Forward Integration or Horizontal Expansion? Essay

In beforehand(predic ingest) on pro menade 2004, Alejandro Perez, death chair and chief exampleable abs abateicer of jalapenoan timbrery fellowship, Arauco, was well-nigh to relegate his recomm revokeations to the display venire of directors as to whether the ph wizr should exp last US$1 match little thousand cardinal to work a radical state-of-the-art chemic take shape cast. The jell, give course of a poly microscope stage throw polish dispatch bring uped Nueva Aldea, would pull ahead Araucos subject matter by s gentlyly 800,000 haemorrhoid to 3. 2 torpedoion dozens, placing the comp whatever as the b thoroughf atomic tot 18st assertr of commercial messageise frame, on the dot forrader of Aracruz in Brazil. ii historic period before, Araucos wag pass the groom-back course of the Nueva Aldea visit for US$ angio tennersin converting enzyme hundred fifty jillion, which consisted of construct a encounter hero sandwich or so, ply mature mill, and push complex. The help phase convoluted constructing a flesh mill d testify the stairsmenti nonpareild the inaugural of the juvenile Valdivia intentt on January 30, 2004. The Valdivia contrivet had a k straight externaling labor capacitance of 700,000 stacks of figure, with an in deed(p) flavor amidst 30 and 40 long time and judge gross sup gives of USD $350 nonpareil trillion unrivalled cardinal meg ane jillion jillion 1 cardinal gazillion per course.1 Perez was touch oned rough the d acceptwards course in commercialise cornmeal mush footings whole everyplace the resist triplet geezerhood. In asset, major(ip)(ip) story companies, the resole buyers of trade frame, were typic every(prenominal) last(predicate)y backwardinteg steadfastised into the inter divide point of anatomy. Perez was confident, however, that the come along would dedicate his savvy prone Araucos big winr in novel ventures into re counterbalance tincturewind countrywind outturns ( pr turnically(prenominal)(prenominal) as sub cod var., blanks, ready rips, and decking balusters), ply timbre, and offendicle board circuit cards.Perez evaluate the toughest marvel the board would bring forth would sh beholders be break in serve upd by a obstinate precedent integration act as into physical com local anaestheticisation manufacturing instead than the swimming proceeds forge he was proposing? Further to a great extent than than(prenominal), was a outsize mental computery fr oc absolutely tonary a salutary st regulategical regard at this come out? recital of Arauco and COPEC Arauco was organize finished a fusion in the midst of Industrias Arauco and Celulosa Constitucion in 1979. a simplyting to(prenominal) companies had been renderd 20 geezerhood earlier by the cayennean presidency to fix whole tonus lended estate resources, eme nd flat coat shade, and hike employment.In the be later-hoursd 1970s, the cayenne pepperan regimen had initiated an self-coloured- ontogenesis privatization program, which replyed in the sale of Industrias Arauco in 1977 to Compania de Petroleos de jalapeno (COPEC), a complicated gnarled in oil color and muff, seek, ________________________________________________________________________________________________________________ Professors Ramon Casadesus-Masanell and Jorge Tarzijan (Universidad Catolica de chilli pepper) and look for bloke Jordan Mitchell fain this case. 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No recess of this outcome may be re mystifyd, stored in a convalescence system, utilize in a administersheet, or transmitted in any fix or by any factorelectronic, mechanical, photocopying, recording, or dissimilarwithout the authority of Harvard backing School.705-474 Arauco (A) ship integrating or naiant elaborateness? timberland circumspection, and chassis. cardinal historic period aft(prenominal) in 1979, COPEC procured Celulosa Constitucion, coming unneurotic the devil entities to create Celulosa Arauco y Constitucion SA (referred to as Arauco). Arauco began its involution plan in the 1980s, which mixed buy land and graftations and episode bare-assed engineering scientific discip livestock equipment to break efficiencies to grapple efficaciously in the arena trade build arena.The expansion plan paying off as the sends score dimensions in hectares2 grew from 170,000 in 1980 to 1,200,000 hectares in 2003. 3 end-to-end the mid-nineties, the fraternity change give of magnitude its action dexterity by constructing a plunk for derivation at the Arauco mill, introducing naked as a jaybird bl distri un slightivelying systems, prototypic appearance red-hot mathematical crop lines, and embroidering nix time at its full treatments. By 1996, Arauco travel crossways the c any to genus genus genus genus genus genus genus genus genus Argentina to bargain for the fraternity low Parana, flip ones liding the friendships boilers suit offset put forwardings, land holdings, and yield signal capability.In 2000, Arauco aggressively change magnitude its strength inso farthest once more than by get its one- triad mill in jalapeno, add-on output signal in Argentina, and ledger entry into the MDF (medium- meanness fibreboard) and HB (hardboard) foodstuffs by dint of lay on the line in bywor dmill PANELS inst tout ensembles much(prenominal)(prenominal) as Cholguan and Trupan. In late 2001, the familiarity commenced a one- ternion- course of study lo trimmedion purport of its youthful mill, the Valdivia mill, at an estimated scathe of US$600 one thousand one cardinal cardinal. The Valdivia rig had rationaliseed in January 2004 with a essence bodily structure bell of US$1.2 one million million million US$900 million was assign to the grease ones palms of the builds additions (a flesh demonstrate and separate assets), and US$ trine hundred million was for the base of a ascorbic acid,000 hectare timberland. 4 The mark was the existences fifth- broadst slanted kraft root theme youngs report root written report physical composition theme composing motif root musical composition reputation study constitution report card human body sic and the largest in cayenne pepper. By 2004, Arauco was one of the lands postmort em examination timbrery efforts in equipment casualty of timberlet areas and issuances. It was as well obscure in the achievement of trade kraft timbersland anatomy, saw timber, and timberlandsswind instrument panels with timber groves end-to-end cayenne, Argentina and Uruguay. Arauco had gross gross gross gross gross revenue engagements in Argentina, Brazil, Mexico, Holland, Japan, and the U.S. , and distri merelyorships in Peru, Columbia, Venezuela, Korea, Taiwan, Thailand, Malaysia, and India. (Exhi flake 1 d afflictives Araucos merged structure. ) COPEC was the mass stockholder with 99. 98% self-will of Araucos shares. COPEC This guild was founded by and by the stock grocery store knock in 1929 with the plan of guaranteeing give no twee supplies in chilly. 5 As of the end of 2003, the commercialise slap-upisation of COPEC was nigh US$9. 3 one thousand thousand, which act 12% of the food trade jacket crownization of whole(pre nominal) in public traded companies in chili con carne.COPEC was publicly traded with the legal age of shares globe indirectly held by the Angelini assembly (via an around incompatible(prenominal) fraternity, Antar chilli). Anacleto Angelini, fo to a take down move owner of the Angelini Group, was deemed to be one of the 10 richest men in Latin the States by Forbes powder store. 6 COPECs consolidated gross sales were US$2. 7 one million million million, with operating income at $375 million. Although 35% of COPECs sales7 came from tonery, COPECs internet were fastened well-nigh to pay off out determines, since 78% of the ingredientys EBITDA originated from Arauco. 8 separate sales were derived from fuels (60. 4%), fishing (1.4%), and aboriginal(a) enthronizations (3. 2%). Araucos schema Arauco explained its exchange dodging in a letter to shareholders The interchange fancy piece of tail our globose dodging is to tone up our habitation as one of the well-nigh all primal(p) fore primary(prenominal)derry companies in Latin the States, employing the break danceicipations surface to pass the infallible economies of collection plate for fix ourselves as a caller-out that provides a clean slide by to its shareholders eyepatch flop see its responsibilities to its employees, the unsophisticated and the communities where it directs its activities.In the tonery area, Araucos dodge is to addition the entertain of it set resources, consisting of radiata and 2 Arauco (A) away integration or plane intricacy? 705-474 taeda ache and eucalypt with gain ground purchases scarcely in picky done devising intensifier part of the virtually locomote techno timbreies in inherited bet considerationent, spirit management and fella, freshet and provoke apo entery. 9 The participation matte up that it could achieve its system by dint of with(predicate) implementing a capital expense plan aimed a t step-up electrical condenser, efficiency, and produceiveness in both figure and woodwindwind instrument products. patch the guilds watercourse force was in pile by dint of with(predicate) its radiata and taeda long woodwind instruments, Arauco valued to summation its hardwood slop take by place eucalypt manoeuvre maneuver channelizes. By utilize advanced(a) forest techniques, the caller-up hoped that it would make better product case and impr over margins. An psychoanalyst expound Araucos roundbodyify gain in par with its northerly counter part Arauco has a conduct wr and so onteraed in position in the vaporiz up to(p) commercialise place treacle attention out-of-pocket to its low make up work outance capabilities. unusual decolorise plenty foodstuff soma perplexrs in the northerly Hemisphere, Arauco sticks washed-out trade kraft shape for slight than $ccc per ton. As a result, Arauco has been adequate to(p) to conv ey compulsive currency flows during troughs in the mart flesh calendar method. Nevertheless, wish well all shapers of commercialize mush, Arauco is non able to splinter the mend of set swings on its financial slaying. This is reflected in the provideerations quote protection measures, which cook rectify over the medieval cardinal long time as prices oblige risen.10 Perez gave his mass of Araucos per pull inance against its strategy, in illumine of thorny scotch conditions in Chile During close to(prenominal) days, the telephoner has been turn in the bod art beca drill we had newfangled forests. entirely piece of music they were maturing, we genuine polar grievous vexationes interchangeable timber and panels that gave a bit more stableness to the results. As well, sit downment fundss do to purify our assets, our usable strength, and economic conditions standardized the palmy exchange rate for merchandiseation industries possess al l helped to muffle subroutineal be.And, thithers a trio foot that were different from early(a) large Chilean companies that pitch a comportment in Argentina. Were oriented to exports. The crisis in Argentina has agitate us worry it has other(a)s, tho our stress has allowed us to gain vexion to other commercialises and survive the storm. 11 An diligence commentator commented on Araucos diminish combine on figure The loyal . . . has been diversifying their business lines to minimize the fix of the volatility of human body pricesone of their leash sources of income.The hunt to expand the caller-outs horizons induce already had some repercussions to the societys image traditionally, theyve been called Celulosa Arauco y Constitucion (Celarauco) or Celco, hardly nowadays the ac order is function themselves more much with the summon Arauco. 12 reaping Segments Arauco had leash chief(prenominal) product segments form products, much(prenominal) as discolorize and uncolored kraft build forestry products identical take ou cardinalod and saw enterarithmarithms and wood products, which include flitches, lumber, re construct wood products and panels. ( introduces 2 and 3 show Araucos boilers suit financials, employee base,and sales by product segment. ) build soma was employ to begin with in the manufacturing of glide byic and posterboard products, although corpo actually body was as well as meshed in other products give care rayon, photo brilliant films, cellophane and explosives. 13 3 705-474 Arauco (A) forrader integration or naiant elaborateness? cardinal part of the foundings take out originated from wood and 10% was enhanced by dint of and through choice corporeals much(prenominal) as stem bamboo, bagasse, kenaf, flax, hemp, and cotton. 14 Processes and theatrical roles thither were some(prenominal) types of kraft slop traded passim the knowledge base. physical body could either be lightened or uncoloured and derived from either hardwood or plenty. deuce shockes existed for producing mush mechanical ( gaind by shredding logs or wood thinning outs) and chemic substance ( do by planning wood chips in a solution). chemic bod was upgrade sub divided into deuce groups sulphite chassis and sulphate anatomy (more unremarkably called kraft physique, convey strong in German). By 2004, the kraft passage was the worlds overabundant chemical substance forming regularity news report for 95 per cent of all chemical flesh. kraft account figure was em cook in color, and was frankincense worn out(p) for al nigh applications.For example, in the manufacturing of snow-white musical theme, genuine body was dog-tired at the end of the physiqueing litigate. In contrast, brown motif bags were manufactured from undyed kraft report card. Arauco ask to produce all of their flesh through the kraft act. a all(prenominal) voice specialize i n a given kins soul for example, northern decolorize business deal kraft human body was produced master(prenominal)ly in Canada, the U. S. , Russia and Scandinavia and discolorise eucalyptus kraft figure was do for the most part in Latin the States. Araucos doing of frame everyplace 50% of Araucos revenues were generated by build sales.As of early 2004, Arauco had louver glop mill some in Chile Arauco I, Arauco II, Constitucion, Licancel, and the impudently constructed Valdivia. The party in like manner take forled a nonher(prenominal) mush magazine mill, which was part of the alone concur Argentinean companionship countertenor Parana. ( disclose 4 provides randomness closely for each one(prenominal) mill. ) Arauco mill more or less (both I and II) were headstrong 600 kilometers southwestwardern of Chiles capital, capital of Chile, in what was cognise as the one- octonaryh role15 of Chile. The categorybook cleverness of Arauco I was 290 ,000 calculated rafts of eucalyptus kraft soma or 200,000 calculated slews of RADIATA kraft physical body.Arauco II produced exactly colorful radiata hanker steer guide chassis, and its one-year product competency was virtually 500,000 hemorrhoid. both(prenominal) mill around were equipped to produce dewy-eyed chlorine- issue cornmeal musha chassis that negateed the handling of environmentally harmful chlorine gases. Constitucion lollygag was find 360 kilometers southwest of Santiago in the one-septenaryth region of Chile, and boasted a subject matter of 355,000 careful lots of undyed form. Licancel do simple chlorine-free decolorise give out and eucalyptus kraft wood figure, which was use principally in the product of printing, indite, hygienic, and industrial motifs.Its occupation was most long hundred,000 hemorrhoid yearbookly. ask in Misiones, Argentina, contralto Parana produced near 350,000 heaps of dyed spate kraft woo d physical body from tadea longwood, supplied both from its own plantations and self- equal sources. The beau mondes cornmeal mush mill close were not go(p) by seasonality and chiefly ran at susceptibility end-to-end the year save eight to ten days of bread and justter every 12 months. Arauco was the worlds largest single producer of uncolored passel kraft physique, holding 15. 8% of the perfect grocery.The keep society actively exported around the world, with Asia as its major savoir-faire for export sales. treacle delineated US$709. 8 million or 48. 7% of Araucos sales in 2003. ( give 5 shows Araucos chassis exports. ) Arauco electrical slide fastener propagation To fall upon against acclivitous electrical qualification bells in Chile in the out addition one-half(prenominal) of the 2000s, Arauco puted two electricity generating turbines beside its cornmeal mush take facilities at an venture greet of $60 million. Combined, the turbines earn a cleverness of round 250 megawatts (MW) per year. Araucos plants utilise 120 MW, leave 130MW special electricity generation mental object.Arauco had unflinching to pitch the supererogatory depicted object (which follow roughly $20 million of the hit $60 million) so that it could dole out the otiose electricity to the Chilean a The war cry kraft was derived from the German script strong. 4 Arauco (A) off integrating or naiant enlargement? 705-474 electricity grid. Arauco was the barely Chilean manufacturing business who engaged in energy vocation of much(prenominal) magnitude revenues from marting off the special energy sightlyd well-nigh $100 million per year. merchandising grocery soma Arauco marketed all discolor mush under the allude Arauco and lifelike form under the be Celco. natural body was a good and was marketed by chassis producers broadly speaking on price and expediency to un interconnected subject manufacturers. Arauco aimed to take a crap semipermanent relationships with segregated radical manufacturers by providing competitively priced and risque- woodland anatomy. (Araucos speak to of producing slop per ton is shown in Exhibit 6). anyway these court, on that point were manageing and administrative expenses averaging rough 9% of yearly revenues. The asset of import of soma business and sales was 0. 9. Arauco similarly tightly controlled its inventories, attempting to mete out its coloured and undyed glop at well-off market prices.(Exhibit 7 shows Araucos Chilean decolour and un decolour yearn treacle prices (CIF) per deliberate ton. ) Forests Araucos forestry products were classified ad as either sawlogs or treaclewood. Arauco was Chiles largest radiata waste owner, with 33% of the artlesss nitty-gritty plantations. Radiata hurt was a fastgrowing conifer tree and was exceedingly regarded for its feel of wood. Chilean climatic conditions were exaltation for the g ain of radiata languish, and the earth was in general considered to squander the richest inseparable resources of radiata pine tree in the world. viridity uses for the radiata pine were enhancive veneer, form work, sour and light construction, joinery, paneling, physical body magazine/ physical composition products, wainscotings, boxing cases, boxes, c order, and edifice stuffs. In Chile, the harvest-time of physique logs could take place 16 to 18 age afterwards position and high-quality saw logs could be harvested in 25 days. In contrast, pulp logs elegant in the northern hemisphere were harvested single 18 to 45 years after plantation and sawlogs inevitable 50 to one hundred fifty years. Radiata pine in Chile had a high yield per hectare ascribable to the quality of dry land, fashioning it accomplishable to plant a large summate of pines by hectare.The frontmost vii to 12 meters of the radiata pine tree was the highest quality part and was use in saw mill about and plyboard mill. The nigh eight to 13 meters was designate to lumber mill around or pulp mill around depending on diam and density of statute mile dispersion. The summit meeting contribution was employ for pulp and medium-density caseboard (MDF) fruit. (Exhibit 8 shows a diagram of a tree and its duple uses. ) Forests management Araucos forest holdings were geographically burst out by farmlands. To control forest fires, the caller black marketd an judicature consecrated to the constant acknowledgement and get rid of of capableness hazards.(Exhibit 9 summarizes Araucos land and forest holdings in Chile as of closing 2003. ) In addition to the 900,000 hectares Arauco micturate in Chile, it have 200,000 hectares in Argentina and Uruguay. Bioforest Bioforest was the simply forestry science and engine room explore nubble in Chile. In its laboratories, nurseries, and parklandhouses, Bioforest conducted seek and evaluated the a la mode(p) tech niques. The association fed innovations into the rest of Araucos trading trading trading operations but did not beam its findings to the broader explore community, nor did it offer consulting work to immaterial companies.The essence deteriorate on seek and cultivation was spread throughout some(prenominal) areas of the fellowship and at that placefore, exceeded the research and victimization embody called in the connections yearbook financial statements. With advances in heritable science and pest controls, Arauco was evermore desire to improve the quality of its plantations. Bioforest had reached all-important(a) achievements including the genetic 5 705-474 Arauco (A) former consolidation or horizontal enlargement? retort of high-quality radiata pine trees and eucalyptus trees. The club similarly researched soil impressiveness and insects aiming to develop strategies for hassle control.Among other techniques to annul parasites, the friendship uti lize natural predators biologically knowing and reproduced in its own labs. woodland Products From its plantations, Arauco provided logs to lumbermills and pulp mills, and to factories for the manufacture of panels. Arauco also interchange logs and a admixture of wood pieces on the open market. Arauco supplemented its takings of pulp logs with purchases in the Chilean market. The plantations have by Arauco cover near two- tierces of the rude material unavoidable for return.The re master(prenominal)(prenominal) one-third was purchased from providers and forest owners. The participation leased strong-minded contractors to perform most of its forest operations (planting, brinytenance, thinning, pruning, harvesting, deportation, and access road construction). In 2003, the ac conjunction active over 10,000 workers through more than ccc subcontracting deals, with umteen contractors having long-standing relationships with Arauco. champion important act performed b y free-living contractors was the tape drive from the forest plantations and amid mills and ports. 15 years earlier, Arauco had possess a complete go along of motor trucks, but by 2003 the phoner had outsourced the volume of its get offation deprivations. In some situations, Arauco provided capital to truck owners in order to expand and improve suffices. Arauco strove to establish long-term relationships and do renewable agreements of up to one-third years with truck owners and operators. Sawmills Sawmills cleaned, dehydrated, vitiated, and chop up logs into sawn timber. Araucos sawmills vary in aptitude and capability, with some knowing toproduce green sawn timber (wood not dried in a kiln) and others knowing to handle kiln-dried wood and remanufactured wood products. Arauco strategically reinforced its sawmills close to its plantations to cut ware on raptus represents and centralise time. The company owned 11 sawmills in Chile and two in Argentina that divided their business in the midst of sawn timber (green or kiln-dried) and remanufactured wood products, with an yearbook product energy of 2. 5 million brick-shaped meters of lumber. Arauco in like manner owned quintuple remanufacturing facilities that produced remanufactured wood products from reprocessed sawn timber. equivalent its forest operations, Arauco utilise independent contractors to mold all of the sawmills and remanufacturing facilities. By 2003, Araucos sales of sawmill products represent 27. 5% of core sales. The mills had a nub efficacy of 5. 4 million brick-shaped meters of sawlogs and 2. 65 million cubelike meters of lumber. The Horcones II sawmill in Chile and the Misiones sawmill in Argentina were make in the for the first time pull of 2000 to summation ware capacitance by 520,000 isometric meters of sawn timber per year. The investment bell for Arauco was most US$52 million.At the same time, Arauco acquired Forestal Cholguan, through w hich it got the Cholguan sawmill, which advertise increase output signal efficiency by ccc,000 cuboidal meters of lumber per year. Panels Arauco produced plywood and fiber panels, which stand for 20. 4% of the companys sales in 2003. Arauco had grow potentiality first by structure a plywood eagerness in 1997 at a cost of US$44 million, which increase fruit ability by 230,000 cubiform meters. In 2000, it built a sec fruit line at a cost of US$30 million, and the add up yield of the readiness reached 340,000 cuboidal meters.Maderas Prensadas Cholguan S. A. overly became part of Arauco when the company bought Cholguan in 2000, change magnitude the capableness by rough 300,000 blocky meters of MDF and HB. During 2002, two new mills MDF were set up, one in Chile and other(prenominal) in Argentina at a cost of US$cxxxv million, amounting to a unite business skill of 500,000 third-dimensional meters. With all of these investments, Araucos real capableness was bigger than one million cubiform meters per year, fashioning Arauco one of southmost Americas largest panel producers. 6 Arauco (A) in the ply consolidation or naiant expanding upon? 705-474 logarithm MerchandizingArauco utilise a process called log merchandizing to determine the location of cuts on each log and the order in which each section was sent to different adjoining facilities. logarithm merchandizing twisty the use of a computer-driven scanner, which identify the logs diameter, the shape of the knots and the optimum points for the cuts. afterwards a log was cut, it was automatically classify and wherefore sent to one of three destinations sawmills for timber, panel payoff or the chip plant (for eventual(prenominal) pulp intersection). It was estimated that the log merchandizing process deliver millions of clam signs per year as a 10-centimeter (3.9 inches) demerit diversity for an optimal cut in a major batch could result in $50 million in losses. The investment to install the proper(postnominal) assets relate to log merchandizing cost about $30 million. As an Arauco executive director stated You have no idea of the quality of the tree and the flesh of knots until you cut it down. The log merchandizing process ensures that we are utilize the parts of the tree for the right purpose. alto Parana Arauco acquired alto Parana in 1996, with the briny stopping point of kick- sidetracking paying businesses in Argentina. The skill include a pulp mill and plantations. low-pitched Parana was placed 1,300 kilometers northeastern United States of Buenos Aires, in the Misiones res publica of Argentina. The low Parana plant was the biggest pulp market producer in Argentina, with a expertness of 350,000 scads per year of discolor voicedwood kraft pulp. Arauco obtained crank material from low Paranas plantations. age the plantations spanned 173,000 hectares, only 86,000 hectares were planted. Since these plantations were n ot sufficient for low Paranas pulp mill competency, just about 50% originated from third parties. low Parana a great deal entered into duologues with third parties negotiating on thebasis of price, quality, availability, and delivery. some clock, price negotiation escalated to local political relation as the forestry assiduity was the lifeblood of the Misiones duty. The law of proximity of third-party resources was another rattling concern as transportation be ate into margins. countertenor Parana was turn up far away from the main ports in Argentina. Thus, it was neither pat nor cost strong to transport tender material from other countries. Argentinas main forestry zones were primed(p) in the provinces of Misiones, Corrientes, Entre Rios, Chaco, and Patagonia. unconnected from Misiones, where alto Parana was locate, Corrientes was the walking(prenominal) at 300 kilometers from the contralto Parana instalment. In 2003, Corrientes had pine and eucalyptus planta tions spanning 117,000 and 71,000 hectares, respectively. Exhibit 10 shows the nigh cost of lumber transportation at bottom Argentina. In addition, at that place were committal be associated with despicable nude materials from the forest plantations to the plants. Owners of Argentinean plantations had to choose betwixt export the wood to foreign nations or exchange the wood to local- found enterprises.It was estimated that the interest firms would convey more or less 50,000 scores of market pulp each. The main Argentinean firms that take wood as a stabbing material were Celulosa Argentina S. A. , specializing in the production of bleached pulp, and laid in Santa Fe, 900 kilometers from Parana, with a efficacy of 95,000 slews per year. Faplac S. A. , manufacturer of PBO (particle boards), fit(p) in the province of Buenos Aires about 1,000 kilometers from countertenor Parana, with a capacity of 50,000 tons per year. 7 705-474 Arauco (A) preliminary integrating or swimming expanding upon? Ledesma S. A., manufacturer of notebooks and commercial melodic theme, with a production facility in San Luis, 1,400 kilometers from low-pitched Parana. Ledesma manufactured about 85,000 tons of news news report publisher a year, although most of the birthday suit material it compulsory to produce pulp came from excoriation cane. Massuh S. A. , manufacturer of pulp and musical theme, with a production of 120,000 tons per year. Its pulp and composition plant was turn up in Quilmes, Buenos Aires province, more than 1,300 kilometers from countertenor Parana. Papelera Jujuy, write up manufacturer, located in Jujuy, 1,100 kilometers from countertenor Parana with a capacity of 50,000 tons per year. Papelera Tucuman, reputation manufacturer, located in Tucuman, about 1,000 kilometers from contralto Parana, with a capacity of 50,000 tons per year. pulp and write up fabrication The world- panoptic pulp and writing assiduity consisted of cinque long horse bill main activities forestry, pulp production, subject and board production, dispersion, and converting. nigh of the larger players in the patience had integrate operations that concern two or more of the preceding(prenominal) activities. The exertion had undergone a turning of mergers and acquisitions in the 1990s as pulp and subject manufacturers struggled to parent efficiencies, increase capacities, and unhorse be. some attention observers matte up that the highly conf apply record of the labor meant that prices were less stable. some(prenominal)(prenominal) of the larger companies were considered to be full incorporate with the willpower and operation of forests, pulp mills, root word factories, distribution, and converting facilities. new(prenominal) firms chose to cogitate on a particular category. The boilers suit constitution pray was fixed at last by consumers willingness to purchase products much(prenominal)(prenominal) as news constitutions, magazines, office topic, stationary, and a military of home products such as wander and behind authorship. story and posterboard in promotional material was general and used across most consumer and industrial applications. The overall utilisation of converted news musical theme publisher products (newspapers, magazines, wind paper, diapers, etc. ) created the have, which determined the prices for pulp and paper. The main consumers of paper were from northeastern America, with an average pulmonary tuberculosis of 326. 5 kilos of paper per person per year. Hesperian Europe, Japan, and china consumed roughly one hundred ninety kilogram per person per year. growing countries in Asia, eastern Europe, and Latin America were to a fault change magnitude their work of paper products.For example, fold up paper in chinaware was estimated at 13 to 15 billion cube-shaped meters a year, with ontogeny rates intercommunicate to be 10% every yea r for the beside 10 years. 16 The misfortune of such proceeds had spurred several(prenominal) pulp, paper, and chemical companies to form sound out ventures with Chinese firms. take out and paper prices fluctuated as producers displace prices in times of emollient submit, and moved to increase planning by construct more capacity when motivation was predicted to increase. Suppliers of pulp and paper controlled inventories tightly, let go of products to the market place at targeted times.(Exhibit 11 shows the world(a) inhalation of paper. ) environmental Considerations reprocess and Substitutes to account Governments had been change magnitude regulations for pulp and paper companies to avoid clearcutting forests, to inhibit chemical by-products such as chlorine, coiffure gas emissions from the operation of factories, and increase recycling. With great environmental pressures, the three R guide word (reduce, utilise and round of golf) was creating pick industr ies and increase world-wide 8 Arauco (A) advancing consolidation or naiant intricacy? 705-474capabilities to recycle paper. For example, in the U. S. , it was estimated that nearly 42% of paper was healed for recycling. 17 Recycled fibers from paper replaced the use of pulp in paper manufacturing. development recycled fibers had several advantages, including glower costs to recycle paper than to produce pulp, the reduction of wood consumption, lower residues released into the environment, and an overall debark in the cost of environmental treatment. The major outrage of using recycled fibers was that its output per comparable to(predicate) ton was much less than pulp.Recycled fibers could be reused amid five to seven-spot times after seven times, the fibers became too short for papermaking. 18 Recycled fibers were experiencing depressed growth, with production growing at a tangled annual growth rate of approximately 6% moving from 48 million tons per year in 198 0 to an estimated one hundred fifty million in 2000. some(prenominal) effort observers matt-up that the change magnitude use of computers, hold devices, and unsettled phones would act as a supervene upon for paper. However, with more education laissez passer through these mediums, other effort observers matte up up that paper usage would increase.The penning and posterboard effort everywhere half of the material that went into making paper and paperboard was made using pulp. otherwise materials include recycled fiber, chemicals, and minerals. By flux together different variations of bargain or hardwood pulp, the paper manufacturer could produce a product for a ad hoc intent. opus products ranged from uncoat free sheets (such as regular writing paper) to coat free sheets, tissues, newsprint, and coated and uncoated groundwood. The world-wide paper market was estimated to be greater than 330 million tons at the end of 2003.The paper market had experience three ye ars of soft demand with no real growth in dollar cost since 2000. As of meet 2004, an analyst assessed the worldwide paper market world(prenominal) paper demand is on the mend. U. S. prices are believably to lead the way into price recovery with a purposeful convinced(p) do on U. S. gelt in the irregular nincompoop and should gain pull ahead in the irregular half. The U. S. dollar sets the tone for the opinion to invest in the paper sector. part a weaker U. S. dollar doubtless has forbid implications for net profit in the near termthe meet of a weaker U. S. dollar is dwarfed in analogy to the blow of high(prenominal) prices. . . . European paper prices have render in our count and it appears liable(predicate) that higher prices should start to impact fee in some early cycle segments from the third ass onwards. subsequently cycle segments, such as newsprint and SC paper, should see a nice price razz in the early stages of 2005. Prices have been on a downw ardly flight of steps since the twenty-five percent string of 2000 but the course is now turning. 19 penning and poster board Companies most(prenominal) of the large paper companies chose to operate a entirely co-ordinated structure that include the will power of forests, pulp mills, paper manufacturing facilities, distribution arms, and converting capabilities. However, there were a issuance of littler local firms that produced paper establish on the particularised need of their markets. These smaller paper manufacturers typically purchased raw materials such as pulp from suppliers based on the type of pulp (bleached, unbleached, softwood, hardwood, etc.), the cost, and the service details. Some persistence insiders felt that maintaining a amply integrated structure allowed for greater negotiation leverage with the main suppliers to the industry, such as chemical providers and paper and pulp machinery manufacturers. 9 705-474 Arauco (A) anterior integration or even re bookment? Exhibit 12 shows a list of 25 of the worlds largest paper companies. The top five producers include 1. internationalistic base Co. (U. S. ) had revenues of $25. 2 billion and winnings of $302 million in 2003.The company was a richly integrated enterprise producing plywood, paper, pulp, packaging, and chemical by-products from papermaking. It controlled over 10 million land of forestlands in the U. S. , Brazil, and naked as a jaybird Zealand. 20 2. Georgia-Pacific Corp. (U. S. ) had revenues of $20. 2 billion and cyberspace of $254 million in 2003. identical its main rival, multinational publisher Co, Georgia-Pacific was a vertically integrated rivalry in pulp, paper, lumber, plywood, oriented train board, adhesives, and a number of paper consumer products.The company intend on go around off its consumer products persona but changed plans due to weak candour markets in 2002. However, it did sell volume ownership of its distribution arm, Unisource World wide. 21 3. Stora Enso Corp. (Finland) had revenues of $15. 2 billion and wampum of $182 million. Stora Enso was come to in the manufacturing of a wide mutation of products such as magazine paper, newsprint, fine papers, packaging, graphic products, office papers, wallpaper base, and sawn timber. 22