Effect of Danish Boycott Patchy

With reference to Porter’s 5 forces model, the bargaining power of the customer or the buyer lies in the hands of the people and the government of Saudi Arabia. In this case, according to large supermarket owners, the advertisement depicting Prophet Mohammad poses an insult to the Muslim community and to Islam. Since the majority of the people living in the Gulf and owning businesses are Muslims, they held the power to reject or accept any product or service that was associated with a country that did not show any respect towards their religion or country. Referring back to Porters 5 forces model, with regards to the bargaining power of customers, it describes few conditions where the buyer is considered to gain power over the suppliers. The scenario that fulfilled the requirement to conclude that Saudi Arabia has the bargaining power as a buyer over its suppliers are:

• “The product the buyer purchases from the industry represents a significant fraction of its costs or purchases”. (Porter, 1983). As mentioned in the article by a manager of a flagship supermarket, the sales of imported Danish products accounted for about 5%, but more in overall income earned of those products. (Arab News, 2006).
• “The product it purchases from the industry are standard or undifferentiated”. (Porter, 1983). The dairy industry in Saudi Arabia and the Gulf in particular is quite strong and has no problem in substituting the boycotted products with its local brands or brands produced in the Gulf region.
• “It faces few switching costs”. (Porter, 1983). As mentioned earlier, since the issue of substituting to local products is not a problem, switching costs are significantly low.
• “Buyers pose a credible threat of backward integration”. (Porter, 1983). Referring to the substitution issue again, Saudi Arabia has a strong industry with big giants such as Al-Marai, Nadec and Al-Rawabi that could easily be substituted for the boycotted products. So instead of relying on importing from outside, they could save themselves cost by producing and selling locally.

With reference to the strategic resources section of the Hamel chapter, Denmark and Norway are going to suffer the overflowing inventory losses that it had to witness in Saudi Arabia. They are the strategic assets of the Denmark Dairy Industry and being removed from shelves in such great volume in a country as big as Saudi Arabia, means a great loss of its assets.

The Dairy companies in Denmark will know have to re-position and manage their strategic assets (inventories) to cover up the losses that they have incurred in Saudi Arabia and other Gulf countries alike. This is keeping in mind the customer interface that they will have to consider. Through fulfillment and support, it will have to ensure new marketing techniques and channels through which it is going to distribute.

Since the relation between the supplier and the customer has become quite sour, Danish companies will have to work on their relationship dynamics in their customer interface to re-establish and enforce the trust that it had before. But, to do that, the Saudi Government and other Islamic countries have demanded the Danish government, media and companies for an apology.

Bilal Q. (2006)