The Synthetic Rubber Polymer Business

Topics: Term, Automotive industry, Strategic management Pages: 14 (3985 words) Published: March 17, 2011
Table of Contents

1. Identification...3
1.2Problem Statement...4
2. Analysis & Evaluation…7
3. Recommendations…15
4. Plan of Action…19
4.1Agenda of actions…19
4.2Time Line…23
4.2.1Short Term…23
4.2.2Medium Term…23
4.2.3Long Term…24

Exhibit 1Nova Corporation’s Five Years Financial Review…25

Exhibit 2H-NBR Market Forecast…26

Exhibit 3Specialty Component of Rubber Business…27

Exhibit 4The Major International Producers of NBR in 1988…28

Exhibit 5 Polysar Organization…29

Exhibit 6H-NBR Market Demand…30

Exhibit 71987 Tornac Rubber Investment Project Spending Profile…31



In the late 1980s, early 1990s, the synthetic rubber polymer business was set to experience an unprecedented growth worldwide. Although that product had been developed in the 1930s, the demand for higher quality has been ongoing.

Low quality and low priced rubber comprised the majority of the market; however the trend was moving towards a higher quality - higher priced product. This specialty niche included products such as Polysar’s Tornac Rubber. Barriers to entry in the business were plenty and were qualified as high (i.e. enormous capital costs associated with building synthetic rubber plants). Furthermore, research and development largely determined the success or failure of new products derived from synthetic rubber. Finding labor with the right skills to develop these products proved to be a difficult and daunting task for management.

Polysar Limited, a Canadian company founded in 1943, had become a major participant in the world’s rubber, plastics and petrochemicals business. Acquired by Nova Corporation of Alberta in September 1988, Polysar had both of these bases covered (i.e. successful R&D and skilled labor). Although the Polysar acquisition heavily indebted Nova Corporation ($4.3 billion in debt – see Exhibit 1), the necessary capital existed for the opening of a new synthetic rubber plant. Moreover, the new Tornac rubber technology had been awarded a gold medal for invention in 1987 under the Canadian government’s Business Excellence program. In addition, short and long term projections (see Exhibits 2 and 3) concluded that the synthetic rubber industry was profitable. While competition was also intensifying, Polysar Limited had a good position in this specialty market dominated by 3 giants and their respective products; Polysar and its Tornac rubber, Bayer and its Therban rubber and Nippon Zeon and its Zetpol rubber (see Exhibit 4).

1.2Problem Statement

Although Polysar Limited was well positioned in the market, increasing competition and variables in the external environment were pressing on its potential success. The largest threat it faced, came from Nippon Zeon, positioned as high quality-high volume Japanese producer of rubber. Another threat was Bayer of Germany which also had a high quality product; however because of higher costs of production, it could not bring it to market at a competitive price. It should be noted that other rubber producers existed (see Exhibit 4), however their products did not meet the high quality standards for hydrogenated nitrile rubber known in the industry as H-NBR and which were requirements of that specific niche market. This market, therefore, was essentially limited to the 3 big players (in decreasing order of production capacity: Nippon Zeon, Polysar and last but not least Bayer – see Exhibit 4 and pie chart below).

In addition, market analysis indicated tremendous growth for H-NBR in the three countries disserved by these players and which are the U.S., Europe and Japan (see Exhibit 2).
The major problem Polysar is presently facing is how much it should risk in the H-NBR market....
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