In "Pretty Pictures, 2" there is further use of diagrams to illustrate the incentives and desired end-states of certain actors in Iraq:

It's kinda nice when an Iraqi resistance conference provides some confirmation for the pictures I've been drawing. Iraq the Model's latest posts throws more light on the relationship of the "political struggle" in Iraq to the insurgency. ... The insurgent's conference also provides a glimpse of how the struggle in Iraq is fully international. Elements in Syria and Iran are probably fully behind the politico-military campaign. It is not a case of Iraqi "Minutemen" struggling against the new Redcoats. Rather, Iraq is a central front of the War on Terror. Now putting both pictures together may give us some insight into how both sides are conducting their campaign. You can see both teams playing on the field and keep score, to use a sports analogy.

I shared these remarks concerning the diagrams and the interrelationships between the elements therein:

Continue reading "Comment on Belmont's "Pretty Pictures, 2"" »

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In "Pretty Pictures" Wretchard analyzes the situation in Iraq by "drawing diagrams." He offered these thoughts on the assessment of the now (June 8, 2006) deceased Abu Musab Zarqawi on Iraq's political situation:

Zarqawi, whatever his moral infirmities, is a man with a firm grasp of the facts. He would not have survived as long as he has without it. He understands when he has a losing hand and when to start a new game. It's an instinct common to survivors but amazingly rare among people who write for a living. By way of example, the richest man in Australia, Kerry Packer, recently died heart and renal disease. He was something of winner at making commercial bets and the tune that was played at his funeral was one that Zarqawi would have approved of, in a manner of speaking. " You got to know when to hold ’em, know when to fold ’em, Know when to walk away and know when to run. ..."

My comment was as follows:

Continue reading "Comment on Belmont's "Pretty Pictures"" »

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In his formulation of the resource-based view of the firm, Jay Barney defines four key resources which can provide the basis for the (sustained) competitive of one firm over its rivals: physical, financial, human, and organizational. Although all manner of financial instruments are included the third category, none looms so large as cash. Large cash reserves afford firms definite opportunities, advantages, and performance benefits. For example, a study by University of Oregon finance professors Wayne Mikkelson and Megan Partch entitled "Do Persistent Large Cash Reserves Hinder Performance?" reported that:

"...high cash holdings are accompanied by greater investment, particularly R&D expenditures, and by greater growth in assets. For firms that persistently hold large cash reserves, we conclude that such policies support investment without hindering corporate performance." Journal of Financial and Quantitative AnalysisVol. 38, No. 2, June 2003

While the study is clearly well-executed, the results of empirical research studies like this indicate what it is, on average, that firms will do or experience. The results are normative rather than prescriptive and are of limited usefulness in predicting what investments a decidely non-normative, outlier firm like Google will make with its already large and rapidly expanding cash reserves:

The search engine giant has nearly $8 billion in cash reserves, but on Wednesday it announced plans to sell more than 5 million shares of stock to raise $2 billion more. This is the second time in a year it has gone to the stock market to raise cash. So what is Google planning to do with all that money? Will it buy another company? Will it hold on to the cash to earn interest? Will it challenge Microsoft or rival Yahoo? The chat boards are humming and it's become a hot topic at those infamous bankers' lunches on Wall Street. If a business, a bank or a savvy investor could predict Google's next move, a fortune could be made.

Continue reading "Google Puts More Hair on its War Chest" »

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For the second time in a month, CNN Late Edition host Wolf Blitzer (WB) interviewed the UAE Minister of Economy and Planning, Sheikha Lubna al Qasimi (SLAQ). The interview was intended to cover, among other things, the impact of the demise of the Dubai Ports World deal on US-UAE relations.

WB:Thanks for joining us in Washington. How much damage, if any, has resulted from the collapse of the UAE ports deal?

SLAQ: The relationship is solid. UAE has always been a great ally of the US. This was a business deal that got politicized.

WB: No harm done?

SLAQ: No. None.

WB: What about the delay in WTO talks?

SLAQ: On my visit here the news dates have been set. The delays were unrelated to the DPW deal.

WB: The chairman of the National US Arab Chamber of Commerce asks whether Arab investors will go elsewere.

SLAQ: UAE is the 3rd largest US treading partner in Middle East behind Israel and Egypt. We buy Boeing jet aircraft, for example.

WB: There is concern in some quarters that the UAE may switch to Airbus.

SLAQ: This will not cause to switch to Airbus. Every contract is evaluated on its merits. Business is business and will continue to stay that way.

WB: Many jobs in the US and UAE are in jepoardy if trade relations deteriorate.

SLAQ: Every $1 Billion spent does generate 10,000 jobs in US.

WB: Will military participation and relationhsip be affected.

SLAQ: No. We need each other. A relationship built over decades can't be lost over one event. This is the most commonly viisted foreign port by the US Navy.

WB: The 9/11 committee strongly condemned the UAE financial practices. {Quotes 9/11 report]. How do you respond to this criticism?

SLAQ: Money went through 96 countries, not just through the UAE.

WB: But most through UAE, according to the report.

SLAQ: The UAE is now a standard by which other countries in the Middle East can be compared for participation with US and for fighting money laundering and illegal transfers.

WB: Is the UAE funding, directly or indirectly, any terrorist organizations?

SLAQ: No. There is no cash handed over to terrroist organizations. We give money for people and projects. Any money given , e.g. to Palestine, is scrutinized by Israeli govovernment.

WB: Is UAE giving money to families of "martyrs" the way Saddam did?

SL: No. It is against the philosophy of the UAE to give money to families of suicide bombers.

WB: Welcome and thanks.

Commentary

Continue reading "Dubai Ports World Post-Mortem" »

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The third paragraph of the "21st Century Socialism" article read as follows:

"It's impossible for capitalism to achieve our goals, nor is it possible to search for an intermediate way," Mr. Chavez said a few months ago, laying out his plans. "I invite all Venezuelans to march together on the path of socialism of the new century."

The fourth, it would seem, contradicts rather than illuminates its predecessor:

According to many mainstream economists, the change is simply a mix of plans taken from the protectionist policies of the 1960's and others adopted from Cuba and countries of the former Soviet bloc. It may not be communism - as detractors contend it is - but it mixes socialism with capitalism and what some call improvisation.

If, as Mr. Chavez says, "it isn't possible for capitalism" to help Venezuela attain its goals and if there is no "intermediate way", then why the attempt to mix socialism and capitalism? Perhaps what Mr. Chavez meant to say was that it is not possible for the Anglo-American style capitalism to achieve the goals he has in mind. If so, then I would have to ask what evidence he has to support that assertion. It's not as if Venezuela has actually tried this. Here are some excerpts from various Wikipedia pages about Venezuela's recent history, about what has been tried and what has failed:

Continue reading "The Road (that ought to be) Less Traveled IV" »

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The discussions about Skype and Ebay last week were among the best we have had this semester. There was a little confusion in one of the sections about stock market reactions to mergers and acquistions that I would like to clear up.

One student was under the impression that announcements of acquisitions generally led to increases in stock prices of both the acquirer and the target. My understanding, dervied from a study of much empirical research on the matter, is this: stock prices for the target routinely increase while stock prices of the acquirer drop.

There are several explanations for why this happens. A few of the most common are provided in the following exceprts are from an article by Alfred Rappaport, a Professor Emeritus at the Kellogg School of Management, Northwestern University:

Here are the sobering facts about mergers and acquisitions. First, a majority of them don't work. About two-thirds of all acquisition announcements trigger declines in the buying company's stock price, and the market's initial reaction usually corresponds to the buyer's relative stock performance over the next year. Second, corporate boards rarely vote against the acquisitions that their chief executives endorse. Finally, shareholder disapprovals are about as rare as sightings of Halley's Comet. In other words, there is not much of a safety net for value-destroying deals.

An acquirer creates value for shareholders only if the expected benefits or synergies are greater than the acquisition premium it offers. Most companies disclose the size of the synergies they expect. Compare the value of the expected synergies with the premium.

In many cases, even management's often-optimistic synergy estimate is insufficient to offset the premium. As a result, management's guidance unwittingly triggers an immediate, and warranted, drop in its stock price. Management's willingness to pay an acquisition premium that exceeds its own assessment of synergies should be an obvious red flag to shareholders and prospective purchasers of the acquiring company's shares.

Thus, one way we might interpret the sharp drop in Ebay's stock price after the announcement last September of its intention to acquire Skype is that investors thought that the premium being paid exceeded the returns that could be expected in one year. My inclination is to agree with that assessment. Do you?

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For the most ardent and dedicated animal rights activists, yesterday's news that The Body Shop was agreeing to be bought out by the French cosmetic giant, L'Oreal must seem like the deepest of betrayals. Their swift reaction is, then, not entirely surprising:

Animal welfare activists have called for a boycott of the Body Shop after its founder Anita Roddick and fellow shareholders sold out to French cosmetics giant L'Oreal for £652m. The boycott was called by Naturewatch and backed by Uncaged. The animal welfare groups oppose L'Oreal's policy on the testing of cosmetics ingredients on animals.

Even though co-founder Anita Roddick stepped from management of the company some years ago, the Body Shop was still viewed by many as a beacon of social responsibility, a positively and proactively moral company in an industry reviled for business practices that abused both animals and its customers self-image. No longer, it seems.

Continue reading "When Animal Rights Activists Attack" »

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The first course I ever taught in strategic mangement included a Harvard Business School case about a firm known as "The Body Shop" and its co-founder, the very charismatic Anita Roddick. Almost every strategy course I have ever taught in the last seven years has included this case. This year I gave the case to my three classes here at American University of Sharjah for the first midterm. Per the usual, the case was a great deal of fun to discuss with the students. The case is so richly detailed and so amenable to being understood from so many perspectives that it never fails to produce both strong opinions and humorous responses.

So what to make then of today's news that The Body Shop is allowing itself to be bought for $1.1 Billion by cosmetics giant, L'Oreal.

Body Shop International PLC, the British retailer which promotes natural-based cosmetics, said on Friday that it has agreed to be taken over by L'Oreal of France in a USD 1.14 billion cash deal.

Body Shop will retain a separate identity and its current management, the companies said.

Body Shop was founded 30 years ago in Brighton, England, by Anita and Gordon Roddick. They stepped down from managing the company in 2002, but retain an 18 per cent stake and have remained as non-executive directors.

L'Oreal paid USD 5.25 per share for Body Shop, a premium of 34.2 per cent over the share price on February 21, the day before takeover speculation appeared in the media.

"A partnership between our companies makes perfect sense. Combining L'Oreal's expertise and knowledge of international markets with The Body Shop's distinct culture and values will benefit both companies," said Sir Lindsay Owen-Jones, chairman and CEO of L'Oreal.

Anita is taking great pains to tell people that this deal does not constitute a sell-out of all the principles The Body Shop once held dear:

Continue reading "Where Will They Bury The Body (Shop)?" »

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Dubai Ports World

Several students wrote about the demise of the Dubai Ports World deal. First among them was Humaid who posted on the divided house that belongs the former President Bill Clinton and his wife, Senator Hillary Clinton. As is well known by now, Senator Clinton opposes the deal while President Clinton is for it. This state of affairs has Humaid a little puzzled:

Maybe she needs to know more about other Arabs and Arabic government who are owning and controlling some of the key businesses in the United States and different parts of the world, with no security issues involved with that. Or maybe, out of sarcasm that I have heard from some business leaders, that Bill Clinton did not share with her the money back from the speeches held in Dubai.

Bandar was one of several students who performed a non-market environment analysis of the Dubai Ports World deal. Here's an article from his post, entitled " Should Dubai Port run its businesses in USA ports?". Here's what he saw as the major issue:

There is some arguments that whether businesses and politics should be related or not and by looking to this issue, we realized that businesses and politics are really related. And, that’s because people and government still relate and blame Dubai to what happened in 11 of September even though Dubai is in the alliance of fighting the terrorism.

Therefore, that enhances the analysis of Baron’s framework which shows that the four I’s are appeared here which are: (1) Issues - the issue of fighting terrorism and unfortunately linking Muslim and Arab countries to terrorists.

Noha also considered the matter. She saw non-market issues as an important aspect of the controversy:

According to Baron, it was clearly stated in the article that the issue is “whether or not the UAE should be allowed to manage U.S. ports highlights many of the paradoxes involved in fighting al Qaeda in the Middle East as well as the dangers of over-simplifying or mischaracterizing U.S. allies in the region.” The UAE is currently the only nation interested in this issue of managing major US ports, however, this might not be the case where there might be other Gulf nations concerned with this issue. In addition, there are also institutions concerned with this issue such as local government agencies, religious leaders and political parties.

Abdo's non-market analysis had this to say about "Information", the fourth of the 4 I's:

Dan Darling (writing in the Weekly Standard)... argues that the UAE is far from being supportive to this terrorist group. As a matter of fact they were threatened by Al-Qaeda which gave them several demands and if the UAE won’t response they will launch attacks and bomb many important locations in UAE but UAE officials never responded to their demand. More and more they captured one of their senior leaders, Abdulrahim AL-Nashiri “the mastermind of the USS Cole bombing” not to mention the severe threat from AL-Qaeda that UAE should stand against US and should never cooperate with them. All of these three defenses are enough to prove that the UAE has no connection what so ever with Al-Qaeda terrorist group.

Mohd al Sadah sees "Government Policy" as an important "Barrier to Entry."

It is clear that Dubai government was new entrant for the ports operation industry in the U.S but the government policy is shaped by many factors not just the White House as many think in the Middle East because people in that region live in authoritarian regimes.

Mohd also notes that more than a little political opportunism might also be at work:

After getting the U.S administration agreement, Dubai government seemed to be sure that they finish the deal successfully. Meanwhile Senator Hillary Clinton refuse her husband advise and began a campaign in the Congress to discontinue the deal. She thinks that operating U.S ports by a foreign company might affect the United States national security. Although the United States sea guards will have the full responsibilities about protecting the U.S boards and Dubai company will be responsible just for the financial operation of the 6 harbors Sen. Clinton refuse to accept that a U.S port would be in others hand. It might be just a political position that might help Mrs. Clinton for her plan to run in the presidential election as many are saying.

Virgin Atlantic

Haifaa Hassan has an analysis of Virgin Atlantic Airlines move to establish an office in Dubai. She expects that Virgin will encounter some signficant barriers to entry:

"Al Etihad, which is an Emirati airline, and British airways are a very strong airlines companies that also offered a very special and luxury services and considered to be a strong competitors with their good reputation and standard in the market. So the competitors are numerous and equal in some how in their strategies and size ,which can considered as (barrier to entry) for Virgin."

Hassan Ali also wrote about Virgin Atlantic. He smells trouble for local airlines:

Virgin adds value to their flights by adding some fun and excitements at the airplane to satisfy their customers. This fact will threaten Emirates Airlines as a new entry (Porter) in the market because they will be their main competitor.

Mohanad concludes that Virgin Atlantic's key capability is knowing how to have fun:

Emirates airline is one of fastest growing airlines in the world, so the question is how Virgin Atlantic airline can compete with such Airline? Well, we should analyze the value of resources and capabilities behind Virgin Atlantic. Virgin Atlantic operates under the concept of traveling and having fun at the same time. Boredom while flying with such airline is close to impossible, every kind of entertainment is provided with Virgin even in short distance flights. Moreover this can be considered as a rare source and capability (concept of fun) when we compare to other Airlines companies.

Continue reading "Best of the Blogs" »

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This is the third installments of the my critique Juan Forero's NY Times fawning article from last fall entitled "Chavez Restyles Venezuela With 21st-Century Socialism". Keeping in turn with the format of the previous posts in this series, here is the article's third paragraph:

"It's impossible for capitalism to achieve our goals, nor is it possible to search for an intermediate way," Mr. Chavez said a few months ago, laying out his plans. "I invite all Venezuelans to march together on the path of socialism of the new century."

In the first installment of the series I noted that I had made no attempt to synchronize my analysis of the 18 paragraphs in the Times article to the 18 panels of the Road to Serfdom cartoon set. Thus I must chalk it up to coincidence, rather than "plan" that the article's third paragraph and the cartoon's third panel are so similar. With that last thought in mind let us proceed to examine Mr. Chavez' remarks.

Commentary

I'll begin with a point upon which Mr. Chavez agree- there is no intermediate way. The means of one do not suit the ends of the other. By his own declaration, capitalism does not provide the means by which the ends he envisions, we are left with no other conclusion than that socialism does. All that remains to be determined is exactly what exactly Hurricane Hugo's goals are. To answer that question it is first necessary to determine what is meant by "socialism." According to Hayek, socialism may be understood as:

... merely the ideals of social justice, greater equality, and security, which are the ultimate aims of socialism. But it means also the particular method by which most socialists hope to attain these ends and which many competent people regard as the only methods by which they can be fully and quickly attained. In this sense socialism means the abolition of private enterprise, of private ownership of the means of production, and the creation of a system of "planned economy" in which the entrepreneur working for profit is replaced by a central planning body.

This distinction between socialism as ends and socialism as means is one of vital importance as not all with socialist inclinations are equally commited to both defintions:

Continue reading "The Road (that ought to be) Less Traveled III" »

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In a Belmont Club post entitled "A nightingale choked in Berkely Square" Wretchard describes the premature deaths of over 4000 people from smoke-laden fog that blanketed London for five days in 1952. The post contains a valuable history lesson for those who, as Wretchard says, are "accustomed to imagining a cleaner environmental past:"

Club regular "Charles Martel" shared this observation:

"I had a friend in college. Your typical leftist wingnut. I asked him if it cost 50% of the gross national product to clean up the air an additional 1% and if there was no proof that that additional 1% would demonstrably improve life expectancy or quality of life would he be willing to make the expenditure. He answered as all leftists must- in the affirmative."

My somewhat facetious comment was:

"Now, in addition to answering in the affirmative, it would seem that positive acts of obeisance to the omnipotent and omniscient Japanese goddess (of the environment), Kyoto, are also a must."

I later remarked in an "update" to my "The Dirty Half Dozen" post:

It seems that my insinuation that Greens and environmentalists would invoke God to their side in the fight to save the planet was not so far off. According to Australian blogger Tim Blair, Greens in South Australia are telling voters that Jesus would vote for them. Tim doubts, however, that Jesus would do such a thing. Why, he asks, would he vote for a rival faith?

Posted by Starling Hunter at 10:31 AM | Permalink | Comments (0) | TrackBacks (0)

In "The Road (that ought to be) Less Traveled" I remarked on the opening paragraph from a NY Times article entitled Chavez Restyles Venezuela With 21st-Century Socialism:

Firmly in power and his revolution now in overdrive, President Hugo Chavez is moving fast to transform Venezuela's economy by bucking free-market planning with what he calls 21st-century socialism: founding state companies, seizing abandoned private factories and establishing thousands of cooperatives and worker-run businesses.

The article's second paragraph reads as follows:

The populist government is reorganizing the country's colossal oil industry, taking a bigger share from private multinationals. Planners are reorganizing the banking system, placing stringent restrictions on lending while creating state banks. Venezuela is also developing a state-to-state barter system to trade items as varied as cattle, oil and cement as far away as Argentina and as near as Cuba, its closest ally.

Two themes raised in this article are troublesome and ominous signs- the reorganization and regulation of the banking industry and the creation of a "state-to-state" barter system. Let's take them in turn. Here's what Hayek wrote about the perils of "economic planning" some 60 years ago.

When we recall the opening words of this article "Firmly in power and his revolution in overdrive..." we get a good glimpse of where this road leads. Through control of the banking system, Chavez' visible hands, one which used to be seen holding a baseball bat, can influence, if not absoluately determine to whom money can be lended, in what quantities and at what interest rates. That may sound like "overdrive" to author Juan Forero, but history tells us otherwise.

This has been tried already. In virtually every country where this has been tried, the engine of economic progress stalled out , seized up, and was sold for scrap. And just such economic engine failure is the fate that awaits those few countries travelling the road to serfdom. Every one of the already-failed suffered from a lack of foreign investment and financial liquidity, the lubricants that keeps economic engines running smoothly. This fact bears directly on the next area of concern, the rise of "state-to-state" bartering. Here's how Wikipedia defines the term "barter"

Continue reading "The Road (that ought to be) Less Traveled II" »

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Last fall a rather remarkable article entitled Chavez Restyles Venezuela With '21st-Century Socialism' appeared in the New York Times. What it is that's remarkable is not that in the 21st century the paper of record would publish such an obviously pro-Socialist puff piece. That I've come to expect. Rather, it is remarkable because of its ignorance- willful ignornance of historical and empirical fact and dark ignorance of the fundamentals of business, management, economics, and capitalism. As such, virtually every paragraph is worthy of an entire post as retort. And so it shall be.

Before beginning, let me note that the cartoon images in each post were from a cartoon synopsis of The Road to Freedom originally published in Look magazine in the 1940's. There were 18 panels in the series, 19 if you include the title. Interestingly, the NY Times article is comprised of 18 paragraphs. This series of posts follows the order of the 18 paragraphs of the "21st century Socialism" article. The images appearing in each article appear in the same order as they appear in the cartoon booklet. Any similarity between the content of the paragraphs and the content of the images is purely coincidental!

Firmly in power and his revolution now in overdrive, President Hugo Chavez is moving fast to transform Venezuela's economy by bucking free-market planning with what he calls 21st-century socialism: founding state companies, seizing abandoned private factories and establishing thousands of cooperatives and worker-run businesses.

During World War II, FA Hayek published his seminal work, The Road to Serfdom. In that book he spelled out for his generation and for the preceding ones the problems with the Socialist model of governance. Of particular concern, as Hayek saw it, was the damaging effect that the "central planning" so characteristic of Socialism had on economic activity. Here is how he explained the popularity of planning, the ways in which the term is understood, and what "modern planners" hope to achieve by it.

"Planning" owes its popularity largely to the fact that everybody desires, of course, that we should handle our common problems as rationally as possible and that, in so doing, we should use as much foresight as we can command. In this sense everybody who is not a complete fatalist is a planner, every political act is (or ought to be) an act of planning, and there can be differences only between good and bad, between wise and foresighted and foolish and shortsighted planning.

An economist, whose whole task is the study of how men actually do and how they might plan their affairs, is the last person who could object to planning in this general sense. But it is not in this sense that our enthusiasts for a planned society now employ this term, nor merely in this sense that we must plan if we want the distribution of income or wealth to conform to some particular standard.

According to the modern planners, and for their purposes, it is not sufficient to design the most rational permanent frame work within which the various activities would be conducted by different persons according to their individual plans. This liberal plan, according to them, is no plan -- and it is, indeed, not a plan designed to satisfy particular views about who should have what. What our planners demand is a central direction of all economic activity according to a single plan, laying down how the resources of society should be "consciously directed" to serve particular ends in a definite way.

Hayek then makes clear that the debate between advocates and detractors of central planning is one of means, not of ends.

The dispute between the modern planners and their opponents is, therefore, not a dispute on whether we ought to choose intelligently between the various possible organizations of society; it is not a dispute on whether we ought to employ foresight and systematic thinking in planning our common affairs. It is a dispute about what is the best way of so doing. The question is whether for this purpose it is better that the holder of coercive power should confine himself in general to creating conditions under which the knowledge and initiative of individuals are given the best scope so that they can plan most successfully; or whether a rational utilization of our resources requires central direction and organization of all our activities according to some consciously constructed "blueprint." The socialists of all parties have appropriated the term "planning" for planning of the latter type, and it is now generally accepted in this sense. But though this is meant to suggest that this is the only rational way of handling our affairs, it does not, of course, prove this. It remains the point on which the planners and the (classical) liberals disagree.

Continue reading "The Road (that ought to be) Less Traveled" »

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Assignment 12 involves two articles from last fall about Ebay's acquisition of Skype: Why Ebay may make a $3bn call to Skype and EBay Will Pay $4.1b for Skype. What follows are the remarks I provided to one of the resource-based write-ups by a student in section 2. These questions are not necessarily ones that should have been answered. Rather, they are ones I would likely pose in class.

Student: If eBay does in fact acquire Skype, it will once again be a great leap ahead over all its competitors. Is Skype a valuable resource to eBay though?

This suggests to me that so see Ebay as behind at least one of its competitors? Is this actually the case? Perhaps this move could move them further ahead? Who do you see as Ebay's competitors?

Student: In order to answer that question, one must answer Barney’s four questions regarding resources. First the question of value, this asks whether a resource allows a firm to respond to environmental threats and opportunities. What are the threats or opportunities eBay faces? As one article suggested, eBay members exchange 50 million emails a day through the site. If eBay does acquire Skype, it would make it easier for members to actually speak to one another, and not have to send emails and wait for responses.

Continue reading "Ebay & Skype: A Resource-based View" »

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The first article for Assignment 11 is entitled "Starbucks: To Drink or not to Drink"

Again we have an article which is especailly amenable to analysis using Baron's "Four I's". And again there is considerable variation in what you identified as belonging to the four major elements of the framework. Here is a sample of what you defined as the "Issues": "Globalization"; corporate social responsibility, labor and environmental standards, e.g. recycling, organic and sustainable agriculture; food safety, e.g. genetically modified organisms; economic and social justice, especially for coffee pickers and for cooperatives owned by them.

Your list of interests included: vandals, anti-globalization and anti-capitalist protesters, especially those at the 1999 World Trade Organization talks in Seattle; the Organic Consumers Association; Conservation International; Fair Trade & Global Exchange; and the Dead Dog Cafe.

Discussion of "Institutions" in the article is minimal. The only one that comes immediately to mind is public sentiment. That is to say, Starbuck's is concerned about its public image. What is not clear is whether the company is concerned only about its image with its actual and potential customers or for everyone. We are told that they support literacy programs and community projects in neighborhoods where they own stores. From that statement I might reasonably infer that they do not (materailly) support such programs in the neighborhoods where they do not own stores. If so, then even public opinion is not a major factor here.

Either way, Starbucks seems to be concerned in a way not shared by large coffee companies like Phillip Morris, Kraft, Sara Lee, and Folgers. The difference in how Starbucks has been treated by non-market interests is instructive: its good deeds and its desire to be seen as doing good make them a target of non-market action rather than protecting them from it.

What makes Starbucks a target of organizers? In part, people are reacting to those Coke and Disney aspirations, the threat that Starbucks is propagating cafe monoculture throughout a globalized world. In part, it may be the company's desire to be seen as a corporate good citizen. Writing in the Financial Times, Alison Maitland quotes Ronnie Cummings, director of the US Organic Consumers Association: "We target them because they're the only big coffee company that pretends to be socially responsible. It's better to start with them. Kraft is never going to do anything. When you're the grassroots with limited resources, you have to pick your targets carefully."

This gives new meaning to the phrase "no good deed goes unpunished."

Continue reading "The Human Costs of Coffee, II" »

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The second article for Assignment 11 is entitled "Children: The Other Side of the Coffee Tour." It seems ideally suited for a Baron's Four I's analysis. Still, there is plenty of room for discussion about what exactly are the "Issues", who are the "Interests", what are the important "Institutions", and what "Information" is relevant.

Defining Terms

Recall that the Four I's are defined by Baron as follows:

• Issues are "the basic unit of non-market analysis and the focus of non-market action."
• Interests include "the the individuals and groups with preferences about or a stake in the issue.
• Institutions include "government entities such as legislatures and regulatory agencies as well as nongovernmental institutions such as the news media and public sentiment."
• Information "pertains to what the interested parties know or believe about the issues and forces affecting their development."

Of those who used the Baron framework for thsi article, there was widespread agreement on the major issue. As shown below, almost every one mentioned the exploitation of child labor along with a host of other broader economic, social, and cultural problems.

• " the usage of child labor in very bad working conditions"
• "Malnutrition, safety and health problems, and wages..."
• "abusing children"
• "child labor"
• "pay, working conditions, and living quarters"
• "the usage of child labor to work in very bad conditions.
• "Child and old labor, low wages, poor living and health conditions"
• "child labor, low-wage labor, saftey and health conditions in the workplace."
• "Child labor; poverty, high unemployment and illiteracy
• "low wage labor."
• "Child labor-social problem"

There was less consensus, however, about who the Interests and Institutions are. At the end of the article were the names of four organizations. Given the above definitions, you should have been able to classify them accordingly:

Interests:

COFFEE KIDS: An international nonprofit working with local organizations to improve the lives of families in coffee-growing communities. Programs range from economic development to health care to providing scholarships for schooling. The website has links to project profiles, coffee facts, and community solutions.

US/LEAP U.S. Labor Education in the Americas Project
A nonprofit organization that runs a variety of campaigns to support rights for workers in Central and South America. Their efforts largely support workers employed directly or indirectly by US companies. Click on the coffee link to find out how they are urging corporations to ensure that coffee growers who supply them are paying their workers a decent wage with decent working hours.

Institutions:

THE UN WORKS PROGRAMME
Its "Department of Public Information" has developed programs to "end child labor around the world."

THE INTERNATIONAL LABOR ORGANIZATION, International Labour Office
They are currently sponsoring IPEC (International Program on the Elimination of Child Labour) to help phase out child labor on Central American plantations. The program includes social rehabilitation and protection to help the region's 800,000 children working in agriculture.

Although there could be some discussion about whether or not the last two organizations might also be considered Interests, no one should have missed including these four groups in one or the other category.

Continue reading "The Human Costs of Coffee" »

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The second article for Assignment 10 tells the story of plans by EasyJet founder, Stelios Haji-Ioannou, for more hotels.

Founder of easyJet plans more hotels

Stelios Haji-Ioannou, the founder of easyJet, plans to announce deals next month for discount hotels in the Middle East, Europe and possibly the United States.

"We're in advanced negotiations with various franchises," Haji-Ioannou said in an interview here on Saturday at the World Economic Forum. "I hope to have two to three deals to announce in February with multiple openings in different regions."

EasyHotel now has two hotels, one in London, the other in Basel, Switzerland. Haji-Ioannou said he might also use Miami as a port for his EasyCruiseOne ships so that they could sail to the Caribbean and the Mediterranean, rather than be limited to the Caribbean as they are with the liner's current base in Barbados.

He said he might add to the fleet by 2008. "The cruise liner is making waves," Haji-Ioannou said. "It's captured the attention of the American public." Asked if he planned to sell his family's 40 percent stake in the jet business, Stelios said that being the company's founder, he would first "have to satisfy myself that whoever had control is going to do it justice."

"One has to accept that at a certain price, I'm going to sell," Haji-Ioannou said. "I'm not going to tell you what the price is, but given my involvement it may be higher than most will pay."

Analysis

One of the foundational aspects of strategy that we see in this article are the scope of the firm. In his "Business Concept Innovation" framework, Gary Hamel views "Product Market Scope" as one of three aspects of "Core Strategy." The latter he defines as "the essence of how the firm chooses to compete." The former is "where the firm does and does not compete, i.e. which customers, geographies, and product segments."

Continue reading "One Flies Fits All" »

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The International Herald Tribune recently reported on a partnership between Dubai-based real estate developer Emaar and Italian fashion designer Giorgio Armani.

DAVOS, Switzerland: The Italian fashion designer Giorgio Armani and Emaar Properties, which is based in Dubai, plan to triple to as many as 30 the number of luxury hotels they develop because of greater than expected demand.

Armani's company last year granted Emaar the right to build at least 10 luxury hotels and resorts during the next decade for about $1 billion. That amount is expected to triple.

"If we can do 25 or 30, somewhere around that number, that'll be something we can work with," Emaar's chairman, Mohamed Ali Alabbar, said in an interview in Davos on Saturday. Demand for the Armani brand "is something that the customer is very keen on," Alabbar said.

Armani's spokesman, Robert Triefus, said: "There is scope to expand our agreement. We are at the beginning of a long program, which is also dependent on finding the right locations for the hotels in the most important cities."

The agreement with Emaar, the world's largest property developer by market value, is a new line of business for Armani, which is benefiting as the luxury-goods industry rebounds from its worst slump in three decades. Armani will provide furnishings and amenities for the hotels and oversee the venture's design aspects.

The first hotel under the venture, the Burj Dubai tower, is under construction in Dubai and is expected to be the world's tallest residential and commercial building.

The hotel is to have more than 175 rooms. The project includes 160 apartments to be designed and furnished by Armani, who is creating an exclusive collection under the Armani Casa business for the project. It is expected to open in 2008.

Analysis: Focus on Barriers to Entry

If firms can enter and exit an industry with little or no cost or effort, then entry will happen and profits will decline. The term Barriers to Entry refers to any number of factors that individually or in conjunction with others serve to increase the cost and decrease the rate of entering an industry.

Some barriers lie within the boundary of the firm and can be raised at the firm's discretion, though not without cost or effort on their part. Other barriers have their center of gravity outside that boundary. Either way, the logic and the goal are the same: in order to maintain profits, incumbents must take actions to discourage new entry.

One of the most important barriers to entry is Government Policy or Regulation. Although the government plays a large role in regulating firms and industries to ensure that the competitive playing field remains level, governments can also overtly tilt the filed in the direction of one firm or industry at the expense of another. One manner by which this is achieved is through the granting of monopolies. For example, in industries like utilities, it has been been shown that greater efficiency exists when only one firm is allowed to provide these services.

Another manner by which government may favor one firm or industry over another is through government ownership. When a government has a large stake in a firm or sector of economic activity, it is very unlikely that the government won't act in a manner that keeps barriers higher rather than lower.

One way that this can be accomplished is for government to supply a firm with capital to finance growth and development. It may also grant exclusive access to land or other natural resources. Or it may make those factors available on highly favorable terms. To the degree that this happens for one firm or sector and not all others, then privately-owned firms, be they foreign or domestic, face additional and higher barriers to entry and a serious competitive disadvantage.

Emaar, which is 32.5% owned by the government of Dubai, undoubtedly benefits from a relationship like this. Although the article does not say so directly, it is possible that the Emaar-Armani partnership was granted the prime piece of real estate and the right to build it because of just such a relationship. It may further be the case that such a relationship is what allowed Emaar to proceed to build on this plot of land the world's largest commercial and residential complex.

None of this is a bad thing. But if you believe, as I do, that building a high fashion hotel in Dubai that is also the highest building in the world of its kind, then it inconceivable that the government of Dubai will allow any other builder-designer to erect a taller one in Dubai. Other luxury hotel builders with eyes on Dubai will have to differentiate their product and services in another way.

No wonder, then, why Alabbar and Armani are smiling ear to ear in every picture I see of them together. The sky is not only the limit on this project, literally and figuratively, it is also a little more limited, I suspect, for some than it is for others.

Continue reading "High Fashion High Rises and High Barriers to Entry" »

Posted by Starling Hunter at 11:03 AM | Permalink | Comments (1) | TrackBacks (1)

If you seek a five forces analysis of Wal-Mart, please try this page.

Yesterday, an article penned byMichael Barbaro entitled "Wal-Mart Enlists Bloggers in P.R. Campaign." appeared in the new York Times

There is much that I can and will say about this article. For now I will remark only on the first four paragraphs:

Brian Pickrell, a blogger, recently posted a note on his Web site attacking state legislation that would force Wal-Mart Stores to spend more on employee health insurance. "All across the country, newspaper editorial boards — no great friends of business — are ripping the bills," he wrote.

It was the kind of pro-Wal-Mart comment the giant retailer might write itself. And, in fact, it did.

Several sentences in Mr. Pickrell's Jan. 20 posting — and others from different days — are identical to those written by an employee at one of Wal-Mart's public relations firms and distributed by e-mail to bloggers.

Under assault as never before, Wal-Mart is increasingly looking beyond the mainstream media and working directly with bloggers, feeding them exclusive nuggets of news, suggesting topics for postings and even inviting them to visit its corporate headquarters.

Yours truly is one of the people to which Mr. Barbaro is referring in this last paragraph. I have been "fed" some of these "exclusive nuggets" and have had topics suggested for posting. And though my blog was not mentioned in the Times article, I'd like make to make one thing clear: excluding this one, I have written 12 other posts on Wal-Mart in the last five months. I started writing them long before I knew about or heard from Wal-Mart's PR firms.

Every one of those posts is original. That is to say, I picked the article, the theme, and everything that was written- every sentence and every word and every typo. I challenge Mr. Barbaro to find even one sentence in those 12 posts that was written first by someone else.

I also have a question or two. How is it that my blog escaped your notice? It is the number one blog in Technorati about Wal-Mart. It has a dozen highly original, detailed, and analytical posts on that firm, each of which averages over 700 words. It's written by a former MIT professor whose dissertation and first published papers were about information technology in the retailing industry. I ask not out of concern for not having my blog included in the article but because of this: if you missed that, what else did you miss?

Tags: walmart | wal-mart | WalMart | Wal-Mart | new york times | ny times | nytimes | NYT | newyorktimes |

Continue reading "The NY Times Takes on Wal-Mart" »

Posted by Starling Hunter at 7:58 PM | Permalink | Comments (1) | TrackBacks (0)

In a post entitled, Center of Gravity, Wretchard said:

I am somewhat disappointed with Secretary Rumsfeld's response to the subject of the disinformation campaign he himself brings up: "that would be like trying to stop the tide. The last time out he described the enemy as winning the information war. Here he speaks of it again. But what to do about it?

My response was as follows:

Continue reading "Comment on Belmont's "Center of Gravity"" »

Posted by Starling Hunter at 11:37 AM | Permalink | Comments (0) | TrackBacks (0)

Last month I wrote several pieces on the boycott of Danish goods that arose from the publication of cartoon images of the Prophet Mohammed. In " Will the Boycott of Danish Goods Work?" I pointed to anecdotal and empirical evidence showing that boycotts don't always have the intended detrimental impact on the target. For this to happen, the boycotters need to have:

patience, a carefully-crafted strategy for the management of public perception, and a sophisticated understanding of the incentive structure of the target.

In "Boycott of the Danes" I quoted a local paper, the Khaleej Times, that said this about the economic impact of the boycott of Danish goods:

So far, Arla Foods, one of Europe’s largest dairy companies, is suffering most, but the effects could spread. Danish goods are threatened in 20 Muslim countries, representing 10 billion kroner ($1.6 billion) annually, said Steen Bocian, a chief analyst with Danske Bank.

In "My Students Speak about the Danish Boycott" I summarized the entries of dozens of my students' blog posts about the boycott. (I teach in the United Arab Emirates). The majority were supportive of and sympathetic to the boycott. Several also noticed that the boycott of Danish goods had provided a rare opportunity for local (Arabic) companies to pick up market share, particulary in the dairy products segment:

Boycotting Danish products will increase the sales of its substitutes. For example, instead of using Lurpak butter for a specific kind of food, now the people will turn to Arabic gee instead. Therefore, in the coming days we will notice a huge increase in the sales of substitute products.

To recap then: while boycotts don't always work, early evidence suggested that this one was hurting specific firms, particularly those making fairly undifferentiated foodstuffs like butter, cheese, and yogurt. Furthermore, Arabic local companies making similar products seemed posied to benefit from the Danish companies misfortune of happening to be Danish at the wrong place and at the wrong time. With those thoughts in mind, consider the exceprt below from an article entitled "Mecca Cola rides anti-West wave with cafe chain plan" . The article makes a claim about an upsurge in sales of Mecca Cola in the wake of the Danish boycott. It's a claim I have heard repeated in several Middle Eastern papers and news outlets in the last few weeks:

Continue reading "Mecca Cola: I don't buy it" »

Posted by Starling Hunter at 7:17 PM | Permalink | Comments (0) | TrackBacks (4)

CNN's Wolf Blitzer is here in Dubai today doing interviews with several Dubai Ports World and government officials. He is currently broadcasting live from Madinat Jumeriah. Among his planned interviews is one with the Economics Minister, Sheikha Lubna al Qasimi.

She is a very capable and delightful woman whom I had the good fortune to meet a few years ago while I was teaching at MIT. It was she who encouraged me to consider teaching here in the Emirates.

9:37 PM interview begins:

WB: "Dubai is considered an economic model for the region..." (Welcomes Sheikha Lubna al Qassimi.) She's studied in the US and used to work in the US. Do you understand the opposition to this deal in the US?

SLAQ: Yes (she understands). There is a perception in the states that is not correct. This is a business deal that won't affect security.

WB: What does taking over ports mean?

SLAQ: The security impact is substantial. It is not the work of the port operation.

WB: Senator Schumer says port operator is vital to security.

SLAQ: Port operators handle "boxes" as they come through but are not responsible for security.

WB: What do you know that you can share with American public that will reassure the US public, 60% plus who oppose.

SLAQ: This is a business deal. There is an impact on employment that will be positive. This is not the first port that DPW will manage. It is a world class port operator.

WB: UAE recognized the Taleban. Two 9/11 hijackers came from here. Nuclear materials from AQ Khan's network were shipped through here. Money laundering for terrorists before and after 9/11 has been traced here. How do you reply to these objections.

SLAQ: We, the UAE, did not share the Taleban's ideology as evidenced by the fact that I, a woman, am the Economics Minister. We later broke relations with them. Two hijackers did come from here. Terrorists are really multi-national. Two don't make the UAE. The UAE has been a global player in war on Terror. The nuclear shipments were trans-shipments (not originating here and not destined for here). Dubai was the first country to adopt the States' new port security measures. UAE is tightening up measures to combat money laundering.

WB: Do the UAE support an economic boycott against Israel.

SLAQ: The boycott is practically non-existent. Most restrictions are in the process of being lifted and once WTO talks are completed, it wil; essentially be non-existent. Already handles containers from ZIm, the Israeli shipping firm.

WB: Will the DPW go through.

SLAQ: It will. It is a business deal. It can effect business world wide. As soon as legislation is put in to business deals, it will hurt business and competition for business investments globally.

WB: Thanks. I will be here a few more days learning about the business environment.

SLAQ: I hope more people can travel to Dubai and learn about us.

End Interview

If I can get a full transcript I will post it shortly. In the mean time, please read a few of my posts about the Dubai Ports World deal.

Update: "Strata-Sphere" the home of "High Flying Political Debate" says "Three Cheers for Wolf Blitzer" for his excellent reporting in "The Siutation Room" that focused on Dubai. Thanks for the link guys!

The Unions, The Senators, and the Ports
The Unions, The Senators, and the Ports, Part II
Port Authority II: Torrents of Arabia
Port Authority

Continue reading "Liveblogging Wolf Blitzer Live in Dubai" »

Posted by Starling Hunter at 9:08 PM | Permalink | Comments (3) | TrackBacks (3)

Josh Cohen has an interesting post on his blog, Multiple Mentality, about the speed with which greeting cards featuring Vice President Dick Cheney in hunter gear have arrived on product shelves. And in a "Target" store, no less.

Continue reading "Faster than a Speeding Bullet" »

Posted by Starling Hunter at 12:05 PM | Permalink | Comments (0) |