Phelps Dodge Corporation Harvard Case Solution & Analysis

Phelps Dodge Corporation Case Solution

Problem identification:

Phelps Dodge Corporation operates in the US and is considered as the largest independent copper producer. The copper industry is facing significant challenges with respect to the copper prices as economic downturn has affected the copper prices adversely. Therefore, the decrease in the copper prices has also affected the financial position of Dodge Corporation which has resulted in the losses and increased debt ratio as well as it has created serious financial concerns for the management of the company.

Are the proponents of diversification for Phelps Dodge justified in their desire to moderate the impact of copper price volatility on the company's performance? Is the reduction of commodity price risk a proper objective from a theoretical perspective for management to pursue?

Dodge Corporation is passing through critical situation as it has been facing the problem of losses which incurred since last three years due to the continuous decrease in the copper prices. In order to mitigate the risk related to the copper prices, the management of the company has taken certain measures such as the decrease in the capital expenditure, restructuring copper operations.In addition to this, the management of the company has taken some strategic measures such as joint venture and has taken some investment vehicles in order to deal with this issues, however, nothing works in favor of the organization and the financial position of the company is weakening continuously.

Hence, the copper prices have affected the financial position of the company adversely and copper is the main source of revenue for the company therefore, the diversification strategies which the management of the company is considering to take is justifying that the management of the company is concerned regarding the financial position of the company and is taking this measure in order to reduce the risk associated with the copper prices.All these factors are showing that the basic purpose of the company is to control or reduce the commodity risk which arises due to continuous decrease in the commodity prices or copper prices.

Moreover, it is expected that the decreasing trend of copper process is a long down cycle and the management of the company is expecting no improvement with respect to the copper prices in the future, therefore this situation also creates the need of diversification strategy in order to mitigate the risk associated with the copper prices.

Is corporate diversification a good way for the firm to manage its risks associated with copper price movements? What other steps could be taken to reduce these risks? What are their advantages and disadvantages of these alternative ways of managing copper price risk? What would you recommend Phelps Dodge do?

It is expected that the diversification strategy could be the best option in current scenario as it also helped the company in the past in order to overcome such issues, therefore diversification could help the company. However, there are certain limitations with this strategy as well because entering into a new product or new market could create extra pressure for the management and it is also considered as a risky approach. For the diversification strategy, the management of the company also requires extra finance and the company which is already facing the financial challenges will be unable to execute the diversification strategy effectively.

In addition to the diversification strategy, there are also many other strategies which could help the management with this respect which are given below.

Retrenchment

The management of the company could adopt the retrenchment strategy as it will be good for the financial position of the company to reduce the additional cost................................

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