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Case Analysis-Arauco

In: Business and Management

Submitted By dt0809
Words 3446
Pages 14
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 like bleached and unbleached Kraft pulp; forestry products like pulpwood; and wood products like lumber and remanufactured wood products. In 2004, the company wanted to invest more to get more development. The company was facing alternatives: one was forward integration moving into paper manufacturing; the other one was horizontal expansion investing US $1 billion to construct a new state-of-the-art chemical pulp plant.

2. Situation

According to the case, we can see that the competition in the pulp industry is strong. First, the competition of existing competitors in market pulp was strong. From the case we can get that most of the large companies were involved in backward integration to produce the pulp for their paper themselves. Most major companies had their own forests, pulp mill, paper manufacturing facilities and even their own distributions. These vertically integrated pulp and paper companies produced 142 million tons of pulp out of the 183 million tons produced worldwide. There were some smaller local paper firms that still purchased the pulp from suppliers like Arauco based on their needs. For Arauco, it can only…...

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