PROFILE OF THE JINDAL ORGANISATION
EXECUTIVE SUMMARY
Global marketing offers a way for companies of all sizes to grow
by expanding their customer base beyond the domestic market.
However, the complexities of global marketing demand careful
planning and proper implementation.
This study has been conducted to gain knowledge about the
potential strength of Stainless Steel exports of China. The supply
demand scenario, domestic steel industry and the present and
possible role of India was analyzed in case of China.
To start with the Indian and the world Iron and steel Industry
is studied and comparative study of the performance of Exporting
Countries and Indian industry is analyzed.
Indias positioning in the global perspective will depend upon
cost competitiveness of the Indian. Besides the continuous emphasis
is to given on new technology/process/products developed,
productivity improvement, quality improvement. The Chinese steel
market is one of the most active markets in the world. China is a
country with a dynamic economy whose annual growth rate has stayed
at 7-8 percent in the last five years.
After this China Customer are segmented, and the most attractive
segments for Indian Exporters are selected as target markets. The
company studied is Jindal Steel Ltd. Jindal Stainless is among the
top twelve stainless steel producers in the world along with
Arcelor, KTS, Acerinox, Avesta Polarit, and POSCO etc. The company
itself has two offices in China and is a well-known brand in the
Chinese Stainless Steel Industry. It is a pioneer in the production
of Chrome Manganese Stainless Steel and last year 90% of Jindal
Stainless' exports were to China.
OBJECTIVES of the study
Indian business firms are facing problems on the international
marketing front and the possible strategies the can employ for
going global and maintain their stride with global scenario
Marketing Mix of Global Marketing
Marketing planning helps you decide what products or services
are required in your market, then how to sell them and what price
to put on them. So focus on the seven Ps of marketing people,
planning, product, positioning, pricing, place and promotion.
People
The personal, cultural, social and psychological attitudes of
your customers are important. If you are going to meet their needs;
do some basic market research.
Planning
your market research needs to be analyzed and evaluated. You can
then start to predict the requirements of your customers.
Product (or service)
What makes your product different from that of your competitor?
Can you develop any brand values for your product? Decide what your
unique selling point is and work out how the customer will benefit
from your product or service.
Positioning
Differentiate your product from that of your competitors. Look
for the gap in the market for your product; work out why this gap
exists. How big is this market? Does it have short and/or long term
growth potential? Decide who your competitors are and how they will
react to your plans. What makes your product special? How will you
develop and exploit competitive advantage; work out the best time
to launch your product.
Pricing
What people feel about a product is reflected in what they are
prepared to pay for it. Identify what value your customers place on
your product. Then decide which market segment you will attack e.g.
premium or budget. What discount structure (if any) will you offer
for volume. What will be your pricing policy for agents,
wholesalers and retailers?
Place
You may need to work out how your goods will move from where
they are produced to where they are sold. You may want to use
wholesalers, retailers or your own premises. Or will you use direct
marketing, telemarketing, or e-commerce via the Internet?
Promotion
This is the most visible aspect of marketing. It pulls together
various communication elements- Corporate identity; Branding;
Advertising strategy; Public relations, internal and external;
Direct marketing; Sales promotion and merchandising; Sales and
sales management; Exhibitions.
Developing Marketing Strategies
Positioning and differentiating the market offerings through the
product lifecycle
Developing new market offerings
Designing global market offerings
This study will also be conducted to gain knowledge about the
potential strength of Stainless Steel exports of China. The supply
demand scenario, domestic steel industry and the present and
possible role of India was analyzed in case of China.
To start with the Indian and the world Iron and steel Industry
is studied and comparative study of the performance of Exporting
Countries and Indian industry is analyzed.
In the next step, the environmental analysis of China is done.
The environments selected included macro-micro economic
environment, legal environment, social environment, and business
environment, of China.
Indias positioning in the global perspective will depend upon
cost competitiveness of the Indian. Besides the continuous emphasis
is to given on new technology/process/products developed,
productivity improvement, quality improvement. The Chinese steel
market is one of the most active markets in the world. China is a
country with a dynamic economy whose annual growth rate has stayed
at 7-8 percent in the last five years.
The Iron and Steel Industry is one of the major foreign exchange
earners, despite of important role it plays in balancing Indias
international trade. Steel has pervaded our daily lives from the
kitchen to hospital and industry. Because of its ability to
withstand corrosion, steel has found an indispensable slot even in
the medical world. Extensively used, steel is sudden in a wide
assortment of container industry, galvanizing units, engineering
industry electrical industry, re-rolling industry and heavy
industry. Hence we can say that:
There is a little bit of steel in everyones life
Iron containing less than 2% carbon and less than 1-% silicon
and not more than a trace of phosphorus is what is usually termed
steel. Carbon is the principal hardening element in steel. The
increment of carbon % within steel increases the hardness of steel.
The hardness becomes correspondingly less in steel containing more
than 85% carbon than low carbon ranges.
production process
There are two primary methods of making steel, differing in
terms of the process and raw materials used : the blast furnace
route (BF) and the electric arc furnace (EAF) route. In the BF
process, the iron is first reduced with coke in a blast furnace and
then refined to produce molten steel, while in the EAF process a
mix of scrap and sponge iron is melted using electricity in an
electric are furnace to produce long and flat products.Stainless
steel is gaining recognition and it is considered as the friendly
and sustainable material because of its corrosive resistance and
for its easy to clean / hygienic surfaces. Its versatility,
durability and its supraliminal quality makes stainless steel the
exceptional material of a choice for the new millennium. Initially
stainless steel found its applicability in cutlery and gradually
into textile, chemical and other engineering industries. Today its
application has created wonders in the Architecture, Building and
Construction (ABC) and Automobile, Railways and Transportation
(ART).
Stainless steel usage in the building and construction sector
would increase in the coming years. If the potential of the market
is fully realized in terms of the prospective end use sectors
mentioned above along with the continuing growth of the utensil
market, the future growth rate of stainless steel can even be
higher than witnessed in the last decade.
Indian Steel Industry
Indian Steel Industry is now going through a speedy growth path.
In the global scenario, China remains the worlds largest crude
steel producer in 2008. Chinas steel sector has been following an
upward trend, with sale of steel product reaching their highest
levels in recent years. Increased imports and decreased export have
combined to bring great pressure to bear upon chinas steel market.
The Antidumping Measure taken by the United States against China HR
Plates has seriously helped up Chinas export.
In china the volatile Nickel price create uncertainty in the
stainless steel market. Chinas Metal Sector has been enjoying a
period of astonishing growth. Trend of production and consumption
are further elaborated with respect to category of products like
cold rolled flat, bars, wire rods and pipes. Stainless steel world
has a department specialized in research and intelligence to help
meet the markets increasing need for the resolution of complex
technological and informational problem.
Stainless steel production in India is speedily increasing since
the last three decades. Initially India had to depend on foreign
markets to meet its requirement of stainless steel. Today India is
self sufficient enough to make stainless steel of all grades,
shapes & sizes and is also a major exporter of stainless steel
of utensil grade. In the Public Sector, the special steel plants of
Steel Authority of India Limited (SAIL) at Durgapur and Salem have
made significant contribution for the growth of this industry.
Mukand Limited, Panchmahal Steel Limited, Shah Alloys Industries
Ltd., Jindal Strips Limited have also contributed significantly in
making India self-sufficient in stainless steel production.
(William A. Johnson, 2001)
Most (around 75%) of the Indian stainless steel market is still
in the kitchen segment. Indian Railways is switching over to
manufacture their passenger coaches which will require 15 mt
stainless steel per coach in coming 5 years. The Indian government
is using Ferric cold rolled stainless steel strips for making
coins. The main focus of Indian stainless steel industry is China
which still imports 90% of stainless steel. (William A. Johnson
2001)
Exports from India
Iron and steel exports from India started after 1964, the first
time Indias supply dominated her domestic needs. Though the Indian
exports are quite vulnerable to domestic demand conditions, the
export market has been doing reasonably well in the past few years,
with FY03 seeing an increase of more than 100% over the previous
year. The increase in exports to Asia (approx. 227%) and America
(105%) has contributed to this massive growth. The abundant
availability of raw materials like iron ore and cheap manpower in
India provide tremendous potential for the iron and steel sector to
grow. (Peter M Fish, 2003)
The recovery of the steel sector witnessed in 2006-07 was
carried forward in Q1 2007-08. Production and apparent consumption
were higher by 8.4 per cent and 1.6 per cent, respectively.
Production growth was 9.4 per cent in the flats segment as against
5.7 per cent in the non-flat segment. Apparent consumption growth
in the flat and non-flat segments was 1.5 per cent and 5.1 per
cent, respectively.
The apparent consumption growth in the flat segment was negative
despite a positive production growth, due to sharp rise in exports
coupled with a poor domestic off-take largely due to the
transporters strike in April 2003. Export performance was
remarkable with a growth of 38.6 per cent during the period.
Imports were higher by 26.8 per cent.
Export growth was higher for flat products (41.8 per cent) as
against non-flat products (21.8 per cent). Import growth was higher
for non-flat products (42.9 per cent) as against flat products
(25.7 per cent). The capacity utilization (primary and secondary
producers) of crude steel production improved from 86.3 per cent in
Q1 2002-2003 to 92.0 per cent in Q1 2003-2004.
India exported about 3.85 million tonnes of stainless steel
production in 2007-08. Of these, low nickel high manganese grade
hot rolled and cold rolled products were 30,000 tones. In the 300
series, hot rolled and cold rolled products were about 30,000
tones, Corex Furnace Bars 43,600 tones, wire and cables about
22,000 tones. The export of 400 series was 13,800 tones of which CF
Bars were 9,200 tones and wire and coils about 3,400 tones. The
export of utensils and kitchenware during 2007-08 was about 80,000
tones. The value of utensil export by India in 2007-08 was about US
$ 47 million to Middle-East.
Statement of the problem
The study is intended to find the export potential of Stainless
steel to Chinese market, to reveal present pattern and possible
future developments of supply, demand and consumption in relevant
product specific markets.
Jindal Strips Limited is the largest integrated producer of
stainless steel in India. It is Flagship Company of Jindal Group
set up in 1970 under the visionary of Mr. O.P.Jindal. Jindal
Organization is ranked fourth amongst the top Indian Business
houses.
The company initiates developing new market for its stainless
steel products around four to five years back and has been able to
achieve compounded average growth. Jindal is the leader in domestic
market of stainless steel and it is trying to become a major player
in international market. With a market share of 50% in India, it
also exports to various countries across the globe. Jindal
stainless is the only company in India which has the composite
stainless steel plant for the manufacture of Slabs, Blooms, Hot
rolled and Cold Rolled Coils.
This study is carried out keeping in the interests of Jindal
Strips Limited and hence it becomes important to have an insight of
the domestic market and export potential in the Chinese market.
Objectives of the study
1. To study various global marketing strategies
2. This study highlights the export potential of Jindal Strips
Limited in China.
3. This study may help Jindal Strips Limited in identifying new
markets.
4. This study would present the strategic alliances that Jindal
Strips limited can form to reduce the risk in the market.
A global industry is an industry in which the strategic
positions of competitors in major geographic or national markets
are fundamentally affected by their overall global positions. A
global firm is a firm that operates in more than one country and
captures R&D, production, logistical, marketing, a financial
advantages in its costs and reputation that are not available to
purely domestic competitors. Global firms plan, operate, and
coordinate their activities on a worldwide basis. Fords world truck
has a European-made cab and a North American- built chassis, is
assembled n Brazil, and is imported into the United States for
sale. Otis Elevator gets its door systems from France, small geared
parts from Spain, electronics from Germany, and special motor
drivers from Japan; it uses the United States for systems
integration. A company need not be large to sell globally.
Developing an International Marketing StrategyAn international
marketing strategy involves developing and maintaining a strategic
fit between the international company's objectives, competencies,
and resources and the challenges presented by its international
market or markets. (Terpstra, V. and Sarathy, R., 1997) As such,
the international strategic plan forges a link between the
company's resources and its international goals and objectives in a
complex, continuously changing international environment. Given the
changing nature of the environment, the international company's
strategic plan cannot afford a typical long-term focus (a five- or
ten-year plan); rather, the planning process must be systematic and
continuous, and it must re-evaluate objectives in light of new
opportunities and potential threats. (Carol Graham, 2001)Another
dimension of international marketing strategy is linked to the
company's commitment to its international markets. Some companies
use international marketing only to test the waters or to unload
overproduction. (Carol Graham, 2001) This approach to international
marketing, although it might open long-term opportunities to the
company, does not indicate a substantial commitment to
internationalization and is not a premise for success in the long
term in international markets. A long-term international commitment
that entails substantial investment in terms of resources and
personnel is likely to bring the company the greatest rewards in
the long run. Such a strategy will make the company a stronger
competitor in the world market, as well as at home.International
strategic planning takes place at different levels(Isobel Doole and
Robin Lowe, 2003):At the corporate level, the strategic plan
allocates resources and establishesobjectives for the whole
enterprise, worldwide. The corporate plan has along-term focus and
involves the highest levels of management. PepsiCoBeverages
headquarters (including its international headquarters) arelocated
in Purchase, New York, USA. The company's corporate plan
isdeveloped here.Frank Bradley and Michael Gannon (2000) proposes
that planning at this level involves international target market
selection decisions:
At the division level the strategic plan allocates funds to each
business unitbased on division goals and objectives. In the PepsiCo
example, its divisionfor Eastern Europe is located in Vienna,
Austria. From there, the companycoordinates all local
(country-level) operations. At this point, Pepsi mayuse various
portfolio analysis tools to decide which brands to harvest,
toinvest in, or to divest, and plan its resources accordingly. At
the business unit level, within each country, decisions are made
regarding which consumer segments to target. At this level, Pepsi
develops a strategic plan. At the product level (line, brand), a
marketing plan is developed for achieving objectives. PepsiCo's
marketing plan for Poland, for example, mightinclude increasing the
consumption of Pepsi and Pepsi Light and launching Pepsi Max beyond
the cities of Warsaw, Krakow, Wroclaw, and Poznan.Developing an
International Marketing PlanAt this stage of the planning process,
the international company develops a marketing plan. Assuming that
the company has already analyzed its marketing opportunities and
researched and selected the target market, it must now (Terry
Hennessy, 1999) Develop marketing strategies for the target market,
deciding on the product mix for the local target market, as well as
on the other components ofthe marketing mixdistribution, promotion,
and pricing. Plan the international marketing programs. Manage
(organize, implement, and control) the marketing effort.The
decision on which elements of the marketing mix to use in a
particular target market is closely linked to the product's life
cycle and to the market entry strategy selected: A product in the
early stages of its life cycle, such as the Palm Pilot, will most
likely be sold to consumers in highly industrialized countries for
a high price, accompanied by heavy promotion. (Isobel Doole and
Robin Lowe, 2003) A product will most likely be manufactured in a
developed country and exported to the rest of the world.
Alternatively, a product in the later stages of its life cycle,
such as a videocassette recorder, will be sold to consumers
worldwide, regardless of country development level. The company
selling the product will heavily compete on price and, thus, most
likely manufacture the product in a developing country where labor
is inexpensive, to sell all over the world. Most likely, the
company will have at least one subsidiary located in the country of
product manufacture. (Carol Graham, 2001)Insights into the
marketing strategies that companies use to target international
markets reveal that marketing mix decisions are complex and based
on extensive research. Kraft Foods (www.kraftfoods.com), for
example, has made interesting product mix decisions: It sells
coffee products and confectionery products that cover the spectrum
of target consumersand the brands often cannibalize.Among the many
brands of coffee Kraft Foods offers are: Jacobs coffee: This
product sells mainly in Central and Eastern Europe.Jacobs coffee is
popularly known as a quality German brand. Because consumers in
Central and Eastern Europe have traditionally had
frequentinteraction with German consumers and have acquired a taste
and preference for German brands, marketing the Jacobs brand in
this region wasappropriate. Had Kraft brought the product to the
United States, it wouldhave had to challenge quality perceptions of
bulk coffee associated withdeveloping countries in Latin America
(Colombia and Guatemala, in particular) and Africa (Kenya,
especially) and value perceptions held by storebrands and other
low-priced national brands such as Folgers and Kraft'sown Maxwell
House. (Dana-Nicoleta Lascu 2003) Gevalia coffee: This brand is
aimed at the Scandinavian market andimported into the United States
as a gourmet product sold exclusively bymail order.Among the
numerous confectionery products Kraft offers are the following:
Milka: Kraft Foods is now importing its European Milka brand of
chocolate into the United States, selling it primarily through
chain stores such asTarget. Mass-market consumers in the United
States are increasinglyreplacing favorite local candy bars with
products that are perceived asmore sophisticated and that are
available at competitive prices. (Dana-Nicoleta Lascu 2003)
Competitors such as Ferrero Rocher and Dove have had great success
with the pre mium chocolates they sell in the U.S. market, and they
are increasingly placing their products in the impulse-purchase
section, by the cash register. Kraft's Milka is using a similar
strategy, selling its basic-milk chocolatewith the picture of a
Swiss cow in the Alps on the packaging at Targetstores. Milka also
is available in a wider selection at shops that specialize
inforeign gourmet foods. (Frank Bradley and Michael Gannon, 2000)
Suchard: Kraft Foods is restricting the distribution of its
premiumchocolate Suchard to Western Europe. Suchard has been for
decades thetraditional competitor to Lindt in the premium chocolate
market inEurope. The Suchard name has long been associated with
French-speakingSwitzerland, and most European consumers do not know
that it is ownedby an American company. Toblerone: Kraft is
distributing its Toblerone chocolate brand extensively,all over the
world.Kraft also has numerous brands that are restricted to a few
markets. Among them are Daim, aimed at Scandinavian consumers, and
Bis, aimed at Argentina and Brazil.Kraft Foods, a company based in
the United States, has different mix strategies for each market.
And it sells to the U.S. consumer only a fraction of its
international offerings, some of which are positioned as premium
European imports. It should be mentioned that companies with more
limited resources will very likely be more restricted in their
worldwide market coverage.Companies entering more and more
countries in search of new markets are likely to face increasing
difficulty in continuously monitoring and controlling their
international operations. These firms must monitor not only the
constantly changing marketing environment, but also changes in
competitive intensity, in competitor product/service quality
strategies, in supply chains, and in consumer expectations.
(Dana-Nicoleta Lascu 2003)
Major Decision in international marketing :
Deciding on the International Entry ModeThe company control over
operations and overall risk increase from the export mode to the
wholly owned subsidiary entry mode. (Terpstra, V. and Sarathy, R.,
1997) In general, companies tend to use the export mode in their
first attempt to expand internationally and in environments that
present substantial risk, and companies tend to approach markets
that offer promise and lower risk by engaging in some form of
foreign direct investment. (Terpstra, V. and Sarathy, R., 1997)
There are, however, many exceptions to these statements: Companies
that have been present for decades in attractive international
markets, such as Airbus Industries and Caterpillar, continue to
export to those markets, rather than manufacture abroad. Similarly,
many new small businesses find that they can manufacture products
cheaply abroad and distribute them in those markets without making
a penny in their home country; this is increasingly becoming a
possibility for companies selling on the World Wide Web. (John D.
Daniels, 2005)
Indirect ExportingIndirect exporting means that the company
sells its products to intermediaries in the company's home country
who, in turn, sell the product overseas. A company engaging in
indirect exporting can use middlemen such as export management
companies, trading companies, or agents/brokers to distribute its
products overseas. (Carol Graham, 2001) Alternatively, the company
can use cooperative exporting, also referred to as "piggybacking"
or "mother henning." With cooperative exporting, companies use the
distribution system of exporters with established systems of
selling abroad who agree to handle the export function of a no
competing (but not necessarily unrelated) company on a contractual
basis. (Isobel Dole and Robin Lowe, 2003) Such companies are paid
on commission or are charged a discount price for the product; they
are larger companies with extensive experience in and knowledge of
the target international market. (Gilligan, C. and Hird M.,
1986)Using indirect exporting does not require market expertise,
nor a long-term commitment to the international market. The
company's risk also is minimal; at most, it can lose a product
shipment. Among disadvantages are lack of control over the
marketing of its products - which could ultimately lead to lost
sales and a loss of-good will that might ultimately affect the
perception of the company and its brands in other markets where it
has a greater commitment.Some companies use indirect exporting as a
first step toward a greater degree of involvement. After a
sufficient consumer franchise is secured and the market is tested
with the initial shipment, a company might commit resources for
additional investment in the market. It should be mentioned,
however, that indirect exporting in the long term does not
necessarily mean that the company is not committed to the market;
it simply means either that the company does not have the resources
for greater involvement or that other markets are performing better
and need more company resources. (Carol Graham, 2001) One of
Europe's leading car makers, Germany's Volkswagen, operates through
independent importers and distributors in Belgium, the Netherlands,
Switzerland, and Austria, while in France, Germany, Italy, and
Spain, which together account for 83 percent of European sales, it
controls its wholesale operations directly. (Frank Bradley &
Michael Gannon, 2000)Direct ExportingCompanies engaging in direct
exporting have their own in-house exporting expertise, usually in
the form of an exporting department. Such companies have more
control over the marketing mix in the target market: They can make
sure that wholesalers and retailers observe the company's marketing
policies, charging the suggested sale price, offering the
appropriate promotions, and handling customer requests promptly and
satisfactorily. (Terpstra, V. and Sarathy, R., 1997) More control,
however, is expensive. Companies carry the cost of their export
department staff, and the costs involved in selecting and
monitoring the different middlemen involved in the distribution
processfreight forwarders, shipping lines, insurers, merchant
middlemen, and retailersas well as other marketing service
providers, such as consultants, marketing researchers, and
advertising companies. (Dave Savona, 1992)
One venue that opens new opportunities for direct exporting is
the Internet. With a well-developed web site, companies now can
reach directly to customers overseas and process sales online. And
many companies do: Catalog retailers and dot-corn companies, such
as Lands' End and Amazon, respectively, long ago made their first
international incursions by exporting their products to consumers
abroad and are rapidly expanding their international operations.
(Frank Bradley and Michael Gannon, 2000)
The challenges for companies using the Internet to export their
products involve securing the appropriate credit in environments
where credit cards and personal checks are uncommon and, finally,
having sufficient sales to warrant staff expenditures needed to
process and handle the international sales. (John D. Daniels,
2005)Licensing
A popular international entry mode, licensing presents more
risks to the company but also offers it more control than
exporting. Licensing involves a licensor and a licensee. The
licensor offers know-how, shares technology, and often shares a
brand name with the licensee. The licensee, in turn, pays
royalties. (Dave Savona, 1992) The two approaches to licensing are
licensing without the name and licensing with the name.Licensing
without the NameA licensor is very selective when choosing a
licensee, ensuring that products manufactured under license are of
the highest quality. When quality cannot be guaranteed, either
because the licensee does not allow the licensor sufficient control
and scrutiny, or because the licensee cannot guarantee quality, it
is preferable for the products produced under license not to carry
the licensor's brand name. (Frank Bradley and Michael Gannon, 2000)
In the early 1970s, Italy's Fiat granted a license to Avto VAZ,
Russia's largest automobile manufacturer, to manufacture Lada,
Russia's most popular automobile, and an important export to
neighboring and other developing countries. Under a similar
arrangement, France's Renault granted a license to build Dacia
brand automobiles in Romania in the 1960s. Today, the automobile,
which continues to sell under the Dacia name, is as popular as
ever, and, in 1999, Renault acquired a 51 percent stake in the
company. (Isobel Doole and Robin Lowe, 2003)Licensing with the
NameLicensors can decide to adapt the names of their products when
they have a greater confidence in the capability of the licensee's
workforce. One example is Poland's Polski Fiat. Fiat was confident
of the reliability of Polish manufacturing and did not require the
use of a different name for the product. Today, Fiat no longer
licenses the Fiat name to Polish manufacturers; it has set up a
subsidiary with multiple operations, Fiat SpA, which manufactures
many of the Fiats sold in Eastern Europe under the Fiat brand name
(primarily lower-priced models, such as Fiat Punto and Seicento J.
(John D. Daniels, 2005)Licensing is a lower-risk entry mode that
allows a company to manufacture a product all over the world for
global distribution. Beverly Hills Polo Club, for example, conducts
business in approximately 85 countries around the globe, producing
apparel licensed under its own name, all licensed apparel for
Harvard University, as well as Hype, Karl Kani, and Blanc Bleua
line that sells in upscale European retailers. (John D. Daniels,
2005)Licensing permits the company access to markets that may be
closed or that may have high entry barriers. In the examples in the
"Licensing without the Name" section, Lada, Dacia, and Polski Fiat
were sold in the countries of manufacture at low prices, with few
taxes, while automobile imports were charged tariffs at rates
ranging from 50 to 100 percent.Companies that engage in licensing
agreements also limit their exposure to economic, financial, and
political instability. In the event of a national disaster or a
government takeover, the licensor licensing without the name incurs
only the loss of royalties. The licensor that permits the use of
the name may suffer a loss of reputation in the short term if the
products are manufactured without licensor supervision and/or if
they do not uphold the licensor's standard. In the latter case, the
licensor has some control, at least in international markets.
(Gilligan, C. and Hird M., 1986) For example, it can bring to the
attention of international trade bodies the sale of products that
are illegally using its brand name, assuming the company has
international trademark protection; in most markets, it also can
sue the former licensee.A downside of licensing is that it can
produce a viable competitor in the licensee, who is well equipped
to competently compete with the licenser. Simply training locals in
company operations, particularly technology, can lead to the
development of skills for future competitors.Franchising
According to Isobel Doole and Robin Lowe (2002) Franchising is a
means of marketing goods and services in which the franchiser
grants the legal right to use branding, trade marks and products,
and the method of operation is transferred to a third party the
franchisee in return for a franchise fee. The franchiser provides
assistance, training and help with sourcing components, and
exercises significant control over the franchisees method of
operation. It is considered to be a relatively less risky business
start up for the franchisee but still harnesses the motivation,
time and energy of the people who are investing their own capital
in the business. For a franchiser it has a large number of
advantages including the opportunity to build greater market
coverage and obtain a steady, predictable stream of income without
requiring excessive investment. (Isobel Doole and Robin Lowe,
2002)
Franchising (or business format franchising, to be accurate) is
the permission given by one person, the franchisor, to another
person, the franchisee, to use the franchisors trade name, trade
marks and business system, in return for an initial payment and
further regular payments (Sandhya, Krishnamurthy 2002)
Having satisfied himself that franchisee would be suited to
running his own business and that he will accept the restrictions
laid down by the franchiser, franchisee will choose the type of
business in which he would like to work and be happy that it is in
a market with good potential. (Harry G. Barkema, 1997) Franchisee
now need to choose the franchiser. If he has picked a category in
which there are only one or two franchisers, it would be wise to
select a second category to avoid having too small a choice. This
will also give him a wider selection of territories. (Sinha, Piyush
Kumar 1999)
Obtain a list of the franchises, which are available in the
business category franchisee has chosen. Which is best for him?
Although this is the last stage of your assessment process, it is,
of course, the most important. He may be right for franchising and
the market he has chosen may be full of promise, but this will not
make up for an ineffective franchiser.
There are many questions (Windsperger J. 2002) that can be asked
to assess the quality of a franchiser, but most falls into the
following fields.
Has the franchise been sufficiently tested and are its
franchisees successful? Do the initial fee and continuing fees (or
product mark up) represent good value for money? Do the on-going
fees (or product mark up) still leave the product or service
competitive in the market place and provide sufficient profit for
the franchiser and franchisee to make the business worthwhile?
Have the franchiser sufficient financial and management
resources to do what they say they will do to make your business
succeed? Are they fair and ethical in their business conduct? Are
they a member of the British Franchise Association, whose members
are required to abide by a code of business practice? In the event
of the franchisers failure are there alternative suppliers?
Joint Ventures
Joint ventures involve a foreign company joining with a local
company, sharing capital, equity, and labor, among others, to set
up a new corporate entity. Joint ventures are a preferred
international entry mode for emerging markets. In developing
countries, joint ventures typically take place between an
international firm and a state-owned enterprise; in this case, the
company's partner is the local government. As such, the company is
assured instant local access and preferential treatment.Many
developing countries welcome this type of investment as a way to
encourage the development of local expertise, of the local market,
and of the country's balance of tradeassuming the resultant
production will be exported abroad. (Gilligan, C. and Hird M.,
1986) In most developing countries, the international firm will
typically provide expertise, know-how, most of the capital, the
brand name reputation, and a trademark that is internationally
protected, among others. The local partner will provide the labor,
the physical infrastructure (such as the factory and access to the
factory), local market expertise and relationships, as well as
connections to government decision-making bodies. (Carol Graham,
2001)It is typical for the local government of the developing
country to limit the joint-venture ownership of international firms
to less than 50 percent. It is also typical for the local
government to encourage the reinvestment of profits into the firm,
rather than the repatriation of profits by the international firm.
As such, the government, in effect, leads the international firm to
engage in transfer pricing, a method whereby the parent company of
the international joint-venture partner charges the joint venture
for equipment and expertise, for instance, above cost. (Harry G.
Barkema, 1997)
Joint ventures could constitute a successful approach to a
greater involvement in the market, which is likely to result in
higher control, better performance, and higher profits for the
company. Successful joint ventures abound. (Frank Bradley and
Michael Gannon, 2000) In one example, British Petroleum PLC
established a joint venture in Russia, under the name Petrol
Complex, with ST, a powerful local partner with close ties to the
Moscow city government. The company owns 30 BP gas stations, each
of which sells an average of 3.5 million gallons of gasoline a
year, four times the average of a gas station in Europe. (John D.
Daniels, 2005) BP offers Russian drivers good service (a rare
commodity in this market), as well as minimarkets with espresso
bars and a wide selection of wines; this is in stark contrast to
the Russian gasoline stations where customers pay for gasoline by
stuffing cash through a tinted window and where they communicate
with the salesperson through a microphone. (Sabrina Tavernise,
2001)The joint-venture entry mode is not limited to developing
countries. Numerous joint ventures are operating throughout Europe,
and they are increasingly coming under the scrutiny of the European
Commission, which assesses their impact on competition. (Harry G.
Barkema, 1997) Typically, the Commission appoints a taskforce to
investigate the impact of the joint venture on competition and then
issues a statement of objections within six to eight weeks, giving
the companies involved a chance to respond and request a hearing
before the Commission makes its final decision with regard to the
joint venture; whenever no such statement is issued, the deal is
assumed to be on its way for approval, (Brandon Mitchener and
Deborah Ball, 2001) One joint venture that the European Commission
has examined involves the diamond giant De Beers Centenary AG (the
world's largest diamond-mining company) and the French luxury goods
company LVMH Moet Hennessy Louis Vuitton SA (which owns, among
others, Christian Dior, Moe't & Chandon, Louis Vuitton, and
Donna Karan); the company wants to produce De Beers-branded jewelry
and open a network of exclusive shops all over the world. (Brandon
Mitchener and Deborah Ball, 2001)Overall, 70 percent of all joint
ventures break up within 3.5 years, and international joint
ventures have an even slimmer chance for success (Dave Savona,
1992). Companies can, to a certain extent, control their chances
for success by carefully selecting the joint-venture partner; a
poor choice can be very costly to the company. Other factors that
will increase the success of the international joint venture are
the firm's previous experience with international investment and
the proximity between the culture of the international firm and
that of the host country; a greater distance erodes the
applicability of the parent's competencies. (Harry G. Barkema,
1997)Reasons for the failure of joint ventures are numerous. The
failure of a partner can lead to the failure of the joint
venturefor example, the joint venture between a mid-size company,
Bird Corp. of Dedham, Massachusetts, and conglomerate Sulzer Escher
Wyss Inc., a subsidiary of Sulzer Brothers Ltd. of Switzerland.
Although the joint venture performed well, Bird Corp. experienced
serious problems, with unsteady revenues and slim profits, leading
to the failure of the joint venture. (Savona, 2004) Even a natural
disaster or the weather could lead to failure: Zap-ata, a $93
million Houston, Texas, company involved in natural gas
exploration, took a 49 percent share in a joint venture with
Mexican investors with the goal of fishing on Mexico's Pacific
coast for anchovies, processing them, and selling them as cattle
and poultry feed The weather system El Nino caused the anchovies to
vanish, leading to the failure of the joint venture. (Savona,
2004)Like licensing and franchising, joint-venture partners can
turn into viable competitors that know the firm's operations and
competitive strategies. In this case, the local partner will
undoubtedly become a formidable competitor locally, where the firm
will be protected by the government. (Harry G. Barkema, 1997)
Internationally, however, the international firm has some
capability to combat the new competitors through controls and
agreements with the supply chain and distributors that will prevent
access to equipment or to markets, for example.Wholly Owned
Subsidiaries
Companies can avoid some of the disadvantages posed by
partnering with other firms by setting up wholly owned subsidiaries
in the target markets. The assumptions behind a wholly owned
subsidiary are that (John D. Daniels, 2005) The company can afford
the costs involved in setting up a wholly ownedsubsidiary. The
company is willing to commit to the market in the long term. The
local government allows foreign companies to set up wholly
ownedsubsidiaries on its territory.
Frank Bradley and Michael Gannon, (2000) suggests that the
company can develop its own subsidiary, referred to as
greenfielding, which represents a costly proposition, or it can
purchase an existing company through acquisitions or mergers. Many
opportunities for acquisitions have recently emerged in developing
and developed markets alike: Governments have been de-socializing
services and industries, rapidly privatizing industries that were
formerly government owned or operated. Opportunities have emerged
in the area of telecommunications, health care, energy, and even
the national mail service.The most important advantage that a
wholly owned subsidiary can provide is a relative control of all
company operations in the target market. In particular, a
subsidiary offers the company control over how to handle revenue
and profits. Wholly owned subsidiaries also carry the greatest
level of risk. A nationalization attempt on the part of the local
government could leave the company with just a tax
write-off.Additional difficulties could arise when a company
decides to acquire or merge with another. In the case of
DaimlerChrysler, Daimler quickly found out that the former Chrysler
was not performing up to par and quickly proceeded to restructure,
weeding out former Chrysler employees. (Dana-Nicoleta Lascu 2003)
In general, the company acquiring another or building its wholly
owned subsidiary will not be able to share risks with a local
partner, nor will it benefit from a partner's connections; it must
build its own.Even selling the subsidiary can eventually haunt the
company years later. Har-rods Buenos Aires was originally set up as
a subsidiary of Harrods London, but became an independent company
in 1913 and changed hands several times. Today, Harrods Buenos
Aires operates in Argentina and has no relationship whatsoever with
Harrods Londonwhich cannot address this issue successfully in the
local courts in Argentina.Strategic alliances
In analyzing the results of joint ventures in China, Vankonacker
(1997) observes that joint ventures are hard to sustain in stable
environments and concludes that more direct investment will be
wholly owned offering Johnson and Johnsons oral-care, baby and
feminie hygiene products business as a success story.
Whilst all market entry methods essentially involve alliances of
some kind, during the1980s the term strategic alliance started to
be used without being precisely defined to cover a variety of
contra contractual arrangements which are intended to be
strategically beneficial to both parties and which cannot be
defined as clearly as licensing or joint ventures. Bronder and
Pritzl (1992) have defined strategic alliances in terms of at least
two companies combining value chain activities for the purpose of
competitive advantage. Perhaps one of the most significant aspects
of strategic alliances has been that it has frequently involved
cooperation between partners who might in other circumstances be
competitors. Some examples of the bases of alliances are(Frank
Bradley and Michael Gannon, 2000):
Technology swaps
R&D exchanges
Distribution relationships
Marketing relationships
Manufacturer supplier relationships
Cross-licensing
There are a number of driving forces for the formation and
operation of strategic alliances.
Insufficient resources: the central argument is that no
organization alone has sufficient resources to realize the full
global potential of its existing and particularly its new products,
competitors will exploit the opportunities which arise and become
stronger. In order to remain competitive, powerful and independent
companies need to cooperate.
Pace of innovation and market diffusion: the rate of change of
technology and consequent shorter product life cycles mean that new
products must be exploited quickly by effective diffusion out into
the market. This requires not only effective promotion and
efficient physical distribution but also needs good channel
manager, especially when other members of the channel are powerful,
and so, for example the strength of alliances within the recorded
music industry including artists, recording labels and retailers
has a powerful effect on the success of individual new hardwire
products such as the Sony compact disc and Philips digital compact
cassette. (Dana-Nicoleta Lascu 2003)High research and development
costs: as technology becomes more complex and genuinely new
products become rarer, so the costs of R&D become higher. For
example, Olivetti and Canon set up an alliance to develop copiers
and image processors. In order to recover these costs and still
remain competitive, companies need to achieve higher sales levels
of the product.
The pharmaceutical company Glaxos success in marketing Zantac,
its nulcer drug, was achieved by using a network of alliances the
most effective of which was including Roche in the US.
Concentration of firms in mature industries: many industries
have used alliances to manage the problem of excess production
capacity in mature markets. There have been a number of alliances
in the car and airline business, some of which have lead ultimately
to full joint ventures or take\overs.
Government cooperation: as the trend towards rationalization
continues, so governments are more prepared to cooperate on high
cost projects rather than try to go it alone. There have been a
number of alliances in Europe- for example, the European airbus has
been developed to challenge Boeing, and the Euro fighter aircraft
project has been developed by Britain, Germany, Italy and
Spain.
Self-protection: a number of alliances have been formed in the
belief that they might afford protection against competition in the
form of individual companies or newly formed alliances. This is
particularly the case in the emerging global high technology
sectors such as information technology, telecommunications, media
and entertainment. (Dana-Nicoleta Lascu 2003)Market access:
strategic alliances have been used by companies to gain access to
difficult markets, for instance, Caterpillar used an alliance with
Mitsubishi to enter the Japanese market.
In light of the fact that two thirds of alliances experience
severe leadership and financing problems during the first two
years, Bronder and Pritzl (1992) emphasise the need to consider
carefully the approach adopted for the development of alliances.
They have stressed the need to analyse the situation, identify the
opportunities for cooperation and evaluate shareholder
contributions Devlin and Blackley (1988) have identified some
guidelines for success in forming alliances. There needs to be a
clear understanding of whether the alliance has been formed as a
short-term stop gap or as a long term strategy. It is, therefore,
important that each understands the other partners motivations and
objectives, as the alliance might expose a weakness in one partner
which the other might later exploit. It is apparent that many
strategic alliances are a step towards a more permanent
relationship, but the consequences of a potential breakup must
always be borne in mind when setting up the alliance.
Glaxo appears to have changed its strategy resulting in the
take-over of Welcome. More recently it announced a proposed, merger
with Smith Kline Beecham but at the first attempt it failed,
apparently because of a clash of personalities of the top
executives. (John D. Daniels, 2005)As with all entry strategies,
success with strategic alliances depends on: effective management,
good planning, adequate research, accountability and monitoring. It
is also important to recognize the limitations of this as an entry
method. Companies need to be aware of the dangers of becoming drawn
into activities for which it is not designed.
Each of these have advantages and disadvantages.
Entry ModeAdvantagesDisadvantages
ExportingAbility to realize location and experience curve
economiesHigh transport costs
Trade barriers
Problems with local marketing agents
Turnkey contractsAbility to earn returns from process technology
skills in countries where FDI is restrictedCreating efficient
competitors
Lack of long term market presence
LicensingLow development costs and risksLack of control over
technology inability to realize location and experience curve
economies
Inability to engage in global strategic coordination
FranchisingLow development costs and risksLack of control over
quality
Inability to engage in global strategic coordination
Joint venturesAccess to local partners knowledge
Sharing development costs and risks
Politically acceptableLack of control over technology
Inability to engage in global strategic coordination
Inability to realize location and experience economies
Wholly owned subsidiariesProtection of technology
Ability to engage in global strategic coordination
Ability to realize location and experience economiesHigh costs
and risks
(Hill, C.W.L., Hwang, P. & Kim, W.C. 2006)
The magnitude of the advantages and disadvantages associated
with each entry mode is determined by number of factors, including
transportation costs, trade barriers, political risks, economic
risks, costs and firm strategy. The optimal entry mode varies by
situation, depending on these factors. (Hill, C.W.L., Hwang, P.
& Kim, W.C. 2002) Thus, whereas some firms may best serve a
given market by exporting, other firm may better serve the market
by setting up a new wholly owned subsidiary or by acquiring an
established enterprise. In the opening case Tesco has primarily
entered foreign markets through acquisition of established players
in those markets. (John D. Daniels, et al, 2005)
Strategic alliance are cooperative agreements between actual or
potential competitors. The term strategic alliances is often used
to embrace a variety of arrangements between actual or potential
competitors including cross-shareholding deals, licensing
arrangements, formal joint ventures, and informal cooperative
arrangements. Strategic alliances have advantages and
disadvantages, and Tesco must weigh these carefully before deciding
danger is that the firm will give away more to its ally than it
receives.
Deciding which markets top enter
In deciding to go abroad, the company needs to define its
marketing objectives and policies. What proportion of foreign to
total sales will it seek? Most companies start small when they
venture abroad. Some plan to stay small; others have bigger plans.
Going abroad on the internet poses special challenges.
Product
Warren Keegan has distinguished five adaptation strategies of
product and promotion to a foreign market
Straight extension means introducing the product in the foreign
market without any change. Straight extension has been successful
with cameras, consumer electronics, and many machine tools. In
other cases it has been a disaster. General foods introduced its
standard powered jell-O in the British market only to find that
British consumers prefer the solid wafer or cake form. Campbell
Soup Company lost an estimated $30 million in introducing its
condensed soups in England; consumers saw expensive small-sized
cans and did not realize that water needed to be added. Straight
extension is tempting because it involves no additional R&D
expense, manufacturing retooling, or promotional modification; but
it can be costly in the long run.
Product
Do Not Change ProductAdapt
ProductDevelop New Product
PromotionDo not Change Promotion Straight extension Product
adaptation Product invention
Adapt PromotionCommunication adaptation Dual adaptation
All types of steel products will be required to support the
ongoing industrial growth in the country. Because there is a little
bit of steel in everybodys life starting from pin to construction,
automobile, railways and engineering. In short, promotion of steel
usage today has gained so much of importance both at national and
international levels. But one needs to be very selective well in
advance today in deciding the product mix that should be able to
meet users demand in domestic international market.
Successful operation of highly sophisticated iron and steel
industry depends to a great extent or technical and commercial
information, particularly, the information in respect of various
options of plants and equipments, their availability, range of
investment, selection of sites, use or users of the product,
availability and demand for the product in market (present and
future) prospective competitors, various tariff and non tariff
barriers, price trends in domestic and international markets are
some of the essential information which an entrepreneur must know
at least broadly before entering into steel industry.
However, Indias positioning in the global perspective will
depend upon cost competitiveness of the Indian. Besides the
continuous emphasis is to given on new technology/process/products
developed, productivity improvement, quality improvement. However,
Indias positioning in the global perspective will depend upon cost
competitiveness of the Indian. Besides the continuous emphasis is
to given on new technology/process/products developed, productivity
improvement, quality improvement.
MAJOR DEMAND DRIVERS FOR STEEL INDUSTRY IN INDIA
Higher infrastructure spending - It is an unquestionable fact
that the infrastructure situation in India is poor. If the Indian
economy has to maintain its growth rates, the infrastructure
situation has definitely got to improve. Spending on infrastructure
will definitely lead to a higher demand for steel. (Anthony P
D'Costa, 2000)Higher standard of living The standard of living is
expected to go up in the coming decade. This will in turn push up
the demand for consumer durable and automobiles. Percentage of the
demand for flat products comes from these industries. Hence, any
pickup in these sectors should lead to a higher demand for flat
products. (Anthony P D'Costa, 2000)According to Sanjiv J
Phansalkar(2003)Steel Products can be categorized as:
Semi-finished: These are intermediate products cast from liquid
steel for further rolling into finished products. These are often
sold by Integrated Blast Furnace Producers (IBFPs) to small mini
mills and rolling mills to be rolled into finished steel. They
include billets, blooms, rods, which are rolled into long products
or slabs which are rolled into flat products. While some countries
export semis (e.g. Russia), India uses them in the domestic
industry as inputs for higher value-added long and flat
products.
Long products: These include bars, rounds, angles and structural
and are mainly used in construction, infrastructure and heavy
engineering. These products require lesser capacities. Long
products are the largest steel category produced in India
accounting for around 50% of total production.
Flat products: These include sheets, coils and plates and are
mainly used in automobiles and consumer durable. The technology for
the manufacture of flats is critical and it requires larger
capacities for manufacturing. These are high-value products and
enjoy higher margins. These can be hot rolled, cold rolled,
galvanized or coated. This category, usually the largest product
category in developed countries is small in India accounting for
about 44%.
Pipes: These include seamless pipes and welded pipes.
Source: Anthony P D'Costa (2008)
Stainless steel is the generic name for a number of different
steels used primarily for their resistance to corrosion. The one
key element they all share is a certain minimum percentage (by
mass) of chromium: 10.5%. Although other elements, particularly
nickel and molybdenum, are added to improve corrosion resistance,
chromium is always the deciding factor. The vast majority of steel
produced in the world is carbon and alloy steel, with the more
expensive stainless steels representing a small, but valuable niche
market.
ANALYSIS OF STEEL INDUSTRY
Global Scenario According to recent estimates (Metal Bulletin,
Feb. 17, 2004) the total world finished steel consumption is
expected to be of the order of 1120mt by the year 2007.
During the past decade, international trading of steel has been
to the tune of 25-30% of the total world production. On an average,
around 180-190m tones of saleable steel drawing (finished products
and semis) is traded in the international market.
China remained the worlds largest Crude Steel producer in 2008
also (220.12 million metric tons) followed by Japan (110.51 million
metric tons) and USA (91.36 million metric tons). India occupied
the eighth position (31.78 million metric tons). EU27, USA,
S.korea, China, UAE and Germany were the largest importers of steel
in 2008. China, Japan, EU27 and Ukraine were the largest exporters
of steel in 2008.
The Surplus capacity and prevalence of market distorting
practices in the global steel market have induced protectionist
measures from a number of steel trading countries. In the OECD
meeting they suggests that there was a long-term solution to global
steel over-capacity, the proponents of the OECD steel deliberations
are of the view that subsidies and related government support have
caused and are causing significant distortions in the steel markets
and these will be required to be reduced.
In retaliation to the US action EU countries, China, Canada and
Thailand have imposed provisional safeguard measures against import
certain steel products.
Table 2: WORLD TOP STEEL EXPORTERS (Million of tons of
exports)
20072008% change y-o-y
China 65.256.2 -14
JAPAN35.137.1 4
EU2532.234 6
Ukraine29.928.4 -5
RUSSIA29.228.2 -3
South Korea18.119.7 9
Turkey14.818.3 24
USA10.312.6 23
Taiwan10.99.8 -10
BRAZIL10.49.1 -12
(World Steel Dynamics, April 2009)
Market Scenario
Liberalization, which started in 1991, changed the market
scenario. There have been no shortages of steel materials in the
country after liberalization.
The opening up of the economy has brought in new dimensions in
the demand analysis for the steel sector, with the reduction in
import duties and the partial abolition of the freight equalization
scheme being some of the changes. The implication of these changes
is that steel demand is no longer fully supply determined but is
governed by market forces. Carbon steel consumption increased from
14.84 million tones in 1991-92 to 33.370 million tones in
2004-05.
There was a recession in Steel industry for some time has staged
a turnaround since the beginning of 2002 and the efforts are being
made to boost demand.
China has been the main export destination. The Indian steel
industry is buoyant by the reason of strong growth in demand mainly
by the demand for steel in China. Domestic prices have firmed up in
the face of strong demand both domestic and foreign.
Production
Steel production has gone up considerably during the last decade
from 9.4 million tones in 1985-86 to about 21 million tones in
1995-96, that is, a growth of about 125% within a period of 10
years and planning to reach 49 million tones by the year 2006-07.
In 2004-05, production of finished carbon steel was 38.39 million
tones and Pig iron production in 2004-05 was 3.17 million tones.
The market share of main producers (i.e. SAIL, RINL, and TISCO) was
39%
Table 3: Production Performance(In million tones)
Item2006-07April December 2007
TargetActualFulfilment(%)TargetActualFulfilment(%)
Hot Metal14.1014.6010410.9611.31103
Crude Steel13.0313.5010410.2610.37101
Saleable Steel11.8612.581069.269.60104
Prime ProducersSecondary ProducersTotal
Pig Iron11.00 (8.3)41.50 (35.8)52.50 (29.0)
Sponge Iron-2.2654.44
Finished Steel143.00 (9.6)185.50 (5.5)32.85 (7.2)
(Steel Scenario, July 2008)
Graph 1: Production of pig iron and finished carbon steel
(Source: Steel Scenario, July 2005)
The Race to Consolidate
Chinese mills now dominate the list of the world's biggest
producers In 2008 the top 15 steel producers accounted for 36% of
world production - 10 years ago the top 15 made just over 25% of
world production. Arcelor-Mittal remains by far the biggest
producer but with output down 11% in 2008 its share of world output
fell by 1% to 8%. Nippon Steel remains the2nd biggest producer but
now only marginally ahead of Baosteel which, helped by the
acquisition of Guangdong, increased its output 24% in 2008. Indeed
6 of the top 10 producers are now Chinese, helped by a spate of
merger andacquisition activity in 2008.Global Steel Price
Indicators
MainRegional Steel Trade Flows
International Steel Trade
Pricing and Distribution
Price regulation of Iron and steel was abolished on
16.1.1992.
The government removed the distribution controls on iron &
steel except five priority sectors i.e. Railways, Defense, Small
Scale Industries Corporations, Engineering Goods Exporters and
North Eastern Region.
Government has no restriction over prices of iron and steel
products
Price increases have taken place mainly in long products than
flat products.
Imports of Iron and Steel Least potential items are ERW and
seamless pipes and tubes, since their imports are controlled.
India has been importing around 1.5 Million Tones of steel
yearly.
Graph 2:Import of Iron & Steel from 1997-98 to
2003-04(Stainless Steel Review, Mar 2004)
In the case of unbridled imports of cheap/seconds and defective
steel there are several measures like:
a. The Government has fixed floor prices for 7 items of steel
products - HR coils, HR sheets, CR coils, tin plates, CRNO, Plates
and Alloy Steel Rods and Bars.
b. The customs duty on defective HR Coils has been lifted to the
bound rate of 40 per cent.
The imports of certain steel items have been depend to mandatory
compliance of quality standards certified by the Bureau of Indian
Standards (BIS). Coalition to BIS norms imply supplying information
like name and address of the importer, generic or common name of
the commodity, net quantity, weights and measures, month and year
of packaging and maximum retail sale price.
(www.steel.gov.in/annual.htm)
Iron and Steel Exports
Advance Licensing Scheme allows duty free import of raw
materials for exports.
Duty Exemption Pass Book Scheme also facilitates exports.
Indian steel exports have been subject to
anti-dumping/anti-subsidy duties actions by the stronger economies
over the last few years.
China has imposed safeguard measures on import of various items
of steel products by fixing tariff quotas. However, these measures
do not apply to India.
The rising trend in Indian steel exports that was being
witnessed in the last couple of years was halted due to these anti
dumping actions initiated by the advanced, developed nations of the
world, which led to the loss of major markets for the Indian steel
exporters. Despite the initial setbacks Indian exports have
recovered - largely due to the ability to find out alternative
export markets where selling steel has been profitable.
(www.steel.gov.in/annual.htm)
Table 4: Export of finished carbon steel
YearsExports
2001-021.622
2002-031.880
2003-041.771
2004-052.670
2005-062.664
2006-072.725
2007-084.20
(Iron & Steel Review, May 2008)
Duties & Levies
Custom Duties
Peak rate of Custom Duty has been reduced during last 5 years
.In the Union Budget 2003-04 it has been further reduced to 25%.
This has compelled domestic sector to become internationally
competitive.
The custom duty on seconds and defective steel has also been
retained at 40%, which would increase the gap between the prime and
the defective category and make the import of seconds and
defectives less attractive.
Custom Duty has been reduced on a wide range of inputs, which
cause the cost of production for the domestic steel industry.
In the Union Budget 2003-04 the Customs Duty on Met Coke has
been rationalized at 10%. However, the steel manufacturers have
been given exemption from paying 4% SAD.
(www.steel.gov.in/annual.htm)
Excise Duty
Excise Duty on iron and steel has not been reduced in
consecutive union budgets.
Currently excise duty on all iron and steel is 16% ad valor
called CENVAT.
INDIAN STEEL INDUSTRY: AN OVERVIEW
India got into steel making in the early 20th century when JRD
Tata set up the first steel mill in the country in 1907 in
Jamshedpur. Since then, the steel industry has undergone a lot of
changes but the TISCO continues to be the largest private steel
maker in the country. Tisco and SAIL dominated the steel industry
in the 70s and 80s. With the price control regime in place, the
steel firms could turn in a profit without any major effort.
Structure of Indian Iron & Steel Industry
(Capacity in million tonnes)
Category Sector No. of Units Working Units Total CapacityWorking
Capacity
Crude Steel Integrated Pelts 9917.7817.78
EAF 188 45 10.685.33
IF 934 661 9.417.23
Secondary Sector Iron making and Resolvable Pig iron units18 16
5.74 5.57
Sponge iron units 23 20 6.07 5.79
Rerolling/DownstreamRerolling units 2710 2080 27.4422.81
HR Units 12 7 4.594.33
CR Units 75 60 2.93 2.7
GP/GC Units 16 13 1.04 0.96
Tinplates 210.15 0.09
(Source: Iron & Steel Review, 2004)
The categorized steel products
TypeEnd Product User Industries
Semi-finished Ingots, billets & slabEAF Units and mini-steel
plants
Long Products Wire rods and bars Construction & wires
Flat Products Hot rolled (HR), cold Rolled (CR) and Galvanized
coils (GC)Consumer durable, industry machinery
Railway materials Railway tracks Railways
Special Tin plates and pipes Automobiles, aircraft &
shipbuilding
(Source: World Steel Dynamics)
Production, Performance and Projections
(In million tones)
1999-002000-012002-032003-042004-052006-07 (P)
Pig Iron 3.29 3.39 3.00 3.16 3.11 4.65
Sponge Iron 5.00 5.32 5.11 5.34 5.44 6.18
Finished Steel 22.72 23.3723.8226.71 29.70 32.01
(Source: Iron & Steel Review)Production
(In million tones)
Primary ProducersSecondary Producers Total
Pig Iron 0.96.23
(- 22.58%)2.15 (11, 40%)3.11 (-2.2%)
Sponge Iron -12.51 (11.70%) 5.44 (1.87%)
Finished Steel 12.51 (11.70%)17.19 (10.83%) 29.70 (11.19%)
* Figures in brackets indicate percentage increase over last
year
(Source: Iron & Steel Review)
Indias export of Iron & Steel
(In million tones)
Year Total Pig Iron Total Semis Total Finished Carbon Steel
Total Steel
2000-01 451 300 1622 1922
2001-02 785 503 1880 2383
2002-03 281 174 1770 1944
2003-04 290 328 2670 2998
2004-05 230 195 2805 3000
2005-06 242 270 2730 3000
2006-0727530025753150
2007-0829533528503480
(World Steel Dynamics, 2004)
FUTURE PROSPECTS INDIAN STAINLESS STEEL INDUSTRY The Indian
steel industry has a bright future with 75% of market of stainless
steel is in kitchen segment. 95% of the gas stove market uses only
stainless steel. India has emerged as the largest manufacturer of
200 series low nickel stainless steel in the world. Railways will
used to manufacture of passenger coaches requiring 15 mt stainless
steel per coach in next 5 years. The Delhi Metro Rail Corporation
tendered for 200 all stainless steel coaches. The government of
India is using ferric cold rolled stainless steel strips for making
coins. (www.steel.gov.in/annual.htm) The usage in industrial and
other segments is still very low which will be expected increase in
future.
Global trends and its affect on Indian marketsThe transport and
automotive sector accounts for nearly 14% and the construction
sector takes around 12% stainless steel. In India at present
consumption in these two segments put together is just l%. This
gives clear picture of future prospects in both building and
transport sectors in India. The automobile companies also will be
demanding the use of stainless steel in increasing amounts for the
production of fume exhaust and catalytic converter applications.
The major international fast food joints are investing in India for
the consumption of stainless steel. Fast food joints using good
quantity of stainless steel for making kitchen equipments, service
area and furniture.
The major steel exporting companies aimed on China because it
still imports 70% of its total demand of 1.5 million tons. The
large potential exists in value added products like pipes, tubes
and kitchen utensils. Also India also good production environment
for stainless steel long products like bar, rod and wires which has
good markets in Europe, South East Asian region and USA.
NATIONAL STEEL POLICY
1. OBJECTIVE:
Strategic Goal :
a) Diversified steel demand through modern and efficient steel
policy.
b) Global competitiveness in terms of cost, quality and product
mix.
c) 100(mT) by 2019-20 from the 2005 level of 38 mT.
IMPORTS:
1. Imports duty rates brought down.
2. Industry should be protected from unfair trade practices.
3. Institutes mechanisms for import surveillance.
4. To monitor export subsidies in other countries.
Production, Imports and Exports and Consumptions
(In Million Tones )
SWOT ANALYSIS OF THE INDUSTRY
Strength
Availability of iron ore and coal.
Low labor wage rates.
Abundance of quality manpower.
Mature Production base. Weaknesses
Unscientific mining.
Low productivity.
Coking coal import dependence.
Low R & D investments.
High cost of debt.
Inadequate infrastructure
Opportunities
Unexplored rural market.
Growing domestic market.
Exports.
Consolidation.Threats
China becoming net exporter.
Protectionism in the west.
Dumping by competitors.
Technologies, Research & Development
Have synergy with the natural resources endowments with the
country.
Conducive to production of high-end and special steel required
for sophisticated industrial & scientific applications
Minimize damage to the environment at various stage of steel
making and mining.
Optimize resource utilization
Development of front end and strategic steel based material.
TRADE POLICY
EXPORTS :
1. 25% of total production in 2019-20 from 11% in 2004-05.
2. 30% share of exports in global production
3. Export credit, trade information.
4. Cut transaction cost and progress of multi-lateral
negotiations.
5. Trade agreement to broaden the export base.
6. Export of value-added steel through project exports.
INVESTMENT PROMOTION AND POLICY IMPLEMENTATION
Provide a single-window clearance for large projects.
110 mt of steel production by 2019-20.
Prepare & implement road maps for technological &
productivity improvement.
Monitor the implementation of the national steel policy to
global standard.
CASE STUDY
ORGANIZATION: THE JINDAL
When we talk about the business empire, the Jindal group is
ranked sixth amongst the top Indian Business Houses in terms of
assets, the Group today is a US$2 billion conglomerate.
Jindal Organization was set up in the year 1970. It has grown
from an indigenous single-unit steel plant in Hisar, Haryana to the
presently one of the largest steel producer in Asia. The
organization is still expanding, integrating, amalgamating and
growing. New directions, new objectives, but the Industries motto
remains the same- "We are the Future of Steel".
(www.jpcindiansteel.org/jindalprofile8.htm)
The Jindal group has been technology-driven and has a broad
product portfolio. Yet, the focus at Jindal has always been steel.
From mining of iron-ore to the manufacturing of value added steel
products, Jindal has a preminent position in the flat steel segment
in India and is on its way to be a major global player, with its
overseas manufacturing facilities and strategic manufacturing and
marketing alliances with other world leaders.
Jindal Organization aims to be a global player. In achievement
of its objectives, it is committed to maintain world class quality
standards, efficient delivery schedules, competitive price and
excellent after sales service. US$2 billion Jindal Organisation has
expanded and diversified into core business areas ensuring synergy
amongst its various business ventures, spreading over 13 plants at
10 pivotal locations in India and two plants in USA.
The Jindal team embodies one of the most popular talent pools of
technological acumen available in the country today. With
experience that has enabled the organisation to put up large scale
projects within record time.
Jindal Stainless Limited
India's largest integrated manufacturer of Stainless Steel
catering to about 40 percent of Indian demand.
Plant Location - Hisar, Haryana
Capacity - 500,000 tpa
High Carbon Ferro Chrome plant at Visakhapatnam, Andhra
Pradesh
GROUP COMPANIES
Jindal Iron & Steel Company Limited
Plant Locations - Vasind and Tarapur, Maharashtra
Saw Pipes Limited
Plant Location - Kosikalan, Uttar Pradesh, Gujarat
Jindal Vijayanagar Steel Limited
Plant Location - Toranagallu, Karnataka
Jindal Steel & Power Limited
Plant Location - Raigarh, Madhya Pradesh
Saw Pipes Usa Inc
Location - Bay Town, Texas, USA
Jindal United Steel Corporation
Plant Location - Bay Town, Texas, USA
Vijayanagar Minerals Private Limited
Plant Location - 20 km from JVSL plant
Jindal Thermal Power Company Limited
Plant Location - Toranagallu, Karnataka
Jindal Praxair Oxygen Company Limited
Location - Toranagallu, Karnataka
(www.jpcindiansteel.org/jindalprofile8.htm)
PROFILE OF JINDAL STAINLESS LTD
JINDAL is India's largest integrated stainless steel
manufacturer, which is continuing growth through positive measures,
such as a construction project of a new Ferro- chromium factory, as
well as pursuing an expansion program of a new stainless steel
plant, and it expects the further development and has keenly
requested cooperation from Nisshin Steel which has many years'
experience in actual performance of various Technical Assistance
projects.
JINDAL STRIPS LIMITED was incorporated to manufacture mild
steel, HR plates and coils. It started a mini steel mill at Hisar
in 1971. As a strategy to counter low margins in mild steel, JSL
diversified into production of stainless steel in the late 70s. JSL
was the first company to produce stainless steel HR coils.. In 1977
stainless steel production started. In 2003 the company was
reorganized as JINDAL STAINLESS LIMITED. (Annual Report, JSL)
In 1983, JSL forward integrated with a CR plant for stainless
steels at a site adjacent to its sister company Jindal Iron's plant
at Vasind (near Mumbai). In 1990, JSL embarked upon major backward
integration-cum-expansion by commencing work on a sponge iron plant
at Raigad in Madhya Pradesh. JSL has over the years developed a
number of technologically new processes to save on capital and
operational costs.(www.jindalstainless.com)
The Company's indigenously designed rotary kilns, for sponge
iron, had teething problems and the setting up of the sponge iron
plants was hence, considerably delayed. It is the largest (around
40%) integrated producer of Stainless Steel in India.
At Hisar lies Indias only fully integrated Stainless Steel
plant. With the expansion of the unit, the production capacity has
increased from 250,000 to 300,000 tonnes per annum. The main reason
for the success of JSL is the fact that everything from the
conversion of raw material into billets and slabs to hot rolling of
strips and plates and cold rolling is done in-house.
(www.jindalstainless.com)
The Hot Rolling Division at Hisar
At Hisar there are two major operational units namely hot
rolling unit and cold rolling unit. The hot rolling unit comprises
of steel melting shops, hot rolling mills (steckel mill, strip
mill), finishing units, power plants and oxygen plant etc.
The cold rolling unit comprises of cold rolling, annealing and
pickling lines and finishing facilities. Maximum value addition
takes place in cold rolling unit. During the Financial year
2001-02, the division had produced 326,405mt of stainless steel
that represents around 130 per cent of the capacity
utilization.
The higher capacity utilization has been feasible with increased
focus of the company to improve the operational efficiency, which
has also supported the company's strategy to reduce cost. During
the year an additional 60,000 tones of cold rolling capacity was
commissioned which has now resulted in total cold rolling capacity
of 90,000 tones per annum. The additional capacity would be
utilized for producing predominately value added stainless steel
products for both domestic and Exports markets.
(www.jindalstainless.com)
Highlights
Jindal Organization is a celebrity. Ranked sixth amongst the top
Indian Business Houses.
New directions, new objectives... but the Jindal motto remains
the same- "We are the Future of Steel (www.jindalstainless.com)
The last decade has been very challenging as the business
environment was very competitive, India was globalizing and there
were multiple complex issues at play. But we managed to surmount it
all and emerge on the top adding new parameters to our achievements
and bringing in the kind of excellence that will make the industry
and country proud. The companys net sales stood at Rs. 5,459 crore
in 2007-08 as compared to Rs. 377.15 crore in 1998-99 and Profit
After Tax (PAT) at Rs.1,236.96 crore in 2007- 08, while it was Rs.
46.50 crore in the year 1998-99. JSPLs compounded annual growth
rate in terms of net sales is 35% & PAT is 44%, a stupendous
growth indeed and I am thankful for that to our committed
workforce.
It has been a decade gone well and we look forward to another
challenging decade with our determination to reach for the
stars.Milestones:
* Spreading out globally in steel production and mining.
* The largest private sector investor in the state of
Chhattisgarh.
* An ISO 9002 & ISO 14001 certified Company.
* Manufactured 120 meters Rail, longest in the world.
* First to produce the 3.5 meters wide steel plates.
* Pioneered manufacturing of Hot Rolled Parallel Beam &
Columns in medium and large size.
* Worlds largest coal based Sponge Iron manufacturing unit with
its captive mines & power plant.
Recognitions:
* JSPL was nominated as one of the emerging companies by
Economic Times in 2001* Among the top 20-investor friendly
companies listed by Business Today in2004.
* One of the ten fastest growing large size companies listed by
Dalal Street,2006.
* One of the ten most investor friendly companies listed by
Dalal Street, 2006.
* National Energy Conservation Award six times between
2001-07.
* Eight Environment Awards between 2003-08.
* Six Performance Awards between 2001-2005.
* Three Safety Awards and two HR Awards.Growth story of the
decade
ExportsWorldwide demand of stainless steel has shown an average
growth of around 4-5 per cent as compared to growth in domestic
markets of around 5-7 per cent. The company started developing new
markets for its stainless steel products around 4-5 years back and
has been able to achieve compounded average growth of 234 per cent
based on exports worth Rs. 653.01 Crore during FY 2007-08 as
compared to exports worth Rs. 592.84 Crore during FY 2006-07.
During the FY 2001-02 the company executed order worth US$ 55
million for export of 55,000mt of stainless steel slabs to leading
stainless steel producers in US in a short time span of around five
months. The positioning of your company in international markets
has improved extensively with the execution of the above export
order.
As a result of rapid growth of economic development and increase
in people's standard of living in China, demand of stainless steel
has climbed to a record high. China has become the largest
stainless steel consuming country with its stainless steel apparent
consumption exceeding that of USA. The stainless steel markets in
China have shown average annual growth rate of 17 per cent will
consumption of 2,253,000mt in 2001 compared to 260,000mt in
1990.
The company has been able to successfully tap the increasing
stainless steel demand in China & other South East Asian
countries and has established its office in China and Vietnam to
service the expanding customer base in these markets.
NET SALES & OTHER INCOME
Projects
Investment in Chhattisgarh:
An MoU was signed between JSPL and the Govt. of Chhattisgarh on
4th May 2007 for additional projects worth Rs. 8,438 crore.
Total Project Cost:
8,720CroreCHHATTISHGARH
Investment in Chhattisgarh:
An MoU was signed between JSPL and the Govt. of Chhattisgarh on
4th May 2007 for additional projects worth Rs. 8,438 crore.
Further Expansion at Raigarh Plant:
* 2 MTPA Cement Plant
* Additional Power Generation of 270 MW
* Medium Structural Mill
* Pipe conveyor from mines to plant
* Mini Blast Furnace upgradation
* 1 MT SMS Bloom Caster and Oxygen Plant
* Fabrication Plant in Industrial EstateInvestment in
Orissa:
JSPL is investing over Rs. 40,000 crore in Orissa in steel
production and
power generation. It proposes to produce 12.5 MTPA steel in two
phases
and generate 2500 MW of power over the next decade or so.
Highlights of Angul Project:
* The Project is proposed to be setup on 5750 acres of land, 93%
of which is barren.
* The technology to be adopted for this Integrated Steel Plant
will be the DRI/BF/EAF route. The DRI Plant has unique feature of
using Syn Gas from the Coal Gasification Plant as reductant. The
DRI/coal gasification route is being used for the first time in the
world and has the advantage of using high ash coal which is
predominantly available in the vicinity of the project site.
* Work on setting up of DRI plant of 2.0 MTPA capacity, plate
mill of 1.5 MTPA capacity and power plant has started.
* Plate Mill of 1.5 MTPA has already been ordered and Hot Strip
mill is planned to be finalized by August, 2008.
Investment in Jharkhand:
In Jharkhand the company plans to produce 11 MTPA of steel and
2600 MW of power in phases at a combined investment of over Rs.
27,000 crore.
Highlights:
* JSPL has taken over the assets of closed Bihar Alloys &
Steel Ltd. at Patratu,
about 40kms from Ranchi.
* Using the available land and adding some more, the company is
setting up
the new steel and power plants, which would provide gainful
employment to a
large number of people and will also help in the economic and
infrastructure
development of the region.
* Foundation Stone for the Plant was laid by Shri Madhu Koda,
Honble Chief Minister of Jharkhand on 18th March, 2007.
* Feasibility Report and Detailed Project Report completed by
MECON for the Steel Plant.
* Complete plant layout frozen, site activities like leveling
started, basic engineering in progress.
* Bar Mill of 1 MT and Wire Rod Mill of 0.6 MT capacity already
ordered and civil structural work has started.
* Jeraldaburu Iron Ore Mines, Jitpur Coal Block and
Amrakonda-Murgadangal Coal Block allocated.
Marketing
The continuing recessionary trend observed during the first half
of the financial year 2005-06 got reversed during second half. The
demand for stainless steel increased substantially during later
part of the year and there were chaotic activities by the service
centers trying to build inventories by placing larger orders to
tile manufacturers. Jindal also benefited by this trend and has
resulted in surge of export volumes. There was almost a three-fold
increase in the export dispatches. This trend continued during the
first quarter of 2002-03 also and is likely to continue further.
JSL, in addition to exports, has increased its dispatches on the
domestic front as well as some new areas got special attention from
the marketing team, this includes dispatches to auto industry, Govt
of India Mint and Railways. Jindal continues to be regular supplier
to large and prestigious corporate customers like BHEL, NITRO, and
Dept. Of Atomic Energy, L&T, Nuclear Fuel Complex etc.
(www.jindalstainless.com)
Quality and Research & Development
JSL supplies quality products to a host of industries and
customers. The consistency of the product quality has ensured that
stainless steel manufactured at Hisar is meeting requirements for
special applications such as nuclear power, atomic energy, railway
coaches and wagons, coinage, refineries, fertilizers, copper
industry, surgical and razor blades, utensils, etc. Besides the
Quality Assurance Department is working independently to operations
so as to ensure strict compliance to the requirements of the
customers. The Company is upgrading ISO 9002 system to ISO
9000-2000 version, which will be more, focused towards customers'
feedback and hence will bring the company more closely and
responsive to meet the customers requirement. ISO 14001 systems is
in place, which shows the concern of the company towards
environment protection. As a step forward the company is now in
process of implementing OHSAS-18001 which will ensure safe and
healthy working condition to the employees and people living in the
vicinity of the Company Research & Development unit in Hisar is
further making rapid strides to introduce more value-added products
in the company's product portfolio, the manufacturing of duplex
stainless steel which finds applications in manufacturing of
pressure vessels, equipment for water treatment, digesters in pulp
and paper industry etc. has been stabilized by the R&D team.
The company has also started manufacturing of cupronickel material
for coinage and high Nickel alloys such as 'Invar' utilized in
m