German University in Cairo

MBA
Dr. Raghda El Ebrashi

Fall 2014

Bar Code

Strategic Management
Fall 2014
Midterm Exam

Read the instructions carefully before proceeding.

1- This is a take home exam.
2- This exam booklet contains 2 pages, including this one.
3- Staple your answers into this exam sheet, and please type your answers.

Question
Maximum
Score
Obtained
Score

1
10

2
10

Maximum Score
20

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Question 1:
Using Porter Five Forces Model, explain the structure of the Textile Industry in Egypt.
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Supplier power
o The increase in the textile prices due to the high production costs which resulted
from the high interest rates of the banks, the increase in the fuel prices, high sales
taxes on the capital goods which limits the firms ability to modernize the
production lines
o The expansion in using Synthetic fibers and Polyester yarns in the textile
production instead of the cotton due to their characteristics which includes the
stability of colors, strength, durability, low prices.etc., which led to an increase
in their imported material.
o The local small companies coordinate to get the best offering when importing.
For the import, it is high cost, and tight payment term with the minimum support
from the Egyptian government.
Barrier to entry
o The initial startup investment is huge, the taxation applied in the imported
machinery is high.
o The manufacturing taxation is varied from 30% to 40% despite the problems in
the industry in Egypt.
Threat of substitutes
o The substitutes is available to be imported by with higher cost, the substitutes is
imported with lower cost that the local product.
Buyer power
o The recent increase of prices is affecting both direct in indirect buyers( consumer
and retailers)
o Last year, local clothing prices went up to 30%-60% increase, raw material
increase ( kantar of cotton) increased from 580LE in 2010 to 2300LE in 2014.
This increase is beyond the the % that can be tolerated by the buyers this is
impacting the frequency and quantity of purchase for the buyer
Degree of rivalry
o The internal competition is due to the hard competition and the market situation
and the economic situation.
o The exporting competition is in risk due to the quality and the price of the raw
materials.

Oriental Weavers Five Forces of Competition

Bargaining Power of Suppliers
The bargaining power of suppliers is low because the company has control over
most of the raw materials involved in the production process such as Polypropylene
which is produced by Oriental Petrochemicals Company (OPC). The company is the sole
company producing this material in Egypt. However, Oriental Weavers imports wool
from New Zealand because it is known for its high quality. But, the company takes care
of the spinning phase. As for the machine suppliers, the company has good relations with
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them in which the suppliers provide the company with exclusive rights to some machines.
Although the machines costs a lot as mentioned earlier, the company gets the machines
with a percentage of discount because of the long-term relation between the supplier and
the buyer.

Bargaining Power of Buyers

Buyers in the case of Oriental Weavers include Individuals, importers and
retailers, world-wide corporate and hospitality chains. As for the individuals, the demand
is huge because most of the people use carpets and rugs. The wide price range in Oriental
Weavers allowed them to reach more people in the different segments. However,
importers, retailers, world-wide corporate and hospitality chains have more power than
individuals because they have more options to buy from on a global level. However, there
is almost no threat from buyers in terms of producing the industry's product themselves
because of the high costs of production.
Barriers to Entry
The barriers to entry are very high and the threat of entry is low because for any
company to enter the market, this requires huge capital. For example, the cost of one
machine is around $1.2 Million (Moneim). The new entrant will have to enter the market
on a large scale. Thus, it is very difficult for companies to have enough capital to
establish itself in the market and face the 85 percent market share of Oriental Weavers
and its economies of scale. Oriental Weavers enjoy supply-side economies of scale in
which they produce large volumes with lower costs per unit because the fixed costs are
divided among more units. This puts pressure on new entrants who need to enter the
market on a large scale. In addition, the company controls some of the raw materials that
are necessary for production of rugs and carpets such as polypropylene. Other companies
would need to buy from them. Another point which increases the barriers for entry is
demand-side benefits of scale, in which many buyers have the willingness to buy from
Oriental Weavers because of the huge demand from of other buyers towards the
company's products. Thus, the percentage of buyers who might go to a new comer is low.
Threat of Substitutes T
he threat comes from wood, tile and ceramics floorings. They are considered the
main substitutes but with little effect on Oriental Weavers. Some people prefer other
alternatives other to carpets and rugs for different reasons such as cleanliness or
durability. However, those alternatives cannot work in every place and needs more time
to install. People usually need carpets and rugs in their homes in certain rooms such as
living room. One thing that might face buyers is the switching costs because through
buying carpets or rugs, the initial cost would be the cost of it. However, if using wood
floorings or ceramics, the initial cost would include also workers fees and other
supplementary costs.
Rivalry among competitors
Oriental Weavers has 85 percent market share of the Egyptian market, in carpets
and rugs. They have some competitors such as Carpet City and Moket Center but they are
not main players in the market (Moneim). The competitors are few in number as well as
in the size of their business. Because some of those competitors does not have the
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capacity, they had to ask Oriental Weavers to help in the manufacturing process; use
facilities. On the other hand, the competitors in the hand-made carpets and rugs are AlKahal and Al-Assiouty. Rivalry among competitors in carpets and rugs is not fierce in
which Oriental Weavers control the market (almost a monopoly).
Source:
ORIENTAL WEAVERS - HIGH FINANCIAL PROFITABILITY AND LOW ECONOMIC
RETURNS
Tarek Selim and Yasmine Wissa - The American University in Cairo
http://www.industrystudies.pitt.edu/pittsburgh12/documents/4.7%20-%20Selim%20(Paper).pdf

Question 2:
-

What are the strengths and weaknesses of Starbucks?

o Strengths:
Mystarbucksidea.com
It Is a gateway to provide interactive feedback and
recommendation for different items in Starbucks menu.
Starbucks Facebook page is very famous and has a very interactive
conversation with the customer.
Nice work area for employees
The help your self-service type is cost efficient
Becoming a the recommended morning coffee for young age.
Has it is own coffee farm that will be secure the standard quality across
region.
o Weaknesses:
Running customers dont line the waiting queue they prefer to go for
faster place like On-the-run.
Is a target for protesting and boycotting despite the denial of the head
quarter about the information regarding donations and the company
logo.
Loyal customers are tending to move to other shops that offer better
service not only coffee.
What are the distinctive competences of Starbucks? Explain your answer in relation to
other competitors.
o Have it is own Coffee farms, so the quality is unique. Other competitors are
working with raw coffee brands like ILLY which gives an impression about similar
taste of coffee.
o Starbuck is still positioned as premium and service so when the market grows
the great portion is going to Starbucks.
o Starbuck has operations in over 60 countries. Starbucks is also the most
recognized brand in the coffeehouse segment and is ranked 91st in the best
global brands of 2013. http://scholar.harvard.edu/

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Source:
SWOT analysis of Starbucks
http://www.academia.edu/3990802/SWOT_Analysis_of_Starbucks_Positive_Negative_Internal_
Strengths_Starbucks_recently_launched_first_major_advertising

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