It’s been a long time between book reviews on here.  Here’s a tome I picked up on my way home from the US earlier this year (and read from cover to cover on the flight from LA to Sydney).

Some of you may have read the very popular Freakonomics,  If so, you no doubt recall the fascinating discussion of the machinations of running a Chicago street gang (i.e. regarding incentives, monitoring, trickle down of rents/profits) and specifically a drug-dealing business.

Much of that material was based on research by Sudhir Venkatesh, a sociologist from the University of Chicago, who spent almost 10 years undertaking PhD research in a housing project near said college.

This book sees Venkatesh reflect upon his extraordinary journey from naive scholar to…well, a still pretty naive scholar.  His process of embedding himself in the gang, mainly by hanging round and asking questions, is really a tale of blind luck coupled with an apparent lack of forethought about the risks he was taking.

The organisational insights gathered through his immersion are occasionally profound, although in many ways they were clearer in the Freakonomics chapter, and their implications more adeptly explored therein.  

The gang is shown to be a complex hierarchy of relationships, with sophisticated monitoring mechanisms, incentive schemes (not just financial, but also with rewards built around status, sex and privilege) and extra-legal enforcement (i.e. punishment by force and/or exclusion).

Anyone who has watched more than a few episodes of The Wire (the TV series about Baltimore gangs and police) will find this all pretty familiar. There are parallels to strategy in most chapters, which should not surprise. These guys are running a lucrative set of businesses in some hotly contented markets.

Given that this book doesn’t add too much more to our understanding of gang mechanics, what does it provide?  Well, for any budding scholars, especially those contemplating anthropological work around organisations, you do get some refreshing insights into what is involved, and what can go wrong. 

Venkatesh repeatedly makes some astounding errors in judgement about the implications of his questions, his actions and his associations.  He sporadically puts subjects’ lives at risk, yet seems to learn so little from these mishaps. Perhaps the biggest lesson from this book might be the reinforcement of the stereotype of us academics as pretty socially ackward (possibly borderline autistic)? 

Nevertheless, this is a rollicking read that lingers long after you’ve raced through it. It just doesn’t make you want to join a gang, or a PhD programme.

Rumours abound that US clothing retailers, The Gap and Abercombie & Fitch, might be set to open stores down under. This sent me off to chat with an Honours student in our department who has spent the past six months exploring the international expansion patterns of various major retailers, including The Gap.

Here’s a little email interview I did with our newest retail expert Sakshi Banerjee:

André: How international is The Gap?

Sakshi: The Gap is actually not that international in comparison to its counterparts such as Zara (Inditex) and H&M. The focus of The Gap has always been its home market, the US. Though it has begun to internationalise, the majority of its sales (around 82%) are still generated within its home market. In comparison, H&M derives less than 10% of its sales from its home market and Inditex around 50%.

André: How many countries does The Gap operate in currently?

Sakshi: The firm has stores in six countries – The USA, Canada, The UK, Ireland, France & Japan. Here’s a link to their store (and brand) counts. They have recently started expanding by franchise, mainly in the Middle East where such an entry mode seems to be compulsory.

André: Why has it taken so long for them to get down here?

Sakshi: The reason for the lateness of their entrance in the Australian market can be attributed to a number of factors. There are organizational factors. The Gap’s high dependence on its home market and home region (NAFTA) have meant that they have been slow to expand outside their natural comfort zone. Country characteristics of Australia such as its geographic distance, being in the southern hemisphere (switched seasons) as well as its small consumer market have meant that Australia is not seen as high priority market to enter/expand to.

André: How likely do you think it is that they will indeed open down here?

Sakshi: The likeliness of them opening an actual store is very slim. The costs, the risk, and the pressure on their supply chain as well as the pressure on designers to produce alternative seasons’ clothes mean that the likelihood of them opening is very slim. And as for Abercombie and Fitch, their clothes are already being carried in certain stores in Australia, so there might not be that much to gain.

André: Do you think this would attract the other big fashion retailers to Australia too?

Sakshi: I do not believe that this will attract other major fashion retailers. Inditex has explicitly stated that it will not be coming to Australia and currently H&M is more focused on expanding their presence in the Asian markets.

André: Thanks Sakshi.

Anyone else got questions for Sakshi (or me)?

The take-up speed of new technology or products is an important issue for any firm involved in innovation-driven industries.

We typically argue in the early stage of industry or product life cycles firms will battle it out to produce the dominant technology, and the winner(s) will then ride the growth wave as consumers rush in and profits soar. Finding data on such processes it not always easy.

The two slides discussed in this Techcrunch blog post looking at the uptake and impact of Apple’s iPhone and iTouch are illuminating.

The first shows the speed at which various comparable technologies were taken up in their respective markets (in (admittedly crude) terms of number of products shipped):

Source: Morgan Stanley Internet analyst Mary Meeker vis Techcrunch

What is apparent is the huge appetite for Apple’s new offerings relative to (i) its big competitor in the smartphone domain (Blackberry) and (ii) their precursors in the i-world, the iPod. No wonder Apple is more profitable than ever. Of course, you could also argue that Apple is leveraging off the harder fought gains of these precedents in terms of building consumer interest and confidence with such products… but that IS what the life-cycle idea argues too.

A neat little aside to this discussion is seeing what impact such huge market growth has on suppliers/complements. This slide looks at the upswing in mobile data traffic on the major telecoms network in the US:

Source: Morgan Stanley Internet analyst Mary Meeker vis Techcrunch

Now that’s a nice trickle-down effect!

My recent post regarding Starbucks’ potentially damaging shift into the packaged coffee market (see it here), has got me thinking about such issues more generally. In particular, I have been contemplating a couple of prominent Aussie examples.

The question is whether product or brand extensions, especially within the same (or very similar) market space might be more harmful than initially assumed.

I’ll start with Qantas (our national airline), it created the separate Jetstar brand and business back in 2003 in response to low-cost domestic competitors. The split was a logical means to circumvent a whole range of legacy restrictions in terms of labour practices, existing assets etc., and the split brand was good insurance against any immediate damage to corporate contracts, price premiums etc.

What has got a bit more complex is the move to shift the brand into the international arena, namely Asia. Numerous traditional Qantas routes have been shaved back in terms of frequency, with the gaps filled by decidely low-frills Jetstar flights. It remains unclear how financially viable this move is, and how it places Qantas versus full-service rivals in the region.

While the wording stinks of snobbery, there is certainly some substance in this quote from an Age article:

”Qantas is destroying its brand name,” a former Qantas executive says. ”It is cross-subsidising Jetstar like you won’t believe.”… “The low-fare market is the blue-singlet boys – the fellas going up [to Asia] for the bucks party – and the silver hairs…It’s the newlyweds and the newly deads. It’s just a flying bus service making its money from ancillary services”

The issue with air travel is that the market segments are not quite as simple as they first appear. A given Qantas plane has a mix of passengers cross-subsidising each others’ seats. Removing first and business class passengers hurts the viability of economy class. Flying solely economy class routes (as with Jetstar) must be hurting Qantas economy business.

Just as importantly, contributing to the downgrading of the air travel experience may create an unbreachable chasm in buying behaviour. Qantas will pushed up against higher service, but price-competitive mainstream Asian and Middle Eastern airlines, with considerably lower scope to tap into any jingoistic local market preferences.

Put simply, cheapskate Aussies will fly Jetstar internationally (especially when given little choice first time round on some routes), while more service-seeking Australians may dawdle off to Emirates, Singapore etc.

Might this have been a short-term move than hurts Qantas in the medium-to-longer term?