Smurfit-Stone Container Corporation is the leader in the paper packaging industry. Formed by a merger, in 1998, the company has recently had financial difficulties, in their inability to show a modest profit. This paper will analyze Smurfit-Stone utilizing various methods in order to fully understand the company and the environment it operates in. From there, an amended corporate strategy will be offered, along with the anticipated responses from its major competitor.
Table of Contents
Introduction
Mission Statement
Corporate Strategies
Business Level Strategies
Michael Porter’s 5 Forces Model
S.W.O.T. Analysis
Current Financial Weaknesses
Balanced Scorecard
Soundness Analysis
Scenario Analysis
Conclusion
References
Introduction
Smurfit-Stone Container Corporation was formed in 1998 with the merger of St. Louis based Jefferson Smurfit Corporation and Chicago based Stone Container Corporation. In 2000, the company acquired St. Laurent Paperboard. And, in 2002, Smurfit-Stone further expanded operations with the acquisition of MeadWestvaco’s containerboard mill and other assets. In 2003, Smurfit-Stone “acquired the remaining 50 percent of Smurfit-MBI (…) in an asset exchange with Jefferson Smurfit Group plc.” (“History”)
Toady, Smurfit-Stone Container Corporation is the leading integrated manufacturer of paperboard, paper-based packaging, containerboard, multiwall and specialty bags, and clay-coated recycled boxboard. In addition, they are the preeminent produced of solid bleached sulfate, folding cartons, flexible packaging, labels, and point-of-purchase displays. With the annual processing and selling of more than 6.5 million tons of recycled paper, Smurfit-Stone is the world’s largest paper recycler. (“About Us”)
In 2003, serving only North America, Smurfit-Stone produced 7.185 million tons of containerboard, 290 thousand tons of solid bleached sulfate and bleached paperboard, 497 thousand tons of market pulp, and 293 thousand tons of Kraft paper. They produced 84.3 billion square feet of corrugated container or 5.415 million tons, and reported revenue of $5.759 billion. (“2004”)
Their customers include a wide variety of businesses, from large, multi-billion dollar corporations, to small privately owned companies. Smurfit-Stone Container can service anyone who has a packaging need. Containerboard and corrugated containers is the company’s largest segment, and is 75 percent of their revenues. Consumer packaging is their second largest segment, accounting for 21 percent of their business. While recycling operations accounted for nearly $300 million in revenue, or 4 percent, in 2003. (“2004) All in all, Smurfit-Stone employs 38,600 employees at nearly 260 manufacturing facilities. (“About Us”)
Mission Statement:
Smurfit-Stone Container Corporation’s mission is simple. “Smurfit-Stone (seeks to) provide paperboard and packaging solutions for any customer, large or small, anywhere in North America.” (“About Us”) In eliminating operations outside of North America, they have sharpened their focus on North America and broadened their customer service abilities in this region. (“History”)
Corporate Strategies:
Smurfit-Stone’s corporate strategies are formed in response to a variety of concerns in the industry. First and foremost their industry is highly competitive and includes a wide number of participants. Some of Smurfit-Stone’s competitors are large, vertically integrated corporations, while others are small companies. (“Stone”)
Their industry is historically sensitive to price fluctuations, which brings about an added dimension to the challenges they face. These fluctuations can be caused by the cyclical conditions of the industry itself, or by shifts in industry capacity. In either case, although product design, quality and customer service are in varying degrees important, Smurfit-Stone must compete primarily on a price basis for many of their product lines. (“Stone”)
Due to the cyclical nature of their industry, Smurfit-Stone has adopted the following corporate strategies.
1. They have taken extensive market related downtime, in their mill operations, in order to maintain an internal balance between supply and demand.
2. They have restructured their operations to reduce excess production and fixed costs
3. They are using an area-management approach at their converting operations that provides a focused and unified sales and manufacturing team, for additional customer value
4. They are expanding their core capabilities in order to service the changing needs of their packaging customers.
5. They have made strategic acquisitions to gain a competitive advantage.
(“Stone”)
Their corporate strategies involve two of the generic strategies: concentration strategy and vertical integration strategy. Smurfit-Stone has focused their entire business efforts on one business, packaging, as such, they have become masters of this industry. All of their organizational resources can be dedicated to the development of this core business, as opposed to being spread out over multiple businesses. Although the industry is mature, their positioning is such that this wards off against new entrants as competition.
In addition to focusing primarily on one core business, Smurfit-Stone also has decided to focus on one core geographic region. In an interesting reversal of the globalization trend, Smurfit-Stone has removed itself from the European markets, to sharpen their focus on North America. In doing so, they may encounter market saturation in the region, but this concentration has allowed them to commit to a higher level of customer service.
In conjunction with the concentration strategy, Smurfit-Stone has implemented a vertical integration strategy. As mentioned earlier, they have acquired several businesses allowing them to control most of their product life cycle all the way through recycling. With globalization, they must consider whether or not this in house production is truly the most efficient and effective use of their capital.
Business Level Strategies:
When considering business level strategies in place for Smurfit-Stone, it becomes apparent that they have taken on an analyzer type strategy. In this instance Smurfit-Stone has some focus on new product development and market growth, yet have also taken on a position of defending their existing large market share. As an example, Smurfit-Stone’s corporate strategies involves the use of their research and development center, which develops manufacturing and sales processes at all levels, from raw materials to finished product. Although the center does develop patentable designs and seeks to protect Smurfit-Stone from infringement against these patents, their primary strategy is to continuously deliver a superior quality product, at the best price, and form important relationships with their customers. (“Stone”)
As growth is not their primary goal, Smurfit-Stone’s generic growth strategy for their business units is primarily that of a stability strategy. This strategy has been chosen primarily due to the maturity of their industry. Although there is some internal growth in new product development, primarily, at Smurfit-Stone, it is business as usual.
As price is a primary influence in the packaging industry, their competitive strategy for their business units is one of best cost. In this strategy, Smurfit-Stone seeks to take advantage of high capacity utilization of its facilities, as well as technological advances and economies of scale. However, increased competition has forced Smurfit-Stone to produce high quality packaging, with innovative designs, at the best cost possible, and this has been their true competitive advantage.
Michael Porter’s 5 Forces Model:
Smurfit-Stone primarily participates in two segments of the packaging industry: containerboard and corrugated containers and consumer packaging The primary products of their containerboard and corrugated containers segments include: corrugated containers, containerboard, Kraft paper, and market pulp. These products are used to protect, ship, store, and/or display products. They can include customized containers designed specifically to the customer’s specifications or generic, retail ready packaging, such as pizza boxes and recyclable pallets. The Kraft paper product is used in a variety of applications including photographic uses as well as printing and writing sectors. (“Stone”)
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