According to my analysis, Arauco should shift to horizontal expansion instead of

forward integration. It will boost capacity, effectiveness and output production and
will develop its economy of scale .Arauco will develop highest market shares that
make Arauco market leader in pulp industry. Arauco have a competitive advantage
because its low price and superior value. Horizontal expansion will shrink the
company investement risk and make stronger the company core competence.
Horizontal expansion can boost export volume by exporting in other continent. So
Arauco need to development in its existing pulp segment and should go to
horizontal expansion.
Should Arauco shift to horizontal expansion or shift to forward integration?
Arauco should shift to horizontal expansion. Arauco is the leading company in
forestry. The main business of Arcaro is pulp that generates 48.6% of company
revenue. By moving in horizontal expansion, company will boost capacity of pulp
production. The new pulp plant will boost capacity of pulp from 850,000 tons per
year to 3.2 million tons per year. So there will be mass production of pulp and cost
per unit of pulp will be low. So company will achieve economy of scale of pulp.
Arauco will develop its position as the largest manufacturer of pulp in global market.
Horizontal expansion will help Arauco to maintain cost leadership. Arauco has fresh
forest resources. Moreover company has core competence of low cost production.
They can offer cheapest pulp prices as compared to its competitor. They can easily
control prices of pulp in global market. They have strong negotiation power when
they deal with buyers and suppliers in global market.
Company will grow huge market share in global market. Arcaro will raise huge profit
because it provide cheapest product as compared to its competitors. This profit will
give huge market share in market. Arcaro will generate approximately 88% revenue
from its new pulp plant. This will make Arauco leading market share of pulp in global
market.
Arauco will reduce risk by moving in horizontal expansion. Arauco need to invest 1
billion American dollars to move in horizontal expansion. Arauco has the core
competence in pulp segment. Company has experience, skill in pulp segment which
will make stronger its current business practices. Moreover Arauco has the strength
of strong organizational culture and high innovative technology that supports the
production operation. Arauco will do all the business practices in new pulp plant that
have already experience in existing pulp plant. So, Arauco 1 billion American dollars
investment will be safe and easily sustain its core competence. Moreover it will build
up more core competence in pulp segment.
When capacity of Arauco will increase to 3.2 million tons per year, then it will give
opportunity for Arauco to boost the export volume to other continents. Arauco has
the opportunity to export pulp in North America, Europe, Asia and specially China to
fulfill the mounting demand of pulp. Pulp sale will enhance approximately 50% by

exporting pulp in other continent. This will help Arauco to increase its existence in
Asian and other continent.
So from my above discussion I will recommend that Arauco should shift to horizontal
expansion. It gives growth opportunity to lead as global market leader.