Management of Zucamor
Published 02 Nov 2017
The issue of choosing either one of the alternatives- value-enhancement concept of lower price to gain share in very complicated for the management of Zucamor. From my opinion, the answer to this question mostly lies in the structure of Zucamor’s customers. As long as there are more customers who value quality the most, they would rather explore the option of value-enhancement.
Such customers would like to look into opportunities of increasing the value through value engineering offered by Zucamor because they believe that it would give them comparative advantages in the market. The option of lower price would work in the case when customers are more interested in the cost of the product they get than its quality and comparative advantages which could be gained through the purchase. If more customers are concerned with the price and make a decision about the supplier due to the level of the price, there is no sense in offering them value-enhancement services along with products because they would not want to have higher costs due to those additional services.
As far as data shows, the largest category of customers of Zucamor falls into Category 3, i.e. they are companies which are accidental buyers and could shift to competitors if they offered better conditions of purchases. They do not value quality beyond all, and would not want to obtain it even when the cost might be slightly larger. There are some other customers of Zucamor which fall into categories 1 and 2, and they are much more concerned with quality. Customers of Category 3 would not care about the characteristics of the boxes they get, and they would rather buy them from the supplier who offers the lowest price. However, customers in Category 2 could vary, and it would be possible to determine companies which prefer quality over price among them. As far as data shows, 53% of the company’s customers are concerned with the conditions of purchases and only 47% could be more interested in quality.
Out of 47%, only 18% fall into Category 1 which means that other 29% would be hesitating about their need to pay more for value-enhancement practices. Further investigation could be taken in this regard but this option could inefficient. For example, in the case with Canadian food manufacturer, the employees of Zucamor spent very much time developing the design of boxes for the customer, and they were seeking to increase its value through the developments which they were offering. However, they did not investigate the situation carefully and did not thus make a conclusion that the Canadian food manufacturer was much more concerned about the price of the boxes he was buying than value-enhancement. That was why this company ended up buying boxes not from Zucamor which put many efforts in developing a special design of boxes for it, but from Zucamor’s competitor which offered a lower price.
It’s possible for the company to apply both value-enhancement and low-price strategy in the situation in which Zucamor appeared. However, that would mean the company had to make strong differentiation between customers, and that would complicate the issues very much. For example, it could offer low prices for Category 3 customers in order to attract them, and win new customers. With existing customers of Category 1 and 2 the company could apply the strategy of value-enhancement which would mean higher quality plus value engineering for a higher price. Many companies which care about quality the most would agree to pay a larger price for additional services due to which they would gain comparative advantage. However, in the situation which Zucamor found itself in at the moment, the best alternative would be applying low price strategy. The structure of its customers speaks for a much larger economic effect of using a low price strategy because most of the customers are concerned with the price.
The question of defining the most formidable competitor of Zucamor is very complicated due to the difference of influence of companies in the paper market during different periods of time. At some points of time, there was a certain range of competitors to which the company had to devote significant attention to when planning strategic decisions. With the development of the economy, competitors were changing, and their influence on the decisions made by Zucamor’s management became very different. Therefore, in order to pick out one formidable competitor for Zucamor, it’s important to investigate the situation in the market during different periods of time.
The analysis of all potential competitors was crucial for Zucamor after it decided to apply the strategy of expansion and spread its influence in the paper production market. Even though the steps taken by the management of Zucamor to increase the quality of products and to obtain additional capital through partnerships were very successful, the large number of competitors in the market could reduce the company’s profits very much. Competition in the market in which Zucamor was functioning was very large, and there were many important competitors. As far as the analysis has shown, the largest competitor available in the market was Cartocor which at that time possessed 21% of the market share. Cartocor served the markets in industrial and agricultural sectors. At the same time, Zucamor did not spread his influence on agricultural market and was solely interested in the industrial market. According to Zucamor’s management, the agricultural market was to risky to perform operations in, therefore concentration on the industrial market was the best option from its point of view.
Therefore, Cartocor’s influence as the competitor was limited only to the industrial market for Zucamor, and the company could introduce strategies which would be successful in winning a larger market share. Besides Cartocor, at that time there were no large competitors for Zucamor because it obtained a 12% share in the market, which was a very large indicator due to the company’s orientation only on the industrial market. All other competitors which Zucamor had owned only Inland-Argentina, Stone-Cartonex, FACCA, Asindus-Smurfit which owned only 3-7% of the market. There were some other competitors in the market as well but they occupied insignificant shares, therefore Zucamor’s management did not regard them as important competitors. Large companies occupied around 44% of the market, and all the rest of the market was occupied by small producers whose decisions did not have any influence on the price of volume of sales. So, at that point of time Cartocor represented the most threat for Zucamor, and was the most important competitor. In order to win his share, Zucamor had to concentrate its activities on the industrial market and focus on satisfying the demands of the customers to the highest extend in order to get as many orders as possible.
However, the availability of many small companies could have a different impact on the development of the market, and the threat of Cartocor could become very insignificant in comparison with the threat of foreign competitors, for example. Those 56% of the market which were possessed by small competitors could get eventually concentrated in the hands of some large investors, and that could create real problems. The development of Argentina’s economy made the management of Zucamor realize that there was a large possibility of foreign companies moving into Argentina’s market and providing real competition in such a case. The invasion of foreign investors occurred very rapidly and due to this invasion, prices started to climb up very much. However, no major competitor invaded the market.
The competition due to foreign investors became quite intensive but at the same time, the major competitors for Zucamor remained the same companies which it had to struggle before. The major ones of them were Inland-Argentina, Stone-Cartonex, Asindus-Smurfit, and Cartocor. The reason of the importance of these competitors is that they were integrated and were offering self-produced paper. Therefore, they represented the most threat for Zucamor, and the management of the company had to make a decision about what company of those was the most formidable competitor for Zucamor. The analysis showed that unlike other 3 competitors, Cartocor was integrated at a much lower level, therefore this company couldn’t represent the largest threat for Zucamor. However, reality proved that these expectations could be wrong. As Cartocor constructed a large plant for paper production near Buenos-Aires, its capacity grew rapidly. The aspect of partial integration of Cartocor transformed into its advantage because it could buy paper at low prices at open markets. For a while, Cartocor was again considered by Zucamor’s management as the most formidable competitor. At the same time, there were rumors spreading about the problems which Inland-Argentina and Stone-Cartonex encountered. However, Asindus-Smurfit still remained to consider. It was integrated at a high level, and possesses many other characteristics which could make this company a very important competitor for Zucamor. At that period of time, it was poorly-equipped and therefore did not have as high a capacity as Cartocor for example. However, Asindus-Smurfit was expecting reconstruction, new technologies introduction, new capital gains and many other resources which could turn the company into one of the leaders of the market. It also has very close ties with large customers in the market and there was no doubt that in case of re-equipping the plants of Asindus-Smurfit, it was able to win a significant share of the market. The potential of the company was huge, therefore it was very important to monitor all of its activities and make decisions in accordance with possible actions of the company.
As a conclusion, it’s necessary to mention that the most formidable competitor of Zucamor at present was Cartocor due to its large share of the market and increasing its capacities through the building of a new plant. However, the largest potential competitor was Asindus-Smurfit due to its high potential of development in the field. There was a possibility of this company’s failure in the market with time but there was also a possibility of its becoming a leader, therefore it was very important for Zucamor to keep track of the activities of the 2 most important competitors: Cartocor, a present one, and Asindus-Smurfit, a potential one.