paper case

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 Weakness Company value chain Economic condition have a direct, negative effect on pulp prices, the lower Focus on maximizing competencies and interest rates that generally accompany capability forestry company economic downturns Forest resources and sustainable Merger and Acquisition unrealistic plantations expectations, inadequate due diligence, Forestry product and conflicting corporate cultures Inexpensive fiber and low-cost production capabilities Human capital Alejandro Perez Strong Organizational culture High Technology to support firm operational Vertical Integration strategy Opportunity Threat Expanding the company's existing products New entry into other locations and/or market Pricing competition segments, or increasing the range of products/services offered to current markets, or a combination of both horizontal integration Being a market leader 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
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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
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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

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