E.I du Pont de Nemours & Co.: Titanium Dioxide
There are basically three technologies to produce TiO2: sulfate process, rutile chloride process and ilmenite chloride process. Most of Du Pont’s competitors, such as NL Industry, mainly used sulfate process, which require lowgrade feedstock and produce a large amount of waste. This process will cost the company more money to deal with the wastes while cost much less in purchasing feedstocks than other processes. However, between 1969 and 1972, an new environmental protection legislation was enacted and require the company that use sulfate to spend more on produced wastes. Meanwhile, rutile ore, the feedstocks of chloride process, also in shortage, which cause the increase of the price of rutile ore. The increasing cost on both processes will cause the price of TiO2 to increase. Meanwhile, the devaluation of US dollars will also affect the import. Under this market change, all companies that produce TiO2 would focus more on developing the ilmenite process or improving other two processes to be more environmentally friendly and profitable. The main weakness of Du Pont’s competitors, also the main strength of Du Pont, is that Du Pont is the only company that has the operational knowledge to make production economically viable. Moreover, the main competitor of Du Pont, NL industry, was less profitable than Du Pont and rely more on debt to finance its growth. Therefore, NL industry is more financially sensitive to market change than Du Pont is. Also, because TiO2 is the second smallest division of Du Pont’s total sales, the market change of TiO2 market will not affect too much on its earnings while NL rely on TiO2 for almost one quarter of its total sales.
Maintain strategy: The main advantages of maintain strategy is that the capital expenditure will be much less than growth strategy does. Therefore, the company will perform well on its balance sheet and income statement by decreasing its debt. The main disadvantages of maintain strategy is that the market share will maintain 45% in the future and will not grow continuously. This will limit the total capacity it produced and its future development.
The main advantage of growth strategy is that it will increase the market share of TiO2 production rapidly and its total capacity. Due to the increasing need of TiO2 in the future, this will help the company to gain more profits and be able to finance its capital expenditure. Moreover, other division of Du Pont and its investments on financial market are also able to help the TiO2 and pigment division to provide necessary fund in early period. Also, by exercising three tactics of the strategy, especially limit the licensing of ilmenite chloride process to its competitor, the company is able to limit its competitor’s production and expansion.
The main disadvantage of growth strategy is that the capital expenditure would reach 500 million dollars in 1985 and there is risk that the pigment division cannot finance such a high expense during its expansion.
The main reason for Du Pont to lower the price of TiO2 if choosing growth strategy is that it is an efficient way to gain market shares faster than other company. By lowering the price,
pigment that made by TiO2 would be more attractive than other companies. Therefore, the ...
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