MacTara free essay sample

?Mactara is currently (2007) in a healthy financial position relative to other competitors in the lumber industry. They have stayed profitable amidst an unstable marketplace with their biggest consumer, the United States. This uncertainty is a problem for MacTara and the Canadian softwood lumber trade as a whole. Also, the company has some new equipment that has not been used to its full, profit-maximizing capacity. As consultants to MacTara we will provide alternative strategies for expanding operations, continuing operations, and cutting back/ operations. In order for MacTara to expand its operations and enter into the high profit margin market of value-added wood products they must: 1. Budget costs to increase production a. Quote for current and future international shipping fees b. Quote for re-engineering the kiln c. Quote for new packaging plant d. Quote for outsourcing packaging 2. Consolidate Atlantic region lumber industry a. Ensure high volume of raw materials from numerous smaller suppliers b. We will write a custom essay sample on MacTara or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page End Fibre Agreement with pulp mills 3. Begin implementation of new projects and alliances overseas 4. Increase production and begin entering European market (First-mover mentality) 5. Continuously educate customers on wood energy These are crucial steps (see exhibit C for details) for Mactara to enter the value-added wood product market of wood pellets and softwood decking/flooring. This strategy is most favourable for Mactara because the volume of production is increasing, average costs are decreasing and more emphasis is put on high profit margin products. This approach will also add jobs within MacTara and the Atlantic region. If Mactara decides to continue operations as they currently stand they must acknowledge the volatility of the USD and the unstable trading channels available to them. The main focus using this strategy would be: 1. Constrain production to current and future market demand a. Reduce current production during market slump b. Predict future market demand c. Prepare to increase or decrease production moving forward 2. Lobbying government for emphasis on keeping softwood lumber treaty stable 3. Creating personal relationships with current customers of construction lumber and pellets 4. Honoring current and future pellet contracts This passive approach to the problem facing MacTara is unfavourable due to the strength and size the company currently holds over the Atlantic region. It does, however, allow the company to avoid the risk of competing overseas with lower quality Russian and Baltic wood products. These products will cut into the profit margins of Mactara. Current capacity should cover overseas pellet contracts but a significant drop in production could lead to legal troubles. With this strategy MacTara has to remain adaptable to current market trends, requiring continuous analysis of the marketplace and acting reactively instead of proactively. Perhaps MacTara decides the industry is too volatile and unpredictable to continue the current volume of production and decides to close its business operations. If the shareholders believe they can create more wealth in a healthier industry they may choose to liquidate the assets of MacTara while the company is still financially healthy. To do so would require: 1. Assess the current market (can we be profitable for three more years) a. Continuing operations for three years and announcing future plans to exit the market or; b. Paying contract fees and exiting market immediately 2. Shutting down operations and laying off the workforce 3. Liquidating assets including new saw, state-of-the-art pellet mill, buildings and the MacTara name Selling the company may be met with hostility but the economic future for the shareholders is protected. MacTara is financially stable and would attract a high price due to its high quality products and strength within the industry. This approach would be considered the safest of all and would only benefit the owners. The external factors facing this industry include political, economic, sociocultural, technological, environmental and legal aspects. Fortunately for the Canadian softwood lumber industry many of these aspects provide opportunities for success and growth (see exhibit A). Politically, the industry enjoys stability, regulation and tax credits for renewable energy across Canada, the United States and the European Union. The current economic situation is rather bleak and does not show growth due to a low USD, a stagnant construction industry, emerging Chinese/Indian markets and low inflation (possible recession). Canada, although a smaller population, enjoys a bounty of rural workers who expect modest wages. High consumerism in global markets ensures a steady demand of wood products. Technological mature, the lumber industry isn’t expected to see any revolutionary innovations to production. This aspect of maturity is also a benefit to energy customers as their old systems are easily adaptable to wood energy. Environmentally sound practices are essential to the success of a lumber producer and waste must be managed effectively. There are also many legal implications like private ownership, contracts, labour boards for disputes and health and safety initiatives. Because of high profit margins lumber producers are interested in value added wood products (see exhibit B). This creates a threat of new entrants in the pellet and decking/flooring markets that is countered by the large economies of scale that are used to reach such high margins and the large initial investment required to begin production. Lumber is an essential tool/material in construction and is rather hard to find a cost effective substitute. However, the pellet and decking/flooring markets’ substitutes range from wind, solar, oil and coal energy to tile, laminate, composite and hardwood flooring. Our customers and suppliers can’t pressure us with the threat of integration and the larger the mill the more influence over the geographic region. Large mills can provide economic stability to smaller producers of logs and enjoy large profit margins knowing customers cannot create their products on their own. Knowing your competition is essential (see exhibit D). MacTara’s competition depends on which market segment we’re focusing on. Construction lumber is produced in North America and the largest mills are located to the West of the mountains. This ensures our competitive advantage of trade routes to the more densely populated Eastern US. We also have a major port in Halifax for access to the European markets for value added products (see exhibit F). In Europe the competition is tougher as branding is essential. There are endless choices for flooring/decking overseas and we will need the help of Weyerhaeuser to solidify our brand. Baltic and Russian products are soon to enter the market and they have the advantage of trading routes. This is where our competitive advantage of CSR is beneficial. We actively demonstrate business practices that are environmentally friendly and sustainable (see exhibit H). MacTara prides itself in waste management and converts all waste into fuel used on site or pellets to be sold in the marketplace (see exhibit G). With these competitive advantages Mactara should be a staple in both the construction lumber and value added wood products markets for the foreseeable future. Our recommendation for Mactara moving forward is to expand operations, exploiting its competitive advantages in Canada, the US and the EU. Expanding allows for MacTara to become less dependent on the US who has proven to be a strenuous customer as of late. Many companies across the province would appreciate the economic stability that a consolidation/alliance would create for their companies and allow them to focus on producing logs. Increase in production means an increase in by-products and therefore an increase in value added products that create more profit. Re-engineering of the kiln to burn bark should cost roughly $1M Cdn and successful lobbying of the provincial government should yield enough for the remaining cost of the packaging plant to be funded by the remaining $4M Cdn that was received due to unfair duties paid. MacTara should focus on selling pellets to all available markets within Europe (residential, commercial and industrial) and educate customers on the convenience of switching to wood heat and how environmentally friendly and financially viable the option has become. MacTara should have the first-mover mentality as they strive to grab as big a market share as possible. Contingencies are as follows: If international shipping routes cannot be secured do not move ahead with consolidation, re-evaluate the North American marketplace and, most likely, exit the unstable environment. If consolidation cannot be reached then production volumes cannot be assured for expansion, re-evaluate North American marketplace and, most likely, exit the unstable environment. If packaging plant cannot be funded contact local packaging plants and begin outsourcing. Pellets are highly profitable and outsourcing the packaging will still result in profits for MacTara abroad. If considerable market share in Europe is lost to Russian and Baltic wood products production volume will decrease leaving less by-products for conversion to pellets. Immediate exit strategy should be implemented and MacTara assets liquidated to repay any outstanding creditors. Implementation of strategy is essential to the survival of MacTara in the lumber and value added wood product industries. MacTara should not be comfortable with current economic uncertainty and strive for stability through the specific channels available.