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Running head: Great Lakes: Great Decisions

Great Lakes: Great Decisions
Danelle A. Dancy

April 15, 2012

Business Administration Capstone-BUS499

Prof. Christopher McGrath

Great Lakes: Great Decisions

1. Perform an analysis of the social/demographic, technological, economic, environmental/geographic, and political/legal/governmental segments to understand the general environment facing Great Lakes. Describe how Great Lakes will be affected by each of these external factors.

Corporate social responsibility is defined as a business’s concern for society’s welfare (Lambi, Hair & McDaniel, 2011). Corporations want to become more sustainable and remain sustainable by allowing management to focus on both long-range best interests of the company and the relationship to the society it operates in (Lambi, Hair & McDaniel, 2011). In the case of Great Lakes, the division manager Ellie Shannon was faced with making the recommendation to the company’s board of directors on which of three policy options she felt the company should pursue (Hitt, Hoskisson & Ireland, 2011). The pyramid of corporate social responsibility is an excellent standard to measure the outcome. Great Lakes, according to text is in an excellent position economically to “wash its hands of the leaded gasoline business and its repercussions” (Hitt, Hoskisson & Ireland, 2011). It would be too harsh to just completely do away with the use of leaded additive so the theory of a 5 year plan would be enough time for Great Lakes to devise a strategy to offer a cleaner fuel option to those countries. Economically, both Great Lakes and underdeveloped countries would see increases in cost and a decline in productivity, but the changeover would be a net positive long term (Hitt, Hoskisson & Ireland, 2011). Because Great Lakes is financially sound there is a likely chance that if the decision was made to take the 5 year route the gain in profit long term would far surpass the losses. Legally, there is no way around the fact that by the twentieth century leaded gasoline had been banned in most of the developed world. The question, “under what conditions should legal products that are being phased out of the developed world to protect people’s health or the earth’s environment be sold to poorer nations?” plagues Great Lakes (Hitt, Hoskisson & Ireland, 2011). Although it was not yet illegal, a morally responsible company would make the changes needed to protect the environment as companies that are morally responsible are among the most profitable (Shaw, 2010). Their goals, vision, mission and value statements declare their commitment to the environment.

Kenneth Arrow pointed out, “there are two types of situation in which the simple rule of maximizing profits is socially inefficient: the case in which costs are not paid for, as in pollution, and the case in which the seller has considerably more knowledge about his product than the buyer (Shaw, 2010).” Great Lakes wants to be recognized as the premier company in the markets they serve by providing: “world-class responsiveness”, “innovative products” and services, and superior financial performance, all while maintaining a vital corporate culture and being a “responsible global citizen (Hitt, Hoskisson & Ireland, 2011).” Because Great Lakes flourished financially and controlled 90 percent of the market, it has an edge on the ability to be extremely aggressive with developing countries to transition to unleaded gas by showing them the advantages of the change environmentally, the potential long-term financial gain and offer a monetary incentive to assist in the transition. This would allow Great Lakes to offer philanthropic work on a global perspective and adhere to their goals, vision, and mission and value statements.

The mounting political pressure from environmentalist was also bringing notice to Great Lakes. For many years, Great has flown under the radar for public criticism in respect to the products offered, specifically TEL. However, with environmentalist pressuring Great Lakes to completely stop the sale of the lead additive and a worldwide ban by 2010 it is increasingly important to make some changes. Great Lakes even admitted that while TEL was its greatest money-maker, it is also their most harmful (Hitt, Hoskisson & Ireland, 2011). The problem with a complete ban is the lack of refineries able to produce unleaded gas and underdeveloped countries do not have the financial or technological means to offer its citizens more updated cars that would emit fewer pollutants into the air. Because Great Lakes is firm in stating its commitment to the environment, it is increasingly important that the pyramid of corporate social responsibility be used to pursue economic, legal, ethical and philanthropic responsibilities (Hitt, Hoskisson & Ireland, 2011).

2. Analyze the lead additives industry in the U.S. using the Five Forces of Competition Model. Describe the impact of each of the five (5) forces on the industry and based on this analysis, determine if the industry is attractive or unattractive.

The Five Forces of Competition include: Threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products and rivalry among competing firms. There is always the potential of market share being threatened when new entrants are identified. At the time this case was relevant, there were few new entrants into the market share as most companies were no longer producing the lead additive underdeveloped countries were still using. This gave Great Lakes a 90 percent market share and made them increasingly profitable since there was little to no competition (Hitt, Hoskisson & Ireland, 2011). There was no short-term negative effect on profits for Great Lakes, but over the course of time as industry standards changed on the production of TEL for the entire world it would be important that a transition to a more environmentally conscience product be manufactured. There would be no need for another entrant for manufacturing TEL; However, as Great Lakes would become the new entrant in the market place for alternative products it would not be a difficult transition as they have a presence in the market with alternative products.

One way to Great Lakes could use their bargaining power as the supplier to underdeveloped countries to insure they don’t resist the transition is to raise the cost of the lead additive TEL. If the price is so great that underdeveloped countries can no longer afford to purchase the lead additive, they are more likely to explore the options provided by Great Lakes (Hitt, Hoskisson & Ireland, 2011). This would however pose a threat to Great Lakes. As underdeveloped countries become more inclined to explore their options for alternative products so does the competition have a greater chance of gaining market share. It is imperative that the products offered to the countries by Great Lakes be differentiated to a standard that other companies are unable to compete (Hitt, Hoskisson & Ireland, 2011).

Threats of Substitute Products means: “In general, product substitutes present a strong threat to a firm when customers face few, if any, switching costs and when the substitute product’s price is lower or its quality and performance capabilities are equal to or greater than those of the competing product (Hitt, Hoskisson & Ireland, 2011).” In this case, Great Lakes is at an advantage because they are already offering an alternative product that would keep cost low for them. The lower the cost for Great Lakes the better the cost Great Lakes is able to offer underdeveloped countries. As technology has advanced, the need to preserve the earth has become a top initiative throughout the world it is important that the countries that are undeveloped be given the assistance needed so that they are able to contribute to the environment in a positive way. Also, because Great Lakes is more financially stable than most companies in their same market, it will easier to take a financial risk, offer a better product at a cheaper price and add additional incentives to aid underdeveloped countries with transition phases. There is very little rivalry within the TEL industry because of the ban on the product. This has allowed Great Lakes to flourish financially and has given them the edge needed to take a loss with the potential for the net gain in the future that most companies are unable to take (Hitt, Hoskisson & Ireland, 2011).

3. Describe who Great Lakes’ immediate, impending, and invisible competitors are and how Great Lakes measures up against these competitors.

According to the text, “Great Lakes had no competitors, because other major producers had discontinued making tetraethyl lead (TEL), the additive for gasoline (Hoskisson, Ireland & Hitt, 2011). Because Great Lakes had no competitors, there was not much threat. By still supplying a product that had been banned, but was not illegal, Great Lakes increased their profitability which put them in a better place to take a hit financially in order to do what was both ethically and morally right. Even when Great Lakes undergo a change in the product offered and they do experience a loss, because they have financial ability to sustain themselves (Hoskisson, Ireland & Hitt, 2011). The most important key element is their ability to keep their word. If a change is not made quickly other sectors of the company may start to fail which would cause Great Lakes demise. Environmentalists have them under a microscope which makes government and the public more critical of their business practices. It is important that Great Lakes keep the social responsibility at the forefront of the decision making process. As Great Lakes changes to product offered to underdeveloped countries, they will notice an up rise in competition. Although they have a competitive edge financially, if the right types of incentives are not given to assist countries that cannot make the proper advancements in technology, Great Lakes will miss the mark and that will allow the competition to gain a market share they may not have previously had access to. It important that Great Lakes not take an arrogant approach to the situation and find a way for all parties involved to have a win/win situation in the long run. The invisible competitor would be Great Lakes by not making the correct decision on what option to take.

4. Describe the main capabilities of Great Lakes.

Great Lakes has the financial means to make any decision they want to make at the moment. Standards and Poor’s had raised their credit rating to AA- to A+ (Hoskisson, Ireland & Hitt, 2011). They had also declared their commitment to environment responsibility through the vision, mission and value statement (Hoskisson, Ireland & Hitt, 2011). The World Bank and WHO asserted that the cost of transitioning to unleaded gas was not as high as originally thought, and the net impact on economic growth would not be substantial (Hoskisson, Ireland & Hitt, 2011). This would allow Great Lakes to use their philanthropic means to assist with the transition. Also, being proactive instead of reactive about the changes would also give Great Lakes a favorable nod from environmentalist and the government for being a “respectable corporate citizen” (Hoskisson, Ireland & Hitt, 2011).

References

Hitt, M. A., Hoskisson, R. D., & Ireland, R. E. (2011).Strategic management: Concepts and cases, competitiveness and globalization. 2011 custom edition (9th ed.). Mason, Ohio: Cengage Learning.
Lambi, C., Hair, J., & McDaniel, C. (2011). Marketing. (2010-2011 ed.). Mason: Cengage Learning.
Shaw, W. (2010). Business enthics a textbook with cases. (7th ed.). Mason, OH: Cenage Learning.