International Strategy in the World Pulp and Paper Industry

International Strategy in the World Pulp and Paper Industry



International Strategy in the World Pulp and Paper Industry

1. Is the expansion strategy in the world pulp and paper industry one of ‘international expansion’ or global expansion?

A business strategy is a set of key choices that outline a firm’s long-term objectives, value proposition to the market, the firm’s plan in constructing and maintaining an efficient business system and how the firm organizes itself. An expansion strategy is global when a firm takes part in the competition in key markets and it creates a business system that has integrated and coordinated activities across borders (Peng, 2009). Jung defines international expansion as a company’s “growth practice beyond the physical borders of its home country across diverse countries and geographical areas” (2007, p. 9).

The expansion witnessed in the world pulp and paper industry has been global. These firms have developed completely new strategies that involve them in foreign markets and developed activities that are coordinated across borders. The case study gives the example of firms from Europe and the Americas acquiring firms in Asia. This has seen the companies enter the Asian market and in doing so expand their business operations. The case study also pointed out that expansion was being hindered by low economies of scale that made firms reluctant to construct new manufacturing plants to serve the regions they were going into. The acquisition of foreign firms is a good alternative to that. By acquiring Asian firms, the firms from the west are able to get involved in the rapidly expanding Asian market without taking the risk of incurring diseconomies of scale.

2. Why has Asia been the target for international or global expansion? Will this trend continue?

Most expanding companies have opted to move to the Asian market due to its fast growth. Peng argues that it is dangerous to ignore the emerging economies while expanding because they now command up to a third of the global FDI (Foreign Direct Investment) and half of the world’s GDP (Gross Domestic Product) (2009). Any balanced expansion strategy should consider the MNEs (Multi-National Enterprise), domestic firms, the developed economies and the emerging economies. Globalization has also had influenced firms to move into Asia because their global orientation makes them perceive the entire world as their target market and they seek to exploit this market to the maximum (Peng, 2009).

Lasserre argues that before a firm expands into a region, they assess that region to see how well the business can be run in the region (2012). An investor will only be attracted by a country where the returns will be the same as or more than the risk-adjusted capital. Before making the decision to enter a foreign market, investors will look at a range of issues that can be classed into two groups market and industry opportunities and country risks. After looking at a country in absolute terms, investors will then compare the country with others that share similar features (Lasserre, 2012). An index looking into the ease of doing business in various countries in the world revealed ranked Asian countries highly. In the index, top ranking countries included Singapore, Hong Kong, South Korea, Japan and Taiwan. Asian countries made up the top five, as well as seven of the top fourteen.
3. Should other mature industries expand internationally by acquisition? What are the benefits and problems?

Expansion within mature industries poses several risks for firms. The case study revealed that firms were reluctant to expand internationally because they did not want to go into competition with other firms and they felt comfortable expanding within their own regions. Additionally, basic technology at the time did not facilitate the expansion and economies of scale were not high enough. The solution to these issues for thw paper and pulp companies was to expand by acquiring firms in their target regions. One advantage of expanding through this method is that the firms did not have to construct new plants in to cover their new market regions. This meant that they did no have to risk incurring diseconomies of scale because they could utilize resources already owned by the firms they had acquired. Another advantage of this expansion is that expanding into emerging economies can help firms take advantage of the growth in those regions to boost their sales and grow their markets.

Expansion through mergers and acquisitions does have several disadvantages. Young observes that by acquiring other firms, companies risk being involved in serious personal frictions (2003). These could come from situations that occurred in the past and they could have an effect on the company and lowering productivity and output. Acquisitions also bring about the possibility of purchasing a firm with a bad reputation. This reputation would then extend to the new owners and affect their business in the region into which they are expanding. Acquisitions also make companies form unions and partnerships that may not be desirable, leaving the firms feeling trapped (Young, 2003).

Jung, S. (2007, Dec 1). The relationship between international expansion and firm performance: An investigation of U.S. based restaurant and firms. UNLV These/Dissertations/Professional Papers/ Capstones. Paper 607. Retrieved from

Lasserre, P. (2012). Global strategic management. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan.

Peng, M. W. (2009). Global strategy. Mason, Ohio: South-Western/Cengage Learning.

Tallman, Stephen. (2010). Global Strategy. John Wiley & Sons.

Young G.R. (2003). Mergers and Acquisitions: Planning and Action. London: Routledge.

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