Nothing is Crystal Clear

Air Arabia now flies to Afghanistan

2006-05-09T10:40:00.000+04:00

“Air Arabia now flies to Afghanistan” is a title that drew my attention immediately. My first thought was: “who would want to do business there!!?” But then I am sure that Air Arabia completed their homework and recognized that they had potential to succeed by flying to Kabul. Moreover, I guess I am just stereotyping based on the historical facts of this country!

Air Arabia, which is the first low-fares airline in the Middle East and North Africa, announced that the new destination that is added to its list of destinations is Kabul, Afghanistan. Taking into consideration Afghanistan’s economy, I would imagine that the launch of the new line will benefit the country’s economy very much and it will give many people the opportunity to travel by air, for the first time in some cases.

Air Arabia is an interesting model for the region. I will analyze it by applying Hamel’s framework. Starting with the components of the core strategy, the business mission of this airline carrier is to provide flights at low rates. From a business concept innovation point of view, this is indeed considered innovative when you look at the scope of customers that Air Arabia serves. Moreover, with the introduction of the new destination, Kabul, the company tackled a new market scope that I classify as innovative. Basis for differentiation is the third component of the core strategy and Air Arabia’s mode of differentiation isn’t hard to figure out. They provide the lowest prices air travel in the region.
After reviewing the core strategy, we move on to the strategic resources where the first component is core competencies. Air Arabia knows how to lower their costs and offer low-prices air flights to its customers. Another component that could apply is that of core processes where employees in the firm are very much cost oriented that is transformed to low priced air flights offered to customers.
In customer interface, Air Arabia contributes to fulfillment and support through selecting channels that goes well with it business strategy. Their main tool of distribution is the Internet where this channel cuts down a lot of the costs. The pricing structure is the main component that drives Air Arabia. The company does that through charging below market rates for their flights.
In conclusion, I find Air Arabia an interesting company, and I find the new destination even more amusing. Although I am not sure that I will ever use it to visit Kabul, but I always like the fact that the option is there. And Air Arabia made that option happen!

Easier Work Culture Lures

2006-05-09T10:33:00.000+04:00

When I graduated from AUS four years ago with a B.Sc. in Finance, I knew that I wanted to build the basis of my career in the private sector. I knew that this is the right place to be. I knew that if I needed excellent exposure and superior experience then it had to be in the private sector. Thus, the article “Easier work culture lures” attracted my attention because I always had discussions with my colleagues about how important it is, in my beliefs, that young people join multinational companies once they graduate, most of which of course are classified as private sector. In any case, I always knew that many nationals would always prefer the public sector for a number of reasons that are mentioned in the article.

In analyzing this article, I will consider the private sector a firm, and the public sector the competitive, both sectors are after the same customers, the UAE nationals. Each sector offers an employment package, but according to the article, the better package is that offered by the public sector! (This doesn’t mean that I support working for the public sector, I am an advocate of working in private sectors, and more specifically multinational companies.)

One way to analyze the situation is through Barney’s framework where the questions of VRIO are answered. When we start with the question of value, the public sector appears to have the resources that enable them to respond to environmental opportunities. In this case, the demand of UAE Nationals to the jobs offered in the public sector. The sector offers fewer working hours, reasonable salaries, longer annual leave, and other benefits that are accustomed to the culture of the UAE like the paid leave to accompany sick relatives for treatment abroad and the days to complete the pilgrimage to Makkah. So, in answer to the question of value, YES, the resources and capabilities depicted in the package that they offer the UAE nationals allows it to exploit the opportunities of appealing to these UAE nationals to come and work for them.

The question of Rareness is also answered positively since we have two main players, the public and the private. The only firm who has the valuable resources is the public sector, this makes the resources rare. Also, the private sector may find it very costly to match the same resources and make it available to UAE nationals.

Then moving to the question of Imitability, we can see that imitating the package is not rocket science, however, many private firms will find it extremely costly to match that one offered by public sectors especially that businesses are there to make profit. Thus, this sector may prefer to hire nationalities other than the UAE because they simply can’t afford matching the resources offered by the public sector.

The last question of Organization is also answered positively because the public sector is organized to exploit the full competitive potential that they have and offer.

In conclusion, the public sector fulfills a sustained competitive advantage. The only way that the private sector will gain a similar position will be either to match the package that is currently offered to the UAE nationals. This option will be very unlikely. The other way around would be as the article mentions, is for the public sector to start matching working hours, and maybe also reduce some of the benefits currently offered.

I don’t care what UAE nationals want or prefer, but I am sticking to the private sector for a while, I know that this is the place to be!

AT&T set to acquire BellSouth for $65b

2006-03-08T21:55:00.000+04:00

The article of AT&T set to acquire BellSouth for $65b illustrates a number of components. If this deal goes ahead as planned, the result will be a HUGE player in the communications industry.

First, this deal will raise the game bar for AT&T. The article mentions that this deal will be "dwarfing rival Verizon Communications". This means that AT&T will start to play in a total different league. This deal will enable AT&T to create a higher entry barrier through the high capital requirements and access to distribution channels.

The financial capital that this deal will end up with is immense; moreover, the organizational capital makes a perfect fit. If we refer that to Barney's framework and try to answer the Question of the VRIO framework, we see that this deal is there to achieve sustained competitive advantage. It is valuable because it can implied that it will DEFINITELY take advantage of opportunities of the need of continuous communications solutions. It is rare because AT&T is already a huge communications company. Adding BellSouth to its portfolio will make it even larger. In this case it seems like 1+1=3! (the merged company would have a total of 70 million local-line phone customers) There aren't many huge communication companies. It is hard to imitate as well because you need huge capital to undergo such a deal. Thus, it's not the kind of resource that can be easily duplicated. This is complicated material! Then, to answer the question of organization, I can imply that this deal will exploit full competitive potential of its resources and capabilities. They were able to exploit their financial capital and buy BellSouth, so I can assume correctly that they have a coherent future plan make the most of the deal. With all the questions answered positively, the formula leads smoothly to a sustained competitive advantage.

Imagine if this becomes another 'Etisalat'- the UAE monopoly in communications- in the American Market. I would envision that if the government sees that AT&T is even trying to become a monopoly, then this deal or future similar ones may be stopped by law. Whether we will see another similar deal in the future or not is not for me to answer, it's for the future to show!

Why airfares stay so low while airlines struggle (2)

2006-02-17T19:31:00.000+04:00

Another way of analyzing this article can be achieved using Hamel’s framework of Business Concept Innovation. Southwest airlines is known to be a creator for the new business concept of traveling economically. The company made it possible for customers to fly with affordable prices that are lower than prices offered by other airlines carriers. While applying the business model to Southwest, we can relate to a number of components from the model.

a. Core Strategy, is how the company wishes to compete.
1)Southwest’s business mission, as implied from the article, is to be the price leader in the airlines industry. They are able to achieve this mission through their pricing strategy that even forces other competing companies to follow.

2)Product/Market Scope: This describes which customers is the company trying to capture. The article explains that Southwest is targeting price-sensitive customers, and customers that travel to areas that are reached already through a number of other carriers.

3)Basis of differentiation: This factor definitely applies to Southwest. This company was able to differentiate itself from the other companies by creating a pricing structure that is hard to imitate by other airlines. It was able to be and remain the pricing leader in the industry.

b.Strategic Resources:
1)Core competencies: Southwest has the capability of achieving operational excellence that allows it to operate in an efficient and effective manner. This is its unique capability.

c.Customer Interface:
1)Pricing structure: This is the most relevant factor from the Customer Interface component of the framework. Southwest has eliminated some historical steps in the airlines industry that makes the travel experience more expensive. Southwest eliminated some of these costs to offer its product at a cheaper price relative to the competitors.

The last part of the article explains that Southwest has hedged its fuel until 2009, otherwise it would’ve been losing money. I don’t agree with this statement because I believe that although hedging the fuel may be one of the reasons of why the company is currently making money, I believe that Southwest has the capability of remaining in the lead through its unconventional ways of staying efficient. It would be interesting to review the media by then to see what will be written about Southwest and whether it will be able to keep its position as a role model!

Why airfares stay so low while airlines struggle (1)

2006-02-15T22:18:00.000+04:00

I am a person who loves traveling, so that’s why the article titled “Why airfares stay so low while airlines struggle” caught my attention. The article explains about how Southwest Airlines is able to keep their prices so low in comparison to other carriers. One of the most important reasons that the article explores is the fact that Southwest had hedged 75% of its fuel. This enables it to pay approximately $1.20 a gallon, whereas most other carriers pay $2, and thus making profit. This is an excellent resource!

This situation must be very interesting in different ways, depending on whose side are you standing: Southwest’s side, or the other carriers’ side. When we apply Porter’s Five Forces Model, we realize that Southwest was able through successful hedging and historical operational excellence and efficiency to raise the barrier of entry for potential entrants. The company’s structure pressurizes other airline carriers to keep their prices low, thus forcing them to struggle in costs recovery. This unpleasant situation automatically discourages potential players from entering the industry along with high capital requirements; -which is another source for entry barrier-.

Also, due to what the author calls the “Southwest effect”, it is implied that the rivalry as it stands is very intense among existing competitors. Players in the airlines industry incur high fixed costs for their operations. Players in the industry also face high exit barriers, so once a company enters the industry, due to a number of factors including high investment costs.

Another way of looking at this article is to analyze it through Barney’s “Gaining and sustaining competitive advantage” framework. Southwest’s resource and capability of operational efficiency is definitely valuable because it enables it to exploit the environmental opportunities of serving price-sensitive customers. Their resource aids in increasing their revenue. This takes us to the question of rareness. Since Southwest hedged successfully the fuel, whereas other airline carriers aren’t covered, this capability is considered rare. We would need to use a time machine to enable the companies to have a similar resource. Therefore, since not many companies have this resource, then it is considered rare.

Rolling to the question of imitation, I can see that it would be hard for companies to imitate the resource of hedging the fuel that Southwest has, because it’s not possible to go back in time. However, companies may learn the trick and hedge for the future coming years. All in all, as the situation stands in the present, it is not possible for competitors to gain this resource.

It was hard to answer from the article solely the question of organization, however, historical information about the company can help answer the question. Southwest has been a role model for its innovative ways for operational efficiency and effectiveness. This implies that the organization is structured well to allow it exploit full potential of its resources and capabilities.

To be Continued...

Boycotting Danish Products

2006-02-06T22:42:00.000+04:00

The topic that I am going to discuss doesn’t require an article to refer to. Being in the Middle East provides me with first hand experience that no article will be able to provide. I am talking about the consequences that resulted after publishing of the caricature depicting Prophet Mohamed (PBUH).

After the cartoons where re-published in the Norwegian magazine, a wave of rage and anger covered the societies in the Arab and Muslim counties. The immediate result of this anger was the coalition formed in these countries by consumers who were calling for boycotts on Danish products. The Denmark is portrayed as an ‘enemy’. And as human beings we won’t buy from the enemies if we were provided with alternatives. In this situation, Muslim customers of Danish products have alternatives. The Danish products, consisting mainly of dairy products and juices, are undifferentiated. This fact increases the bargaining power of buyers. Moreover, the customers face few if not no switching costs: thus, strengthening further buyer’s power.

Another way of analyzing the situation can be done through Hamel’s second business concept component, Strategic Resources. Firms can ask a number of questions to discover what are their core competencies. This would include questions on what is valuable to the customers and unique. When the Danish newspaper published the caricatures, customers linked this to any Danish product. Therefore, through the eyes of Muslim customers, all Danish Products are ripped off any uniqueness or value they represented to these. Consequently, losing their core competence from the customer’s points of view.

Moreover, when I look at the third component of the business concept, customer interface, I can see a strong link to this issue. Firstly, the way the firm reaches customers is labeled as Fulfillment and Support. When some Saudi and Emirati supermarket chains decided to stop selling Danish products, the producing firms lost their channel with the customers. So not only did Muslim customers stop buying due to their beliefs, but even the non-Muslims who aren’t boycotting the products, but who are customers of these supermarkets, do not have access to the products. The opportunity lost from selling products comes from one party intentionally, through personal beliefs, and by another party forcefully,through the decision of the channel provider, the supermarkets.

In the article Effect of Danish Boycott Patchy SADAFCO felt that as a consequence of the boycott to Danish products that its stock prices were slipping. SADAFCO was able to apply Customer Interface, information and insight. Pre-purchase conceptions were that SADAFCO was still partly Danish. This fact hindered many customers from buying their products and consequently resulted in a slip in stock prices. Company management had to publish a statement to fix this misconception. They were able to analyze the wrong information that reached customers during the pre-purchase stage, and do something about it.

On a personal note, if I talk about myself, I am boycotting Danish products. For me, it’s about my principals and values. I was brought up to respect the values of others, regardless of whether they are aligned with my beliefs or not. The fact that the Denmark is defending its position by saying that it’s part of their ‘freedom of speech’ is an explanation that I don’t buy-in. It’s common sense that your freedom ends when it intervenes with others’ freedom. I feel that I am an empowered buyer. (Yes!) In any case, it will be interesting to live and see what will happen next!

Test Post

2006-01-26T17:08:00.000+04:00

Test Post for MBA618 at AUS