DuPont's Titatium Dioxide Business - Should DuPont increase capacity

Essay by KingLeonidasUniversity, Master's May 2008

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DuPont faced two distinct strategic options in TiO2 production business - whether to adopt a "growth" strategy going forward and committing itself to higher investments or to embrace a "maintain" strategy which required lesser investments and would still lead to an increased market share. The task force set up by the Pigments Department at DuPont made certain assumptions while conducting detailed economic analyses of its competitors, which included the possibility of competing sulfate producers except NL, exiting the market due to an already marginal economics and large reinvestment, courtesy environmental shocks. Although reinvestment for enforcing environmental standards would also be required to be made by the chloride producers, it is assumed that there would be no reduction in rutile chloride capacity. The assumptions related to the response of DuPont's competitors to its expansion strategy, external shocks on supply and demand, and sustainability of its competitive advantages are also implicit in the market forecasts.

DuPont's pigment department appears to assume that its competitors would not respond aggressively to any of the strategy choices it makes. It is risky to assume that competitors like Cabot, American Cyanamid and Kerr-McGee, which derive 29%, 55% and 26% of their sales (Exhibit 4) from their respective chemicals divisions, would not respond aggressively to DuPont's growth strategy. Exhibit 7 indicates that the demand (size of market) would continue to expand at 3% annually and the customers will not be price sensitive. Forecasted prices were assumed to be lower under growth strategy until 1979 and higher thereafter. These assumptions would need to be discussed in a meeting with pigments department.

Under a "maintain" strategy choice by DuPont, it is assumed that prices will increase in a greater measure than under "growth" strategy in the initial years. It could be due to a relatively...