Nucor Corporation - Essay Example

?Nucor Corp. has been operating in the US Steel industry for 66 years. This industry is characterized by a considerable level of competitive rivalry resulting from 3 categories of competitors: immediate, impending and invisible. The immediate competition is exerted by US Steel which exceeds Nucor Corp. in terms of production quantity. AK Steel Holding Corporation and Steel Dynamics Inc. are also immediate competitors. Nucor faces impending competition in its international operations. The main competitor in this case is ArcelorMittal which produces 28% of the production volume accounted for by the top 12 producers. The invisible competition is potential in large companies vertically integrating into steel production. This is the competitor environment in which Nucor Corp. strives to maintain an advantageous market position. Facing three categories of competitive tension, Nucor must formulate goals, objectives and strategies accordingly. Nucor Corp. can mitigate some of the competitive tension by acquiring other steel manufacturing companies. In that case the organizational culture of the company must be ready for the social-demographic tension resulting from unionization in the foreign companies. However acquisitions enable the company to get a technological edge as it integrates the operations of the acquired companies into its own operational framework. This is one of the key success factors of operating in the steel industry since the technology is constantly evolving while Nucor is not investing in R&D. Therefore acquisitions provide an effective means of maintaining the company’s technological base at the latest standards. There is economic tension in the form of plummeting prices of steel, scrap metal and iron ore. Increased environmental regulation is also adding to the cost of operations. Political regulations such as tariff withdrawal by the World Trade Organization have increased the competitive tension as the industry has been more exposed to foreign competition. The uncertain economic environment is a favorable factor in terms of enabling Nucor to acquire competitors who do not have the resource capabilities to sustain the economic difficulties. The result of acquisitions is further consolidation of the industry leading to reduced competitive pressure. The weak dollar also makes the company more competitive internationally. The marketplace is highly competitive. The competitive tension is increased by the economic uncertainty having repercussions on pricing, demand and access to capital. The companies operating in this environment can address the repercussions by achieving economies of scale. However all companies have similar capacities, thereby enhancing the competitive tension. The tension also results from the three buckets of competitors: immediate, impending and invisible. This competitive environment is the result of a highly fragmented industry. The highly fragmented global steel market place leads to an unattractive industry structure. Porter’s 5 forces analysis shows that the industry has high buyer power and competitive rivalry. The supplier power is medium. The high buyer power results from a commodity market in which the suppliers are price takers. Therefore buyers are able to pit suppliers against each other as they are price takers. Companies operating in the commodity market are unable to differentiate their products. As a result industry rivalry is high. It is also important to consider supplier power since the decreasing availability of scrap metal raises their price. As a result the suppliers are gaining greater bargaining power. Suppliers also present invisible competition since they have the ability to vertically integrate into steel manufacturing. Taking these factors into consideration, Nucor Corp. has to formulate strategies which are customized to an industry which has high buyer power and rivalry and medium supplier power. These are the three most important factors to be taken into consideration in determining the attractiveness of the steel industry environment. The economic uncertainty is one of the key challenges for Nucor Corp. As a result of the credit crisis, demand for steel is going down. This results in greater price competition. In order to compete effectively, Nucor must be able to make its manufacturing processes more technology-efficient. However the company does not invest in R&D. Therefore the challenge in front of Nucor’s management is to maintain the process of acquisitions to obtain and integrate new technology. The acquired companies have different organizational cultures. While Nucor’s workforce is non-unionized, acquired companies such as Harris have high degrees of unionization. Therefore Nucor has to customize its HR management accordingly. Inasmuch as industry demand is shrinking, Nucor must continue to improve its manufacturing technology so as to sustain improving economies of scale. Nucor’s main competitor is US Steel which is the only company to surpass Nucor in terms of production quantity. Only 5% of the total production volume worldwide is attributed to Nucor. The global steel production industry is highly fragmented and therefore no one competitor is able to assume dominant market share. In the US market Nucor’s main competitors are AK Steel Holding Corporation, Steel Dynamics Inc. and US Steel Corp. Globally Nucor’s main competitor is the London-based ArcelorMittal which is also the largest steelmaker worldwide. US Steel’s production volume is 21.5 MM tons as compared to Nucor’s 20 MM tons. This accounts for Nucor’s 5% of the worldwide production volume. This is in comparison with ArcelorMittal’s percentage volume accounting for 30% of the production volume worldwide. Therefore, internationally, Nucor ranks among the top 12 producers but the leading market share is held by ArcelorMittal with the highest production volume, exceeding that of the nearest competitor, Nippon Steel, by 21%. The company’s internal capabilities include scrap metal processing, procurement of raw materials such as scrap and iron ore, steel product production and transportation. Nucor has a core competency in small scale steel production that involves the mini mill. This has created a flexible manufacturing base which enables the company to cut costs. The weakness is that this flexibility may not have strategic value in the long term as Nucor’s production system gains in scale. Therefore the company needs to divert the resource capabilities to larger scale production systems. The management also needs to enhance coordination in sales and marketing. As mentioned before, the company does not invest in R&D. Although this lacking is addressed by acquisitions currently, it is not certain whether this strategy implementation can be sustained in the long term. Core competencies enable a company to develop a competitive advantage. The production system that Nucor employs creates a core competency for the company because it enables the company to produce steel at a lower cost than its competitors. The flexible organizational structure is also an important core competency since it enables the company to integrate the resource capabilities from foreign companies. As a result even though the company does not invest in R&D, it is able to maintain production technology at the latest standards. The core competency of HR management creates a highly productive workforce. The strategies of acquisitions and HR management enable the company to develop dynamic capabilities. Since Nucor operates in a highly competitive industry, the company has to create dynamic capabilities which will enable its organizational structure to adapt to the changing industry conditions, thus creating a sustainable competitive advantage. The company’s main strength is the ability to create dynamic capabilities through acquisitions and HR management. The industry that it operates in is highly competitive. Therefore sustainable competitive advantage depends upon creating dynamic capabilities such as the continuous process of integration of new technology. Although the company has the strength of the small scale production system involving the mini mill, it is a weakness in the long term as the company gains scale in its production system. Therefore the company faces a major weakness unless it is able to adapt these resources to larger scale production. Opportunities are in acquiring new companies at a lower cost because of the economic downturn, further vertical integration to strengthen raw material procurement and potentially greater import regulations. The threat stems from industry fragmentation which results in high competition, unionization, supplier bargaining power, shrinking demand and prices. Nucor has to consider increasing environmental regulation which adds to the cost of operations. As global warming becomes more of an issue, there is an increasing demand for greater regulation to address environmental concerns. Nucor has a social responsibility to improve its production technology so that it creates the minimal pollution. In the long term this will also create a positive image for the company as it cooperates with the government and the consumers in raising environmental awareness. The company should capitalize upon the opportunity of acquiring new companies at the present time since decreasing demand and prices is reducing the net worth of the smaller companies. By continuing the acquisitions, Nucor can keep pace with competitor technology. Since the company does not invest in R&D, it has to acquire other companies in order to keep pace with the latest technological developments. This is important also because the company’s core competency in small scale production may not have strategic relevance in the long term. Therefore the recommended course is to acquire competitors at bargain prices so that new technologies can be integrated in a continuous improvement process. Although strategic acquisitions enable the company to maintain the process of technological improvements, it should also start to invest in R&D. Because Nucor does not invest in R&D, its market position is vulnerable to threats from competitor technology. Therefore a key success factor is to build up resource capabilities in R&D. Once the company starts to invest in R&D, it can stop the process of acquiring other companies. The strategy of acquisitions is feasible only in the short term. Once demand picks up again, the strategy may not be so cost-effective. In that case, investments in R&D will be the strength for the company in keeping pace with the manufacturing technology as it evolves. Therefore it is recommended that Nucor should set a future course of spending in R&D. Read More