Problem Statement
The case for Midwest Copper Mining (MCM) is an expansion one. Facing growing local, national and international competition, MCM is increasingly under pressure to expand operations beyond existing mine in Kopparstad, Minnesota in order to meet growing demands from national and international customers. The expansion option involves, in fact, a number of structural changes internally and externally. Internally, MCM would have to scout for a new copper deposit, train operation staff on extraction methods in proposed new mine and maintain a high staff morale against possible disruptions caused by relocations, offer a new differentiated value proposition (in lieu of a low-cost offering now under increasing pressure because of reductions in copper prices by competitors) and, not least, invest in a new facility close to a proposed new copper deposit. Externally, MCM needs to cater for different stakeholder needs as well as environmental impact issues. Specifically, MCM needs to weigh facility co-location options of existing and potential customers and develop innovative solutions for more environmentally-friendly equipment and extraction methods in new deposit location.
Situation Analysis
Given current situation, MCM faces a market positioning challenge further exacerbated by losing a long-standing, once powerful value proposition of low-price, high quality copper products. This challenge is, in fact, informed by external and internal factors.
Externally, MCM is challenged by national and international competition including, most notably, from Zambia which waived value-added tax on copper exports and hence making copper exports by Zambian companies more competitive. Moreover, Chinese demand is rising at rates MCM cannot meet and, as a result, is losing market expansion opportunities to competitors. Notwithstanding a strong customer base, co-located close to company's facilities, MCM faces a challenge of losing existing customers and/or failing to enticing new customers in case a new deposit is opened for operation in a remote location. Not least, copper is a commodity product subject to extreme market price fluctuations, particularly in international markets (Creti, Joëts & Mignon, 2013), a risk which should be mitigated by proper sustainable strategies. On a more positive note, MCM is apt to expand nationally and internationally supported by high quality products, well trained engineers and staff, an established environmental record and a good reputation.
Internally, MCM is challenged by possible organizational restructuring issues (e.g. by relocating a number of company's engineers into new, proposed facility), possible work-family balance disruptions which would impact on overall productivity and potential financial risks caused by massive investments in "re-gearing" existing equipments in order to march production and operation requirements in a new deposit.
Overall, MCM has strengths in well educated and trained workforce, strong environmental record and, so far, competitive prices. For Weaknesses, MCM is at risk of declining staff morale, internal work-family and productivity disruptions and, not least, low production capacity compared to growing demands. For Opportunities, MCM has a unique opportunity to expand in size and markets against fierce competition should careful expansion strategies are pursued. For Threats, MCM faces a growing national and international competition, losing her differentiated value proposition and, not least, a financial risk of investing massively in renovating her equipment stock for proper operation in a new deposit.
Proposed Solutions
In order for MCM to properly deflect, if not contain, risks and seize opportunities, MCM could pursue one organizational restructuring option or a second strategic partnership one. The organizational restructuring option is a Merger and Acquisition (M&A) solution. By opting for an M&A, MCM can fill in gaps in capital assets (particularly equipment) and/or focus on specific product categories in order to stay competitive. Or, MCM can partner with one or more customer in order to minimize product costs. This partnership can include, for example, propositions to manufacture specific product categories on specific, chosen locations suitable for a customer company's delivery options to another customer. In return, an MCM partner would purchase copper products in larger volumes on a preferential basis.
Weighing Solutions
In balance, both options represent different strategic choices for MCM. The M&A is, for one, a common option companies usually pursue during crises (Appelbaum et al., 2000). The merits of an M&A include more vertical diversification and bigger market size (attained by combined assets of merging entities). On flipside, M&A is an extensive and consuming process and, given company's size, may not work well for MCM.
The strategic partnership option is more viable. In addition to further deepening customer loyalty, MCM is apt to expand in market indirectly by using corporate resources of a partner company and, not least, developing broader strategic relations with more potential customers of a partner company.
Recommendations
The strategic partnership option can be implemented by implementing a five-step plan:
Perform proper market research for most effective partnerships on short, medium and long ranges
Identify and approach one or more selected partners by offering a detailed proposition of sharing corporate assets in return for preferential business relationship
Negotiate and finalize proposed partnership plan in a phase-by-phase basis
Implement agreed plan first in limited scale and later in full
Appraise market performance prior to and post partnership implementation in different phases
This solution is limited by possible misallocation of corporate assets and resources, particularly during crises, or unexpected market conditions making a shift in partnership options (for an MCM customer) more viable. Overall, a strategic partnership is, presumably, a long-standing business relationship in which shifting alliances, particularly in an industry as volatile as copper, are common. Thus, in order for a strategic relationship to be sustainable, a periodic review (Doz, 2007) is required for more effective implementation of partnership details based on new market developments.
References
Appelbaum, S. H., Gandell, J., Yortis, H., Proper, S., & Jobin, F. (2000). Anatomy of a merger: behavior of organizational factors and processes throughout the pre- during- post-stages (part 1). Management Decision, 38(9), 649 – 662. Emerald Insight. doi: 10.1108/00251740010357267
Creti, A., Joëts, M., & Mignon, V. (2013). On the links between stock and commodity markets' volatility. Energy Economics, 37, 16–28. ScienceDirect. doi: 10.1016/j.eneco.2013.01.005
Doz, Y. L. (2007). The evolution of cooperation in strategic alliances: Initial conditions or learning processes? Strategic Management Journal, 17(S1), 55–83. Wiley Online Library. doi: 10.1002/smj.4250171006
