The paper industry faced many challenges during the late 1990s into the early 2000s. Annual returns fluctuated for businesses in this industry and the shift to a “paperless” environment appeared underway. As a result, corporations such as Smurfit Paper Company had to be cautious about adding new potential customers. This case study analyzes relevant issues and key factors that influence Smurfit Paper Company’s decision on whether or not to add a new potential customer. These factors include consolidation, capacity, costing methods and demand. Jefferson Smurfit founded Smurfit Paper Company during the 1950s in Ireland. At the recommendation of his son Michael, he expanded the family-run business through acquisitions. According to Mr. Smurfit, “in an industry plagued by periodic over-capacity, a company would do better to grow by acquisition than by building more machines” (“Blood and Stock,” 1998). Smurfit Paper Company continued to expand through acquisitions with companies like Stone Container Corporation in May 1998. Six years later, Merrill Lynch ranked Smurfit-Stone Container as one of four top picks in the paper industry (“Four Picks In Paper and Forest Products,” 2004). These acquisitions better positioned Smurfit Paper Company over their competitors to endure the highs and lows of the paper industry.
Merging with Stone Container Corporation enabled Mr. Smurfit to address a major concern in the paper industry-- global over-capacity. Many of Smurfit Paper Company’s competitors “increased their capacity to make linerboards--a main ingredient in cardboard boxes” as a result, “the new capacity torpedoed prices” (Palmeri, 1999). However, Mr. Smurfit refrained from building new plants and “shut down four of Smurfit-Stone’s plant, and stated “If you bring on new capacity, bring it on to meet demand. Don’t destroy your own market.” (Palmeri, 1999). Although risky, Mr. Smurfit’s move reduced capacity and later introduced a price increase to linerboards...
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