Dupont Business Strategy Competitive Advantage and Comparative Advantage

DuPont Business Strategy: Competitive Advantage and Comparative Advantage

Porter's Forces

PEST Analysis

Matching Company Capabilities and the External Environment

DuPont's Competitive Position

SWOT Analysis and Mann's Country Profile

Discussion, Conclusion, and Recommendations

Porter's Forces

PEST Analysis

Matching Company Capabilities and the External Environment

DuPont's Competitive Position

SWOT Analysis and Mann's Country Profile

Discussion, Conclusion, and Recommendations

The DuPont Company is renowned as one of the best known manufacturing facilities in the International community. It was started in 1802 by the French Immigrant Eleuthere Irenee du Pont de Nemours and later became known as the E.I. du Pont de Nemours and Company1. The company has several brands that have become household named such as Teflon®, Sliverstone®, Kevlar® fiber, and Mylar® polyester films. DuPont is an International giant, operating in 70 countries with nearly 175 manufacturing and processing facilities. The facilities manufacture a number of products including 140 chemical and specialty plants, 27 natural gas processing plants, and 8 petroleum refineries. The product offerings of DuPont are diverse and serve a wide variety of markets.

It has not always been easy for the DuPont Company and at the beginning of the twentieth century the company fell on difficult times. DuPont then implemented an innovative management strategy that included backward and forward integration such as distribution and supply channels. This made DuPont the first vertically integrated business and soon the business was prosperous again.

In addition to this vertical integration, DuPont realized that with the number of remote divisions and global businesses that it operated a new strategy would be needed to make the vertical integration sustainable as well. DuPont maintains its strategic position by continuously implementing management plans and identifying how plans compare with actual performance, and analyzing results, rewarding performance and identifying problems. DuPont understands that this is the key to operating and maintaining the large international base that makes them the number one giant in specialty chemical products. DuPont's strategic management technique sets the standard for large international businesses and many others have developed strategic management plans based on the DuPont example.

Problem Statement

The difficulty in any strategic management plan is determining if it will be viable in response to current and future market trends. DuPont has implemented a plan that includes constant review and critique of the current strategic plan to evaluate the current and projected future needs of the company. This has given DuPont a key advantage over its competitors and if they continue, will be the key to retaining their top marketshare position in the future. The current strategic plan has served DuPont well in the past. However, global conditions are changing and the profile of the chemical industry is changing as well. The problem that will be the focus of the current research will be to determine if DuPont's strategic plan will be adequate to maintain their current position, and if it is not, what changes need to be made so that DuPont's strategic plan will tailor company goals and strategies to meet the needs of a changing marketplace.

Hypothesis

DuPont has managed each of its global enterprises as if it were its own micro company. This has been an effective management practice in the past and has allowed managers in the various locations to adjust to changing local conditions. Indications are that the chemical sector is moving towards a greater movement towards consolidation and that rising production costs are effecting all of the players, DuPont included. The key to remaining profitable will be to effectively manage costs while increasing sales and finding new and emerging markets. This research will support that hypothesis that DuPont has been employing a strategy that has effectively met its needs in the past and that this same strategy will accommodate them in the future as well.

Rationale

The rationale behind this study is that DuPont has developed a management strategy that is locally flexible. The market is constantly changing and strategic management cannot remain tied to a pet idea, no matter how well it worked when it was conceived. DuPont has remained flexible in its management plant and this has allowed them to adjust to changing market conditions. They constantly evaluate and re-evaluate current philosophies and implement the necessary changes to remain competitive. This research will support the current philosophy utilized by current DuPont management.

Data Collection

This research will be qualitative in nature and will rely on an analysis of the available information on DuPont's current strategic management plan as well as information available on the current market conditions. The data will involve a review of the current and project market conditions and an analysis of how DuPont's management strategy will effectively meet these changing conditions. Data will be derived from sources regarding DuPont's management strategy including stock analyses that were obtained from the Harvard Business School, Krause Fund Research.

Literature Review

Recent literature reveals that DuPont has been undergone several fundamental changes in the current year. These changes are due to changing market situations. DuPont has previously concentrated in the chemical division. However, recently competition has caused them to reconsider their position. A search of news articles revealed the following moves by DuPont.

DuPont operates in a diverse array of product lines 2. This diversity has been a key element in helping DuPont to achieve sustainability, constantly evaluating and re-evaluating its positions. DuPont constantly evaluates is operations in an attempt to reduce cost and improve productivity3.

DuPont constantly searches for promising investment opportunities such as the recent move to get into integrated photonic devices.4. Occasionally DuPont's gambles do not pay off as in the Brazilian market where it expects to lose $1 billion dollars5. The ability to change and re-evaluate these positions is the key to any good business plan. Currently DuPont is focusing on sustainability rather then rapid growth6..

DuPont is currently looking to separate its chemical business from the specialty agricultural and pharmaceutical chemical divisions7. Diversity in its portfolio mix is the key to any sound financial management and DuPont uses this same principle in its product lines and investment portfolio8. DuPont is currently restructuring its fiber business and forming a consolidated fiber business that encompasses it biggest sellers. This move will streamline production costs and increase the profitability of this line9. Collaborative efforts and strategic alliances are the trend that will determine which companies survive and which ones fail in the future10. Standard and Poor's11 and Moody's12 feel that these moves are good one's for the long-term sustainability of the company13.

DuPont is currently purchasing positions in automotive, electronic plastics, environmentally preferred packaging, and the soy protein business in China. It has also recently launched a new company in Columbia14-21. It is selling its pharmaceutical portion to Bristol Meyers Squibb & Co.22.

BASF is DuPont's major competitor in chemicals, plastics, coatings systems, dispersions, agricultural products and fine chemicals, crude oil and natural gas23. This year Fortune Rated BASF as the Number one Global Chemical Industry 24. This may have sparked the rapid changing of positions in the chemical division that DuPont has undertaken. They are seeking out new avenues and new markets, instead of relying on old standbys that may no longer be profitable.

Methodology and Analysis

The methodology used of this strategic analysis of the business management strategy for the DuPont De Nemours company includes a review of current new articles, presented in the literature review of the most recent business acquisitions and moves by DuPont. We will attempt to analyze their reasoning for making these moves using Porter's five forces,25 Mann's Country Profile,26 SWOT analysis, and PEST analysis.27

Porter's Forces

DuPont has traditionally focused its efforts on the specialty chemicals division of its business. When one examines this sector using Porter's five forces they find that Supplier input has had an effect on the ability to operate many of its specialty chemical divisions in a profitable manner. Suppliers have been limited and by the location of raw materials. DuPont has tried to keep the raw materials for a particular product close to the manufacturing facility. This is one of the reasons for having so many scattered small operations spread over the entire globe. The barriers to entry in the Chemical segment of the market are extremely prohibitive. The costs of building a manufacturing plant are large and there is a limited supply of raw materials. Brand identity is a key. However, most users of chemical products expect quality and performance above all other factors. The chemical division represents a mature market and there is little opportunity to command considerable economy of scale. Most of the major players are concentrated and have a relatively equal share of the market. The position of number one generally goes to the one with the greatest ability to cut costs.

In the chemical division the threat of substitutes is high among competitors, but low as far as other substitute chemicals. Buyers are less inclined to substitute for price factors alone. BASF, AGF, and DuPont all make chemicals for laboratory supply. In this area the purity of analytical chemicals is much more important than a few dollars saved. There is little price difference among suppliers and quality is a bigger factor than price in this market.

The Buyer does not have a lot of bargaining leverage as far as price and switching brands is concerned. This market is made up of hundreds of specialized niche markets and there is little cross over among suppliers. Buyers tend to stay with one brand if the quality is satisfactory. Product differentiation is difficult to determine in this industry due to the diversity of products. The product differentiation differs among different segments. There may be many suppliers of lawn chemicals, but only one supplier of Analytical Grade Potassium Permanganate.

This market is like no other as far a product differentiation and the ability to substitute is concerned. The buyers in this industry are driven by need alone. Each player in the industry is diverse and offers a variety of product lines. Different companies make some and some are exclusive to one company. It is difficult to use these aspects of Porter's Forces in the analysis of this area due to the nature of the market.

Typically a competitor gains advantage over a rival by lowering prices to gain a temporary advantage, improving product differentiation, and using vertical integration to provide alternate distribution channels, and exploiting relationships with suppliers. Players in the specialty chemical industry have used all of these techniques at some time. There are not a lot of companies involved in this industry, but the companies that do participate produce a large number of products and generally operate each of their product lines as a separate division. In this way one would have to compare each individual product on these merits and that is beyond the scope of this report.

Pest Analysis

Business strategies and outcomes are influenced in by political circumstances, economic trends, sociocultural and technological factors (PEST). DuPont operates in a variety of countries and must consider the position and perform PEST analysis in each of the countries in which it operates. It must also consider the overall global picture as well. Because DuPont has the philosophy of operating its many segments as a separate entity in order to allow the managers to take advantage of local conditions, this creates some interesting issues concerning PEST analysis that are unique to DuPont and other similarly operating international companies.

The most important global political condition that threatens DuPont on a global level and has the greatest impact on the largest number of DuPont's facilities is the war between the United States and Iraq. This war has the potential to cut supplies and raise the price of raw materials. In addition, could pose a direct threat to plants located in the Middle East that could become casualties of war. This also effects relations between companies operating in countries that may now be rivals. The war on Iraq is the greatest political challenge that DuPont currently faces and it could have a direct effect on DuPont's profitability.

Economic conditions in the U.S. have been poor and are expected to have a slow recovery. DuPont is an established and mature company that is mature in the product life cycle. Companies such as this typically move in accordance to the general economy. They may vary more than the general economy, but in general move in accordance to the economic conditions in an area. DuPont is effected by the local economy of each of its operating sites and the global economy as well.

Matching company capabilities and the external environment

In the past the greatest opportunity for growth and expansion was in new product development. DuPont concentrated its efforts on providing the raw materials for other technological industries and as a result developed a diverse portfolio of products for a specific purpose. Currently the trend has undergone a trend toward greater consolidation and less diversification28. Economic conditions and the need to cut costs has been the key driving forces behind this trend. Technology has also played a part and companies are cutting costs through a higher degree of vertical integration. The Internet has represented a major technological advancement and has effected almost every industry in some way. DuPont has seen an increase in efficiency through integration of supply lines and communications among all of its global satellites.

As political, economic, sociocultural, and technological conditions change, DuPont must determine the changes that need to be made in each individual plant or location, They also have to consider the company as a whole and look at the whole picture. DuPont must employ micro management at each of its locations, while still maintaining a focus on the parent company. Positions must be constantly analyzed and re-evaluated.

DuPont's Competitive Position

DuPont has created and improved its competitive position through diversification. Any good stock portfolio knows the value of diversification. A diversified portfolio allows one to decrease risk of harm from one position turning sour. While at the same time allows one to take advantage of opportunities. In addition, once a position is purchased, it must be constantly monitors to make certain that it is meeting performance expectations. If it does not meet expectations, then a savvy portfolio manager will discard the position for one that promises more profit. This is exactly the way in which DuPont has created its competitive position throughout its long history and the way in which it currently manages it to keep the position that is has.

In addition to a diversified product line, DuPont also has a diverse customer base as well. They have markets in home products and industrial chemicals. Sales are not dependent on a single small groups of customers and as market conditions change DuPont will cut back production on products that are in less demand and increase production on products that are becoming more in demand. The ability to adjust to meet changing market conditions is the key to DuPont's success. Without a high degree of diversification, this would not be possible.

DuPont uses a variety of tool and measurement interments to keep tabs the supply and demand of the their products. DuPont has strict criteria in evaluating new investments. DuPont must receive a considerable return on their investment within a certain time frame or the position will be reexamined and potentially sold. DuPont does this to ensure that each division is pulling its weight. DuPont cannot afford to hold onto positions that are losing and sets concrete performance criteria for its investments to meet. This strict policy keeps the overall corporate strategy in focus and on track for long-term profitability.

Diversification has allowed DuPont to establish a sustainable competitive advantage on a global basis. DuPont has recently sold its pharmaceutical division to a major pharmaceutical producer because competition in the pharmaceutical industry was becoming too concentrated and even though the company was profitable currently, DuPont did not feel that this profitability was sustainable for the long haul. However, DuPont is examining long-term positions in emerging markets such as South America and Southeast Asia. Sustainability is a buzzword either appeals in conjunction with DuPont policy in many recent news articles. DuPont has always maintained a vision on the long-term future, and has sometime made decisions that may have not been profitable in the beginning, but that were expected to experience long-term growth.