Ciba-Geigy

Topics: Net present value, Finance, Investment Pages: 2 (462 words) Published: February 6, 2011
Introduction:
Ciba-Geigy founded in 1750s has come to many changes in their business strategy from case-by-case decisively to be one of proactive planning for the future with corporate portfolio planning which allowed Ciba to decentralise into diversified businesses. At their latest reorganization, Ciba had five categories: Development, Growth, Pillar, Niche and Core allocated from 14 divisions with 33 sub-business units. Each division in each category has separate responsibility to the whole portfolio, for example, the Pigment division in Core category had the role of cash provider. Therefore, it was difficult for this division to access to capital, major investment would violate their mandate, and payback period was set at two to three years. However, the Pigments division head recently proposed the plan for major investment in comprehensive modernization of a manufacturing plant in Newport which was the only global source for Sfr 130 million in sales of Quinacridone (HPP) pigments. Ciba needed to decide whether or not to invest in Newport and choose among three options: invest fully, invest partially in Newport or close it. Recommendation:

Based on Lippuner’s two questions in corporate planning portfolio strategy on new business, there are two reasons for Ciba to treat the investment in Newport as exception to invest. Besides, they should choose option one which committed a full investment of around US $140 million. Firstly, this investment improved Newport plant from high maintenance costs and frequent failure in production to become the plant with the leading-edge standards for productivity, safety, and friendly to environment. This investment also opened opportunity for Ciba to produce DPP, which protected Ciba’s leading market position in HPP pigment when DPP pigment’s patent protection was set to expire in 2000 – 2002. Limited investment in option two did not bring Ciba’s Pigment division the leading-edge knowledge and maintained the...
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