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Expansion Strategy

This paper seeks to analyze and discuss a case study of `International strategy in the world pulp and paper industry`. The paper will attempt to answer the question: “Is the expansion strategy in the world pulp and paper industry one of international expansion or global expansion? ” 2. Analysis and Discussion 2. a) Definition of international and global expansion Before deciding whether the industry adopted by the world pulp and paper industry is under international expansion or global, it is logical to know first the meaning of the each concept.

There is international expansion when a significant part or of the activities of the organization are outside its home country and these said activities are managed as separate area or units. To illustrate, a company that exports some of its products outside its home country would be deemed as adopting international expansion under this definition. The company would most likely be focusing its business on domestic operation while appending a number of international activities. There is global expansion, on the other hand, if a company is operating in many countries, without of course discounting the possibility of having a home base.

Under this definition, the company may aim to have its operations responsive to local demand. As an example, the case of the MTV, a music television company may be considered to be adopting this strategy since it has at least three different operations to suit three different music traditions. These operations include those from Asian, North American and European yet the control is still in its US home-base operation. As a result the home base focuses and controls a series of semi-dependent operations, most possibly under a global brand name like MTV.

What is strategy in the world pulp and paper industry? Based on the above definition, it can be asserted that the strategy (Brays, 1991; Johnson and Scholes, 1993; Johnson, G. and Scholes, K. ,1993; Johnson, G. and Scholes, K.,1993; Porter,1998) adopted by the players of the world pulp and paper industry is international expansion rather than global expansion. 2. c) Advantage and Disadvantage of strategy on international expansion. The strategy of international expansion has its advantages and disadvantages.

Its advantages include having the players’ core competencies transferred to foreign markets and the existence of economies of scale for centralized markets in “Core architecture” such as product development and Research and Development activities. The disadvantages of the strategy include the fact it is less responsive to local conditions; it has less location economies available, via retention of “core architecture”; it has less global learning as few core competencies transferred, and; it has less experience economies available. The case facts admit the presence of trends that led the industry to international expansion.

These are the existence of mature markets, new international competitors, and increased product specialization and industry economic cycles. These factors are realities of the world economy (Samuelson and Nordhaus, 1992; Slavin,1996) as they change so must strategy. It was also clearly admitted by case facts that fundamentally, the basic technology of the industry did not allow itself to choose global expansion due to insufficiency of economies of scale to justify “one plant to for a whole region of the world” and the high transport costs which prevented paper for easy transport as caused by moisture absorption and its bulky nature.

In fact there international expansions during the 1980’s and 1990’s that resulted to consolidating market shares in the region of the world. Due to such consolidation an attitude of global expansion may seem to have surfaced but it did not reach that point because of matured markets. These expansions are of course of the reach of their resources that include financial (Cooper, 2000; Droms, 1990; Helfert, Erich, 1994; Meigs and Meigs, 1995; Ross et. al, 1996), human and operational resources.

Conclusion and Recommendation Companies are juridical persons which must attain their missions, visions, goals and objectives if they are to survive the reality of competition. The fact however they operate in a number countries does not necessarily follow that they are adopting global expansion. There choice to adopt international expansion as strategy (Tsiakkiros, 2002; Porter, 1980; Pearson, 1999; Plunkett and Attner, 1985) as alternative is in keeping with the external and internal environments with which they operate.

In this paper the players of world pulp and paper industry have adopted an international expansion strategy based on their appreciation of their environments. These internal environments may be understood by conducting financial analysis (Van Horne, 1992; Weston and Brigham, 1993; Bernstein, 1993; Brigham and Houston, 2002; Churchill, Jr. and Peter, 1995) to determine the companies’ strengths and weaknesses.

References:

Bernstein (1993) Financial Statement Analysis, IRWIN, Sydney, Australia Brays, L. (1991) Strategic Management Formulation and Implementation- Concepts and Cases, New York: HarperCollins Brigham and Houston (2002) Fundamentals of Financial Management, Thomson South-Western, US Case Study, `International strategy in the world pulp and paper industry’ Churchill, Jr. and Peter (1995) Marketing, Creating Value for Customers, IRWIN, Sydney, Australia Cooper, L. (2000) Strategic marketing planning for radically new products, Journal of Marketing, Vol. 64 Issue 1, pp. 1-15.