Customers can also be seen as loan takers from a bank, in this case they have a higher bargaining power, because if a bank does not offer its customer a low interest rate on a loan, the customer can easily go to another bank.

Bargaining Power of Suppliers: the customers of banks are also their suppliers of funds, through their deposits which banks then use to give out loans. Banks always need funding in order to provide the public with loans and other services. They hence try to attract customers by providing them with a high interest on their deposits, and also issue loans for low interests, thereby attracting loan takers. Investors also supply the bank with capital. Banks should, like any other firm, try and maximize the shareholder wealth. As you can see, customers as financial suppliers to the banks have a high bargaining power, unless they think they will get what they are bargaining for, they will seize to supply the bank with the necessary funds.

Threat of Substitutes: we must first define what a substitute is. A substitute is a product from a different industry that can perform the same function as the product from the industry we are analyzing. The product which customers receive from the banking industry range from offering checking and savings accounts, credit cards, and internet brokerage services.

Historically, all stock market transactions were conducted by customers who log onto their banks internet banking homepage and from there carry out their buy and sell orders. However, recently the Saudi Arabian Capital Markets Authority (CMA), the agency which regulates the Saudi Arabian stock market, has announced that they will soon issue licenses to independent brokerage firms, ending the oligopoly that was evident in the Saudi banking industry over internet brokerage. This could be seen as a big threat to banks, which accrued huge revenues from customer’s daily stock market transactions.

With the pending establishment of brokerage firms, they will probably also set up their own mutual funds, a concept which has gained much popularity in Saudi Arabia, and as such, offer customers an alternative to placing their money in a banks’ savings account or even a bank’s mutual fund. This could be seen as a substitute for the services banks offer.

With time, these fresh financial institutions may even offer their own credit cards and check writing facilities, thereby providing customers with an alternative to traditional banking.

Barriers to Entry: the barriers to entry into the Saudi Arabian banking industry have recently been relaxed a great deal; since the country decided to join the WTO, there have been much pressure on it to loosen its trade restrictions. This included allowing foreign firms to enter the Saudi economy. As such, SAMA has started licensing foreign banks to operate independently in Saudi Arabia. Among the many banks to enter are: BNP Paribas, National Bank of Kuwait, Gulf International Bank, Emirates Bank International, and Deutsche Bank, HSBC and JP Morgan & Chase Co. These new firms will not only increase competition, but also introduce new technology, forcing the local banks to “keep up or get out”.

Rivalry Among Existing Firms: The numbers of banks in Saudi are few, and yet they compete heavily for customers.


Rivalry Among Existing Firms: there are a small number of banks in Saudi Arabia, such that they can exert somewhat monopolistic powers over customers. With oligopolies, firms rarely engage in “price wars”. Rather, they rely on heavy advertising and building strong long-term relationships with their customers. Currently the top Saudi banks are:

National Commercial Bank
Riyad Bank
Saudi American Bank
Al Rajhi Banking and Investment Corp.
Saudi British Bank
Arab National Bank
Al Bank Al Saudi Al Fransi
Saudi Hollandi Bank
Al-Jazeera Bank

With the impending entry of international banks, the scene is however likely to change soon. As was discussed earlier, these new banks will increase competition, thereby eliminating the somewhat oligopolistic nature of the Saudi banking industry. One has to observe whether customers will embrace these new comers openly or not, but if they offer better services and lower rates for loans and higher rates for deposits, they are sure to gain a leading edge early on.

Good Bye Phones - Hello Skype?

Skype is a VoIP technology, which allows users who have access to the internet, to make ‘telephone calls’ to other computers and even to regular phone numbers, this latter service is for a fee. This makes one think of Porter’s five forces.

The first force one should talk about is that of substitutes, because telephone companies all over are worried they might lose customers due to this free service. This is a perfect example of a substitute, something in a different industry (telephone vs. computer) that provides the same service (making phone calls). In fact, in some countries, where internet and telephone services are provided by the same company, they have managed to block all access to Skype, such that someone in that country cannot even access their homepage.

This blockage of the Skype site can also be seen as a barrier to entry, since it means Skype cannot enter certain markets. Another barrier to entry into Skype’s market of VoIP technology is the fact that they claim to have technology that is generations ahead. One should question the validity of such a claim, but if it is true, then other companies will have a hard time catching up with Skype. Not only will they have to invest heavily into Research and Development, but also, Skype would have a first mover advantage, allowing them to constantly stay ahead of the game, by introducing newer better technology for example.

In addition, they would also have a large ‘supporter’ base by then, people will always be looking for something with a large database of ‘supporters’, because if you’re on Skype, you probably cannot communicate to someone that uses another VoIP program on their computer, unless you call them using the fee based service. This supporter base would act as yet another barrier to entry for firms that decide to enter this market later on, and therefore should also reduce the threat of new entry.

People are always looking to save money, and for someone to come along and offer something that’s practically the same for free, people are bound to take that offer. This technology as many users have found, is truly marvelous.

You too can watch videos and surf the internet – on a small screen

In this article, Qualcomm is said to raise its outlook on revenues, due to “slick phones”. Immediately this seems as a valuable resource, but is it? Let’s find out.

In order to answer this question, we must analyze it using Barney’s framework. This requires us to ask four questions, each of which will be answered in the next few paragraphs.

The question of value: this asks whether the resource in question allows a firm to respond to environmental threats and opportunities. Qualcomm certainly seems to think so, thus raising their expected earnings forecasts. Others disagree though. They think that phone screens are too small in order for consumers to enjoy watching videos and surf the internet on them.

In addition, a recent survey found that only one out of every 3G phone owner subscribed to 3G services, which allow for data to be streamed over a network at incredible speeds, allowing the user to watch videos and surf the internet. Even if people do not subscribe to 3G services, the mere fact that they own 3G phones is enough for Qualcomm, since their revenues are based on the number of chips they sell, the chips that power the new ‘cool’ 3G phones.

The question of rareness: this asks how many competing firms already possess the said resource. Since Qualcomm is one of the top chip makers and developer of wireless technology, it means there are others, but it is still a rare resource, due to the sheer size of Qualcomm.

The question of imitability: this asks whether or not a resource can be imitated, at a cost disadvantage, by other firms. Qualcomm probably has patents on many chips and other products it produces, so yes, other firms would face a cost disadvantage in imitating the resource. They would have to invest heavily in R&D even if they just try to backward engineer Qualcomm’s products.

The question of organization: this asks whether or not a firm is organized to fully exploit the resource. They seem to be, since Verizon Wireless and Sprint have both ordered a large amount of chips from Qualcomm, they seem to be pushing the sales of their chips, to other customers such as ESPN.

Therefore, I think Qualcomm is at a sustainable competitive advantage, until the market gets saturated with 3G phones, when their sales will slow down. However, people do need replacements to their phones due to wear and tear, hopefully, if they don’t own a 3G phone right now, their next one will be.

Free Movies - Still for a Price

As I mentioned before, this week we will analyze the same article: “Sony PSP Movie Download Site Uses Unique Marketing Plan” using Barney’s framework this time, using this model requires one to look at a firm’s resource(s).

The resource in question here is the ability to provide consumers with downloadable movies to their PSP devices. Four questions should be answered when using this framework, each of which will be answered in turn.

The Question of Value, this asks whether a specific resource will enable a firm to respond to threats or opportunities it faces. Specifically something is valuable if it either increases a firm’s revenues or decreases its costs. This is the company’s main way of generating revenues, and since users pay a fixed one time fee, variable costs are low; it doesn’t cost much for an additional user to download a movie.

The Question of Rareness, this asks how many competitor firms currently have a similar resource. This depends on whether we classify iTunes and others as rivals or substitutes, in the end however, none of them charge a one time fee and all seem to be like pay-per-download. So it is currently rare.

The Question of Imitability, this question deals with whether competitor firms can easily imitate the firm’s resource. Imitation can be done in one of two ways, either direct imitation, or substitution. Direct imitation can occur if other companies copy the way in which the company deals with users directly, or they can substitute it with other services they think will attract customers as well.

The Question of Organization, this asks whether the existing firm is organized to fully exploit the full competitive potential this resource can provide. It seems as though this company did their homework and studied consumers, revealing that most of them don’t want to pay-per-download. Especially since a recent study conducted by Ziff Davis revealed that “36 percent of gamers said they plan to buy a PSP in 2006”. They seem to want to reach these users.

The earlier view we got using Porter is reaffirmed using Barney’s framework, since the company has a Rare, Valuable resource that it is Exploiting, the resource however is imitable. So this places the firm at a temporary competitive advantage, until the resource becomes imitable (new entrants come into the market as per Porter).

Free Movies - for a Price

According to the article “Sony PSP Movie Download Site Uses Unique Marketing Plan”, Play Station Portable (PSP) movies can be downloaded for free, after paying a membership premium of course that is. Will this venture be successful though? That depends; this week we will analyze it using Porter’s five forces.

The first of the five forces that comes to mind is Rivalry among existing firms in the market. Just who are the rivals? After searching the web for downloadable PSP movies, there seems top be so many search results out there but they all took me to the same website, so as a matter of fact, I don’t think there are many rivals out there.

The second force here is Substitutes, as Porter defines substitutes; these are other products from a different industry that serve the same purpose. In this case, the iTunes music store seems to be a good example. Ultimately, video downloads from the store can only be viewed on a computer or an iPod Video. I don’t know whether files can be converted such that they can be viewed on a PSP, but it’s different, because with the iTunes music store, one pays per movie or show download. Not a one time membership.

The third force that stands out here is Supplier Power; I say this, because most movies, shows and music are copyrighted for long periods of time these days. And especially since as with the music industry, the majority of the movie industry is represented by a small number of large firms, what these firms stop licensing the company to provide downloads of movies to PSP devices?

The other force that pops up is Barriers to Entry; there seems to be none: this will be further analyzed using Barney’s framework. If the company proves to be profitable, then other firms will be able to follow it, although this firm will have a first mover advantage; it should therefore try to constantly enhance its products or services to customers.
The last force, Customer Power plays minimal role here; by Porter’s definition of Customer Power, in this case it would be customers negotiating the price of the product they will purchase. However, in this case, the firm is using a one time fee that users pay, so the price is fixed.

According to Porter, this company seems to be on the right track to success, at least temporarily, until new entrants attracted by profits enter the market that is. Watch out next week for an analysis of the same company using Barney’s framework, will we achieve the same conclusion?

Trying to Work the Unworkable Boycott of Danish Products

According to an Arab News article, called “Effect of Danish Boycott Patchy”, the drawing and publication of a cartoon character depicting the Prophet Mohammed (Peace Be Upon Him) by a Danish news paper, has caused much outrage in the Muslim world, where people have started boycotting Danish products entirely as can be seen in supermarket aisles in Saudi Arabia, which are no longer carrying any Danish products.

In order to understand what possible outcomes may result out of this boycott, one must first understand why this boycott is taking place. The Prophet (PBUH) is never acted as in a religious historical movie; rather, he is represented using light. So naturally people in the Muslim world would be offended by the drawing of the Prophet (PBUH) in a ‘cartoonish’ way. Few people might even know of this fact, and are just engaging themselves in herd behavior. This is basically where everyone does something because others are doing it.

Will a boycott of Danish products work? Let’s first analyze it using Porter’s 5 forces, where one is “Customer Power”. Now in order for us to analyze the situation, we must look at it from both an inner and outer level, or on a micro and macro level. What I’m referring to here is basically, what power can customers have inside their own country; in this case the Middle East (micro level). And what power can these customers exert on the Danish economy (macro level).

On the micro level, people can go to a supermarket for example and stop buying things from there if they find any Danish products. This would thus induce the supermarkets to stop carrying Danish products, as was the case in Saudi Arabia; where supermarkets stopped carrying Danish products not necessarily because they thought it was the right thing to do, but rather because it was the customers who wanted this.

On a macro level however, I don’t think that the boycotts will work as effectively in reducing Denmark producer’s profits, not in the long term anyway. In order to understand why that is, we should consider the availability of ‘replacements’ to Danish products. As was the case in the early periods following the September 11th attacks on New York City, and the soon after war in Afghanistan and Iraq, many Arab countries moved in to boycott American products, only to fail. This is because in the back of consumer’s heads no cup of coffee is as good as Starbucks for example. Sooner or later, people will have to resort back to Danish products, which are not replaceable.


Another way to analyze this issue is using Hamel’s framework of Business Concept Innovation and in particular if we look at the Relationship Dynamics, which is a part of the Customer Interface segment of his framework. This component speaks about the interaction that takes place between customer’s and producers. On a micro level, the customers are the people who shop for their goods and services and the producers are places like supermarkets where the customers go to acquire them. On the macro level, the customers are the local Arabian firms that import goods and services from countries like Denmark, and the producers in Denmark are naturally the producers.

It is much easier for a customer to walk into a supermarket and start yelling because he sees Danish products on the shelves, than it is for a Saudi importer for example to go to Denmark and yell at the news paper that first published the cartoon, which let’s not forget is what this boycott is all about! So basically trying to solve the cartoon problem using Hamel’s framework would not be possible.

The problem with this boycott as is the case with any other boycott is that local companies are also hurt. One such example is SADAFCO, a Saudi dairy company that used to have ties with Denmark but is now 100% Saudi, and is even traded on the Saudi stock market. Due to people’s ignorance they still associate it with Denmark and therefore will demand less of its goods, thereby hurting its profits, and ultimately resulting in a decrease in shareholder wealth, all of the shareholders who are either Saudi or part of the GCC.

Having spoken to members of my family and close friends of mine, they all seem to think that the issue is being turned into something that is a lot bigger than it should be. In fact, a person I know said she “switches channels” whenever she sees this issue on TV. Let’s face it; there are many other ways to resolve this issue, more diplomatic ways of going about it. What ever happened to diplomatic dialogue? If we insist on boycotting Danish products, then they will just have to find other areas to generate revenues, we’ll be left with nonexistent relations with Western Europe, and the cartoon issue would have not be solved either.