“Arauco: Forward Integration or Horizontal Expansion” Case
Arauco is a major Chilean producer of pulp and wood products. In order to increase its capacity, the company has launched in 1980, an aggressive expansion plan by purchasing lands, plantations and installing new technology equipment. Arauco is today considered as one of the world biggest forestry company with 1.2 million hectares of plantation. Its global strategy is aimed at strengthening its market position by increasing its capacity, efficiency and productivity. The following analysis case presents Arauco’s advantages over its competitors and examines whether its CEO should forward-integrate the company into paper manufacturing or horizontally expand its operations.
Despite the recent volatility in market pulp price, Arauco has managed to maintain its leading position. The company’s success is partly due to its cost advantage. Expending investments have favoured economies of scales such as low-cost production capabilities. The company also decided to go further into its original activity by installing its own electricity turbines to reduce its costs and increase its revenues by reselling its extra electricity production. Apart from being the only Chilean manufacturer engaged in important energy trading, Arauco remains highly competitive as it is strongly oriented towards exportation. Thus, favourable exchange rates for export industries have allowed Arauco to bring down its operational costs. Moreover, investing in tangible assets and using intensive advanced technologies has significantly enhanced its production efficiency. Arauco has cut down its transportation times by implementing its sawmills closed to plantations. Thanks to the creation of Bioforest; the only forestry science and technology research centre in Chile, Arauco constantly improves the quality of its plantations and develops new business opportunities. Being in Chile represents...
Please join StudyMode to read the full document