If you happened to be in Spain yesterday and wanted to see a movie, there was a good chance you could not do so. A 90% chance, to be exact. TypicallySpanish explains:

Spanish cinema federation calls for cinemas to close for 24 hours. It comes in protest at the new Cinema Law which obliges them to show a percentage of Spanish and European films. The Federation of Cinemas in Spain (FECE) to which 90% of the screens belong, has called a 24 hour strike Monday to protest at the Government’s plans for a new Cinema Law. The law obliges the cinema owners to show a percentage of both national and European films, but the cinemas claim that the public do not want to see Spanish films. They claim that showing national product is costing them money, with only five in every 100 cinema goers choosing Spanish films. They also want to see a period of at least six months between the film being shown in the cinema and its broadcast on Television or DVD. A recent poll carried out by the Complutense University showed that 58% of Spaniards consider Spanish film to be ‘mediocre or of little interest’. The Government claims the new law is intended to promote both Spanish and European filmmaking. Meanwhile Spanish actors have complained that nobody has asked them for their opinion.

Commentary

The Spanish government's placement of duties and/or quotas on foreign films is a textbook example of protectionism. That is to say, it is designed to protect the domestic and European film industry from foreign competition namely in the form of Hollywood. Using the language of Michael Porter's Five Forces framework, we'd say that the Spanish government is erecting barriers to entry by foreign filmmakers.

The state of affairs that resulted in no movie reels in Madrid is perhaps not unlike that existing among Spanish soccer teams like La Liga champs Real Madrid. Commenter "Sergio" explains in a post at DanielDrezner.com last fall about "Sports Protectionism in Russia"

Continue reading "Reel Madrid" »

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In an article entitled "Wal-Mart puts heat on rivals by slashing prices", Marina Strauss of Toronto's Globe and Mail links steep and unexpected price cuts by Wal-Mart Canada to the broader battle for supremacy among North of the Border mass merchandisers:

Wal-Mart Canada Corp. has fired an unexpected early salvo in the holiday retail wars by slashing prices -- and inevitably hurting rivals -- while sending a signal that retail sales may be slower than expected in this crucial shopping season. Yesterday it cut prices on a wide range of popular gift items by as much as 50 per cent -- and in a few cases even more. The retailer said Canadians are delaying their holiday shopping, prompting it to act swiftly to stimulate business. ... Competition in the domestic sector has heated up with Wal-Mart aggressively expanding its store base. This fall it opened its first three Supercentres with a full range of products, including fresh foods. "They're going to keep playing hard ball," said one source familiar with Wal-Mart. "We've got into a battle of the superbrands and only the mighty will survive. I think you're just going to see a heightened competitive battlefield. It's not for the squeamish."

Interestingly, rivals are responding in kind rather than attempting to differentiate their way around each other:

Some competing retailers vowed to fight back. Grocer Loblaw Cos. Ltd., which has been quickly expanding into non-foods, was already planning to cut the price of toys by 30 to 50 per cent at its superstores, starting tomorrow, spokesman Geoffrey Wilson said. He said pricing of its Joe Fresh Style apparel line "is extremely well positioned in the marketplace and doing very well. Above all, no matter which of our formats, we are committed to be competitive in the markets in which we compete." Vincent Power, spokesman for Sears Canada Inc., said it regularly looks at what Wal-Mart and other competitors are doing "and we make any adjustments we have to." Best Buy Canada Ltd. has lowered its prices two or three times already on popular items -- particularly flat-screen televisions -- since the summer, said Charles Tobin, vice-president of merchandising. "In consumer electronics retailing, it's always important to make sure we're competitive."

And who is the likely beneficiary of all of the corporate bloodshed? Why the consumer, of course:

Continue reading "North of the Border Price War" »

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In one of my recent pay-to-read Five Forces analyses I wrote whether Wal-Mart's generics-for-$4 program will lead to increased rivalry in the retail pharmacy sector. In Note on the Structural Analysis of Industries Porter hypothesized that:

"In most industries competitive moves by one firm have noticeable effects on its competitors and thus may incite retaliation or efforts to counter the move…This pattern of action and reaction may or may not leave the initiating firm and the industry as a whole better off. If moves and countermoves escalate, then all the firms in the industry may suffer and be worse off than before." .

Two factors that influence the degree of rivalry experienced are the degree of product differentiation and switching costs. Concerning the first Porter said that “when a product or service is perceived as a commodity or a near-commodity”, then consumer choice is largely determined by two things- “price and service.” Product differentiation is, then, a way to “create layers of insulation against competitive warfare” because buyers are presented with clear choices and thus afforded the opportunity to develop preferences for and loyalties to particular producers.

Switching costs are the “one-time costs of switching brands, or switching from one competitors’ product to another.” When switching costs are low or non-existent we should expect that consumers can and will have little resistance to changing products and producers. It would seem almost axiomatic that switching costs for generic drugs are little or non-existent.

How it is that low product differentiation and low switching costs increase rivalry is made very clear in recent news reports about Wal-Mart’s generic drug program. In article entitled “Wal-Mart hurries $4 prescriptions into Michigan”, Mary Radigan of The Grand Rapids Press describes how Wal-Mart’s low-cost generic drug program was rapidly countered by Meijer with a free program and then how quickly Wal-Mart responded again.

Three days after Meijer stores announced free generic drugs to customers, Wal-Mart today launched its $4 prescription program in Michigan months earlier than expected. Company leaders said public demand, not Meijer, prompted them to roll out the program here and in 11 more states today instead of sometime after January, as first promised. "We were planning on rolling this out, and this is just our next step to add additional states," Wal-Mart spokesman David Tovar said. "This has nothing to do with Meijer."

Interstingly. Meijer officials have no problem stating that their moves were in response to Wal-Mart:

Meijer President Mark Murray said today that he "fully expected" Wal-Mart to move the drug program into Michigan. "They clearly have accelerated their rollout nationwide," Murray said. "This is a competitive business."

Here are some recent examples of countermoves by other national, regional, and local competitors. According to the Washington Business Journal:

Wegmans Food Markets of Rochester, N.Y., unveiled a cost-cutting plan for nearly 200 generic drugs and will make them available in a three-month supply. The supermarket chain says customers will be able to purchase the medicine in a 90-day supply for $11.99. The program will be implemented Oct. 26 in all of the company's stores in Maryland, Virginia, New York, Pennsylvania and New Jersey. Kmart has also announced plans to reduce the cost of some generic drug prescriptions.

Perceptions of an responses to Wal-Mart's moves seem to vary across by region and industry. For example, while pharmacies in Alabama remain unphased...

Continue reading "Parry and Thrust" »

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

In his Five Forces theory of industry analysis, Michael Porter identifies several “barriers to entry”, i.e. economic, technical, financial, and other “obstacles in the path of a firm which wants to enter a given market.” Among the “barriers” mentioned by Porter in “Note on the Structural Analysis of Industries” is “Government Policy.” About this force he says:

“Government can limit or even foreclose entry into industries with such controls as licensing requirements and limits on access to raw materials ( like coal mines or mountains on which to build ski areas). Regulated industries like trucking, railroads, liquor retailing, and freight forwarding are obvious examples.”

While retail is not included in Porter’s list of regulated industries, entry into foreign retail markets inevitably requires the approval of the host country’s government. As a result, firms like Wal-Mart, which does business in several foreign countries, may face higher and/or different barriers to entry abroad than they do at home. Point in case is Wal-Mart's attempt to build a store in Cabo San Lucas, Mexico.

The world's largest retailer won preliminary approval on Tuesday to build a Wal-Mart in Cabo San Lucas after an almost two-year battle, but opponents vow to continue fighting the project with demonstrations or by blocking roads.

The Los Cabos city council voted unanimously to give conditional approval for the store, requiring it to be nonintrusive, pass environmental studies and not excessively affect traffic in this fishing and resort town of about 80,000 at the tip of the Baja California peninsula.

Residents and shopkeepers fear that the store — first proposed, and rejected, at a site near the middle of the city — could harm the town's laid-back atmosphere, where sports fishermen and tourists mingle with locals on the streets. Some also worry the store might replace the trademark stone sea arch as the first view people have when they drive into the city.

Continue reading "They Paved Paradise and Put a New Wal-Mart" »

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

A student in MGT 406, Business Policy & Strategy, sent this question via email (at 1:12 AM no less).

"I wanted to ask... when it comes to applying Porter's five factor model, should all the sub-points apply so the case would hold true. Like for example under threat of entry/ Barries to entry there are six major sources. Is one source enough, for example product differentiation to say barriers to entry are important?"

Here's my answer:

Continue reading "Points and sub-points in Porter's Five Forces" »

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Fox News' report on extreme skateboarder Danny Way's jump over the Great Wall of China shows, if nothing else, the lengths and heights (or is it depths) to the sporting goods retailers like Quiksilver are willing to go to promote its products the Far East, in China.

I acted as faculty advisor to MBA Spring Trip to China in Spiring 2001. I am not sure whether the section of the Great Wall that Danny jumped on July 10th is the one we visited. More importantly, however, is what the subtext and the symbolism of this publicity stunt. For some time now, Western companies of every conceivable nature have been salivating and doing quadruple backflips at the prospect of gaining access to the 1.4 Billion person domestic Chinese market. In that light, an American skateboarder jumping the Great Wall is but a metaphor of the much larger and ongoing effort by companies the world over, especially those from the US and Europe, to surmount the world's most famous barrier to entry.

Continue reading "Barrier to Entry" »

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