Summary Case

Summary

Recommendation 

A. Arborite implements a cost leadership strategy and focuses on the inventory-driven market. 

B. Once implemented, Domtar should seek to exit the HPL market, with a trade sale to WilsonArt likely to maximise its exit value. 

Justification 

Whilst Arborite is one of the largest manufacturers in the Canadian HPL market, its lack of competitive advantage has adversely impacted performance over the last decade. This is evidenced by: 

• A fall in market share from first to second place i.e. 52% in 1977 to 34% in 1987; and 

• A reported ROA of -19% in 1986 and an average of 5.1% during the past ten years. 

Primarily this performance has resulted from: 

• A lack of competitiveness on all non-price buying criteria in the job-driven segment, with Arborite not having the core competencies to compete effectively in this segment. 

• A comparatively high cost structure due to a lack of scale compared to WilsonArt and Formica. 

• The entry of new competitors in Arborite’s key markets. 

A cost leadership strategy allows Arborite to compete more readily in the inventory-driven segment, which is largely price-driven, while building on Arborite’s existing reputation and relationships. 

However, Arborite should simultaneously develop an exit strategy for the following reasons: 

• Arborite will remain a weak competitor in the long term, unable to deliver a sustainable 19% ROA as required by Domtar. 

• The Canadian