American Paper Inc (AP) is an American company primarily focused on markets in North America. Finally, after 75 years of its existence the company decided to consider entering into international business. Many wondered why it took so long. In the USA, AP enjoyed economies of scale, specialization and first mover advantage leading to investment in primary paper mills. The mills coupled with AP’s vertically integrated access to timberlands and efficient logistics infrastructure had created a significant competitive advantage. Its “primary mills” were sized to serve the market needs of its regional converting plants which converted large roll stock paper into cartons used by dairy products and juice processors. As markets evolved and despite its strong competitive position, APs home market operations were put under considerable strain by growing use of plastic jugs to store milk in refrigerators. Consumers who were buying in half liter cartons were now buying milk in larger quantities and using the jugs which represented a lower cost and more convenient options than paper cartons. Today plastic jugs have all but replaced paper assets. The plastic jug’s success in taking share from paper, put the primary mills low cost position and profitability into serious question. The CEO of AP John Smith was faced with a serious survival crisis. He had to find ways to maintain the economies of scale. He decided to expand AP”s presence in foreign markets to compensate for his company’s eroding domestic volumes. Going international and generating increased export sales would not only help return the primary mills to efficient scale, also offshore volumes would concurrently improve allocation of fixed costs per unit. Smith and the company had an appetite for risk as they wanted to retain AP’s preeminent status in its home market. Despite a down turn in the USA market, AP was in a very strong financial position to fund expansion with ample cash reserves built up years of market dominance. Smith was ready to consider all options Initially AP started to export commodity paper roll stocks to modern paper converters in Europe and Japan which were similar advanced economies with equivalent demand factors. However, these economies were only experiencing average growth rates. When it had built up sufficient knowledge and experience of markets in Europe and Japan, Smith decided to move beyond “passive” of commodity paper boards to growing demand for modern paper packaging in Asian markets by selling cost effective cartons to Asian beverage producers. Markets in Asia where the economies were undergoing significant growth with a growing consumer culture presented an opportunity The transition from exporting of commodity paper rolls to selling paper cartons with higher margins to local beverage manufacturers was a value adding strategy. To meet the demand for high quality, ready to fill printed cartons, AP had to forward integrate and establish its own production inside countries in the region like Australia, Indonesia and Thailand. AP assembled a team of international marketers to implement its strategy and set up regional support staff to provide local dairy and food processors with technical assistance in- country consumer market support. This strategy represented a significant investment for AP, where the market potential was still uncertain relative to the capacity installed and the overheads being incurred in marketing Question: Identify the “Push” and “Pull” factors which ultimately led to AP embarking on an international market entry strategy after 75 years of its existence.
American Paper Inc (AP) is an American company primarily focused on markets in North America. Finally, after 75 years of its existence the company decided to consider entering into international business. Many wondered why it took so long.
In the USA, AP enjoyed economies of scale, specialization and first mover advantage leading to investment in primary paper mills. The mills coupled with AP’s vertically integrated access to timberlands and efficient logistics infrastructure had created a significant competitive advantage. Its “primary mills” were sized to serve the market needs of its regional converting plants which converted large roll stock paper into cartons used by dairy products and juice processors.
As markets evolved and despite its strong competitive position, APs home market operations were put under considerable strain by growing use of plastic jugs to store milk in refrigerators. Consumers who were buying in half liter cartons were now buying milk in larger quantities and using the jugs which represented a lower cost and more convenient options than paper cartons. Today plastic jugs have all but replaced paper assets. The plastic jug’s success in taking share from paper, put the primary mills low cost position and profitability into serious question.
The CEO of AP John Smith was faced with a serious survival crisis. He had to find ways to maintain the economies of scale. He decided to expand AP”s presence in foreign markets to compensate for his company’s eroding domestic volumes. Going international and generating increased export sales would not only help return the primary mills to efficient scale, also offshore volumes would concurrently improve allocation of fixed costs per unit. Smith and the company had an appetite for risk as they wanted to retain AP’s preeminent status in its home market. Despite a down turn in the USA market, AP was in a very strong financial position to fund expansion with ample cash reserves built up years of market dominance. Smith was ready to consider all options Initially AP started to export commodity paper roll stocks to modern paper converters in Europe and Japan which were similar advanced economies with equivalent demand factors. However, these economies were only experiencing average growth rates. When it had built up sufficient knowledge and experience of markets in Europe and Japan, Smith decided to move beyond “passive” of commodity paper boards to growing demand for modern paper packaging in Asian markets by selling cost effective cartons to Asian beverage producers. Markets in Asia where the economies were undergoing significant growth with a growing consumer culture presented an opportunity
The transition from exporting of commodity paper rolls to selling paper cartons with higher margins to local beverage manufacturers was a value adding strategy. To meet the demand for high quality, ready to fill printed cartons, AP had to forward integrate and establish its own production inside countries in the region like Australia, Indonesia and Thailand. AP assembled a team of international marketers to implement its strategy and set up regional support staff to provide local dairy and food processors with technical assistance in- country consumer market support. This strategy represented a significant investment for AP, where the market potential was still uncertain relative to the capacity installed and the overheads being incurred in marketing
Question:
Identify the “Push” and “Pull” factors which ultimately led to AP embarking on an international market entry strategy after 75 years of its existence.
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