Great Lakes: Great Decisions
Strategic Management
October 13, 2011

Great Lakes Chemical Corporation is a chemical producing corporation located in the United States that produces many different chemical compounds and solutions, including the ever controversial lead additive used in gasoline in some developing nations. The company, which was originally founded as an oil company, eventually acquired several other corporations and extended their oil business into one that handles chemicals such as bromine and eventually took over the company Octel which produced a lead additive. While the use of leaded gasoline became illegal in the US and all developed countries, it was still in heavy use in developing countries. These countries had yet converted to non-lead use, impart by the total control of these businesses by the government who cared solely on their profits. By a technological standpoint, Great Lakes uses minimal technological advances in its production of the lead additive, along with their other chemicals. With the advancement and use of non-leaded gasoline, all other chemical companies stopped producing the lead additive, mostly to comply with new regulations enforced against the environmentally unsafe additive. The company has been faced with dramatic push backs from environmentalists who urge the company to stop the production of this. The main issue with following through with this is that their economic situation has been extremely successful. The company itself is a billion dollar company, with well over half of their profit being from the lead additive itself (Octel). Although the company was beginning to see small declines in their profit, the company was still succeeding quite well. Even Wall Street analysts “projected that Octel’s share of profits from current operations would not fall below 50% for many years, despite an 8% annual decline in pounds of TEL sold.” (Mead, Wicks, Werhane & Freeman, 2008) In other words, Great Lakes was profiting quite a bit from their Octel’s lead division. To take away this portion of their production would mean to greatly reduce their profit. While the economic standpoint of this corporation has been extremely successful, the unfortunate downside is the environmental segment. The lead additive that Great Lakes produces for developing countries is extremely dangerous and lethal to the environment, including humans. It was Greek physicians who diagnosed sickness from lead exposure as lead poisoning. (p. 156) The increased proof of the dangers of leaded gasoline lead to its abolishment in the United States and all developed countries, with unleaded gasoline taking its place. The developing nations which rely on this lead additive need it because they simply have not made the conversion to the unleaded gasoline. Environmentalists did present facts to the Great Lakes showing the staggering facts on leaded gasoline, including factors such as: “in developing countries where leaded gasoline, leaded paint, and other major exposure routes were still common, all children under age two and more than 80% between the ages of three and five have blood lead levels that exceeded the World Health Organization standard. An estimated 15 million to 18 million children in economically developing countries suffer permanent damage from lead poisoning, resulting in lowered intelligence, learning disabilities, hearing loss, reduced attention span and behavioral abnormalities” (Mead, Wicks, Werhane & Freeman, 2008).

Although the company has readily admitted that the lead additive was their biggest money maker as well as its inherent danger to all, they still faced increased pressure and criticism from the public to end their production of the lead additive. While the use of this leaded additive in gasoline is illegal in the United States and in developed countries, the production of it is not. This allows Great Lakes to continue to produce and sell the product to developing countries such within Africa, the Middle East and in China. While the environmentalists, the public and US government constantly apply pressure for Great Lakes to end the production, there are currently no governmental laws prohibiting them from doing so. Currently, they are completely allowed to manufacture and sell the product to these countries. The lead additive industry is lead by The Great Lakes Corporation, as they have no competitors. With the restrictions placed on the additive in developed countries, other major producers opted to discontinue making the product. This has allowed Great Lakes to control 90 percent of the market. This is greatly due to the unappealing nature of the business regarding environmental issues, bad publicity and the large capital costs required to build plants (p. 157). This means that that is little to no threat of new entrants into this market. In addition to this, it also means that there is little to no rivalry among competing firms. Great Lakes is the majority producer of the product, controlling 90% of the market. With so much control and with being pretty much the sole producer, there is no rivalry to compete with. This ensures and guarantees a large profit from the lead additive and allows for little to no danger of there being a rivalry from any other companies. There is however, the possibility of a substitute product. While the developing countries currently only use the leaded gasoline, with increased pressure, there is a possibility that they may eventually have to switch over to the unleaded gasoline product. Even if just a few nations make the change, this has the opportunity to dramatically affect Great Lakes profit. While the risk is currently pretty low, it is something that can and just might occur in the future and is something that the company would need to consider when deciding on whether or not to continue production. In regards to the bargaining power of the suppliers and the buyers, in regards to Great Lakes, they definitely hold bargaining power over that of the buyers. The Great Lakes Corporation is the main supplier of the lead additive needed for the leaded gasoline and controls nearly all of the market. This leaves the company with the greatest bargaining power, and the buyers with little to no bargaining power. Unless the countries opt to switch to the unleaded gasoline product, they will remain with little to no bargaining power regarding this product. This is a great incentive for Great Lakes to continue to produce the product; they have nearly a guaranteed chance of success. Great Lakes currently has no real competitors, and no real impending competitors. The market of producing the lead additive for lead gasoline is so risky and unwanted, that there really isn’t a real chance of an impending competitor. Their biggest risk would be additional governmental involvement in the issue, where regulations could be set forth to either regulate the production of the lead additive, or to completely abolish the production. This would have severe effects on the company and would require them to either branch out into other markets, or to try to use the regulations to their advances. As it was mentioned in the text, the company could attempt to phase out its participation in the market and work with the developing countries to change their policies and switch to the unleaded gasoline product. When you take the other two options and compare them with this option, it seems as if it would be the best choice for The Great Lakes Corporation. If they continue to supply the product as is, they would most likely continue to see large profits but would also continue to create an environmentally hazardous chemical responsible for the illness and death of many people. They would also likely receive additional harsh publicity and even further demands from environmentalists. If they continue to produce it, they risk the US government changing their policies and forcing regulations which would make the company have to immediately stop production. If they chose to stop production and leave the market, they risk taking a huge and sudden financial loss. It seems that their best option would be to push for a phase out in the market, and set a time line goal for this to be completed. This would give them time to adjust to the expected financial loss, but to also work with governments in the developing countries in helping them change their policies and convert to unleaded gasoline.
Reference:
Mead, J., Wicks, A., Werhane, P., & Freeman, R. (2008). Great lakes: great decisions. In (pp. 155-159). Charlettesville, VA: University of Virginia Darden School Foundation.

Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2011). Strategic management: Competitiveness and globalization, concepts and cases: 2011 custom edition (9th ed.). Mason, OH: South-Western
Cengage Learning.