Great Lakes: Great Decisions

Great Lakes: Great Decisons
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. The firm’s external environment is challenging and complex. Because of the external environments effect on performance, the firm must develop the skills required to identify opportunities and threats existing in that environment (Hitt, Ireland, & Hoskisson, 2011 custom edition). Because firms cannot directly control the segments of their external environment, successful ones learn how to gather the information needed to understand all segments and their implications for selecting and implementing the firm’s strategies (Hitt, Ireland, & Hoskisson, 2011 custom edition).
Social/Demographic Segments The demographic segment for the Great Lake Chemical Corporation was that since the world’s population roughly doubled in a forty year period between 1959 and 1999, they did well with their oil and gas exploration company. Great Lakes never set out to be a lead additive producer but acquired Octel Associates for its capacity to produce bromine. Great Lakes could continue to supply lead additives to developing countries. The demand would remain high and the competition would be minimal, but the vocal opposition from environmentalists and others would likely only grow stronger (Hitt, Ireland, & Hoskisson, 2011 custom edition). As for the age structure of Great Lakes, less people are retiring because they cannot afford to. These people will need gas to get to and from work. People will also still need cleaning products. Great Lakes is challenged by popular health concerns surrounding the production and use of leaded fuel. For example, lead adversely affects the neurological system, the kidneys and the cardiovascular system. In adults, lead exposure causes increases in blood pressure, hypertension, and a higher risk of cardiovascular disease. Children are most adversely affected by lead exposure. Children between one and two years of age absorb 40 to 50 percent of ingested lead, whereas adults absorb only 10 to 15 percent of ingested lead (Hitt, Ireland, & Hoskisson, 2011 custom edition). Great Lakes is also challenged by increasingly negative publicity due to its position as the only producer of tetraethyl lead (TEL) in developing countries. Technological Segments Great Lakes faces resistance to technological development in the developing countries in which it sells leaded additives. Through the scarcity of refineries capable of producing unleaded gas and with many cars having no catalytic converts, the countries have minimal incentive to transition away from TEL (Hitt, Ireland, & Hoskisson, 2011 custom edition). Economic Segments After acquiring Octel Associates in 1989, it accounted for well over half of the company’s total operating profit each year, even as its share of sales declined. The need for lead gasoline is declining because the world at large is transitioning to the use of unleaded additives. Therefore, Great Lakes is failing to properly manage and grow their company beyond the Octel unit. As evidence, by 1994, Octel represented 59 percent, or $259 million, of Great Lakes’ total operating profit of $439 million (Hitt, Ireland, & Hoskisson, 2011 custom edition). Environmental/Geographic Segments By the end of the twentieth century, leaded gasoline was banned in most of the developed world. In 1996, leaded gasoline was still sold in large quantities in Africa and the Middle East. Mounting pressure from both environmental and financial policy makers, forces Great Lakes to reevaluate their stance on profit verses environmental responsibility. Environmentalists argued that Great Lakes should contribute some of Octel’s profits toward subsidizing a more rapid transition away from TEL. Many organizations such as 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 (Hitt, Ireland, & Hoskisson, 2011 custom edition). Political/Legal/Governmental Segments Great Lakes is capitalizing on the current legality of production of leaded additives in undeveloped countries. However, public sentiment and environmental concerns are likely to drastically change the arena in which Octel operates. Opportunity exists for Great Lakes to affect legal changes in the industry and markets that currently use their products (Hitt, Ireland, & Hoskisson, 2011 custom edition). 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 forces on the industry and based on this analysis, determine if the industry is attractive or unattractive. The five forces of competition model are: threat of new entrants, bargaining power of suppliers, bargaining powers of buyers, threat of substitute products, and rivalry among competing firms. Four of the five forces are not relevant to the United States because lead additives are banned here and many other developed countries. One force of competition, threat of substitute products, is the only one that affects this industry within the Unites States. The product substitute that replaces leaded additives is unleaded additives. This would make the lead additives industry unattractive because lead additives will soon be obsolete. There will eventually be no use for leaded additives (Hitt, Ireland, & Hoskisson, 2011 custom edition). 3. Describe who Great Lakes’ immediate, impending, and invisible competitors are and how Great Lakes measures up against these competitors. Great Lakes faces immediate competition from other manufacturers of specialty chemical products for such applications as water treatment, specialty household cleaners, flame retardants, polymer stabilizers, fire suppressants and performance chemicals (Hitt, Ireland, & Hoskisson, 2011 custom edition). Octel, the major profit unit of Great Lakes, has no immediate competitor. Impending competition for Great Lakes comes in the form of established producers of unleaded additives. Great Lakes stands to be a late-comer to this industry if they want to remain in additives production. Thus, they are highly subject to the various barriers to entry: economies of scale, product differentiation, capital requirements, switching costs, access to distribution channels, cost disadvantages independent of scale and government policy (Hitt, Ireland, & Hoskisson, 2011 custom edition). Due to the declining market for lead additives, Great Lakes’ invisible competition can come from not yet established chemical manufactures anticipating increased demand for unleaded additives in undeveloped countries as lead additives are phased out. Great Lakes should also better attend to its’ specialty chemical segments whose profitability is obviously shrinking as Octel is consistently the company’s most profitable segment.
4. Describe the main capabilities of Great Lakes. Great Lakes’ capabilities were not evidenced because they were the sole provider of their product, TEL. They have many opportunities to facilitate policy change regarding the use of lead additives in underdeveloped countries and be a market leader in the additives industry as lead declines. Great Lakes has the capability to go back to their original plan for investing in Octel. They had wanted to focus on Octel’s unique saltwater bromine-extraction process but put those plans on hold when it discovered the TEL “gold mine” that Octel provided (Hitt, Ireland, & Hoskisson, 2011 custom edition). They need to go back to that plan to have something to fall back onto.

References
Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2011 custom edition). Strategic management: competitiveness and globalization, concepts and casses (9th ed.). Mason, OH: South Western Cengage Learning.