Gunns and the Australian Pulp and Paper Manufacturing Industry - Case Study Example

Student’s Name: Gunns and the Australian Pulp and Paper Manufacturing Industry Instructor’s Name: Course Code & Name: Date of Submission: Abstract Gunns ltd is the largest company in Australia in producing hardwood and softwood. The company proposed to build a $2 billon pulpwood mill in Bell Bay. However, due to inadequate financing and public pressure the company was unable to execute the strategy. This report evaluates Gunns forest products division in order to identify the company’s general environment hence its threats and opportunities. The report also identifies the company’s strategy and determines its feasibility. Table of Contents Abstract 2 Table of Contents 3 1.0 Introduction 5 2.0 Forest Products Analysis 5 2.1 Economical Environment 6 2.2 Social factors 7 2.3 International factors 8 2.4 Technological factors 9 2.5 Legal Factors 9 3.0Competitor analysis 10 4.0Forest Division Resources 11 5.0 Changes in Forest Products General Environment 12 6.0Internal Analysis 12 6.1Competencies 13 6.2Resources 13 6.3Capabilities 13 7.0 Gunns SWOT Analysis 14 7.1 Strengths 14 7.2 Weaknesses 14 7.3 Opportunities 15 7.4 Threats 15 8.0Gunns Company Strategy 15 9.0Feasibility of the strategy 17 10.0Conclusions 18 11.0Recommendations 18 References 19 1.0 Introduction Gunns ltd is the largest incorporated softwood and hardwood company in Australia. The company was established in 1975 and it has been able to continuously expand its business. The company contains three divisions which include Gunns plantations and forest products and others. According to Mallin (2009, p. 148) Gunns Ltd operations are crucial to the economic development of Australia. The company favors to export its products in Asia due to the transport cost advantage. The company is committed towards maximizing the value of its shareholders, contributing to the society and ensuring economic growth in the country. The growth in world paper consumption has assured the company of its continued growth. This report aims at identifying the company’s strategy after analyzing both the internal and the external environments. This will help in understanding how the strategy has helped the company to gain competitive advantage. Finally, the report will try to determine the feasibility of the strategy and determine whether the company has the competence to maintain and implement the strategy. 2.0 Forest Products Analysis The forest division in Gann Ltd is concerned with the production of hardwoods and softwoods through its operating sawmills. According to Daft and Lane (2009, p. 65) the companies environment contains two layers which include the task and the general environment. The general environment affects the organization indirectly and includes economic, social, cultural, technological, international and natural factors. On the other hand, the task environment includes all the sectors that affect the day to day operations and transactions in the organization. This analysis will help to understand the forest products division general environment. 2.1 Economical Environment Limited financing alternatives since the withdrawal of ANZ funding in may 2006 due to public pressure. Griffin (2012, p. 134) states that limited funding makes it impossible for the division to effectively finance its activities and operations. This has in turn made it difficult for the division to maximize its revenues due to cancellation of many projects. Global financial crisis has made it difficult for the division to access and obtain funds from investors. Global financial crises squeezes credit lines and this reduces the flow of finances to the division (Malik at el 2009, p.89). Stringent environmental requirements from potential investment partners have prevented the division from obtaining financial support. The environmental requirements are difficult to meet and this means it has become impossible for the division to obtain much needed funds. The increase in the value of Australian dollar has greatly reduced the prices of products produced by the division and this has led to the closure of some divisions manufacturing facilities in Australia. This is because most of the division’s products were mostly meant for export. Increased cost of paper making machineries requires the division to come up with large amount of capital. This has in turn made it difficult for the division to conduct its operations. The green energy scheme has enabled the division to reduce its energy costs and improve on its efficiency in utilizing energy. Green energy enables firms to reduce their energy bills hence this leads to an increase in their profits (Barysch at el 2011, p.54). Increased costs associated with transporting raw materials to the division saw mills and the high cost of transporting paper plants to the final customers has significantly increased the division’s operating costs. This has in turn reduced the division’s profits. 2.2 Social factors The Australian communities have always resisted the divisions operations on environmental terms basis. The Australian society views the division’s activities of cutting trees as a way of polluting the environment. Overcoming the increased society resistance towards the divisions operations is a big challenge. The process of breaching wood pulps is considered to contribute to environmental pollution and this has made the society to object the division’s operations. Change in culture of the society towards preferring to purchase books online and this has a direct negative consequence on the division’s products. Currently the society prefers to purchase online books and this has led to a reduction in demand of papers and this has reduced the division’s profits. 2.3 International factors High competition of pulp and paper products in the global markets requires the division to be highly competitive in order to gain and build competitive advantage. This is due to the heavy production of forest products from U.S, China and Canada. Steady increase in global consumption of papers in China and India. These countries provide a good market for the forest division products. However, some countries have reduced their consumption for paper products and this means a reduction in the division’s profits. Increased use of recycled papers in developed world has led to a reduction in demand for pulp. High investment and usage in recycle based papers has reduced the demand of the forest division products and this has led to a further decline in its profits. Replacements of older with newer and more efficient paper manufacturing equipments in developed economies has increased the competition faced by the division and this has further led to a reduction in its profits Increase in global consumption of tissue presents an opportunity for the division to increase its profits. The demand for tissue has increased gradually and this has been attributed to the strong expansion of a number of emerging global markets especially in Asia and Africa. 2.4 Technological factors Increased technological innovations in china meant that the division could supplement its production. This was due to the efficient and modernized production processes that were available in china. Changes in paper technology and plastic technology have a great impact on the demand for paper products. Increased technological developments in the plastic technology lead to a reduction in the demand of paper the division’s products. The development and adoption of faster paper machines has enabled the division to benefit from economies of scale. This has made the division to be able to produce at low cost. 2.5 Legal Factors Rules regarding environmental regulation and market demand for chlorine products have forced the division to identify alternative bleaching agents. This has in turn increased the division cost of operation as it aims to comply with the legal and customer needs. The demand for accreditation from Forestry Standard has put the division under pressure as it tries to meet the required standards. The federal government demands require the divisions operations to be approved and certified. This is done in order to meet the requirements of the Japanese manufacturers as well as the requirements for sustainability. Greenhouse gas regulation measures account for about 10% of the total production cost incurred by the division. The greenhouse gas regulations have placed the division at a cost disadvantage as compared to other countries which offer their paper manufacturing industries with subsidies. The proposed emission trading scheme by the government can made the division to lose its competitiveness due to the high operating cost brought about by the scheme. 3.0Competitor analysis According to Hernandez and O’Connor (2009, p. 45) competitor analysis involves identifying their future goals, current strategies, their assumptions about market conditions and their strengths and weaknesses. Through competitor analysis the firm can be able to predict the competitor’s behavior and responses in regard to changes in the industry. Therefore, the forest products division should undertake competitor analysis in order to identify the strategies employed by its competitors in the global market. This will enable it to come up with strategies for gaining competitive advantage over its competitors. Fleisher and Bensoussan (2007, p. 21) argue that competitor analysis provides a firm with an opportunity to identify points and opportunities to exploit. Furthermore, the fact that the division is inadequately financed means that it has financial weaknesses which can be exploited by the competitors. Undertaking competitor analysis will enable the division predict the possible moves that can be made by the competitors hence this can assist the division to be properly prepared as well as to avoid surprises. The increased competition in the global market will necessitate the division to analyze its competitors in order to come up with strategies of overcoming the competitors. The increased output in paper manufacturing plants in developed economies means the division is facing more competition. In addition, the high production from the U.S, China and Canada requires the division to determine the nature of its competitors. According Fleisher and Blenkhorn (2007, p. 15) carrying the competitors analysis will enable the division to identify and close competitors service gaps and this will enable it to gain competitive advantage. The increased use of recycle-based papers means that the division must come up with business strategies in order to ensure that it continuous with its operating. The use of recycled papers has led to the decrease in the use of wood pulp. The fact that the division heavily relies on wood pulp requires it to come up with strategies to reduce competition hence maintain its market share. This will requires the division to undertake competitor analysis in order to assist it in coming up with innovative wood products that will certify its continued existence irrespective of the increase in the use of recycled papers. Moreover, through competitor analysis the division will be able to identify the most efficient technologies used by competitors that will enable it achieve economies of scale (CZepiel and Kerin 2005, p. 19). 4.0Forest Division Resources Analyzing the division resources will assist in determining its strengths and weakness and this will assist the division to come up with strategies that will enable it gain superior competitive advantage. According to Hitt, Ireland and Hoskisson (2010, p.73) undertaking internal analysis is important as it enables a firm to determine how to effectively utilize its resources. 5.0 Changes in Forest Products General Environment Ireland, Hoskisson and Hitt (2007, p.44) state that changes in external environment can create opportunities and threats and this may require a firm to change its strategies. Therefore, a firm must constantly evaluate the changes in the environment so as to ensure that it remains competitive. The division has experienced changes in global competition in relation to paper and pulp products. New competitors have emerged from the developing countries and this has led to a change in its competitors. Initially the company used to compete with competitors from only the U.S and Canada. Moreover, Canada and U.S.A have dropped their investment in pulp and paper manufacturing. In addition, the division has experienced changes in legal provisions. These include the green house gas emissions provision which has forced the division to come up with renewable energy technologies. Moreover, the certification requirement has been another major change in the division general environment. Forest products general environment has also experienced changes relating to technological advancements. New and more efficient manufacturing machines have been developed which has enabled the firms in the industry to gain from economies of scale. Furthermore, recycled papers have led to the displacement in the use of pulp. There has also been a steady increase in the consumption of paper as well as tissue in the global markets. 6.0Internal Analysis Internal analysis is concerned with identifying a company’s strengths and weaknesses (Hill and Jones 2012, p.83). Internal analysis enables the organization to identify the roles played by competencies, resources and capabilities. 6.1Competencies Competencies refer to those activities that a company can perform excellently. It refers to those areas that the company has the necessary know- how skills, knowledge, technologies and expertise (Hill and Jones 2012, p.84). According to Knott (2009, p.164) the competencies must be rare, unique and non substitutable to enable the firm gain and build competitive advantage. The forest products division is competent in integrated production of softwood and hardwood. The divisions has the in depth knowledge in relation to the production of wood products. Moreover, the company has the knowledge and the expertise in the production of wood fiber products. These competencies enable the division to earn profits that are beyond the average in relation to the wood industry. 6.2Resources Resources refer to those assets that a company utilizes in order to achieve its goals(Knott 2009, p.164) . Gunns forest division operates eight sawmills throughout the country. The saw mills enable it to produce its wood products. In addition the division has one veneer mill facility which enables the company to coat its wood products. Furthermore, forest products division has five export word fiber facilities which deal with the extraction and production of wood fiber. The division also owns one veneer panel plant. The company has also announced a proposed to build a pulpwood mill in Bell Bay. According to Hill and Jones (2010, p. 84) state that the resources that a firm owns enables the management to come up with strategies that enhance the distinctive competencies of the firm. 6.3Capabilities These are the skills that organizations posses in coordinating their resources in order to ensure that they are effectively utilized (Hill and Jones 2010, p. 85). Company’s capabilities are difficult to imitate as compared to other tangible assets. The forest division has the ability to coordinate its production processes in order to meet the changing demand. Moreover, the division capabilities enable it to gain from economies of scale hence making it to become a low cost producer. These capabilities have halted the rate at which the division competitors can be able to imitate the company’s products. Through its capabilities, the company has been able to produce numerous wood products in its portfolio. 7.0 Gunns SWOT Analysis SWOT analysis will assist in identifying the ways through which Gunn maintains its profits by searching a balance between its external environment and its internal environment (Helms and Nixon 2010. P. 217). 7.1 Strengths Guaranteed supply of hardwood shipped from plantations in south Australia. Strong distribution networks have enabled the company to export its products to Japan, China and Korea. Ability to attract investors and financial supporter for its projects. Physical resources which include mills, wood fiber and facilities veneer panel plant. Global recognition due to its ability to export its products in international markets. Three autonomous divisions which diversify its services and products. 7.2 Weaknesses Limited financial resources and this made it difficult for the company to develop its proposed pulpwood mill in Bell Bay. Poor relationship with the community and thus the community has continuously opposed its projects. Poor strategy formulation making it difficult to implement the strategies. 7.3 Opportunities Increased consumption of paper globally. Vision 2020 forest plantation will ensure that the company continues obtaining raw materials. Emergent of new global markets which increases the market for its products. 7.4 Threats Changes in government regulations. Increased competition both in the domestic and international markets. Pressure from the public. Increased use of recycled papers which has in turn led to the displacement in use of wood pulp. Increased in price of raw materials used in producing wood products. Increased transport cost. 8.0Gunns Company Strategy Gunns had a planned company strategy in order to ensure that it remained to be the biggest hardwood and Softwood Company in Australia. The company had a proposal to build $2 billon pulpwood mill in Bell Bay. The company strategy was to expand its operations by building the Bell Bay mill. Moreover, the company expected the new mill to enable it to operate at full production hence this was intended to ensure that it gained from economies of scale by producing at large scale basis. The strategy would further enable the company to increase its output. To achieve this strategy, the company aimed to utilize its capabilities and competencies. The capabilities that the company employees’ possessed meant that they could effectively coordinate the activities in the new mill hence this would make the company to gain from economies of scale. Moreover, through the employee’s competencies, the company was certain that it would produce high quality products at a higher speed. Gunns strategy was not fit with the key drivers and the anticipated changes in the company’s operating environment. This is because obtaining funds to finance pulp mills was difficult and this meant that the company was going to find it difficult to expand its activities. Moreover, the increased competition in the global market meant that the company had a bad strategy in trying to expand itself as well as to increase its outputs. Moreover, the increased investment in recycle based papers meant that the pulp usage was on the verge of being replaced. Thus, could incur large amount of losses by building the pulp mills. Moreover, this strategy was not appropriate to the society as it was viewed as a way of eradicating native forests resources and contributing to environmental pollution. The company’s primary stakeholders expected the company to meet more strict environmental conditions and requirements. These conditions called upon the company to comply with the requirements of forest stewardship council certification. On the other hand the community expected the company to withdrawal from the project. The public pressure caused one of the investors to pull out of the agreement which was aimed at assist the company to build the factory. 9.0Feasibility of the strategy A strategy should be under the control of the organization for it to be feasible (Abou-Zeid 2008, p.197). Gunns strategy was not feasible given that the company did not have adequate funds to implement it. This means that the company could not completely own and control the strategy. Moreover, the fact that the strategy faced opposition from the public meant that it was not acceptable hence this made the strategy not to be feasible. The strategy was likely to create more problems than the benefits it came with. Therefore, the strategy could not have made the company to achieve its goals. The company resources cannot support the strategy. This is due to the limited funds that the company has and hence they cannot enable the company to execute the strategy. The company can establish mergers with other companies in order to assist it in executing the strategy. Through mergers the company will have a secure source of funds hence this will enable it execute the strategy. Moreover, the company can also dispose some of its assets in order to raise the required funds for executing the strategy. The company can use budgets in order to effectively implement the strategy within the 5 years. This will ensure that it maintains control of the strategy. The strategy formulation was wrong. Strategy formulation is about learning about the industry and coming up with appropriate techniques in order to gain competitive advantage (Pugh and Bourgeois 2011, p.179). The company should focus on capturing more customers before increasing its output. Therefore, the company should improve its strategy towards focus on the customers. This is because of the increase in global competition of wood products as well as the increased use of recycled papers. Moreover, the public resistance of the strategy means that it should be changed in order to ensure that the company is successful. 10.0Conclusions In conclusion, Gunns poor strategy has made it difficult for the company to implement it. The company aimed at expanding its operations by opening pulpwood mill in Bell Bay. However, the lack of adequate funding and resistance from the public caused the project to remain unimplemented. Furthermore, the increase in global competition and the increased use of recycled papers meant that the strategy was poorly developed. 11.0Recommendations The company should diversify its operations in order to reduce its reliance on wood products. Moreover, the company should adopting new technologies in order to reduce its cost in order to compete more effectively. Furthermore, the company should undertake paper recycling so as to enable it to compete with other firms. References Abou-Zeid, E 2008, Knowledge Management and Business Strategies, Information Science Reference, London. Barysch, K, Bartuska, C, Helm, D & Schiellerup, P 2011, Green, Safe, Cheap, Centre of European Reform, London. Czepiel, J & Kerin, R 2005, ‘Competitor Analysis’, Stem School of Business, vol. 2, no.1., pp. 1- 22. Fleisher, C & Blenkhorn, D 2007, Business and Competitive Analysis, FT Press, Sydney. Griffin, C 2009, Management, South-Western Cengage Learning, Mason. Helms, M & Nixon, J 2010, ‘Exploring SWOT Analysis –Where are we now?: A Review of Academic Research from Last Decade’, Journal of Strategy and Management, vol. 3, no. 3, pp. 215,-251. Hernandez, S & O’Connor, S 2010, Strategic Human Resource Management, Delmar Cengage Learning, New York. Hill, C & Jones, G 2010, Strategic Management and Theory, South-Western Cengage Learning, Mason. 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