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Case Write-up

Case Write-up - MA 827 Strategic Cost and Profitability...

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MA 827 Strategic Cost and Profitability Analysis AB Thorsten Case Write-up Yi Zhou (Joey) AB Thorsten (“Thorsten”) was a subsidiary of Roget S.A. (“Roget”) in its Industrial Chemical Division. Roget was one of the largest industrial companies in Belgium. It converted raw materials into chemicals for industrial, food and textile use, and sold them to the corresponding manufacturers throughout Europe. Industry value chain Raw Materials-> Produce -> Manufacturing -> Distribution -> End Customers Oil, natural gas Industrial Chemicals minerals…etc. Food Chemicals Textile Chemicals Roget was near the front end of the industrial value chain. Porter’s 5 Forces Suppliers: Some of the raw materials of the chemicals industry are fluctuating a lot in price, such as oil, natural gas, and minerals. And there are not many plants selling these raw materials. -> Medium/High power Customers: A moderate number of competitors. Once customer has adopted the product, chances are that it will use it for a long time. Manufacturers usually purchase chemicals from a few suppliers to ensure quality and service requirements. -> Med/Low power Threat of New Entrance: Chemicals production requires a large amount of capital to set up and relies heavily on intellectual properties (formulas) and human resources (management experience, chemical researchers and engineers). -> Low power Substitutes: Certain chemicals are very frequently used in industries (for example, yeast in food production, and polyester in textile). Technology improvement guarantees that chemicals would not be substituted by natural materials. -> Low power Rivalry: The high entrance barrier results in a moderate number of competitors. But since this
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