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The Effects of Globalization on the Aluminum Extrusion Industry

8th International Aluminum Extrusion Technology Seminar ET‘04 May 18-21, 2004 Orlando, Florida. The Effects of Globalization on the Aluminum Extrusion Industry. Part 1: Theoretical Considerations. Bruno G. Rüttimann, Alcan Singen GmbH. CONTENT.

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The Effects of Globalization on the Aluminum Extrusion Industry

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  1. 8th International Aluminum Extrusion Technology Seminar ET‘04 May 18-21, 2004 Orlando, Florida The Effectsof Globalization on the Aluminum Extrusion Industry Part 1: Theoretical Considerations Bruno G. Rüttimann, Alcan Singen GmbH ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  2. CONTENT Part 1 (Technical Session): Theoretical considerations . • The Phenomenon of Globalization • Deriving Typologies of Globalization • The Characteristics of Extrusion Business • Quantitative Modelling • Outlook Part 2: Implications ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  3. Saturation Saturation in in existing existing end end markets markets + Price Price / / margin pressure margin pressure Searching for Searching for optimization potential optimization potential Opening of Opening of a a global global market market with new with new competitive competitive Change of Change of Searching for Searching for M&A M&A environment environment competitive system competitive system geographical expansion geographical expansion and new and new world market world market price price Searching for Searching for diversification opportunities diversification opportunities Shake Shake - - out out World World - - wide wide communication communication network network Concentration process Concentration process The Phenomenon of Globalization Main drivers ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  4. Product characteristics Market structure Business type Operating configuration Type of globalization Deriving Typologies of Globalization Framework and determinants ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  5. Business type Type of globalization Deriving Typologies of Globalization The characteristics of extrusion business Product characteristics Market structure • Product characteristics: • In general: • determined by the value and uniqueness of product • competitive intensity given by the differentiation degree • For extrusions: • customer-designed semi-finished product • virtually sold is the capacity • the transaction object is a service Operating configuration ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  6. Business type Type of globalization Deriving Typologies of Globalization The characteristics of extrusion business Product characteristics Market structure • Market structure: • In general: • sets the competitive nature of the business • given by concentration curve of supply and demand • For extrusions: • fragmented (polypolistic) competition structure • relative low entry barriers • reproducible know-how • limited geographic scope of action (soft alloys) Operating configuration ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  7. Business type Type of globalization Deriving Typologies of Globalization The characteristics of extrusion business Product characteristics Market structure • Operating configuration: • In general: • depends on product characteristics (value, customization, durability) • determined by product-value/transport-cost ratio • For extrusions: • multiplant configuration with strategy of adding geographical market share - typical for a fragmented business Operating configuration ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  8. characteristics Product characteristics Product Market Product Market characteristics structure characteristics structure Operating Business Operating Business configuration classification configuration classification Type of globalization Type of globalization Product Deriving Typologies of Globalization Basic classification of business types ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  9. characteristics Product characteristics Product Market Product Market characteristics structure characteristics structure Operating Business Operating Business configuration classification configuration classification Type of globalization Type of globalization Product Deriving Typologies of Globalization Basic classification of business types ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  10. characteristics Product characteristics Product Market Product Market characteristics structure characteristics structure Operating Business Operating Business configuration classification configuration classification Type of globalization Type of globalization Product Deriving Typologies of Globalization Basic classification of business types PRODUCT CHARACTERISTICS non differentiated differentiated ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  11. characteristics Product characteristics Product Market Product Market characteristics structure characteristics structure Convenience Speciality Operating Business Operating Business configuration classification configuration classification Type of globalization Type of globalization Standards Commodity Product Deriving Typologies of Globalization Basic classification of business types PRODUCT CHARACTERISTICS non differentiated differentiated polypolistic oligopolistic MARKET STRUCTURE ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  12. Product Market Product Market characteristics structure characteristics structure Operating Business Operating Business configuration classification configuration classification Type of globalization Type of globalization Deriving Typologies of Globalization 2 main types Type II Type I PRODUCT CHARACTERISTICS non differentiated differentiated polypolistic oligopolistic MARKET STRUCTURE Type 1: material G. (physical) Type 2: immaterial G. (financial) ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  13. Product Market Product Market characteristics structure characteristics structure Operating Business Operating Business configuration classification configuration classification Type of globalization Type of globalization Deriving Typologies of Globalization 2 main types Type II Type Ib PRODUCT CHARACTERISTICS non differentiated differentiated Type Ia polypolistic oligopolistic MARKET STRUCTURE Type 1: material G. (physical) Type 2: immaterial G. (financial) ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  14. Price A C B E G D F H Price span of similar economies I Demand Z Supply Z Globalization propensity (pK-pZ-cZK) Z Transaction cost cZK Volume Quantitative Modelling Price discrepancy within different economies and corresponding propensity for globalization pA pK pZ ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  15. Product Market Product Market characteristics structure characteristics structure Operating Business Operating Business configuration classification configuration classification Type of globalization Type of globalization Deriving Typologies of Globalization ... An additional subtype is emerging Type II Type Ic Type Ib PRODUCT CHARACTERISTICS non differentiated differentiated Type Ia polypolistic oligopolistic MARKET STRUCTURE Type 1: material G. (physical) Type 2: immaterial G. (financial) ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  16. 500 1 L K 0,9 400 0,8 0,7 300 0,6 Globalization volume (kton) Elasticity 0,5 200 0,4 0,3 100 0,2 ZK V 0,1 0 0 p 0 0 0,5 1 1,5 2 Propensity (Euro/kg) Propensity function Elasticity for globalization Quantitative Modelling Propensity function and corresponding elasticity for globalization ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  17. Price Supply K Demand K Supply K‘ initial equilibrium final equilibrium price drop of domestic supplies Supply Z volume increase shake out remaining domestic supplies Vdom import supplies VZK Volume Theoretical Considerations Price drop and shake-out in economy K due to globalization pK pdom pZ VK VK‘ VZ ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  18. What does that mean? Analyzing the impact on the extrusion industry Outlook part 2: Implications • Will a world market price establish? • Do we have to expect structural changes? • Is a new business paradigm crystallizing? • What is the extent of globalization in extrusions? • How can we respond to this challenge? ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  19. Thank you for your attention and see you tomorrow in the General Session for: Part 2: The Implications ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

  20. ET ‘04 May 18-21, 2004 Orlando, Florida B. Ruettimann, Alcan Automotive

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