Introduction

The instance deals with the Australian Paper industry in 1990. the major participants runing in it and how the environment is throwing up challenges to its major participants and determining the future growing of the industry. The paper industry in Australia can be separated into three classs – Newsprint. Paperboards and Fine paper. The industry is dominated by two large participants viz. the PCA and Australian Paper Manufacturer ( APM ) and the remainder catered to by imports.

PCA operates in the all right paper market basking a 75 % market portion. while APM is a taking participant in the poster boards section. Both the companies are portion of a immense diversified parent organisation. Environment ordinances from the authorities. green peace militants have been late presenting menaces to PCA on organochloride emanations. APM is proactively seeking to strive in front of the environmental issues confronting the industry. Ken McRae. the GM of APM has to make up one’s mind on three options to take upon for using the A $ 50 million allocated by the parent company Amcor. maintaining in position the Financial. Strategic. Ethical and Environmental issues.

Case Facts

Before 1987. the Australian paper industry was divided into three companies. Australian Newspaper Mills supplied newspaper. Australian Paper Manufacturers produced poster board. and Paper Company of Australia produced coated and uncoated fine-papers. All three of those companies were subordinates of major Australian corporations. Maitland gross revenues. which owned Paper Company of Australia ( PCA ) . recorded $ 495 million in net gross revenues. Amcor Limited. which owned Australian Paper Manufacturers ( APM ) . grossed $ 2. 4 billion in net gross revenues. APM decided to come in another facet of the paper industry and dive into uncoated all right documents. They figured that they could pull on their strength in poster board fabrication. The devising of all right paper or paper in general requires close attending to detail. The first measure in doing paper requires the wood to be pulped.

This procedure refined the wood so that merely the fibres remained. During pulping. the cellulose fibres were separated from the other constituents so it could be processed farther. This procedure can be done in two different ways. automatically or chemically. The chemical procedure produces much sturdier mush. but unlike mechanical pulping. which uses 90-95 % of the wood. chemical pulping uses 45-50 % . Chemical pulping is besides the least environmentally friendly of the two. When the fibres are made into all right paper. it goes through an immediate measure called bleaching. where as Cl gas and Cl dioxide are applied to the mush. After decoloring. chemicals such as. resin. aluminum sulfate. or synthetics to cut down absorbency for composing documents. The one-year ingestion of all right paper in Australia rose to about 358. 000 metric tons in 1987.

Uncoated all right paper. such as photocopy paper. stationary. and countervail printing paper. comprised 52 % of that market. while coated all right paper. the type used in an one-year study. comprised of the remainder. In 1984 APM completed a a $ 163 million modernisation of its kraft mush works in Maryvale. Victoria. The betterment added 140000 metric tons per twelvemonth of kraft mush capacity. conveying the Maryvale plant’s entire end product to 350000 metric tons per twelvemonth. The Maryvale works had four paper machines and in 1986 APM turned its attending to Paper Machine 3. Originally built in 1972 to bring forth brown shopping bags Machine 3 had a capacity of 31. 000 metric tons per twelvemonth. By the mid 1980s. though people had stopped utilizing these check-out procedure bags and between Machines 1 and 2 the company could cover demand. This left Machine 3 ripe for transmutation.

APM seized the chance. upgraded machine 3 and used it to take them into the bosom of PCAs fine-papers market. Peoples in the works were convinced that it could be done and that their old ages of experience in doing bag paper could be adapted to such a closely allied procedure. A figure of test tallies were made in order to find the general viability of the thought. Once it was proven executable. APM sanctioned the investing. Between May 1986 and July 1987 APM spent A $ 50 million to reconstruct Maryvale’s Machine 3. change overing it from doing bag paper to bring forthing white wood free paper. The upgrading of Machine 3 had non merely set APM following to PCA as the 2nd domestic provider of uncoated all right paper. It besides made APM the proprietor of Australia’s largest and most technologically advanced all right paper machine. The 70. 000 metric tons per twelvemonth of Machine 3 capacity gave APM the merchandise it needed to steal from imports-the company’s primary end in come ining the all right paper market.

Customers had been accustomed to purchasing some of their paper from PCA and some from abroad but PCA had non kept gait with the growing in demand. Although taking to replace imports. McRae. manager selling for APM documents group at the clip. cognize his toughest occupation ballad in set uping APM’s mulct documents amid a market dominated by PCA. In August 1987. APM inaugurated its move into the all right documents market. McRae developed a careful paln for raging up to full capacity on Maryvale 3. APM intended to be bring forthing at 40. 000 metric tons one-year rate by august 1988. get downing with three crews working Monday through Friday and finally traveling to four and so five crews. Like all of Maryvale’s other paper machines. Machine 3 would finally run 24 hours a twenty-four hours. 365 yearss a twelvemonth.

By August 1988. Maryvale Machine 3 was bring forthing at a rate of 50. 000 metric tons per twelvemonth and by March 1989 it had reached its capacity of 70. 000 metric tons per twelvemonth. In May 1989 APM introduced its newest entry in the all right documents market. ReRight. It was Australia’s first letter paper paper made from 100 % recycled paper- post- recycled paper that was produced without chemicals and was neither de-inked nor faded. The World Wildlife endorsed ReRight and the merchandise generated important involvement and promotion. Despite ReRight’s higher cost it grabbed a 3 % market portion ( 7. 000 metric tons per twelvemonth ) of the uncoated all right documents market. To reimburse its research and development disbursal. APM charged 20 % more for ReRight than for comparable. non recycled paper.

ReRight’s immediate credence inspired APM to present ReRight-Form in the spring of 1990. a recycled computing machine paper. While APM expanded its recycling attempts PCA suffered yet another blow on the environmental forepart. Greenpeace released a surprise study on PCA’s Kayser sodium carbonate mush factory on the seashore of Tasmania. declaring it the dirtiest factory of its type in Australia. It found Kayser dispatching 11. 5 metric tons of organochlorides per twenty-four hours into the sea. at times making a degree 80 % above authorities criterions.

It besides decried the presence of trichloromethane a malignant neoplastic disease doing agent. in the wastewater and cited it as a wellness hazard to PCA’s workers. The environmental group called upon the authorities to supervise the mill’s wastewater degrees more closely and demanded that the company cut down its discharge of organochlorines to a upper limit of one kg per metric ton of mush. It besides recommended complete riddance of organochlorine discharges by 1993 and asked the authorities to reexamine employees’ medical records to seek for unnatural incidence of malignant neoplastic diseases attributable to oraganochlorines such as trichloromethane.

Future Scenario

Encouraged by APM’s success Amcor had provided A $ 50 million to APM to consolidate yhe investing that had carried it into all right documents. though a pre-tax return of at least 20 % was expected. While larger amounts could ever be requested. it was understood that larger amounts required more attractive returns-as had been the instance when APM originally entered the market by upgrading Machine 3. Further enlargement into all right documents loomed as a possibility. Copier paper entirely promised 10 % one-year growing and recycled paper continued to turn in popularity.

The uncoated all right documents market as whole was projected to turn at a rate of 6. 5 % yearly through the twelvemonth 2000. Now. McRae had the undermentioned options for the capital budget: 1 ) The capacity of Machine 3 at Maryvale could be expanded upto 100. 000 metric tons. Initial estimations put the cost of increasing from the bing capacity of 70. 000 metric tons at A $ 35 million. McRae would hold to make up one’s mind how he would utilize this excess capacity. Analysis of option 1-

2 ) APM was bring forthing 7. 000 metric tons of recycled paper at its Fairfield works and increasing capacity would be A $ 18 million. Analysis of option 2- 3 ) In add-on to APM’s recycling attempts. McRae focused on ways to cut down APM’s discharge of organochlorines. APM could cut down its dependance on Cl by replacing O in one of two ways: a ) To replace Cl through O pre-bleaching. APM would hold to pass A $ 15 million in development and nidation. Oxygen pre-bleaching would cut down Cl usage by 50 % .

Pulp end product at Maryvale would drop by 5 % from 350. 000 metric tons to 332. 500 metric tons. but many applied scientists at the works had expressed acute involvement in larning about the engineering. Pulp part at Maryvale was A $ 200 per metric ton of mush. Analysis of option ( a ) – B ) Alternatively. APM could escalate the usage of O during bleaching. which would cut down the degree of Cl by 15 % and cost about A $ 8 million. Pulp end product would be unaffected. Analysis of option ( B ) –