Economic Characteristics of Steel Industry - Case Study Example

xxxxx Management Topic: Nucor 03 November Economic Characteristics of Steel Industry In current scenario, the significance of steel industry cannot be overlooked in the national defense and financial competitiveness of any country. Steel is the main ingredients of railroads, bridges, skyscrapers, automobiles, construction, transportation, manufacturing, different appliances, and a range of user products. In United States of America and some other advanced countries, steel is the most recyclable and cast-off matter. In USA the recycling rate of steel is about 66%. Economically steel is the backbone of industrial countries and according to World Steel Association, 64 countries of the world have produced about 125 million tons of steel in first eight months of 2011 which is an increment of 9.8% of August 2010 (World Steel Review, October 2011). Since last three years, China is the leading steel producing country while 1/3 of the world’s overall steel is jointly produced by Japan, Russia and United States of America. Economic strength of steel and iron industry is very high in the U.S. The industry is enjoying more than $100 billion projects which is about 10% of the world’s steel industry. Almost more than 1000 strong firms are operating throughout the country offering valuable revenue which is 5% of the total U.S. industrial GDP. The industry was offering its employment to more than 200,000 people in 2001. 2. Competitive Forces Increasing population in many parts of the world especially in BRIC countries has also increased the requirement of steel based products such as new vehicles, appliances and building infrastructures. Government is the first force that plays two critical roles. First, local and international sustainable and environmental laws are put into effect to protect the environment from adverse effects of steel producing plants. Second, when the steel firms require protection, it inflicts tariffs and trade regulations plus tax breaks or subsidies; however this can be minimized by providing Free Trade Agreements. Steel industry is highly influenced by technology and fuel prices. Technology has not only improved the quality of steel products but also the continuously growing fuel prices force the steel producing companies to figure out and implement new, innovative, and cost-effective technology and practices. During the past few years, the mergers and acquisitions have not only enhanced the growth of steel industry but also made the industry more cost competitive where competition is primarily based on prices. Recycling of steel and scrap material is another critical driving force which plays an important part in the joint projects. 3. Porters Five Forces Analysis The general bargaining strength of consumers is high due to the presence of lots of manufacturers in the market plus due to cyclical demand for steel; therefore, buyers have many choices to opt. Similarly product differentiation is low in steel industry and basic competition is based on price, therefore, provision of low switching cost proves the bargaining strength of consumers is high. Another cause of high bargaining strength is the dearth of raw materials where suppliers are raising the costs. Several substitutions are available for customers to use the steel of their choice and preference. Both light and heavy steel is readily available in the market. The threat of new entrant is quite low because steel industry is based on high capital. Further environmental and sustainable laws are getting strict day by day. Therefore, inter industry rivalry trends in steel market are high which are directly affected by government intervene. 4. Nucor’s Strategies and Implementation Last 40 years of Nucor in the field of steel industry identifies that its success has based on two strategies. First, Nucor’s cost-effective marketing strategy i.e. it offered tremendously inexpensive steel manufacturing facilities to its buyers throughout the world. Second, excellent administrative structure and strategic management strategy i.e. the company operated its business on global basis effectively (Boyd & Gove, 2000). Nucor implemented its marketing and management strategies by using modern technology, consistent innovative products, dedicated client dealing services, and production of high-tech steel at competitive prices. Nucor’s human resource and welfare strategies to its staff have enhanced its progress manifold as compared to its competitors. Certainly leadership of Nucor is quite effective in achieving today’s success. 5. Future profitability Nucor has number of unique prospects which has enabled it to hold the leading position in steel industry since long. Its diversified operational segments such as raw materials, steel products, steel mills, and different global trading companies are the main prospects that enable it to gain more popularity and economic strength in upcoming future. Currently it has $19.05 billion assets with $843.66 million gross profit (http://finance.yahoo.com/q/ks?s=NUE). In 2009, Nucor Corporation recycled about 13.4 million tons of scrap steel (http://www.researchandmarkets.com). Although Nucor has enjoyed over 40 year’s dominance over steel industry, but like any other organization, time is always changing for Nucor as well. Globalization is a main threat to the steady profitability of Nucor coming through mergers and acquisitions strategy. This strategy will increase the efficiency and it will further furnish extra potential through a centralized structure and integrated modern technological advancements. Due to strategic and geographic focus on the United States, technology will be the key factor in future for Nucor’s profitability. 6. Nucor SWOT Analysis 6.1 Strengths Strong distribution and sale Unique potential to launch innovative services and facilities at bottommost costs Competitive advantage as ability of EOS production Reducing overheads of provisions in terms of backward assimilation in steel mill arena Distinguished client service Unique service products emphasizing on cost-effective items Inexpensive supplier Outstanding and very renowned reputation in steel industry Excellent administrative structure, autonomous business and management practices 6.2 Weaknesses Always dependent on supply of scrap steel Congregated in United States as 14 major plants are located in different states of the U.S Less focusing on competitors Offset losses from the U.S. automobile and real state market 6.3 Opportunities Global market in steel industry Technological advancements for new steel production methods Innovative applications for trivial products 6.4 Threats Below cost imports thus, stealing market share Strict environmental and sustainability regulations by governments Stifling production due to unionized labor Global consolidations Works Cited Boyd, B.K., & Gove, S. (2000). Nucor Corporation and the U.S. steel industry. In, Strategic Management: Competitiveness and Globalization, M.A., Ireland, R.D., & Hoskisson, .E. Southwestern Publishing. World Steel Review, October 2011, http://www.steelonthenet.com/ dated 03 Nov, 2011 Read More