Arborite Essay

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Mid-Term Case Analysis Arborite STRATEGY 669 Winter 2007 Group 15 Jiji George Gilles Monniaux Taro Nagao Nanda Rajanala Sharad Srivastava Q1. What do Porter’s forces say about the industry? The analysis has been conducted for the Canadian HPL market only as that was the focus of this case. Based on our analysis of this industry using the five forces framework, we concluded that this industry was not attractive. The detailed analysis used for this conclusion is presented in Exhibit 1 of this paper. The reasoning behind our diagnosis is given below. Barrier to Entry (High): The market for the HPL in Canada is about 100 Million dollars. Assuming a high net margin of 20%, the total profits of the industry will be about 20M. The investment for a new plant is 70 million dollars. If an entrant company has about 10% of the share (compared to the incumbent share of 35%) the profit for the company will be about 2 M. Ignoring the discount rate, it will take about 35 years to recover the cost of the new plant. This shows that the industry is capital intensive and it will be not an easy decision for a company to enter this industry. Additionally the plants are a scale intensive investment. For a 250 million sq ft plant the rate per square feet comes to 0.25 whereas for an 80 million sq ft facility this rate is 0.43. The variable cost of this smaller plant is also about 150% of the bigger plant. So a new player trying to enter the industry with a smaller plant faces huge cost disadvantages. The other individual processes also seem to be scale intensive as evident from the importance of MES at each level of value chain. The government duties also make it difficult for small players to enter Canadian market. WilsonArt and Formica are able to overcome these barriers as they had attained a certain scale in manufacturing and procurement. The product

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