The Pulp industry is a promising industry with profit margins as high as 31%. Pulp is a commodity product which is frequently traded. Demand for pulp is expected to increase world over in the coming years. Key Environmental, structural, competitive and market forces affecting Pulp industry (See Exhibit 1) The pulp industry has been marked by a flat growth over the past few years. Though, it is expected to pick up with demand increasing in the emerging economies such as China. The pulp producers have been known for controlling inventories releasing products to marketplace at a targeted price. But the overall market trend is changing from a supply driven market to a demand driven market. The Chilean government and free trade agreements with US and EU are favorable factors for the forestry and pulp industry. Use of genetics, pest control, weed protection, disease control, forest management has all lead to improve the quality and life of plantations. Industry attractiveness and New Entrants threat (See Exhibit 2) The Pulp industry is very attractive as some companies realize close to 30% profit margins. The industry is highly fragmented marked by lots of integration and mergers. As pulp is a commodity, there is a fierce competition on price. The industry requires a high capital requirement for initial setup. It is also required to maintain high production efficiencies to compete on prices. There is moderate entry barrier for new entrants. Government policies and regulations control forest harvesting and can sometimes act as a disincentive for existing competitors.
Competitive and Strategic position of Celulosa Arauco (See Exhibit 3) The biggest competitive advantage for Celulosa Arauco is its cost advantage. Celulosa Arauco has been successful to maintain high production efficiencies by investing into Research and Development and Forest Management. It also uses economies of scale to negotiate prices with paper buyers. The diversified product line...
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