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Methanex Case Study (Ivey Case)

5380 words - 22 pages

Methanex: Developing Strategy in a Commodity Industry |

1. INTRODUCTION
Methanex is the world's largest methanol producer. Before the economic crisis that had occurred in 2008, the company was very successful. It has been successful because of its leadership, which cut operating costs to a minimum, along with its reliable delivery. It also has a multi-million-dollar facility in remote, natural gas rich regions in the world and has its own distribution and logistics system.

2. PROBLEMS AND ITS SOURCES
Methanex is facing lower profit margins and having concerns of remaining sustainable in the market due the rising price of natural gas and political instability where its factories are ...view middle of the document...

86 million tonnes of methanol sit idle because of Argentinean government's ban on natural resource exports. This demonstrates how political instability and the government, which are both factors of the external environment, can play a significant role in Methanex's production and profit margins. In addition, Methanex’s environment is complex and unstable (Daft and Armstrong 2012, 141) making it mandatory for the company to keep up-to-date and be aware of the environmental changes. As a result, plans have been developed to set up plants in China, where the demand for methanol is increasing.
3. CASE ANALYSIS
3.1) Strength
Methanex is a big company with substantial large capital and has the potential, along with resources to expand into different sectors to become more diversified. It has the ability to hold inventory as the company owns storage facilities in the main distribution hubs. Furthermore, the company establishes a competitive advantage through utilizing a cost-leadership strategy, where Methanex uses the lowest cost of operation in the industry to eliminate competition (Daft and Armstrong 2012-Porter’s Competitive Strategies pg.59). In addition, Methanex has formed a good reputation for delivering quality goods in a timely and professional manner. In 2011, the annual global demand for methanol was 50 million tonnes and therefore, one of the major strengths for the company is the fact that there is an increasing global demand for methanol. Methanol is used in manufacturing, such as wood glues, photographic films, solvents, and textiles.
3.2. Use of methanol (Refer to Appendix A and B )
In the energy sector, the demand for methanol has been increasing to reduce harmful automobile emissions. In addition, low natural gas prices, particularly in North America, reduce production costs for Methanex as it expands its business. Furthermore, Methanex is an international corporation which can diversify their company to protect against political uncertainty. Methanex has successfully placed its production plants near remote natural gas-rich regions with abundant supplies, thus allowing the company to decrease their overall transportation and logistics costs as well. Other oil industries produce different fuels making Methanex a dominant corporation in manufacturing methanol. Another strength aspect is the fact that the cost of methanol is increasing, which means Methanex can sell their product in the market at a high rate of profit. Methanex has many secured long-term contracts in New Zealand, Egypt, Trinidad, Louisiana plants as well as new emerging contracts as the company expands, thus portraying the analyzer strategy where the company seeks stability and focuses on internal efficiency while innovating on the side & expanding to new markets (Daft and Armstrong 2012- Miles & Snow’s Typology Strategy pg.61). Methanex also utilizes the geographic grouping structure where each geographic unit includes all functions required to produce...

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