case study analysis - Assignment Essays

please write around 1100 words to answer question 5

Analyzing and Writing a Case Study
Supplemental Reading – Chabros / Dubai

Professor Kelly Ashihara

Strategy Management

Seattle University

What is Case Study?
Case Study is an integral part of strategic management
Purpose: to provide students with experience in actual situations and industry and ask them to address issues real managers had to respond to given a situation over a number of years.
Cases provide student with real situations and improve analytical skills
Cases illustrate theory and content in strategic management and allow you to apply what you’ve learned and make decisions. As we learned, top managers enjoy the thrill of learning and problem-solving in an uncertain environment
Case studies allow you to improve team work skills and participate in class in a substantive way and present your ideas to the class.

Analyzing a Case Study
Case Studies allow you to apply your theory that you’ve learned in this class and through past coursework.
Generally, cases include:
1. General background, history and development of the case
2. Identification of the company’s internal strengths and weaknesses (SWOT)
3. Analysis of strategies considering internal core competencies and external factors (PEST and competition)
4. Analysis of how to reach target goals and what strategies to set such as product development, market expansion, pricing, vertical integration, external partners.
5. Core Recommendations

SWOT Checklist
Strengths

Product types and product lines
Manufacturing competence
Marketing
R&D
Materials
Human resources
Brand name reputation
Cost differentiation
Management style
Financial management
Weaknesses

Rising manufacturing costs
Decline in R&D
Customer goodwill
Information systems
Growth without direction
Conflict or politics
External competitive situations
External market factors
Poor financial management
Change in margins
How can strengths and weaknesses be balanced against opportunities and threats?
Can you reach your goals by continuing to pursue the current path or do you need to change directions?
Are there functional or corporate strategies to pursue – what are your conclusions?

SWOT continued

Environmental Opportunities

Expand product types and product lines
Expand manufacturing Marketing
Diversify business
Expand to new markets
Source new materials
Gain scale through new products and use of existing infrastructure
Vertically integrate
Reduce rivalry
Leverage differences found in competition
Environmental Threats

Attacks on core businesses
Increases in competition
Change in consumer taste
Rise in substitute products
Potential for takeover
Changes in demographics
Rising labor costs
Slower market growth
Change in product tastes / market

Analyze Structure and Control Systems
The aim of analysis is to identify key issues in the structure and control that open up opportunities and finding which opportunities produce the most value.

Making recommendations: The quality of your recommendations will be a product of the thoroughness of your analysis. Wherever possible, try to combine and think of different factors (multiple exhibits / numbers that support your case)

Your team should be specific whenever possible in terms of diversification of products, level of integration, changes in functional products or direction and reasons what certain strategies – you believe, will improve the profitability or situation of the company.

Case Study Supplemental Reading

Dubai
Palm shaped islands built and developed by state owned Dubai World

Dubai in 2008
Historically, oil based economy
Oil is sold in Petrol dollars linked to the dollar
Estimated 20% of world cranes in Dubai.
Sept 2008, $1.5billion dollar Atlantis resort on palm-shaped island opened. $25,000 / night
Banks reigned in loans, oil prices dropped
Dubai home prices dropped 50% from 2008 peak
Emirates Central Bank made $3.6 billion available as of Sept. 22nd 2008, speculation that that may not be enough.
Many building projects without secure financing may be dropped

2007 – 2008 Financial Crisis
Like all previous cycles, the seeds of subprime meltdown were rooted in unusual circumstances.
In 2001 – the US economy had a mild recession – to keep the recession away, the Federal Reserve eased capital by lowering interest rates 11 times from 6.5% in May 2000 to 1.75% in Dec. 2001. This created liquidity. Borrowing money was cheap which increased home sales (dramatically).
Question is not just IF you have a home, it is how MUCH home should one live in / can one afford.
In June 2003, the Fed lowered interest rates to 1%, the lowest rate in 45 years.
Bankers repackaged loans collateral debt obligations (CDO) and passed on debt.

2007 – 2008 Financial Crisis
Decline begins:
By 2004, homeownership peaked at 70%, home prices started to fall which led to a declining by 40% in new construction.
During Feb – March of 2007, more than 25% of subprime lenders filed bankruptcy.
According to 2007 news reports, financial firms and hedge funds owned more than $1 trillion in securities backed by these now failing subprime mortgages.
Central banks coordinated to prevent worldwide crises. The Fed started to reduce rates.
The US Gov’t came out with the National Economic Stabilization Act in 2008 to create $700 billion,
Central banks in England, China, Canada, Sweden, Switzerland, European Central Bank cut rates.

Dollar slides to 2009 low versus Euro

As of May 22, 2009, the dollar fell to the lowest level versus the Euro as traders looked for alternatives to the U.S. dollar amid waning fears about the global economy’s prospects.

The euro rose to $1.3996 on Friday, after passing the key $1.40 mark to touch $1.4049 earlier. That was up from $1.3904 in late North American trading Thursday.

“In the near-term, the stars are aligned against the U.S. dollar.” “If the news stream is good, we are told investors are less risk averse and do not need the dollar’s security. If the news stream is poor, we are told the U.S. is in horrific shape and the budget deficit and Fed’s balance sheet will swell even more” to the detriment of the dollar.

The British pound also rose to its highest level since November versus the U.S. currency, shaking off a Standard & Poor’s report Thursday saying the ratings agency might downgrade the U.K.’s AAA credit rating. The pound traded at $1.5925 from $1.5848 late Thursday.

Several analysts’ notes earlier also acknowledged reports about concern that the U.S. will maintain its AAA credit rating, after the U.K.’s top-tier rating was given a negative outlook by Standard & Poor’s on Thursday.

“We would have to see a continuing onslaught of real deterioration in the U.S. financial situation for its rating to come under threat,” he said. “The dollar’s issues are mostly related to quantitative easing and how inflationary that might be. Also, risk aversion has lessened considerably” in recent months.

Minutes of Fed policy makers’ last meeting released Wednesday indicated a possibility that the Fed would buy more Treasury or mortgage-related debt. Those kinds of programs to keep borrowing costs low for consumers, companies and home buyers are considered quantitative easing and negative for the currency

Dollar slides to 2009 low versus Euro

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CHABROS INTERNATIONAL GROUP: A WORLD OF WOOD

Bassam Farah wrote this case under the supervision of Professor Paul W. Beamish solely to provide material for class discussion.
The authors do not intend to illustrate either effective or ineffective handling of a managerial situation. The authors may have
disguised certain names and other identifying information to protect confidentiality.

Richard Ivey School of Business Foundation prohibits any form of reproduction, storage or transmission without its written
permission. Reproduction of this material is not covered under authorization by any reproduction rights organization. To order copies
or request permission to reproduce materials, contact Ivey Publishing, Richard Ivey School of Business Foundation, The University
of Western Ontario, London, Ontario, Canada, N6A 3K7; phone (519) 661-3208; fax (519) 661-3882; e-mail cases@ivey.uwo.ca.

CHABROS INTERNATIONAL GROUP

On December 30, 2009, as a result of the global economic crisis, Chabros International Group, a leading
wood company headquartered in Lebanon, reported a drastic drop in lumber and veneer sales in its largest
market, Dubai. Antoine Chami, Chabros’s owner and president, had to decide what to do. Should he close
parts of his Serbian sawmill that had cost him more than $11 million to acquire and expand two years ago
to meet Chabros’s increasing sales volume at the time? Should he try to re-boost his company’s sales to
use his sawmill’s available capacity? If so, should Chabros try to increase its sales within the countries
where it already operated or should it expand into a new country? Would Morocco, among other countries,
be the best country to expand into? Was it the right time to embark on such an expansion?

CHABROS INTERNATIONAL GROUP’S HISTORY

Chami’s father and uncles founded Chabros in the 1960s. The name Chabros came from Chami Brothers.
Originally, Chabros operated only in Lebanon and dealt only with veneers, that is, the different kinds of
wood surface (see Exhibit 1 for a more detailed definition of wood veneer). In 1978, Chabros became
wholly owned by Chami’s father, and Chami took full charge after the death of his father in 1987. At that
time, the political, security, and economic situation in Lebanon was very unstable. The country was
undergoing a civil war, so Chabros’s primary goal was survival. In 1991, the civil war ended, however, the
country’s economic situation remained relatively unstable despite slow gradual improvement.

After 1991, Chabros occasionally serviced Lebanese customers located in Dubai, an emirate in the United
Arab Emirates (UAE). Dubai clients purchased their products from Chabros in Lebanon and shipped them
to Dubai. Here, Chami and his top management team thought: “Why don’t we send sales representatives
from Lebanon to Dubai to market our products there?” Thus, the first internationalization attempt started
when Chabros sent one of its sales representatives, Nicholas Mousalli, to Dubai to study the wood market,
analyze wood prices, and market Chabros wood products (i.e. lumber and veneer).

The year 1998 marked the first direct exporting activities to Dubai. After making a couple of successful
deals exporting wood from Chabros in Lebanon to customers in Dubai, Mousalli suggested opening a
branch in Dubai. Chami implemented this suggestion immediately, opening Chabros’s first branch in a

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200-square-metre rented warehouse. Chabros was not registered as a company in Dubai until the next year,
when Chabros bought its own warehouse. In 1999, Chabros celebrated the birth of its first foreign
subsidiary, the Dubai subsidiary, under the name Chabros Wood Trading (see Exhibit 2)

Chabros Dubai was a great success. Armed with this success and an ambition to make Chabros a global
player in the worldwide wood industry, Chami decided to go to Saudi Arabia. However, Saudi Arabia was
a huge market and alone Chabros did not have the required financial resources to enter such an enormous
market. Chami convinced two of his Italian suppliers, who witnessed Chabros’s success in Dubai, to
partner with him to enter the Saudi Arabian market. In 2001, Chabros Riyadh was established. It was
initially established in Riyadh, Saudi Arabia, as an international joint venture (IJV) with Chabros owning
50 per cent of its shares and each of the two Italian partners owning 25 per cent. However, given the
cultural distance between European and Arab countries, the Italian partners found it difficult to adapt to the
Saudi Arabian mentality and the Saudis’ way of doing business. The first Italian partner sold his shares to
Chabros one year after the establishment of the IJV and the second Italian partner sold his shares to
Chabros two years later. By 2004, Chabros Riyadh was a subsidiary wholly owned by Chabros Lebanon.

Prior to 2003, demand for wood (lumber and veneer) soared in the UAE, Saudi Arabia and Qatar, and
Chabros experienced a great shortage in the supply of European wood. The sales generated by Chabros far
exceeded the production capacity of Chabros’s European supplier. To reduce this supply shortage and
secure the largest quantity possible of European wood, in 2003 Chabros opened an office in Serbia, called
Chabros Serbia, and financed its Serbian supplier to increase its sawmill’s production capacity. Despite the
financing provided, the Serbian supplier’s pace of production capacity increase was very slow. As a
consequence, Chami asked himself: “Why don’t we acquire our Serbian supplier and quickly expand the
sawmill’s production capacity to meet our sales needs?” In 2007, Chabros acquired its Serbian supplier for
$1.4 million and the sawmill started operating under the name of Wood World Trading as a Chabros
manufacturing subsidiary.

Given the Dubai and Riyadh internationalization successes, and despite the European wood supply
shortage that the company faced, Chami and his top management team decided to go to Qatar. Qatar was
attractive because it was a small natural-gas-rich country that was following the path of its neighbor,
Dubai, in fast economic growth. They went to Qatar in 2004 and opened a new subsidiary, Chabros Doha.

Between 2004 and 2008, Chabros opened four new subsidiaries, albeit for different purposes. First, in
2005, Chabros opened a subsidiary in Muscat, Oman, to access new markets to sell its wood products
(lumber and veneer). Then, later in that same year, it opened a subsidiary in Cairo, Egypt, to access a new
market where it could sell its supply of lower quality lumber and veneer. In 2006, it opened a second
subsidiary in the UAE in Abu Dhabi. In 2007, it opened a second subsidiary in Saudi Arabia in Jeddah.
The last two subsidiaries were opened to increase Chabros’s sales volume and take advantage of lower
prices associated with purchasing larger quantities. Later, Chabros benefited from production economies of
scale after acquiring the Serbian sawmill.

Chami opened Chabros Cairo for a specific strategic purpose. At first, Chami, like his major competitors,
bought and sold only the higher quality veneers, that is, veneers graded “A” and “AB.” However, later, by
being exposed to different methods of wood production around the globe, he quickly learned that in their
typical production process, sawmills produced veneers of different qualities, including “B” quality.
Further, he learned that when a veneer trader bought only higher quality veneers, for instance “A” and
“AB” qualities, sawmills usually charged that trader higher prices than they would have charged a trader
who bought all the different qualities of veneer that they produced. Thus, in most cases, when a trader
bought only “A”- and “AB”-quality veneers, the sawmill charged that trader prices as if he/she bought all

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Page 3 9B10M100

the different qualities of veneer and assigned the lower quality veneer that was left at the sawmill, the “B”-
quality veneer, a value of zero, assuming that it would not be sold. That was because it was much more
difficult for a sawmill to sell its lower quality veneers. Moreover, by being subjected to different national
markets and their dissimilar product demands, Chami learned that Egypt was a market for lower quality
rather than higher quality wood. Thus, Chami opened Chabros Cairo to market its “B”-quality veneer. This
way, Chabros could buy and/or manufacture all the different qualities of wood (lumber and veneer) for the
same price as the higher quality wood alone. Then, it could sell the “A”-quality wood in Dubai and the
“AB”-quality wood in Saudi Arabia and Lebanon for some profit while selling the “B”-quality wood in
Egypt for approximately 100 per cent profit, when compared to trading only higher quality wood.1

CHABROS INTERNATIONAL GROUP IN 2009

By 2009, Chabros had already established eight subsidiaries/offices in six countries other than Lebanon,
namely Serbia, the UAE, the Kingdom of Saudi Arabia (KSA), Qatar, Oman, and Egypt. While four
countries hosted one subsidiary each, the UAE and Saudi Arabia hosted two each. These subsidiaries
constituted Chabros International Group (for a map of the Middle East and North Africa (MENA) region
and parts of Europe including Serbia see Exhibit 3).

When Chabros was first established, it was involved in trading only one type of wood, veneer, and just in
Lebanon. However, by 2009 Chabros International Group was involved in two areas of business,
production and trade. It produced several species of European lumber of different qualities and traded
different qualities of diverse species of lumber and veneer among countries in many areas of the world. For
example, it imported lumber and veneer from the United States, Europe, Asia, Africa and Australia, and
exported them to the Middle East and North Africa (MENA) region and European countries, namely the
UAE, Saudi Arabia, Qatar, Oman, Egypt, England, Germany, Denmark, Spain, and Turkey.

Chabros International Group’s Sales, Profits, and Market Share

From 2005 to 2008, Chabros International Group experienced rapid growth in sales volume. In 2005,
Chabros’s sales were $60 million, whereas in 2008 they became $100 million, an increase of 67 per cent
within only three years. However, 2009’s sales suddenly dropped by $10 million (see Exhibit 4). This was
due entirely to the drastic fall in Chabros Dubai’s sales. In 2009, while Chabros’s other subsidiaries
experienced either relatively stable or somewhat improved sales, Chabros Dubai suffered from a 30 per
cent decline in its sales. In 2008, Chabros Dubai contributed $50 million to the group’s $100 million total
sales, whereas in 2009 it contributed only $35 million to the group’s $90 million total sales. This
represented a 30 per cent drop in Chabros Dubai’s sales from 2008 to 2009 and a 10 per cent aggregate
increase in sales in all of Chabros’s other subsidiaries.

Chabros Dubai maintained its position as Chabros International Group’s leading subsidiary in terms of
sales volume despite its severe sales drop in 2009. Even after the global economic crisis, Chabros Dubai
ranked first in terms of sales among its Chabros counterparts, while Chabros Riyadh ranked second and
Chabros Doha ranked third (see Exhibit 5).

Between 2005 and 2008, veneer sales grew 33 per cent, from $30 million to $40 million, whereas lumber
sales grew 100 per cent, from $30 million to $60 million. In 2009, veneer and lumber sales dropped by $5

1 “B”-quality wood (lumber and veneer) was used for making lower quality wooden doors, closets, furniture, and internal
decorations, etc.

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Page 4 9B10M100

million each (see Exhibit 6). Thus, veneer sales dropped by 12.5 per cent while lumber sales dropped by
only 8.3 per cent. In 2009, Chabros International Group sold its veneer products at an average price of $3
per square metre and its lumber products at an average price of $1,000 per cubic metre. This translated into
sales of 11,666,666 square metres of veneer and sales of 55,000 cubic metres of lumber. According to
Chami, although Chabros started as a veneer company, because Chabros was considered the market leader
in veneer in the MENA region, at that moment it had more potential and freedom to grow its lumber
business than its veneer business.

Despite Chabros’s rapid sales growth from 2005 to 2008, its percentage net profits from sales did not vary
much and ranged between six per cent and 6.8 per cent. However, net profits suddenly dropped to 4.2 per
cent in 2009 (see Exhibit 7).

According to Chami, Chabros International Group was considered the largest trader of veneer in the
MENA region. It represented more than half of the supply of veneer in that region. Chabros had a lumber
market share of around 20 per cent in both the UAE and Qatar and around one per cent in both Saudi
Arabia and Egypt (see Exhibit 8).

Chabros International Group’s Suppliers, Distributors, Employees, and Customers

Chabros International Group bought its different kinds of veneers from suppliers (veneer manufacturers)
all over the world, but mainly from suppliers in the United States, Italy, China, and Ghana. In contrast,
Chabros produced most of its European lumber species in its Serbia sawmill and imported its non-
European lumber species from non-European countries. In terms of distribution, Chabros International
Group’s subsidiaries used their own trucks to distribute their products within the countries they operated
in. However, Chabros Serbia used its trucks to distribute its products all over Europe and to transport them
to Chabros’s Trieste wood terminal, where containers were loaded and shipped to other countries in the
world. Transportation costs (i.e. truck and/or train transportation costs plus shipping costs) of wood from
Chabros Serbia to Chabros’s MENA region subsidiaries ranged from $60-80 per cubic metre and made up
only around ten per cent of the total cost. Customs duties constituted four to ten per cent of the total cost.

In 2009, Chabros International Group’s workforce consisted of more than 500 employees. Chabros Dubai
had the largest number of employees, at 180; while Chabros Abu Dhabi and Chabros Muscat had the
fewest, at 10 employees each (see Exhibit 9).

Chabros International Group’s customers ranged from wholesalers to building contractors to carpentries to
retailers as well as end users. However, Chabros International Group’s customers differed from country to
country. In the Gulf countries, the company’s customers were mainly building contractors who designed
and manufactured wooden doors, closets, and decorations for buildings (residential, business, or
governmental), towers, hotels, restaurants, etc. In Lebanon, its customers included wood wholesalers,
retailers, and furniture manufacturers. In Europe, its customers were mainly retailers.

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Chabros International Group’s Competition, Competitive Advantages/Disadvantages, and
Strategies

Chabros International Group competed with firms in two industries: the hardwood industry (as opposed to
the softwood industry) and the veneer industry. According to Chami, hardwood was used mainly for
making doors, closets, furniture, and internal decorations, etc., whereas softwood was used mostly for
making building components, windows, paper, and external decorations. Chabros International Group
faced local, regional, and global competition. Locally, in the different countries where it operated, Chabros
was competing with other small- and medium-sized hardwood and veneer suppliers, mainly domestic
small- and medium-sized retailers and wholesalers, who usually did not import wood from abroad and who
were typically servicing small- and medium-sized subcontracting companies and carpentries. Regionally,
Chabros was competing with hardwood and veneer suppliers that operated only at the MENA region level,
that is, companies that traded wood only in the MENA region. And globally, Chabros was competing with
the largest global hardwood and veneer companies. These included American, European, and Asian
hardwood and veneer companies, such as General Woods and Weston in hardwood and General Woods
and Fritz Kohl in veneer, which Chabros bid against for huge projects, including towers, hotels, and
government buildings, in Dubai, Doha, and Riyadh, to name but a few locations.

Chabros International Group had several competitive advantages over its rivals. First, it provided its
customers with more varied and more customized wood products than did most of its competitors.
Moreover, Chabros built distinctive strategic relationships with its key suppliers.

Second, Chami had more than 25 years’ experience in evaluating and choosing the best kinds of veneers to
trade in. Such experience was very valuable, rare, and difficult to imitate. Unlike trading in lumber, which
was considered a commodity, trading in veneer required taste and expertise. Chami tried to transfer this
capability to other partners and top managers at the company. Such a capability of evaluating and choosing
the best veneer was important because, for veneer, the grades “A,” “AB,” and “B,” which implied that the
higher the grade the fewer the knots in the veneer, did not mean a lot. Customers bought a certain kind of
veneer not because it was graded “A,” “AB,” or “B,” but because they liked its design and pattern. So the
sales of veneer were a function of the tastes of different customers in different countries. Chami had a very
good understanding of the tastes of different categories of customers in many different countries. When
Chami first opened in Dubai, he had much greater expertise in buying veneers than his local competitors.
Even in 2009, because of this great expertise that he had acquired buying veneers over the years, he still
personally inspected most of the veneers that Chabros bought.

Third, Chabros International Group was on the one hand a wood manufacturer and on the other hand a
wood wholesaler. Having such a dual strategic posture gave Chabros an advantage over competitors who
were solely manufacturers and competitors who were solely wholesalers. Being simultaneously a
manufacturer and a wholesaler gave Chabros strategic flexibility. Being a low-cost wood manufacturer of
European wood species, Chabros was able to sell the different kinds and qualities of European wood at
lower prices than most of its wholesale competitors. And by being a wood wholesaler, Chabros was able to
purchase the non-European wood species from the manufacturers with the lowest prices and compete with
the manufacturers with the higher prices. For example, consider the situation where Chabros, as a
wholesaler, had the choice to buy veneer from two different American veneer manufacturers. The first
manufacturer, because of his distance from the forests, was manufacturing veneer at a cost of $1.50 per
square metre and selling it at a price of $1.70 per square metre, whereas the second manufacturer, because
of his proximity to the forests, was manufacturing the same veneer at a cost of $1.40 per square metre and
selling it at a price of $1.50 per square metre. Chabros bought the veneer from the second manufacturer at
$1.50 per square metre, a price equal to the cost that the first manufacturer was incurring to produce its

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veneer. In addition, Chabros received the wood once it paid for it, whereas the manufacturer paid for the
trees three to four months before the veneer was available for sale. Chabros, in this case as a wholesaler,
had a better competitive position than its manufacturing competitor.

Fourth, given Chabros International Group’s size, the company benefited from economies of scale. To
serve wider and bigger markets Chabros bought bigger quantities and all the different qualities of wood
instead of buying only smaller quantities or only higher qualities of wood (i.e. “A” and/or “AB”). This was
because Chabros had higher sales and greater variety in markets that demanded more quantities and
different qualities of wood (e.g. selling veneer of “A” quality to the UAE, “AB” quality to Saudi Arabia
and Lebanon, and “B” quality to Egypt), which ultimately lowered the cost of wood for Chabros.

Finally, according to Chami, Chabros had an advantage over its non-MENA region competitors (e.g.
European, American, and/or Asian competitors) in that it simultaneously understood and adapted to its
Western suppliers and MENA countries’ customers. This was because the majority of Chabros’s
employees were Lebanese and Lebanese people were known to be very adaptable due to their culture,
which had emerged as a mixture of their Arabic roots and a French tinge. Lebanese people were Arabs who
had been colonized for several decades by the French empire. This made them open to both Western and
Arabic cultures. They gained the twin capabilities of being able to understand and adapt to the behaviors of
their Western suppliers and speak the language of their MENA countries’ customers, thus facilitating
Chabros’s business between the East and West.

While Chabros International Group had several competitive advantages it also had some disadvantages.
First, being a wood manufacturer sometimes put Chabros at a disadvantage. While being a veneer
wholesaler sometimes gave Chabros an advantage over other veneer manufacturers, being a lumber
manufacturer put Chabros in the reverse situation and sometimes gave it a disadvantage compared to
lumber wholesalers. For example, in 2008, when the euro reached $1.55, Chabros’s Russian supplier was
able to sell Chabros’s Dubai subsidiary the same lumber that Chabros produced at its Serbian sawmill at a
lower price. This was because Chabros’s Serbian sawmill’s costs and prices were in euros, whereas the
Russian supplier’s costs and prices were in U.S. dollars. At that point, Chabros had to cut down on its
production in Serbia and sell from its Russian supplier’s/competitor’s production.

Second, not having seriously worked on Chabros’s image and brand name somehow put the company at a
disadvantage. Thus, while Chabros was operating in seven MENA countries, the Chabros brand name was
not very well known in the region, not to mention in its parent country, Lebanon.

To grow his company and to increase his profits, Chami followed several strategies. Due to the wood
supply shortage that Chabros encountered during the early 2000s, one of the earlier strategies that he
followed was acquiring his Serbian supplier, which had not been able to meet Chabros’s sales demands, for
$1.4 million and investing another $10 million to expand the sawmill’s capacity so that it could meet
Chabros’s increasing sales demands.

Another strategy that Chami followed was not to sell large quantities with small margins but rather to
provide customers with a greater variety of wood products and qualities so that they could satisfy all their
lumber and veneer needs with Chabros, and find the lumber and veneer they could not find elsewhere. For
example, while its competitors were selling only 10 kinds of wood (lumber and veneer) Chabros was
selling 40, and while its competitors were selling only one or two qualities of wood Chabros was selling
three or four.

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A third strategy was expanding into countries with a high demand for European lumber species. This way
he could supply these countries with lumber produced at Chabros Serbia’s sawmill rather than with lumber
produced by other lumber-supplying/producing companies. By following this strategy, he could sell more
of his products at higher margins yet at prices lower than other rival domestic importers. Chami planned to
expand into two new countries every year if possible.

A fourth and, in Chami’s view, extremely important strategy that he followed was his flexible payment
strategy. Chami not only did not ask his customers for any letters of credit (L/Cs), but also offered them
flexible payment terms. For example, even if he agreed that a customer paid within 90 days, contrary to his
non-MENA region competitors, he did not take any legal action if that customer was one or two or even
three months late to pay. Moreover, because he did not ask for any L/Cs, customers were able to ask for
different kinds of wood products, sizes, and qualities without going through the hassle of applying for a
new L/C or adjusting a previously existing L/C. As a consequence, customers loved to work with Chabros.

All these advantages and strategies helped Chabros International Group grow very fast, however, not for
very long…

THE CRISIS

On December 30, 2009, Chami reviewed his company’s end-of-year financial statements. Chabros Dubai’s
sales had dropped by 30 per cent and Dubai was Chabros International Group’s largest market! To make
things worse, Chami had just invested more than $11 million to buy his Serbian sawmill and multiply its
capacity only two years earlier! In 2007 and 2008, 100 per cent of the wood produced by Chabros Serbia’s
sawmill was sold by Chabros’s MENA subsidiaries. However, at the end of 2009 Chabros’s MENA
subsidiaries bought only 50 per cent of the sawmill’s production! The 2008 global economic crisis created
a 2009 Chabros financial crisis!

Shocked, Chami went into crisis mode. He had to find solutions and he had to find them fast. He started
asking himself: “What to do now? How to control the damage and save the company? How to overcome
this financial crisis? Should we close parts of the mill and reduce its capacity to match our markets’ current
demand? Or should we, despite the global downturn in demand, try to re-boost sales to match our Serbian
sawmill’s excess capacity? If we reduce the mill’s capacity, how much of that capacity should be reduced?
If we decide to re-boost sales to match the mill’s existing capacity, how should we do that? Was now the
right time to follow such a growth strategy? If we decide to follow a growth strategy, which growth
strategy should be followed? Should we follow a market penetration, product development, market
development, or diversification strategy (see Exhibit 10 for explanations of each of these different
strategies)?” All these and other questions raced through Chami’s head.

Chami immediately called his top management team for an urgent meeting. In the meeting he expressed
his concerns about his company’s financial situation. He requested that his management team work with
him on finding solutions fast. The future seemed uncertain and the team did not know what to expect.
However, Chabros had good financial and human resources and had very good knowledge of its wood
business.

To overcome the current situation, Chami and his team members explored different alternatives. They
explored the alternative of closing parts of their Serbian sawmill (they recognized that by closing half of
the sawmill they would reduce the number of the sawmill’s employees by half and thus save $400,000 per
year in salaries). They looked at the alternative of trying to re-boost Chabros’s sales. They examined the

For the exclusive use of L. Zhang, 2023.

This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.

Page 8 9B10M100

different strategies that they could follow if they decided to try and grow the company’s sales. They
thought about whether they could increase Chabros’s market share in the countries where it already
operated — i.e. follow a market penetration strategy — and if so, which existing markets/countries to
penetrate. They contemplated the different countries that they would expand into if they decided to follow
a market development or diversification strategy. They gave special attention to Morocco because they
were particularly interested in it. Although they did not do a strengths, weaknesses, opportunities, and
threats (SWOT) analysis and did not prepare financial estimates for the other potential target countries,
they did so for Morocco (see Exhibits 11, 12, and 13). They even asked themselves whether they should
change their product mix — that is, focus on lumber more than on veneer, although veneer initially was the
core business of the company, or focus on veneer more than lumber. To decide upon a course of action
they gathered information related to these alternatives (this information is available in Exhibits 14 and 15).
All these alternatives had their benefits and risks. Chami and his top management team had to decide
which course of action to follow and they had to decide very quickly.

For the exclusive use of L. Zhang, 2023.

This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.

Page 9 9B10M100

EXHIBIT 1: GLOSSARY OF TERMS

Wood veneer: In woodworking, veneer refers to thin slices of wood, usually thinner than three
millimetres (an eighth of an inch), that are typically glued onto core panels (typically, wood, particle board
or medium-density fiberboard) to produce flat panels such as doors, tops and panels for cabinets, parquet
floors and parts of furniture. They are also used in marquetry. Plywood consists of three or more layers of
veneer, each glued with its grain at right angles to adjacent layers for strength. Veneer beading is a thin
layer of decorative edging placed around objects such as jewelry boxes.

Veneer is obtained either by “peeling” the trunk of a tree or by slicing large rectangular blocks of wood
known as flitches. The appearance of the grain and figure in wood comes from slicing through the growth
rings of a tree and depends upon the angle at which the wood is sliced.

Lumber: Boards or planks that have been sawn (usually on all four sides) or split from large harvested
logs. Though this term is often used interchangeably with “timber,” “lumber” specifically refers to this
wood product within the wood-products industry. Lumber appears in a wide variety of end uses, including
construction, flooring, paneling, and furniture.

Note: Additional information about Chabros International Group can be found on the company’s website: www.chabros.com.

For the exclusive use of L. Zhang, 2023.

This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.

http://en.wikipedia.org/wiki/Woodworking

http://en.wikipedia.org/wiki/Millimetre

http://en.wikipedia.org/wiki/Glue

http://en.wikipedia.org/wiki/Wood

http://en.wikipedia.org/wiki/Particle_board

http://en.wikipedia.org/wiki/Medium-density_fiberboard

http://en.wikipedia.org/wiki/Cabinet_(furniture)

http://en.wikipedia.org/wiki/Parquetry

http://en.wikipedia.org/wiki/Flooring

http://en.wikipedia.org/wiki/Furniture

http://en.wikipedia.org/wiki/Marquetry

http://en.wikipedia.org/wiki/Plywood

http://en.wikipedia.org/wiki/Wood_grain

http://en.wikipedia.org/wiki/Bead_(woodworking)

http://en.wikipedia.org/wiki/Grain_(wood)

http://en.wikipedia.org/wiki/Figure_(wood)

http://en.wikipedia.org/wiki/Growth_rings

Page 10 9B10M100

EXHIBIT 2: CHABROS INTL. GROUP’S SUBSIDIARY GROWTH BY YEAR

Year Office/Subsidiary Location Office/Subsidiary Purpose Country State/City
1969 Lebanon Beirut Headquarters

1998-
1999

United Arab
Emirates (UAE)

Dubai

Sales subsidiary: Cut and sold mainly higher quality imported
wood (lumber and veneer) usually within the country but
sometimes to nearby countries.

2001 Kingdom of
Saudi Arabia
(KSA)

Riyadh Sales subsidiary: Cut and sold mainly higher quality imported
wood (lumber and veneer) usually within the country but
sometimes to nearby countries.

2003 Serbia Sremska
Mitrovica

Import office: Purchased wood from Europe and exported it to
the Middle East and financed the Serbian sawmill from 2003-
2007.

2004 Qatar Doha Sales subsidiary: Cut and sold mainly higher quality imported
wood (lumber and veneer) usually within the country but
sometimes to nearby countries.

2005 Oman Muscat Sales subsidiary: Cut and sold mainly higher quality imported
wood (lumber and veneer) usually within the country but
sometimes to nearby countries.

2005 Egypt Cairo Sales subsidiary: Cut and sold mainly lower quality imported
wood (lumber and veneer) usually within the country but
sometimes to nearby countries.

2006 UAE Abu Dhabi Sales subsidiary: Cut and sold mainly higher quality imported
wood (lumber and veneer) usually within the country but
sometimes to nearby countries.

2007 KSA Jeddah (on
the sea)

Sales subsidiary: Cut and sold mainly higher quality imported
wood (lumber and veneer) usually within the country but
sometimes to nearby countries.

2007 Serbia Loznica Manufacturing subsidiary (sawmill): Bought and sawed trees,
dried the wood, and exported/sold the different qualities of the
wood to the MENA region and Europe.

For the exclusive use of L. Zhang, 2023.

This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.

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For the exclusive use of L. Zhang, 2023.

This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.

http://worldmap.org/maps/prepared/regional/middle%20east%20and%20north%20africa/MiddleEast_NorthAfrica_jfilm

Page 12 9B10M100

EXHIBIT 4: CHABROS INTL. GROUP’S SALES IN US$ (MILLION)

Year Sales
2005 $60
2006 $72
2007 $85
2008 $100
2009 $90

EXHIBIT 5: SALES RANKING OF CHABROS INTL. GROUP’S SUBSIDIARIES IN 2009

Sales Rank Subsidiary/Office
1 Dubai
2 Riyadh
3 Doha
4 Beirut
5 Cairo
6 Muscat
7 Jeddah
8 Abu Dhabi

EXHIBIT 6: CHABROS INTL. GROUP’S PRODUCT CATEGORY SALES
IN US$ (MILLION)

Year Veneer Lumber Total
2005 $30 $30 $60
2008 $40 $60 $100
2009 $35 $55 $90

EXHIBIT 7: CHABROS INTL. GROUP’S NET PROFITS FROM SALES (%)

2005 6.0
2006 6.5
2007 6.8
2008 6.7
2009 4.2

For the exclusive use of L. Zhang, 2023.

This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.

Page 13 9B10M100

EXHIBIT 8: CHABROS INTL. GROUP’S MARKET SHARE BY COUNTRY IN 2009 (%)

Country Market Share
Lumber Veneer

UAE 20 >50
Qatar 20 >50
KSA 1 >50
Lebanon 2 >50
Oman 5 >50
Egypt <1 10

EXHIBIT 9: CHABROS INTL. GROUP’S EMPLOYEE DISTRIBUTION IN 2009

Chabros Subsidiary/Office Number of Employees
Dubai 180
Loznica 140
Riyadh 70
Beirut 35
Jeddah 30
Doha 25
Cairo 15
Abu Dhabi 10
Muscat 10

Total Number of Employees 515

EXHIBIT 10: DIFFERENT GROWTH STRATEGIES AVAILABLE TO CHABROS INTL. GROUP

Products

Markets

Market Penetration
(more sales and/or more subsidiaries)
Same markets (e.g. same countries),
Same products (e.g. same wood
products)

Product Development
(new products)
Same markets (e.g. same countries),
New products (e.g. new wood products)

Existing
Markets

Market Development
(new markets)
New markets (e.g. new countries),
Same products (e.g. same wood
products)

Diversification
(new products for new markets)
New products (e.g. new wood
products), New markets (e.g. new
countries)

New
Markets

Existing Products New Products

For the exclusive use of L. Zhang, 2023.

This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.

Page 14 9B10M100

EXHIBIT 11: MOROCCO’S (CASABLANCA’S) SWOT ANALYSIS FOR 2010

Strengths
• Specialized know-how
• Known E.U. quality standards
• Capacity to consistently supply the market

with similar-quality products
• Moroccans’ positive perception of projects

accomplished in Dubai

Weaknesses
• Lacking local relational networks, particularly with

customers and government
• Chabros is not known in Casablanca
• Chabros does not know which Moroccan customers

are creditworthy and which ones are not; the
company does not use letters of credit (L/Cs)

Opportunities
• No serious competent local rivals
• Big market currently served mainly by imports
• High demand for Chabros Serbia’s European

lumber species
• Very few sellers of veneer
• Morocco is not passing through a recession
• Morocco’s currency, the dirham, is pegged to

the euro, similarly to Serbia’s currency, the
dinar, which reduced Chabros International
Group’s exchange rate risk

Threats
• Supply contracts exclusively awarded to historically

well-established suppliers (monopoly)
• Possible entry of new foreign competitors
• Possible changes in taxes and tariffs
• Possible tacit collusion of local competitors

EXHIBIT 12: MOROCCO’S (CASABLANCA’S) FINANCIAL ESTIMATES FOR 2010 (US$ THOUSAND)

Sales $6,000
Cost of goods sold $4,800

Gross profit margin $1,200
Operational expenses $480

Earnings before interest & taxes $720

EXHIBIT 13: MOROCCO’S LOCAL LEGAL AND FISCAL CHARACTERISTICS IN 2010

• Tariffs on lumber are 5%.
• Tariffs on veneer boards that are ready to use are 35%.
• Tax exemption on profit for the first 5 years, then tax of 30%.
• Value added tax (VAT) on lumber is 14%.
• Moroccan law guarantees re-transfer of capital, annual transfer of

dividends, and transfer of capital in case of termination.
• Capital can be 100% foreign.
• Income tax around 18%.
• Sales can be made abroad.

For the exclusive use of L. Zhang, 2023.

This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.

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This document is authorized for use only by Limeng Zhang in Strategic Management (MGMT 4890) taught by Kelly Ashihara, Dongguk University from Dec 2022 to Jun 2023.

http://data.worldbank.org/data-catalog

http://www.distancefromto.net/country-distance-from/Lebanon

Wood Veneer

Lumber

1/17/2023

Qatar

Bahrain

Durham is pegged to the Euro – hence exchange rate and pricing will not compete with dollar pegged currencies (unless imported)
Not passing through recession
Few sellers of veneer
High demand for European lumber

Low tariffs on lumber (19%)
Mostly foreign competitors, subject to same tariffs
Transfer of capital
Tax exemption for 5 years.
14

Exchange Rate History (Euro / $1)
EUR per 1 USD

USD at low to Euro

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image6

image7

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image9

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image12

image13

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image15

image16

image17

image18

image19

image20.emf

Supplemental reading for Chabros case

Boomtown of Dubai feels effects of global crisis

By Robert F. Worth Published: Sunday, October 5, 2008

The palm-shaped islands off Dubai are being built and developed by Nakheel Properties

a division of state-owned Dubai World. ((iStock))

DUBAI, United Arab Emirates — On the surface, this glittering Arabian boomtown seems immune to the financial crisis plaguing the global economy.

The skyline still bristles with cranes — an estimated 20 percent of the world’s total — and the papers are full of ads promoting spectacular new building projects. On Sept. 24, tourists from around the world flocked to the opening of Atlantis, a gargantuan, pink, $1.5 billion resort hotel built on an artificial, palm-shaped island. There was no shortage of people willing to pay as much as $25,000 a night for a room, to gaze at the sharks and rays in a vast glass-lined aquarium in the lobby and to dine at marquee restaurants like Nobu and Brasserie Rostang.

But as

recession

looms in the West, cracks are appearing in the oil-fueled boom that has made Dubai, with its futuristic skyscrapers on the turquoise waters of the Gulf, a global byword for unfettered growth.

Banks are reining in lending, casting a pall over corporate finance and building plans. Oil prices have been dropping. Stock markets across the region have been falling since June. After insisting for days that the oil-rich Gulf region was fully “insulated” from financial troubles abroad, the Emirates’ Central Bank made about $13.6 billion available on Sept. 22 to ease credit problems, in an echo of bailout measures in the United States. Already, some bankers are saying it is not enough.

Some of Dubai’s more extravagant building projects — the ever-bigger malls, islands and indoor ski slopes — are likely to be dropped if they do not already have financing lined up, bankers say. The credit crisis could also reduce demand from buyers, who will have a harder time getting mortgages.

The shrinkage will be more severe if the financial crisis worsens in the West. Property prices and rents, which have remained steady until now, are widely expected to start dropping soon.

At the same time, investor confidence has been harmed by a long string of high-level corporate scandals, jeopardizing Dubai’s long-term ambition of becoming a regional financial capital. “Plenty of people are worried,” said Gilbert Bazi, 25, a real estate broker from Lebanon who moved here a year ago. “They are waiting to see if what happened in the United States will happen here.”

When he first arrived, Bazi said, making money was almost absurdly easy. “Iranians, Russians, Europeans — everybody was buying,” he said. “I didn’t have to call people; they were calling me.”

Now, Bazi stalks the lobbies of hotels, trying to find clients. “The market is sleeping,” he said.

In fairness, Dubai still looks rosy when set against the financial turmoil elsewhere. Although it lacks the oil wealth of its sister emirate Abu Dhabi, Dubai has huge budget and current account surpluses, and the government of the Emirates federation is able and willing — like its Gulf neighbors — to inject an almost unlimited amount of money into the system to ease credit problems.

The governments of Saudi Arabia and Qatar have reaped so much profit from oil and gas in recent years that they are more worried about how to spend it than about managing any downturn. But the Gulf’s governments face real economic challenges, albeit ones that are profoundly different from those in the West.

Until recently, credit in Dubai was growing by 49 percent a year, according to the Emirates’ Central Bank — a rate almost double that of bank deposits’ growth. That unnerved some bankers here, who felt it could lead to a collapse.

“In the U.S., the challenge is about keeping the banks going,” said Marios Maratheftis, chief economist for Standard Chartered Bank. “Here, the economy has been overheated, a correction is needed, and it’s about making sure the slowdown happens in a smooth, orderly manner.”

If that sounds like an easy problem to have, consider the manic vicissitudes of Dubai’s real estate market. Speculators often got bank loans to put down 10 percent on a property that had not yet been built, only to flip it for a huge profit to another buyer, who would do the same thing, and on and on. That was easy to do when housing prices here were surging so fast that some properties multiplied tenfold in value in just a few years.

But the Dubai authorities began getting nervous about this and imposed new regulations this summer to limit speculation. Many analysts say the slowdown in Dubai’s economy, assuming it does not worsen to a slump, will make the city’s growth more sustainable and healthy by reducing its dependence on loans and speculation.

Similarly, the authorities hope that recent arrests in corporate scandals will root out the culture of corruption that plagues so many Arab countries. Some of those arrested have been Emiratis with connections to the ruling family, in a gesture clearly intended to send the message that no one is exempt.

As Dubai’s frenzied growth slows, whether there is a hard or soft landing will depend in great part on the banks, the link between the region’s declining stock markets and its still-thriving property sector.”Banks will have to start lending to end-users,” said Robert McKinnon, a real estate analyst and head of equity research at Al Mal Capital here, referring to people who actually plan on occupying properties as opposed to trading them for profit. “There are some questions about how the banks will handle that transition.”

At worst, if the global economy worsened and some Dubai banks failed, there would be a firm crutch to lean on. In the early 1980s, after several Dubai banks stumbled, the government rescued them and relaunched them as the Emirates Bank International. In the early 1990s, two more banks were rescued. At that time, of course, Dubai was far smaller. The repercussions of such a government bailout today would be far more damaging to Dubai’s image as the epicenter of Gulf development.

The government cushion appears to be part of the reason most local people do not seem anxious right now.

“We don’t worry about it,” said Hassan al-Hassani, 26, a civil engineer and an Emirati citizen, who was drinking coffee late Wednesday night with relatives and friends at a faux-Bedouin-style tent, set up among Dubai’s hypermodern skyscrapers in honor of the Muslim holy month of Ramadan. “Maybe it’s good for things to calm down.”

A few yards away, guests admired a miniature model of a new residential and commercial Dubai development called the City of Arabia, which includes what will be — if it is really built — the biggest mall in the world.

“Sometimes we wonder, will people really come to live in these places?” Hassani asked. But he quickly brushed off the thought with a smile, reminding his listener that native Emiratis — unlike the foreigners, who make up a majority of Dubai’s 1.3 million residents — have a different perspective.

“Remember, 30 years ago almost nobody had phones here,” he said. “There was maybe one tall building. My family only had one car.”

Financial Crisis: Dubai Bubble Burst

Washington’s Blog

Global Research, November 30, 2009

Washington’s Blog
27 November 2009

You know about Dubai’s

economic crisis

. But do you know the background to – and fallout from – the crisis?

A Brief History

Historically, Dubai had an oil-based economy.

But because Dubai’s oil reserves were declining, the government – led by Sheikh Muhammed Al Maktoum – decided to diversify into other areas, especially tourism and commerce. That’s why Dubai built the

world’s only 7 star hotel

, a series of

luxury islands

, and the

world’s largest tower

But the global property

bubble

is bursting.

As I

wrote

last December:

Housing bubbles are now bursting in

China

France

Spain

Ireland

, the

United Kingdom

Eastern Europe

, and

many other regions

. And the bubble in commercial real estate is also bursting world-wide. But Dubai got hit the hardest.

As Bloomberg

notes

Dubai suffered the world’s steepest property slump in the global recession, with home prices dropping 50 percent from their 2008 peak, according to Deutsche Bank AG.

As the CBC
notes, things went South quickly in Dubai:

Hundreds of billions of dollars worth of building projects were delayed or cancelled. Thousands of jobs disappeared.

Dubai, playground of the über-extravagant, suddenly found itself facing the very real possibility that its biggest state-owned company, Dubai World, could go into bankruptcy. It warned it was having trouble making debt payments on $59 billion US — money borrowed to pay for all the excess.

The 2007-08 Financial Crisis In Review

Manoj Singh

Before the Beginning

Like all previous cycles of booms and busts, the seeds of the

subprime meltdown

were sown during unusual times. In 2001, the U.S. economy experienced a mild, short-lived
recession. Although the economy nicely withstood terrorist attacks, the bust of the

dotcom

bubble, and accounting scandals, the fear of recession really preoccupied everybody’s minds.

To keep recession away, the

Federal Reserve

lowered the

Federal funds rate

11 times – from 6.5% in May 2000 to 1.75% in December 2001 – creating a flood of

liquidity

in the economy. Cheap money, once out of the bottle, always looks to be taken for a ride. It found easy prey in restless bankers – and even more restless borrowers who had

no income, no job and no assets

. These subprime borrowers wanted to realize their life’s dream of acquiring a home. For them, holding the hands of a willing banker was a new ray of hope. More home loans, more home buyers, more appreciation in home prices. It wasn’t long before things started to move just as the cheap money wanted them to.

This environment of easy credit and the upward spiral of home prices made investments in higher yielding subprime mortgages look like a new rush for gold. The Fed continued slashing interest rates, emboldened, perhaps, by continued low inflation despite lower interest rates. In June 2003, the Fed lowered interest rates to 1%, the lowest rate in 45 years. The whole financial market started resembling a candy shop where everything was selling at a huge discount and without any

down payment

. “Lick your candy now and pay for it later” – the entire subprime mortgage market seemed to encourage those with a sweet tooth for have-it-now investments. Unfortunately, no one was there to warn about the tummy aches that would follow. (For more reading on the subprime mortgage market, see our

Subprime Mortgages

special feature.)

But the bankers thought that it just wasn’t enough to lend the candies lying on their shelves. They decided to repackage candy loans into

collateralized debt obligations

(CDOs) and pass on the debt to another candy shop. Hurrah! Soon a big secondary market for originating and distributing subprime loans developed. To make things merrier, in October 2004, the

Securities Exchange Commission

(SEC) relaxed the net capital requirement for five investment banks – Goldman Sachs (NYSE:

), Merrill Lynch (NYSE:

MER

), Lehman Brothers, Bear Stearns and Morgan Stanley (NYSE:

) – which freed them to

leverage

up to 30-times or even 40-times their initial investment. Everybody was on a sugar high, feeling as if the cavities were never going to come.

The Beginning of the End
But, every good item has a bad side, and several of these factors started to emerge alongside one another. The trouble started when the interest rates started rising and home ownership reached a saturation point. From June 30, 2004, onward, the Fed started raising rates so much that by June 2006, the Federal funds rate had reached 5.25% (which remained unchanged until August 2007).

Declines Begin
There were early signs of distress: by 2004, U.S. homeownership had peaked at 70%; no one was interested in buying or eating more candy. Then, during the last quarter of 2005, home prices started to fall, which led to a 40% decline in the U.S. Home Construction Index during 2006. Not only were new homes being affected, but many subprime borrowers now could not withstand the higher interest rates and they started defaulting on their loans.

This caused 2007 to start with bad news from multiple sources. Every month, one subprime lender or another was filing for bankruptcy. During February and March 2007, more than 25 subprime lenders filed for bankruptcy, which was enough to start the tide. In April, well-known New Century Financial also filed for bankruptcy.

Investments and the Public
Problems in the subprime market began hitting the news, raising more people’s curiosity. Horror stories started to leak out.

According to 2007 news reports, financial firms and

hedge funds

owned more than $1 trillion in securities backed by these now-failing subprime mortgages – enough to start a global financial tsunami if more subprime borrowers started defaulting. By June, Bear Stearns stopped redemptions in two of its hedge funds and Merrill Lynch seized $800 million in assets from two Bear Stearns hedge funds. But even this large move was only a small affair in comparison to what was to happen in the months ahead.

August 2007: The Landslide Begins
It became apparent in August 2007 that the financial market could not solve the subprime crisis on its own and the problems spread beyond the UnitedState’s borders. The

interbank market

froze completely, largely due to prevailing fear of the unknown amidst banks. Northern Rock, a British bank, had to approach the

Bank of England

for emergency funding due to a liquidity problem. By that time,

central banks

and governments around the world had started coming together to prevent further financial catastrophe.

Multidimensional Problems
The subprime crisis’s unique issues called for both conventional and unconventional methods, which were employed by governments worldwide. In a unanimous move, central banks of several countries resorted to coordinated action to provide liquidity support to financial institutions. The idea was to put the interbank market back on its feet.
The Fed started slashing the discount rate as well as the funds rate, but bad news continued to pour in from all sides. Lehman Brothers filed for bankruptcy, Indymac bank collapsed, Bear Stearns was acquired by JP Morgan Chase (NYSE:

JPM

), Merrill Lynch was sold to Bank of America, and Fannie Mae and Freddie Mac were put under the control of the U.S. federal government.

By October 2008, the Federal funds rate and the discount rate were reduced to 1% and 1.75%, respectively. Central banks in England, China, Canada, Sweden, Switzerland and the

European Central Bank

(ECB) also resorted to rate cuts to aid the world economy. But rate cuts and liquidity support in itself were not enough to stop such a widespread financial meltdown.

The U.S. government then came out with National Economic Stabilization Act of 2008, which created a corpus of $700 billion to purchase distressed assets, especially mortgage-backed securities. Different governments came out with their own versions of bailout packages, government guarantees and outright nationalization.

Crisis of Confidence After All
The financial crisis of 2007-08 has taught us that the confidence of the financial market, once shattered, can’t be quickly restored. In an interconnected world, a seeming liquidity crisis can very quickly turn into a solvency crisis for financial institutions, a balance of payment crisis for sovereign countries and a full-blown crisis of confidence for the entire world. But the silver lining is that, after every crisis in the past, markets have come out strong to forge new beginnings.

To read more about other recessions and crises, see

A Review Of Past Recessions

Read more:
The 2007-08 Financial Crisis In Review

http://www.investopedia.com/articles/economics/09/financial-crisis-review.asp#ixzz3mAW8kJcG

Investopedia on Facebook

Dollar slides to 2009 low versus euro

Published: May 22, 2009 5:21 p.m. ET

By DEBORAH LEVINE

NEW YORK (MarketWatch) — The dollar fell to the lowest level versus the euro since December on Friday, as traders looked for alternatives to the U.S. dollar amid waning fears about the global economy’s prospects.

The euro rose to $1.3996 on Friday, after passing the key $1.40 mark to touch $1.4049 earlier. That was up from $1.3904 in late North American trading Thursday.

The dollar index

DXY, +0.65%

a measure of the greenback against its major counterparts, fell to the lowest level since December. It traded at 80.045 from 80.554 late Thursday.

The index has lost about 3.6% this week, the worst performance since March. The euro has gained about 3% versus the U.S. currency and the British pound is up more than 4%.

“We’ve turned to a more dollar-bearish environment,” said

Nic Pifer

, head of global fixed income at RiverSource Investments, who helps oversee $4.6 billion. “As markets start to loosen up again and risk appetite comes back into vogue — in high-yield debt, emerging markets and equities — that safe-haven demand for the dollar has dissipated.”

Trading volume across most markets was light ahead of a three-day weekend in the U.S. and U.K.

“In the near-term, the stars are aligned against the U.S. dollar,” said foreign exchange strategists at Brown Brothers Harriman in a note.

“If the news stream is good, we are told investors are less risk averse and do not need the dollar’s security. If the news stream is poor, we are told the U.S. is in horrific shape and the budget deficit and Fed’s balance sheet will swell even more” to the detriment of the dollar.

“It is difficult to see what will break this psychology in the coming weeks,” they added.

The dollar inched up against the Japanese yen, at 94.77 yen compared with 94.34 yen Thursday. Japanese officials said they wouldn’t intervene in the currency market to keep down the recently sizzling Japanese unit.

See full story.

“I don’t think institutional investors are all that concerned over what S&P may do in the future,” said Christopher Sullivan, chief investment officer at United Nations Federal Credit Union.

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1/21/23, 2:17 AM Week 3: Chabros Case Study: MGMT 4890 02 23WQ Strategic Management

https://seattleu.instructure.com/courses/1607347/pages/week-3-chabros-case-study?module_item_id=17738684 1/2

Week 3: Chabros Case Study
Chabros Case Study / Teamwork
This week we are going to cover the strategy of Chabros and also look at teamwork, to enable your
teams to establish basic communication and choose a team leader. I had planned to do a teamwork
exercise and announce teams, but it seems like not enough of the class has taken the course survey,
which is necessary to assign teams (due by Sunday).

We will instead go over the Chabros Case Study in more depth as you have a quiz that will cover the
case study. This case is particularly relevant given recent changes in oil prices and evaluation of how
macroeconomic trends (PESTEL) influence corporate strategy and decision-making. Given recent
changes in the relative value of the dollar and fluctuation of oil prices / the pandemic, this case
highlights how macroeconomic factors can change the competitive landscape and influence strategy.

These are your TEAM case study questions.

You will have a team Case Study (10-15 pages) Write up and PPT (max 15 slides) Due:
Monday 1/23: 8pmIn assigning or discussing the allocation and division of work, I recommend
that at least 2 persons do each problem and that you consider working together. Powerpoint will
be handed in and used in class and will not be presented.

Case Study Questions:

1. Detail the competitive advantages of Chabros vis-a-vis its competitors. Compose a SWOT
analysis of Charbros which includes details on their product offerings.

2. Explain how the product mix of Chabros affects the strategy. Include financial terms and how
currency in particular may impact Charbros’ choice of products to both now and in the future.

3. If Chami were to choose a market penetration growth strategy – or – in other words, further
penetrate one country, which country where Chabros is already present would you further
penetrate (Lebanon, the United Arab Emirates, Saudi Arabia, Qatar, Oman, Egypt)? Develop a
rationale and model to rank the countries that comprises internal and external factors; explain
your rationale and how you derived your ranking.

1/21/23, 2:17 AM Week 3: Chabros Case Study: MGMT 4890 02 23WQ Strategic Management

https://seattleu.instructure.com/courses/1607347/pages/week-3-chabros-case-study?module_item_id=17738684 2/2

4. If you decide to follow market development growth strategy, into which new country would
you expand (Algeria, Bahrain, Iran, Iraq, Jordan, Kuwait, Libya, Syria, Tunisia, Morocco)? Rank
the candidate countries. Explain how you derived your ranking.

5. What do you think Chami should do about the sawmill? Elaborate on the advantages and
disadvantages of vertically integration (owning the sawmill) provides Chabros and whether such
provides a greater competitive advantage for Chabros? Include discussion of currency and future
events in your answer.

6. Given your analysis and above, make a recommendation on the strategy Chabros should
pursue – should he close parts or all of the sawmill mill? Try to use capacity by expanding markets
– and if so, which strategy – market development (new markets, same products), market
penetration (existing markets, same products), product development (same markets, new
products) or diversification (new products, new markets)? Be specific.

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