E. I. Du Pont De Nemours and Co.

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Case questions

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Du Pont has multiple advantages that kept them a strong competitor in the chemical manufacturing industry. Ilmenite chloride was first introduced by Du Pont in 1952 in rebuttal to National Lead Co. using the sulfate process. The time it took and the problems that came with it only gave Du Pont the knowledge of how the operation was ran. There were no other companies that could make the production economically viable. Du Pont’s Johnsonville plant was the largest in the industry. They used their scale to take advantage in pricing and undercut the competition. DP was able to achieve this because it the plant was so big that it could lower its costs that no other competitor could touch. In the 50s and 60s DP had easy access to new metals in Australia that offered a new operation that no one else had. During the late 60s, early 70s there was a shortage of TiO2 which lead to an increase in prices for the ore. At the same time there were new environmental legislations that increased the cost for TiO2. DP was able to evolve and went with a different approach; they ditched the TiO2 and used the previous ilmenite chloride process. This was significantly more cheaper than former, plus DP was the only one who knew how to do it.

These advantages could be as permanent as the amount of resources allow them to be and whether or not the environmental laws allow the costs to be expensive. If there is an abundance in resources and legislation allows the mining of the ores, then DP can go with a route that is favorable. But if there is low supply and expensive hoops that DP has to jump through then they will need to evolve and find other solutions to finding the pigments.

Du Pont was not only looking for a way to find an edge on the competition but to keep it that way. There was a strategy that was set to boost market share in TiO2 to 45% over the coming years.This was a way to provide cash to DP for funding (since all they did all their funding through debt) and also acted as a way to limit the expansion for competitors in the market. Another way to maintain an advantage they have is that they wanted to restrict the licensing of ilmenite chloride technology in order to keep companies away from using their tactic.

q. 2-1

How might competitors respond to Du Pont’s choice of either strategy in the Ti02 market? What other factors should Du Pont consider in making this decision?

With du Pont finding itself in such an advantageous position, competitors will no doubt take notice. After massive changes in the market environment, du Pont’s competitors in the Titanium dioxide market were put at a huge disadvantage with their sulfate production process. These changes left du Pont’s chloride process as the leading production method; while is a very an advantageous position for du Pont to be in, it does not come without high risks. The main risk associated with this new market position is competitors; these other market players will react to any strategy that du Pont implements. If du Pont happens to use a Growth Strategy in face its unique scenario, it is projected to gain a 65% market share. For the other producers in the TiO2 market like National Lead, du Pont will be seen as their greatest threat in the market. In the same way that it was environmental legislation that lead to restrictions on producing methods, there will most likely be legislation put forth in order to loosen restrictions on producing methods and/or legislation that will limit du Pont on their chloride method of producing TiO2. There will also be those that claim du Pont to be making a shot at becoming a Monopoly and will push for legislation to limit du Pont’s growth. Another likely reaction from competitors in the face of du Pont’s growth strategy is copycats; some competitors will want to copy what it is that is putting du Pont at such an advantage.

Du Pont’s other option is to implement a Maintenance strategy which comes with much less risk. This strategy will help to limit issues caused by competitors but it also may be seen as a submissive move. Some competitors will see this strategy and take advantage to gain their own market share; those competitors that have the means to surviving the changes in the market environment will come out stronger than ever which means they will continue to push to gain market share away from du Pont. The main factor that du Pont should consider in implementing either strategy is how well are they positioned politically, it was politics that changed the market environment, it stands to reason that it is politics that many competitors will turn to in order to try and advance their own needs and/or attempt to cut du Pont down from its position. They should also consider the source of their raw material, competitors will need limited amounts of raw TiO2 until they are able to change processing methods but after they are able to update, demand for the raw material will surely go up. It would be a smart move for du Pont to secure a cheap and plentiful source of raw TiO2 feedstock while the market is so vulnerable.

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Q:2-2

Which strategy should Du Pont pursue?

Note: In 1972, bond yields and the inflation rate were approximately as follows:

Long-term treasuries = 6.2%

Aaa corporate bonds = 7.2%

Baa corporate bonds = 7.8%

Inflation rate (CPI) = 3.2%

In Do Pont’s case, it mentioned that Du Pont consisted of 10 industrial department. Especially, the pigments department which took responsibilities for titanium dioxide (Ti02) was the second smallest in 10 departments. With sales of approximately $180 million, it only occupied 4.68% in total sales in 1971. Hence, in our view, we thought if investing more capital could bring the company more profit, Du Pont should pursue the the growth strategy.

First of all, according to the exhibit4 provided by case, we easily observed that the big different change in market share for Du pont’s strategic alternative. The exhibit4 demonstrated that if Du Pont applied the maintain strategy, the market share would grow from 35% to 45% during 1972 to 1975, then it remain at 45% until the end of 1985; on the other hand, comparing with the growth strategy which the market share grew from 35% in 1973 to