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Arauco: Forward integration or Horizontal

Arauco should move to horizontal expansion. The aim behind a horizontal expansion is to grow
its market share for a Pulp because they have a cost advantage. Company needs a growth in a
sector that is presently functioning.
Arauco is one of the world’s premier forestry enterprises in terms of plantation areas and yields.
Through horizontal expansion Arouco would become a market leader, it has also a low cost
advantage which other haven’t. The market seems to be moving in its favor for now, at least. As
the result of a horizontal merger company will acheive economies of scale. They have young
forest. One of the world’s lowest cost producers. When they become a market leader, they can
adjust prices. They can control demand and supply of the market of pulp. The group would
prefer to remain a market pulp producer. Pulp is Arauco’s main industrial activity, generating up
to 52% of EBITDA High yielding forest resources increase Arauco’s competitive advantages.
They will make Competitive positioning in fast growth Asian markets.
Pupl production is the core competency of the Arauco, where they have the cost advantage.
They need to increase their production capacity. When they will increase their capacity, cost
will decrease over the time. Nueva Aldea Complex is the start-up process which will increase its
capacity. Arauco has a leading position in the volatile market pulp industry due to its low cost
production capabilities. They have resources and capabilities which create core competency, so
they have sustainable competitive advantage over others and due to this they are creating
superior value. They have high potential for sustained growth and profitability. Arauco has
consistently increased its pulp production in previous years and becoming one of the top global
producers of market pulp while consolidating its position as a low cost producer.

Arauco will strength its core business of pulp because they are the low cost pulp producer. Cost
will also decrease when they increased their capacity. They will become a market leader after
increasing capacity and after that they can control demand and supply and prices of Pulp.