Case Analysis-Arauco Essay

3451 Words 14 Pages
Professor Stinson
Mgt 525: Arauco Case Study
(This case analysis was completed by Lily and Roger)

1. Background

Arauco was formed through a merger between Industrias Arauco and Celulosa Constitución in
1979. After that, the company began its expansion like purchasing land and plantations and installing new technology, purchasing the company Alto Paraná in Argentina in 1996, purchasing its third mill in Chile in 2000, and building new plant which called Valdivia mill in late 2001 and the plant had opened in January 2004. With these expansions, Arauco had become one of the world’s premier forestry enterprises in terms of plantation areas and yields by 2004. The company had three main product segments which include pulp products
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Arauco’s main competitors in market pulp include Weyerhaeser which was the largest market pulp producer produced 2.7 million tons and controlled 6.5% market share; Aracruz produced 2.4 million tons and controlled 5.9% market share of market pulp; Södra produced 2.1 million tons and held 5.1% market share of market pulp; the main competitors in market pulp also have International Paper and Tembec. Arauco’s capacity was about 2.4 million tons, same with Aracruz. Arauco should compete with these companies in market pulp, meanwhile, because 85% of Arauco’s products were exported to other countries, Arauco also need to compete with the local pulp companies in other countries. At this point, the key successful factors for Aracruz are to keep lower cost, provide high quality and low sales price of pulp products than competitors to the market. Only in this way, it can obtain competitive advantage than the main and local competitors.

Second, the bargaining power of buyers was powerful. The global pulp and paper industry consisted of five main activities: forestry, pulp production, paper and board production, distribution, and converting. From these activities we can get that the overall pulp demand was originated from the needs of paper industry. According to Exhibit 12 in the case, we can easily get that the profit margin of top 25 paper companies is about 2.4; the highest profit margin among these companies is 11.8 and

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