Northwestern Paper Company

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shipped price of $450/ton less an average direct cost of $280/ton for the pulp manufacturing and arrived at a margin of $170/ton per US Mill. Furthermore, based on the shipping distance the freight costs of $60 - $70/ton were allocated to the subsidiary expenses.

However, if a particular subsidiary did not meet the purchase expectation for required allotment, the US Mills down-time costs were allocated to the subsidiary in determining annual financial performance.

This method of financial performance limited the globalization strategy for the Northwest Paper Corporations Subsidiaries. Even though subsidiaries were allowed to compete as separate entities in the global market they were held accountable purchase from the original US Home Mills to meet individual financial performance. Based on distance the subsidiaries were disadvantage in purchasing from US Mills, due to high cost pulp as well as the shipping distance. Also, accountability to keep US Mill capacity utilization and down-time expense applied to the International subsidiary’s performance we believe is an unfair strategy for globalization.

Porter’s five forces framework outlined that for a company to compete successfully for profit they needed to consider not only the industry rivals but also the industry forces of customers, suppliers, potential/new entrants and substitute products/services. In this case, the Substitute product availability from other Mills and Zero bargaining power with the internal supplier (US Mills) will create a large rivalry resulting in depreciation of company’s competitive global strategy.

However, allowing the international subsidiaries to compete in the global market with adequate purchase power from other international low costs suppliers and allowing US Mills to compete without creating a controlled market, will allow the company to successfully grow their global strategy.

Consequences for International Sales. The company’s strategy and guidelines were more beneficial to the US manufacturing rather than a competitive global sales strategy. Based on industrial organization economics, (Porter, 1979) proposes five forces as framework for industry analysis and business strategy. And these five forces determined the competitive intensity and attractiveness of an industry. The attractiveness of an industry refers to overall industry profitability (Gong, Pg 76). In the case of Northwestern Paper, they limited the competitive strategy by setting strict guidelines to enhance US Mills production allotments. This limited the globalization strategy and competitiveness of the international subsidiaries.

The resulting consequences to the international subsidiaries would be limited bargaining power with their customers due to high supplier costs, and losing market share to rivals in the industry.

There was no balance motivation for the subsidiaries to work effectively under parent’s guidance. There was no official policy or procedure outlined for collaborative bid examinations and cost calculations. Furthermore, there was pressure set on the individual subsidiaries for their financial performance tied to US Mill capacity and utilization. This limited the subsidiaries capacity to function as an integrated unit. They were competing against each other as well as rivals in the marketplace.

In conclusion, the bidding of contracts should definitely be reviewed at the International Directors Meeting in Washington. Using different strategies in supply chain is imperative to be successful with conducting international business. There should be guidelines created for bidding contracts overseas to help the subsidiaries be more successful and produce more wins. Understanding who their competitors are overseas and understanding who their target audience is would increase the possibility of winning more bids.

References

Moffett, M.H. Cases in International Finance. Addison Wesley Longman Inc.

Gong, Y. (2013). Global operations strategy: Fundamentals and practice. Springer.