paper case

created by group 3 resti sari ronald - rully

I. Introduction Arauco is the largest softwood market pulp producer in Latin America. The company is

also the largest producer of forestry and wood products in the region. Arauco supports the

fiber requirements of these operations through its extensive ownership of fast growing

radiata pine, eucalyptus and taeda pine plantations. While competition in pulp and forestry

products is intense, Arauco is well positioned internationally due to companys excellent production cost structure.

II. Issue Problem Organization need to revisit and make decisions about the growth objectives and the

fundamental strategies the organization will use to achieve them. In this case, Alejandro

Perez as President and CEO Arauco tried to downward trend in market pulp over last three

years, he presented his recommendation to the board director to change the strategy into

horizontal growth plan rather than forward integration. The biggest question would shareholder except Perezs recommendation ?

III. Case Analysis Araucos SWOT Analysis

Strength

Company value chain

Focus on maximizing competencies and capability forestry company

Forest resources and sustainable plantations

Forestry product

Inexpensive fiber and low-cost production capabilities

Human capital Alejandro Perez

Strong Organizational culture

High Technology to support firm operational

Vertical Integration strategy

Weakness

Economic condition have a direct, negative effect on pulp prices, the lower

interest rates that generally accompany

economic downturns

Merger and Acquisition unrealistic expectations, inadequate due diligence,

and conflicting corporate cultures

Opportunity

Expanding the company's existing products into other locations and/or market

segments, or increasing the range of

products/services offered to current

markets, or a combination of both horizontal integration

Being a market leader

Threat

New entry

Pricing competition

IV. Question and Answer 1. a. What are the sources of Arauco's competitive advantage?

Arauco's sources competitive advantage :

Resources competitive advantage Business

Forest resources and sustainable plantations the favorable climate and soil conditions in the regions where Arauco owns land

Forestry product and Business Line

paper case

created by group 3 resti sari ronald - rully

o Pulp the largest softwood market pulp producer in Latin America and one of the

largest in the world

Arauco is competitive in the fragmented market pulp industry due to its access to inexpensive fiber and low-cost production capabilities

o Sawmill Arauco owns 11 sawmills in Chile and two in Argentina. The company also owns five remanufacturing plants, where lumber is processed

into value-added products, such as ceiling and chair rail moldings, edge-glued

panels and laminated products

o Panels a natural complement to the companys pulp and sawmills operations because it uses fiber that is wasted during these two processes

o Distribution cargo ship Organization coordination Resources

o Human Capital Alejandro Perez (President & CEO Arauco) o Organizational Culture trust, supporting, team work o Technology support installing new technology equipments, introducing new

bleaching system

o Forest research - Division helped improve the amount of wood produced per hectare per year and have

increased the density of trees, which lowers the volume of wood the company

requires to produce one ton of pulp

research and development understanding of biotechnology helped the company improve the homogeneity of the fiber on its trees and enabled Arauco

to develop different radiata pine species that adapt to various soil conditions and

terrain characteristics

Business control Organization o The company hired independent contractors to perform most of forest operation -

outsourced

o Environmental responsibility government regulation to avoid clear-cutting forest and to reduce chemical by-product such as chlorine, limit gas emission from the

operation o factories and increasing recycling (reduce, reuses and recycle)

b. What are the relationships between Arauco's competitive advantage and the company's corporate strategy?

When a company's resources are critical to the success of its businesses, the result is

competitive advantage. When the organization is configured to leverage those resources

into the businesses, synergy can be captured and coordination achieved (by david j.

collis and cynthia a. montgomery)

Arauco's competitive advantages were part of the company's corporate strategy, they

have a strongly relation to each part of competitive advantage

paper case

created by group 3 resti sari ronald - rully

2. Why did Arauco move from the only-pulp business to a set of different businesses? As we already knew that from the journal statement during several years the company has

been concentrated in the pulp business because they have young forest. While they were

maturing, Arauco developed other important businesses like woods and panel that gave a

bit more stability to the result investment made to improve Araucos assets, operational strength and economic conditions

3. Should Arauco integrate with the paper business? No, Arauco should not integrated with the paper business

As we know for almost twenty five years, Arauco focused on vertical integration to

maximizing company performance and the result was very unpredictable they become a

growth competitive company in Latin America manage their value chain, reduce operational cost, and developed other important businesses

Recommendation:

To grow its market share, Arauco should move to horizontal expansion (expanding the

company's existing products into other locations and/or market segments, or increasing

the range of products/services offered to current markets, or a combination of both. It

amounts to expanding sideways at the point(s) in the value chain that the company is

currently engaged in by Rex C. Mitchell, Ph.D)

Arauco has strong intellectual capital as a company, strong and well manage companys resource and also leading position in the volatile market pulp industry due to its low cost production capabilities

Arauco has resources and capabilities which create core competency, so they have sustainable competitive advantage over others and due to this they are creating

superior value they have high potential for sustained growth and profitability

Araucos corporate strategy align with the resources, organization and business

President and CEO Arauco got support from shareholder, they believe and trust with the capability and competencies Alejandro Perez as CEO