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A method for planning long term strategy in basic industries

Long Range Planning
Publication Date
DOI: 10.1016/0024-6301(77)90120-0


Abstract Standard market studies may provide a valid estimate of future demand, but they are unable to furnish objective data about future supply and selling prices. Consequently any profitability or feasibility study making use of standard methods involves a large amount of guess-work disguised as scientific data, with the resulting probability of error. This probability is most true and most dangerous in heavy industry. The method described here does not attempt to determine actual future supply, this is impossible. Instead, it strives to define potential supply by conducting a worldwide study of the opportunities for creating new production units able to operate at low cost. The method, makes it possible to select the soundest and most profitable of the possible projects, without concern for those of competitors, since these will already have been analyzed within the framework of the study. The author claims that this method can provide objective estimates of long term return on investment, by taking as an average selling price the cost of sales of the last competitor on the list of those whose output is needed to meet normal demand.

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