Lenzing AG: Expanding in Indonesia
Lenzing AG is one of the worlds largest rayon fiber manufacturers, originating in Lenzing, Austria. In 1938 Lenzing AG was founded, starting pulp and viscose fiber production.
Up until the 1980’s, Lenzing was a company that held its production and management in the same country and town where the company had originated. Until one day , the Chairman of Lenzing had agreed to go into a joint partnership with an international investor. The joint venture was with an Indian entrepreneur by the name of Ashok Birla, who saw opportunity in Indonesia for Lenzing and the rayon industry within. Lenzing viewed this as an opportunity to break out of their domestic Austrian market, and tap into Indonesia’s none existent textile market. The resulting partnership would be South Pacific Viscose (SPV).
In the beginning, SPV was the only producer of rayon textiles in Indonesia, and by 1994 had grown to be successful, more so than Lenzing management had originally thought. Over the years, there began to be an increase in competition throughout Indonesia, although none reaching the capacity of production that SPV was reaching each year.
Lenzing and SPV began to view some long term potential problems as the years went on, with tariffs and trade barriers becoming an issue, as well as potential political problems in Indonesia possibly effecting the company in the future.
In 1994, Lenzing AG, the world's largest rayon manufacturer, is deciding whether to expand production in South Pacific Viscose, its Indonesian subsidiary. Lenzing has viewed Indonesia as a booming market for rayon, and see’s a lot of potential for growth in international markets, but management still has some concerns about the expansion.
First, in order for the plant to remain successful, Lenzing's primary customers, textile producers, must remain in Indonesia in order to cut the costs of international tariffs. If SPV...
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