Great Lakes Main Capabilities - Case Study Example

Great Lakes; Great Decisions An Analysis of its External Environment, five forces of competition, immediate and invisible competition and Great Lakes’ main capabilities Name: Course Name: Course Instructor: Date of Submission: Contents Contents 2 Introduction 3 External Analysis 3 Five Forces of Competition 7 Great Lakes’ Immediate, Impending and Invisible Competitor 8 References 11 Great Lakes; Great Decisions                                         Introduction The Great Lakes Chemical Corporation is an American company that is considered the largest producer of methyl bromide. The company was faced with the task of coming up with policies that it could implement in order to cope with the mounting pressure from environmentalists concerning the harmful effects of the leaded additive it produced. This paper analyses the external environment of the company which comprises of the political, environmental, social/demographic, technological, and the economic environment. It also studies how Porters’ five forces of competition affect the company (Ferder, 1995). Finally, it gives the Great Lakes most impending, immediate and invisible competitors and an outline of its main capabilities. External Analysis The social/ demographic analysis of Great Lakes involves a study of the populations that use the leaded additives that are produced by the corporation. It will consider the societal values and cultures that are based on the ethnic mix, age structure, population size, geographic and income distribution. Most of Great Lakes’ leaded gasoline was used in developing countries such as China, the Middle East and many African countries. This was due to the fact that many cars in the developing countries used gasoline and lack of proper government regulations. Its use was banned in the developed world particularly the United States by the end of the 20th century and many Central and South American countries had taken various precautions to eliminate the use of leaded gasoline. This shows that the society in the United States is more conscious on the health of individuals as compared to the developing countries. In the year 1996, leaded gasoline experienced the large sales in developing countries which comprised of 93% of gasoline in Africa, 94% in the Middle East, 30%in Asia and 35% in Latin America. (Seyferth, 2003) Socially, Great Lakes has an adverse effect on the various people that use their product as it does not consider their safety or health. Great Lakes was only concerned with the sales of its leaded gasoline was having in these developing countries and did not put into consideration the harmful effects that these lead additive was having on the health of the individuals. Some of the adverse effects of leaded gasoline in adults will be on the kidney, neurological system, cardiovascular system, hypertension and high blood pressure. In children between the ages of one to two years, there will be absorption of over 40 % to 50 % of ingested lead which will cause brain damage (Ferder, 1995). In economically developing countries, an estimated 15 million to 18 million children suffer permanent damage from lead poisoning which might result to lowered intelligence quotient, hearing loss, learning disability, behavioral abnormalities and reduced attention span (Ecoforum, 2004). The presence of leaded gasoline in the air in the mid-1990s in Egypt caused approximately 6,500 to 11,600 heart attacks, 800 to 1400 strokes, 6300 to 11,100 premature adult deaths, and 820 infant deaths annually. Technologically, Great Lakes Chemical Corporation which was formerly known as McClanahan Oil Company moved out of the petroleum production business to bromine and chemical business. In 1958, the company’s CEO Emerson Kampen discovered bromine-rich brine deposits in southern Arkansas. Great Lakes used its innovation and creativity in exploring these resources to turn it-self into the top bromine business corporation ahead of Dow Corporation. Bromine was used in the manufacturing of industrial and retail products such as fire-retardant additives used in textiles and plastics. This product allowed it to produce a wide variety of products as well as household items. As the twentieth century came to an end, Great Lakes had advanced technologically and produced a wide array of chemicals which were used as water treatments, polymer stabilizers, fire suppressants, flame retardants, and performance chemicals. Other products included clear brine fluid which was used for oil drilling, methyl bromide which was used for agriculture and fluorine specialties used for automotive component systems. Economically, ending production of lead additives by Great Lakes would negatively impact its profits and also adversely affect the economy of developing countries that had not adopted the use of unleaded gasoline for their cars and machinery. The corporation steered the economic development of developing countries by supplying them with gasoline. Great Lakes acquired Octel Associates in 1989 which accounting for over half of the company’s total operating profits annually. Great Lakes had acquired the Octel Associates with a sole aim of bromine capacity and it never set out to be lead additive producer. In the year 1977, Great Lakes was a tiny company with only $ 50 million as revenue but by 1993 it had marked sales revenue of $ 1.8 billion. This shows that the company was doing well economically. After the acquisition of Octel Associates Kampen and other Great Lakes respective executives had really wanted to focus on Octel’s unique saltwater bromine extraction process but they put the plan on hold on discovery of the TEL ‘gold mine’. In the year 1994, Octel’s profits represented 59 % of Great Lakes’ total profits or $259 million out of Great Lakes total operating profits of $439 million. Several Wall Street analysts forecasted that Octet’s profit shares would not fall below 50 % of Great Lakes total operating profits for a number of years irrespective of an annual decline in pounds of TEL(tetraethyl lead) sold by 8 %. By 1995, Great Lakes had achieved $ 5 billion annual revenue with a consistent profit margin of 15 %. Its credit rating was also raised from A+ to AA- by the Standard & Poor’s. Great Lakes also flourished financially as it there was no much competition and controlled 90% of the market despite the fact that there was large capital costs required for plants ant equipments (Feder, 1995). In the environmental and geographical aspect, Great Lakes received pressure from environmental groups to stop selling lead as it was extremely harmful. By 2010, the environmentalists called for a worldwide TEL ban which Great Lakes thought was unrealistic because there were not enough refineries to produce unleaded gasoline outside the industrialized world. Great Lakes argued that it was committed to environmental responsibility and its vision, mission and its environment, health, and safety policy outlines this responsibility. It argued that many of the chemicals it produced were a replacement of other chemicals which were far more harmful and noxious than lead. For instance, Great Lakes recycled agricultural waste into a metal processing chemical. Environmentalists argued that the corporation should exercise their ethical behavior by ensuring that the customers who used the hazardous leaded gasoline knew of its harmful effects. Most reports showed that leaded gasoline production was harmful to the environment and it sent lead particles to the air to be inhaled and finally into the soil. This led to lead poisoning in human being which brought about health complications. In the legal, political and government perspective, Great Lakes is established in the United States whose political and legal environment is favorable. The government due to the harmful effects of lead additives on the environment banned the use of leaded gasoline in the country. The critics argued that the developing countries are unable to make sophisticated decisions about hazardous chemical production such as leaded gas. This is mostly because the refineries are in the hands of the government and ruling elites whose financial incentives are to stay with status quo (Feder, 1995). Many developing countries did not ban use of the leaded gasoline partly because of lack of government regulations. After a careful analysis of Great Lakes external environment it is very clear that the company should consider all these external factors in order to come up with a solution to its dilemma as these factors greatly affects its performance. They must identify the various opportunities and threats that are found in the external environment and capitalize on the opportunities while eliminating the threats (Hitt, Ireland, & Hoskisson, 2011). Five Forces of Competition In order to gain competitive advantage in the industry and recognize its current and potential competitors, Great Lakes needs to use Porter’s five forces of competition model. It should review the effect of the threat of entry of new entrants to the industry. Due to the pressure against use of leaded gasoline by environmentalists, many countries including the developing countries which offer the largest market share of leaded additives may ban use of leaded gasoline. The industry will therefore become unattractive for new firms that may want to venture into it due to the large capital requirements in order to acquire the production plant. Great Lakes is therefore not threatened by entry of new firms into the industry and that might be the reason why it has seized the opportunity of leaded gasoline production despite the action being unethical. The buyer’s bargaining power need to be analyzed by the Great Lakes in coming up with the decision concerning their dilemma. Great Lakes do not have a major competitor in the lead production and so the buyers will be forced to buy from them as they do not have many producers to switch their products with. The power of buyers will however affect Great Lakes if the car’s technology and engine in developing countries are changed such that they can use unleaded gasoline. The bargaining power of suppliers is a factor that may be considered in analyzing competition. The suppliers of raw materials that are used to by Great Lakes to manufacture its products may lead to reduced company’s profitability in case they raise the prices of the raw materials or they hoard the raw materials. Currently, there is no threat of substitute products for Great Lakes as there is no major company that manufactures leaded additives. However, in case the use of leaded additives is banned in the developing countries and the public adopts machinery that uses unleaded gasoline there may be a threat by the unleaded gasoline. There is no rivalry among competitors in the industry as there are no other firms that deal with lead additives. Great Lakes has no competitors because major competitors ceased the production of TEL and thus it controls 90% of the market. Based on the analysis of the five competitive forces, the industry is unattractive for new firms. This is due to factors such as the heavy capital requirements that are required in order to start the lead additives production plants. There is virtually no market for leaded gasoline in developed countries as it has been banned and therefore the existing leaded additives companies need to concentrate on developing nations in order to thrive. The pressure by environmental groups also makes the industry unattractive as it causes harm to the environment causing health problems. Great Lakes’ Immediate, Impending and Invisible Competitor The Great Lakes immediate, impending and invisible competitor is its unsavory publicity which gives it a bad reputation and image among the members of the public. It has gained this bad publicity due to pressure from environmental groups and the shifts in the global market. For many years Great Lakes kept a low profile in the leaded additives production industry and this enabled it to capitalize on Octel without much negative publicity from environmentalists. Due to the growing bad publicity, the company’s profits are likely to go down in the near future. In the 1990s environmental groups started putting pressure on the company to stop selling lead additives. Great Lakes admitted that lead additives were harmful but viewed the environmentalists call for worldwide ban of TEL (tetraethyl lead) as unrealistic. Environmentalists argued that Great Lakes should exercise their ethical corporate behavior by ensuring that customers using the hazardous products were fully informed about the consequences (Feder, 1995). Environmentalists recommended that Great Lakes should make contributions from Octel’s profits to finance the transition from TEL to more environmental friendly products. At present, Great Lakes has not taken any measure in coping with bad publicity. The company’s division manager should come up with policies to cope with the company’s invisible competition factor. It should apply a policy which will favor it in the eyes of the public by ensuring that it does not produce environmentally harmful products. The best measure will be the one that will make Great Lakes a respectable corporate citizen in the eyes of the citizens. Main capabilities of Great Lakes According to the case study Shannon came up with three options which Great Lakes could undertake so as to cope with this situation. The first is that the company could continue supplying lead additives to the developing countries for the foreseeable future although the pressure was likely to grow stronger. She felt that developing countries would experience a point where the transition would be economically easy just like the US. The second option was that Great Lakes would get out of the leaded additives selling business in the near future without ever worrying about the consequences and preparations to the developing nations. This was the most promising option as it would rescue the company’s reputation and favored the call by environmentalists. The third option was that Great Lake could come up with massive plan with a five year deadline where it could aggressively phase out its participation in the market place. With this option the company would need to push developing countries to change their policies and switch to unleaded gasoline. References Ecoforum. (2004). Get the lead out! Michigan: Environmental Liaison Centre International. Vol. 27 (4). Ferder, B.J. (1995). Alchemist’s Dream Come True. New York: New York Times. Hitt, M.A., Ireland R. D., & Hoskisson, R.E (2011). Understanding business strategy: concepts and cases. Cengage Learning. Seyferth, D. (2003). The rise and fall of tetraethyl lead. Organometallics. American Chemical Society. Read More