ATLANTIC CORPORATION ABRIDGED Case Solution
When Atlantic acquires more production capacity for the linerboards as compared to the capacity of its competitors, the company will gain the opportunity to acquire new customers and sustain the long-term growth of the company. Currently, the economic risk of all of those companies, which are operating in the forest industry, is high. However, the economic risk in the linerboard industry is too low.
The main reason for this is that the interest rate fluctuations are strongly related to the prices of the forestry products; whereas the fluctuations of the interest rates and their instability is not related to the prices of the linerboard. Therefore, the potential acquisition or building up of the capacity for the linerboard and boxes capacity in this industry would reduce the overall economic risk of the companies.
Linerboard sales are closely related to the economic activity of the countries, which are measured by gross national product of the country. The economic cycle is followed by the linerboard industry in the market. The demand for the linerboard is stimulated by an upward cycle. The consumption and the production of the linerboard have always been high in the past years, which could be seen in exhibit 2 of the case.
This is also evident by the positive changes in the gross national products of the nation. The change in the gross national product between the year 1982 and 1983 has been 8.85, which is significantly high and positive. During this same period, it could also be seen that the consumption and the production has increased from 117070 to 12775 and 13494 to 14900 respectively.
Therefore, looking at these increases in the consumption, production, and the gross national product of the company, we can estimate that the growth rates for these would be high and positive for the years 1984 and 1985. This is going to have a significantly positive impact on the overall linerboard and the boxes industry. The industry activity is expected to pick up in the year 1984 and due to this, it has been expected that the sales for the linerboard as well as the box would increase by a rate of 7%.
The demand for the linerboard products is also highly related or correlated with the amount of the incoming shipments, which are made in the country. In addition, it has been estimated that the new capacity, which would come into the country, would be just 1% to 2% before the year 1986. Therefore, the economists expect the prices of the products to increase above $ 420 per ton by the end of the year 1986. The prices of linerboard products in the last quarter of the year 1983 were $ 290 only.
Therefore, it could be said that by the end of the year 1986, the prices are expected to increase by 45% only in 3 years time. When the demand would also increase along with the capacity, then this is going to increase the utilization capacity of the industry as well and it would touch a level of 100% capacity utilization.
When this high utilization is combined with a significant increase in the price, then the profitability of the overall industry would boost up rapidly and the situation would become highly favorable for all those companies that have a high production capacity for the linerboard and box products. This would be only true if all the other factors remain constant.
If we perform the competitive analysis, then the current competitive environment of the market is highly unfavorable to Atlantic Corporation. The reason for this is that Atlantic Corporation is one of the largest companies in US among the forest products and paper product companies, but the company maintains only 1.8% of the total linerboard market……………
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