VRIO (Valuable, Rare, Imitable and Organized)

RemainCo:

Based on the discussion of the above forces, the nitrogen fertilizer market is considered attractive, but characterized as fragmented with homogenous products, making the rivalry high. Although Yara has a strong position in the market (Yara, 2018c), no player is considered to have large enough market shares to control the entire market (Mordor Intelligence, n.d.). This contributes to healthy competition and/or cooperation between the competing companies, which has led to an increasing consolidation lately. Further, the market for P&K is characterized by a small

number of large industry players, making the degree of competitive rivalry smaller in these markets. On the other hand, the exit barriers are assumed to be high since this is a capital-intensive industry with large up-front investments. Based on this analysis, the competitive rivalry is considered moderate.

NewCo:

Similar to RemainCo, the industry of NewCo includes many of the same suppliers, products and customers making some of the arguments similar. The competitive rivalry is high due to the fragmented nature of the market. Additionally, with a high demand for industrial nitrogen due to expected growth in its markets, the industry is considered attractive. Further, the entry barriers of NewCo are argued to be lower than RemainCo’s, due to a less capital-intensive industry. However, NewCo is assumed to become a significant player, as the company is expected to take

an industry-leading position by creating the “first integrated industrial nitrogen company”

(Yara, 2019c). This is supported by its leading position in the scrubber market, as well as one of the largest players of TAN (technical ammonia nitrate) in the civil explosive

market (Market Watch, 2019; Yara, 2018a). Yet, based on the above, the competitive rivalry for NewCo is argued to be moderate to high.

NewCo’s process is more difficult to imitate as it requires advanced technology and innovation, it is not considered rare, due to several competitors providing similar solutions within the market. On the other side, it is rather rare that Yara has a strong market presence in addition to

comprehensive geographical coverage with several joint ventures and recent investments in low-cost production areas (Yara, n.d.a; S&P Global, 2019). Strategic locations allow the company to have direct access to cheaper raw materials and products in key markets. In addition, Yara has relatively good access to the limited resources P&K, making the production more flexible compared to many of its competitors. Moreover, due to the technical solutions reflected in the products, the company is selling at a “premium” price above the spot prices for some of the fertilizers (Yara, 2019b), which makes the production process more imperfectly imitable.

Additionally, the Yara Technology Centre (YTC) responsible for production R&D, aims to boost productivity by constantly developing new technology. Although Yara claims that its production plants have lower energy intensity than the industry average (Yara, 2018), the EBITDA-margins illustrate that Yara’s margins are below those of the peers, possibly due to the high production cost. It is therefore arguable that Yara does not organize the production process entirely to capitalize this resource, and the utilization of this resource is currently only considered as a

temporary competitive advantage. However, Yara has announced to expand its Yara Improvement Program (YIP) to reach the improved EBITDA target of USD 500 millions, by targeting a leaner cost base with improved working capital management and higher production volumes and efficiency. The YIP is expected to apply for both RemainCo and NewCo, which might cause the company to organize the production resource more efficiently in the future.

Vertical Integration

Yara manages the majority of its value chain from production throughout the sale process, as shown in the figure above. This is considered valuable, as it provides the company with unique knowledge and insight as well as access to the industry. Due to the small number of large

suppliers of the scarce materials, P&K, only available in certain regions, Yara has recently sought to increase the degree of self-sufficiency in P&K through vertical integration (Yara, 2018).

Examples of such investments are the development of a potash resource in Ethiopia in 2017 and

the acquisition of 40% stake in a phosphate mining in Galvani in 2018. The size of the initiatives to become self-sufficient through vertical integration makes this resource less imitable. However, other competitors are expected to hold the same resources, such as the largest producer of P&K, Nutrien, which is currently more vertically integrated than Yara (Nutrien, 2018). Therefore, the resource is not assumed to be rare. Until Yara is fully vertically integrated with the focus on

organizing and potentially expanding the resource more optimally, the resource is only considered a temporary competitive advantage. It should be mentioned this resource is mainly applicable for RemainCo, as NewCo is not expected to produce the raw materials itself. The vertical integration of RemainCo can be further optimized with its “focused strategy” of becoming the crop nutrition company for the future (Yara, 2019c) and by the launch of Yara Birkeland, the world’s first electric container vessel, discussed further below.

Organizational resources

Yara is a market leader within the production of fertilizers with good relationships and reputation among its stakeholders, which creates a strong brand name that is associated with quality. With over 100 years of history (Yara, 2018), Yara has decidedly one of the longest experiences within the industry compared to its peers, which mostly are established in the 2000’s. Hence, the

organizational resource is considered highly valuable as well as rare, as it also contributes to Yara being in the forefront of innovative growth, efficiency measures and creating scalable solutions.

Further, this resource is argued to be difficult to imitate, as it requires a lot of time and resources to build an organization to the same degree as Yara. Additionally, its position as market leaders benefiting from economies of scale and strong brand name will help reduce the ability to imitate the organizational resource. With the well-functioning YIP driving initiatives such as improvement of cost, quality and productivity, the organizational structure and culture is considered organized well.

Hence, based on the discussion, it can be argued that the resource generates a potentially sustained competitive advantage. Since NewCo will become a new company with an unknown future, it is, however, more uncertain whether the company maintains an inimitable organization.

Innovation, technology and environmental solutions

In line with its new strategy, Yara has introduced different strategic priorities to improve its forefront of innovation and technological development. With an increasing focus on sustainability, Yara has constantly developed solutions with improved environmental performance. Working towards a sustainable production comply with its claimed mission of “responsibly feed the world and protect the planet” (Yara, 2018). The YTC aims to improve productivity with Best Available Technologies and has made several actions to reduce the environmental impact such as concepts for “Green

Birkeland and is the launch of the world's first electric container vessel that aims to significantly reduce NOx and CO2, by replacing 40 000 truck journeys a year (Yara, 2018e).

In order to gain a competitive advantage in the current market, it is crucial to have a sustainable operation with a constant focus on technological development and innovation growth, making the resource highly important for both companies. It can, however, be questioned whether this

resource is rare or inimitable, as it is assumed that also the competitors are constantly working on improving this resource. This is exemplified by RemainCo’s main competitors, Nutrien, which consider themselves as a leader in innovation (Nutrien, 2018). In addition, NewCo considers themself a pioneer in the NOx-reduction market, but the rival, Johnson Matthey, offers the same advanced technology (Johnson Matthey, 2018). Although the resource is efficiently organized due to the strategic initiatives mentioned above, the utilization of this resource is only considered competitive parity. However, if the companies manage to develop more advanced technology than its peers improving efficiency or sustainability, they can achieve a clear competitive advantage.

Although there might be other important resources to achieve competitive advantage, this thesis considered the resources discussed above, as the most important, and are presented in the table below through the VRIO framework.