Du Ponts Strategy
Analysis
The postulation by Mario and Sherry in 1974 proved that the CFCs led to externalities associated with the ozone layer. They projected that the continued use of CFCs around the world led to a daily decrease in the ozone layer leading to the creation of the “ozone hole”. The sales of CFCs, especially in the USA, declined drastically as consumers became more cautious since they were aware of the impact of the CFCs on the environment. In addition, the government enforced a ban on the non-essential use of CFCs; a move that increased the rate at which Du Pont’s sales declined. To mitigate the effects of Mario and Sherry coupled with the government’s ban on CFCs Du Point resulted to;
a. Backward Integration
Backward integration leads to the reduction of the costs of production, hence increasing the revenues the company generates (Griffiths & Wall, 2005). The introduction of backward integration influenced other market players in the industry to reduce their prices in order to sustain their supply to one of the world’s manufacturers of CFCs - Du Pont. In fact, the suppliers offered to supply chlorofluorocarbons at a cheaper price than Du Pont anticipated. They also offered to neutralize the excess hydrochloric acid associated with the production of CFCs, thus reducing the neutralization costs on Du Pont. The indirect benefits of backward integration earned Du Pont a low cost production platform on CFCs in the industry.
b. Corporate Responsibility
In 1974, the public was aware of the effects of the CFCs on their environment, thus they were quick to reduce the use of products containing CFCs. To maintain the consumer confidence, Du Pont illustrated the support towards the CFCs’ externalities’ reduction by publicly announcing that it would close its production facilities if science proved the postulations about CFCs.
c. Research and development of products
The ban on CFCs production prompted Du Pont to concentrate on research efforts towards the elimination of the notion that CFCs were the main causes of ozone depletion. They formed the Alliance for Responsible CFC policy to pool funds for research about the effects of CFCs on the ozone layer. Du Pont was able to remain in the market until March 1988 when the government of the USA ratified the Montreal Protocol.