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Kimberley-Clark and Scott Paper Companies’ Merger Essay

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Updated: Feb 5th, 2021

In 1995, Kimberley-Clark, a company that specializes in paper products merged with another company known as Scott Paper in order to expand its business operations. However, the company is faced by a major problem which is influenced by different background facts. The first background fact is that after many years since its establishment, Kimberley-Clark decided to branch out its business operations by introducing personal hygiene consumer products into the market.

There are many reputable companies such as Procter and Gamble that deal in the same products. The company is therefore experiencing tough competition from Procter and Gamble and other companies that have been in the industry.

The second background fact influencing the current problem Kimberley-Clark is experiencing is the decision by the company to merge with its competitor, Scott Paper. Although mergers are important in business organizations, sometimes they cause problems that are difficult to solve. The decision made by Kimberley-Clark to merge with Scott Paper has introduced a major problem in the company because it is difficult to manage the two companies effectively.

The third fact influencing the current problem being experienced by Kimberley-Clark is lack of growth in developed countries as a result of market saturation. By the late 1990s, the managers of the company had succeeded in addressing some of the merger challenges it was going through. However, failure to secure markets in developed countries has affected its growth negatively. In addition, it is losing its market share to P&G.

Constraints of the Situation

The first constraint Kimberlay-Clark is facing is tough competition in the disposable diapers industry. Attempts by the company to diversify its market by producing new products are not succeeding because of other companies which have the same products in the market. For instance, when it introduced disposable baby wipes, Johnson & Johnson launched its own line of baby wipes. Tough competition in the market is therefore a major constraint that has been preventing Kimberley-Clark from diversifying its market successfully.

The second constraint kimberley-Clark is experiencing is lack of enough support from shareholders since it highly depends on them. Once the company makes decisions, they must be presented to the shareholders for approval. Sometimes the shareholders disagree with the decisions made by the company, something that makes its operations difficult. For instance, when it decided to revise its forecasts, the shareholders reacted negatively. This prompted the executive to reconsider the decision. This is a major constraint for the company because it cannot make independent decisions.

The first problem in the case study is that Kimberley-Clark operates in a competitive business environment. This makes it important for the company to identify a structure that can deal with competition in the market (Vance, 2009). In a bid to handle the competition, the company decided to merge with its rival, Scott Paper. However, the merger did not succeed because it introduced new problems instead of increasing profits. Integrating the two companies became a major problem, something that caused some of its managers to leave. This prompted Kimberley-Clark to conduct a restructuring process.

The second problem highlighted in the case study is failure by Kimberley-Clark to market its products fast. This is because there are many rival companies in the market who sell similar products. When the company decided to come up with a new product, the rivals also developed new and superior products. Even after introducing the grow, sustain and fix strategy, the company registered losses due to tough competition. This prompted the managers to introduce reorganization in order to deal with the problem. However, the company realized that a merger was a difficult concept to deal with because of differences that defined individual companies (Brock, 2002).

Answers to Case Questions

The main reason why Kimberley-Clark decided to use grow, sustain and fix strategy in its restructuring was because the strategy seemed the most appropriate to deal with competition in the market. The idea behind growth was that by investing in products that sold faster in the market, it was possible to gain profits within a short period of time. Such profits were supposed to enable the company to compete well with its rivals.

The concept of sustenance implied that the company was likely to succeed by investing in products that could not be moved out of the market by competitors easily. The first disadvantage of this strategy is that it is not easy to implement it since it requires large financial investments and development of new products. Its second disadvantage is that it might take a long period of time to realize the intended goals, something that would give competitors an opportunity to expand their businesses (Alkhafaji, 2001).

The organizational structure announced by Kimberley-Clark in 2004 was better than that of 2003. This was because it focused on emerging markets in order to maximize the growth of the company’s products. In addition, the new structure focused on products that were selling faster in the market. It was a good structure since after its implementation, positive results were recorded.

The decision by the management to reshape the identity of Kimberley-Clark as a consumer product health care and Hygiene Company together with its cost reduction effort would improve its competitive position relative to P&G. This is because consumer products attract customers easily. This would enable the company to earn more profits and compete with P&G (Organizational Restructuring, 2002). In addition, reducing costs would increase the financial stability of the company, thus making it more competitive than P&G.

References

Alkhafaji, A. (2001). Corporate Transformation and Restructuring: A Strategic Approach. New York: Greenwood Publishing Group.

Brock, D. (2002). Restructuring the Professional Organization: Accounting, Health Care and Law. New York: Routledge.

. (2002). Web.

Vance, D. (2009). Corporate Restructuring: From Cause Analysis to Execution. New Jersey: Springer.

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IvyPanda. 2021. "Kimberley-Clark and Scott Paper Companies' Merger." February 5, 2021. https://ivypanda.com/essays/kimberley-clark-and-scott-paper-companies-merger/.

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IvyPanda. (2021) 'Kimberley-Clark and Scott Paper Companies' Merger'. 5 February.

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