Lenzing AG was considered to be amongst the biggest producers of the rayon fiber worldwide in the year 1990. The company was situated in a small town that was around 70 kilometers away from Salzburg and is a company of Austrian origin…
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The company had its base in the town near Salzburg since long and never felt the need to spread out far from there. The company was content with its operations and business till the year 1978 when the zeal to spread out internationally was initiated in Lenzing. The initiation or the possibility was triggered by a phone call which was made by an entrepreneur of Indian origin named Ashok Birla. The Indian entrepreneur came up with an idea of structuring a manufacturing unit in Indonesia. Initially, this proposal was turned down by the management of Lenzing owing to their lack of experience in foreign joint ventures as well as investments. However, with time Lenzing was able to identify the immense potential of the enormous and unexploited market of textile in Indonesia which made the Chairman ultimately initiate a joint venture with Birla. The outcome of the venture was a new firm named South Pacific Viscose (SPV) which was also the first foreign associate of Lenzing (Spar & Et. Al., 2008). Problem Statement or Issues The joint venture resulted to be quite successful and in a short period of time the firm SPV started earning huge profits by being a contributor of rayon fiber to the flourishing textile trade of Indonesia. It was found that there was a huge demand of the rayon fiber in the country and the firm efficiently exploited this opportunity which resulted in the augmentation of their profits by around 15 percent every year. In the year 1988, another production plant was set up by Lenzing due to the impressive profits. The second plant was established so as to enhance its production ability from 32,000 to 73000 tons each year. With the taste of success in Indonesia, Lenzing started spreading even out of Europe by way of initiating quite some fresh projects. The experience achieved with the help of its joint venture, SPV assisted Lenzing to expand. In the year 1992, a third plant for the purpose of rayon production was acquired by the company at Tennessee. It also started its manufacturing operations in China in 1994 by way of entering into a contract with the government of China to build a manufacturing plant of rayon around Beijing. These various investments and expansions helped Lenzing acquire the reputation of the sole rayon company across the world which boasted of a factual global presence (Spar & Et. Al., 2008). The company’s joint venture with Birla in Indonesia was functioning quite productively and profitably by the year 1994. This made the company Lenzing think yet once again of expanding more with the help of starting a third manufacturing plant of SPV which would facilitate to enhance up the production to 109,000 tons. It was also planned by the company that the third plant would focus on manufacturing rayon fibers of the most exceptional quality. The company was aware of the fact that with the addition of the third manufacturing plant, the firm SPV would be placed amongst the biggest facilities in rayon manufacturing and would be ranked in the second position after the Austrian plant owned by Lenzing (Spar & Et. Al., 2008). Along with the profitability factor, there were other important factors too which were considered to be significant as they would majorly contribute towards the expansion. The other aspects that were measured to facilitate the expansion were the strong recognized associations with the firm’s downstream customers and also the admirable working association with the Indonesian local partner. The location of the firm in Indonesia was considered to be the major inducement behind the expansion owing to the country’s potential of turning into a motivating force for the international textile industry. Apart from the advantages that triggered the
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