Nazir Ullah 6369 Section C

ARAUCO

According to my opinion Arauco should go for horizontal

expansion. The main aim behind a horizontal expansion is to
grow its market share for pulp because they have cost
advantage , can enjoy economy of scale , further stable its
position , company needs a growth in a sector that is presently
functioning , adjust prices control demand and supply for pulp
market , its core competence is the pulp production , high
potential for sustained growth and profitability.

The Arauco company is facing the problem to make decision

regarding vertical expansion or horizontal expansion to expand its
operations?

If arauco produce pulp in bulk amount then they can be able to

supply large amount of pulp as compare to its competitors which
in turn will increase its market share and as a result they will
enjoy economy of scale which would further stable its position in
the market. The company have huge resources due to which they
can be able to grow in that particular sector. Being placed as the
largest producer of pulp market would give Arauco an increased
power on the flow of pulp volume to the market and consequently
a better control of pulp prices which would be beneficial to
arauco. As the company is currently experienced and have strong
image in pulp as compare to paper so there core competence is
pulp production and they should go with that. arauco is located in
a place from where they can go to the new markets easily where
there is large demand for pulp so they can export pulp which will
increase their profitability and market share.

Analyzing market condition , arauco operation and financial

information it is in the best interest of the company to go through
horizontal expansion rathen than vertical expansion. If arauco go
for forward expansion it will hurt its pulp sale because its present
customer will join its competators.