Report / Study on “A STUDY ON CUSTOMER SATISFACTION AND CUSTOMER RELATIONSHIP MANAGEMENT” VIZAG STEEL PLANT VISAKHAPATNAM Prepared By G H C PRASAD REDDY [Under the guidance of] Mr. D SREENATH REDDY Dy.GM (Mktg) In partial fulfillment of the Course-Industry Internship Programme (IIP) in Semester II of the Master of Business Administration ALLIANCE UNIVERSITY – SCHOOL OF BUSINESS BANGALORE 2010-2012
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Report / Study on
“A STUDY ON CUSTOMER SATISFACTION AND CUSTOMER
RELATIONSHIP MANAGEMENT”
VIZAG STEEL PLANT
VISAKHAPATNAM
Prepared By
G H C PRASAD REDDY
[Under the guidance of]
Mr. D SREENATH REDDY Dy.GM (Mktg)
In partial fulfillment of the Course-Industry Internship Programme (IIP)
in Semester II of the Master of Business Administration
ALLIANCE UNIVERSITY – SCHOOL OF BUSINESS
BANGALORE
2010-2012
ALLIANCE UNIVERSITY – SCHOOL OF BUSINESS 2011
VIZAG STEEL PLANT |Pride of Steel 2
Master of Business Administration
Industry Internship Programme (IIP)
Declaration
This is to declare that the Report entitled “A STUDY ON CUSTOMER SATISFACTION
AND CUSTOMER RELATIONSHIP MANAGEMENT” has been made for the partial
fulfillment of the Course: Industry Internship Programme (IIP) in Semester II (Batch: August
2010-12) by me at VIZAG STEEL PLANT (organization) under the guidance of Prof. RAY
TITUS.
I confirm that this Report truly represents my work undertaken as a part of my Industry
Internship Programme (IIP). This work is not a replication of work done previously by any
other person. I also confirm that the contents of the report and the views contained therein
have been discussed and deliberated with the Faculty Guide.
Signature of the Student :
Name of the Student (in Capital Letters) : G H C PRASAD REDDY
Registration No : 10SBCM0506
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Master of Business Administration
Certificate
This is to certify that Mr. / Ms. G H C PRASAD REDDY Regn. No. 10SBCM0506 has
completed the Report entitled “A STUDY ON CUSTOMER SATISFACTION AND
CUSTOMER RELATIONSHIP MANAGEMENT” under my guidance for the partial
fulfillment of the Course: Industry Internship Programme (IIP) in Semester II of the Master
of Business Administration (Batch: Aug 2010 – 2012).
Signature of Faculty Guide:
Name of the Faculty Guide: D SREENATH REDDY
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ACKNOWLEDGMENT
I would like to express my gratitude to Mr. D SREENATH REDDY for providing
me an opportunity to work at VIZAG STEEL PLANT.
During the training session and the report preparation, I have been helped by many
personalities, without the help of whom; the completion of this task would have been very
tough. While submitting the work in printed form, I would take this opportunity to thank
everyone, who has supported me during this project.
First, my sincere gratitude to Mr D SREENATH REDDY Deputy General Manager,
VIZAG STEEL PLANT who had allowed me to undertake the project and who has helped
and supported me at every point throughout the tenure of the project. She has played a
versatile role, by being a friend to listen to my difficulties, being a teacher to correct me
whenever I was getting off the track and more importantly a facilitator, who provided me
with all the information and sources, which has an immense contribution in successful
completion of this project.
Secondly, I would like to thank Prof. RAY TITUS, Faculty Guide. Under whose
guidance I could produce a decent piece of work. One remarkable quality of which has
helped me to do justice to the work assigned to me is his quest for excellence. He guided me
all the way from the beginning till the end by giving me his valuable inputs, whenever I
required. It was a pleasure to be working under him.
G HC PRASAD REDDY
10SBCM0506
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TABLE OF CONTENTS
1. EXECUTIVE SUMMARY 7
2. INTRODUCTION
2.1 INDUSTRY PROFILE 10
2.2 COMPANY PROFILE 25
2.3 THEORETICAL BACKGROUND 36
3. PROJECT PROFILE
3.1 OBJECTIVE OF STUDY 48
3.2 RESEARCH METHODOLOGY 48
4. OBSERVATIONS & ANALYSIS
4.1 ANALYSIS 51
4.2 CUSTOMER SATISFACTION INDEX 67
5. FINDINGS 74
6. RECOMMENDATIONS 77
7. CONCLUSION 79
8. ANNEXURE
8.1 QUESTIONNAIRE 81
9. REFERENCES 84
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CHAPTER-1
EXECUTIVE SUMMARY
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EXECUTIVE SUMMARY
Customer Relationship Management (CRM) is the latest tools from the information
technology AND other basic industry which enables, promotes and develops business
towards better profitability. All business entities have realized the importance of CRM and
carving the efforts to make the customer loyal to business. The importance of the customer
in a making breaking a business has led to greater introspection, conceptual clarity and
evolution of customer relationship management, both as an art and science, and development
of appropriate tools and software for enhancing business and prolonging the product and
business life cycle. This evolution has been a consumer to a many time (repetitive), „long
term relationship‟ management and importance of the „life time value‟ of the customer.
The benefits of customer relationship management are considered are abounded. it
allows organizations not only to retain customers, but enables more effective marketing,
creates intelligent opportunity for cross selling and open up the possibility of rapid
introduction of new brands and products. The major objectives are Enable the company to
quickly identify, contract, attract and acquire new customers. Obtain a better understanding
of the customers – their wants and needs. Define the appropriate product and service offering
and match it to the customer‟s unique needs. Manage and optimize a company sales cycle.
Identify cross-selling and up-selling opportunities.
Visakhapatnam Steel Plant has been striving to enhance quality in delivery of
products and services and trying to retain customer towards long term association. The
researcher has identified the need and study the practices at VSP, and has identified that VSP
has been categorically improved their CRM practices.
The first chapter deals with the present state of Iron and steel industry in India, which
lays the context for the study, the chapter also introduces concepts relating to CRM and it
various issues.
The second chapter is a profile of Vishakhapatnam steel plant, a brief introduction, its
marketing strategies, major facilities, SWOT analysis of industry amongst others.
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The third chapter deals with the methodology involved in conducting this study. It
lists out the objectives of the study, the data collection methods employed and the scope of
the study.
The fourth chapter is an accumulation of data collected for the project. It consists of
all the primary and secondary data. The data collected is organized and exhibited in this
chapter.
The next chapter is an analysis of the data collected in the light of areas of
improvement for VSP, the analysis elaborates on the strategies that can be employed by VSP
for better CRM.
The last chapter is a list of recommendations given to the company on measures to
improve implementation of CRM.
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CHAPTER-2
INTRODUCTION & INDUSTRY
PROFILE
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INTRODUCTION & INDUSTRY PROFILE
PROFILE OF IRON & STEEL INDUSTRY
Steel is a versatile, constantly developing material that underpins all manufacturing
activity. If a product is not made from steel, then it is certainly made using steel at some point
in the manufacturing process.
2.1.1 OVERVIEW OF IRON AND STEEL INDUSTRY
Steel is crucial to the development of any modern economy and is considered to be
the backbone of human civilization. The level of per capita consumption of steel is treated as
one of the important indices of the level of socio-economic development and living standard
of the people in any country. It is a product of a large and technologically complex industry
having strong forward and backward linkages in terms of material flows and income
generation. All major industrial economies are characterized by the existence of a strong steel
industry and the growth of many of these economies has been largely shaped by the strength
of their steel industries in their initial stages of development.
2.1.2 HISTORICAL PERSPECTIVE
The finished steel production in India has grown from a mere 1.1 million tonnes in
1951 to 29.27 million tonnes in 2000-2001. During the first two decades of planned economic
development, i.e. 1950-60 and 1960-70, the average annual growth rate of steel production
exceeded 8%. However, this growth rate could not be maintained in the following decades.
During 1970-80, the growth rate in steel production came down to 5.7% per annum and
picked up marginally to 6.4% per annum during 1980-90, which increased to 6.65% per
annum during 1990-2000. Though India started steel production in 1911, steel exports from
India began only in 1964. Exports in the first five years were mainly due to recession in the
domestic iron and steel market. Once domestic demand revived, exports declined. India once
again started exporting steel only in 1975 touching a figure of 1 million tonnes of pig iron
export and 1.4 million tonnes of steel export in 1976-77. Thereafter, exports again declined to
pick up only in 1991-92, when the main producers exported 3.87 lakhs tonnes, which rose to
2.79 million tonnes in 1995-96. The steel exports in 1999-2000 were 2.36 million tonnes and
in 2000-01 it was 2.57 million tonnes. The growth in the steel sector in the earlier decades
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since Independence was mainly in the public sector units set up during this period. The
situation has changed dramatically in the decade 1990-2000 with most of the growth
originating in the private sector. The share of public sector and private sector in the
production of steel during 1990-91 was 46% and 54% respectively, while during 2000-01 the
same was 32% and 68% respectively. This change was brought about by deregulation and
decontrol of the Indian iron and steel sector in 1991. A number of policy measures have been
taken since 1991 for the growth and development of the Indian iron & steel sector. Some of
the important steps are
Removal of iron & steel industry from the list of industries reserved for the public
sector and also exemption from the provisions of compulsory licensing under the Industries
(Development & Regulation) Act, 1951, deregulation of price and distribution of iron & steel,
inclusion of iron and steel industry in the list of high priority industries for automatic
approval for foreign equity investments up to 74%, lowering of import duty on capital goods
and raw materials etc.
The Indian steel sector was the first core sector to be completely freed from the
licensing regime and the pricing and distribution controls. This was done primarily because
of the inherent strengths and capabilities demonstrated by the Indian iron and steel industry.
During 1996-97, finished steel production shot up to a record 22.72 million tonnes with a
growth rate of 6.2%, while in 1997-98, the finished steel production increased to 23.37
million tons, which was 2.8% more than the previous year. The growth rate has drastically
decreased in 1997-98 and 1998-99 being 2.8% and 1.9% respectively as compared to 20% in
1995-96 and 6.2% in 1996-97. The growth rate in 2000-2001 has improved to a healthy
9.60% with the total production touching 29.27 million tonnes. The production of finished
steel during 2001-02 has been 30.61 million tonnes, which means a lower growth rate of
about 4.5% compared to the previous year. This fall in the growth rate of steel production has
been brought about by several factors that, inter-alia, include general slowdown in the
industrial production and construction activities in the country coupled with lack of growth in
major steel consuming sectors. The total production of finished steel and the share of main
and secondary producers during 90's and up to 2002-03 are given in the annexure
2.1.3 THE INTEGRATED STEEL PLANTS IN INDIA ARE:
Rourkela Steel Plant
Bhillai Steel Plant
Bokaro Steel Plant
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Durgapur Steel Plant
Indian Iron Steel Company ( IISCO)
Tata Iron and Steel Company ( TISCO)
Visakhapatnam Steel Plant ( VSP)
ESSAR Steel Company
JINDAL Steel Company
2.1.4 IRON AND STEEL PROMOTION IN INDIA
Although iron and steel is one of the most important industries in the Indian
manufacturing sector, India is only the 15th largest steel producer in the world. Originating
from the first set up of a single steel plant in 1911-12, the iron and steel sector included 7
integrated iron and steel plants in 1995-96. Due to the regulatory and political development
of the sector only one of these plants is in private hands accounting for about 15% of total
steel production. The integrated steel units usually use the blast furnace – basic oxygen/open
hearth furnace process route for iron and steel production. In addition, there are about 180
secondary producers employing the electric arc furnace process. Another 500 mostly smaller
units rely on other processes such as induction furnace process, melting by re-rollers, and
ship breaking units.
2.1.5 PROJECTED PRODUCTION OF IRON & STEEL (Mt/annum)
Crude Steel
Production (Mt/annum) based on
Crude Steel Production (Mt/annum) based on
Year GDP total GDP industry Average
2001 28.71 29.53 29.12
2005 35.38 36.93 36.15
2010 45.95 49.07 47.51
Though currently the iron and steel sector seems to be on an upward path in a world
of free market competition and prices, there are several drawbacks threatening the Indian
industry. For example, the state of technology, despite the efforts towards modernization and
up gradation, is still inferior to that in other countries. Low costs of primary inputs have so
far led to low costs of production and economic viability of Indian steel. These advantages,
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however, may be eroded in the near future making Indian steel less competitive. Therefore,
technological progress and the adoption of more efficient and improved technologies need to
continue supported by policy and economic incentives to the extent possible.
2.1.6 OBJECTIVE OF STEEL POLICY
1.6.1 Strategic Goal: The long-term goal of the national steel policy is that India should have a
modern and efficient steel industry of world standards, catering to diversified steel demand.
The focus of the policy would therefore be to achieve global competitiveness not only in
terms of cost, quality and product-mix but also in terms of global benchmarks of efficiency
and productivity. This will require indigenous production of over 100 million tonnes (mT)
per annum by 2019-20 from the 2004-05 level of 38 mT. This implies a compounded annual
growth of 7.3 percent per annum.
Table 1: Production, Imports, Exports and Consumption of Steel
(in million tonnes)
2.1.7 INDUSTRY STRUCTURE
The iron and steel industry in India is organized in three categories‟ viz. main producers,
other major producers and the secondary producers. The main producers and other major
producers have integrated steel making facility with plant capacities over 0.5 mT and utilize
iron ore and coal/gas for production of steel. In 2004-05, the main producers i.e. SAIL,
TISCO and RINL had a combined capacity of around 19.3 mT and capacity utilization was
104 percent. The other major producers comprising of ESSAR, ISPAT and JVSL had a
capacity of 6.4MT with capacity utilization of 97 percent. The secondary sector is dispersed
and consists of:
(a) Backward linkage from about 120 sponge iron producers that use iron ore and non-
coking coal, with a capacity of around 13 mT, providing feedstock for steel
producers. The capacity utilization in 2004-05 was 75 percent.
Production Imports Exports Consumption
2019-20 110 6 26 90
2004-05 38 2 4 36
CAGR* 7.3% 7.1% 13.3 % 6.9 %
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(b) About 650 mini blast furnaces, electric arc furnaces, induction furnaces and energy
optimizing furnaces that use iron ore, sponge iron and melting scrap to produce steel.
Their capacity is around 14.7 mT, and capacity utilization in 2004-05 was 58 percent.
(c) Forward linkage with about 1,200 re-rollers that roll out semis into finished steel
products for consumer use. These are small and medium enterprises, whose reported
capacity is around 15 mT, and capacity utilization in 2004-05 was 55 percent.
2. 1.8 SWOT ANALYSIS OF THE INDUSTRY
The strengths, weaknesses, opportunities and threats for the Indian steel industry have
been tabulated below. The national steel policy lays down the broad roadmap to deal with all
of them.
Strengths
1. Availability of iron ore and coal
2. Low labour wage rates
3. Abundance of quality manpower
4. Mature production base
Weaknesses
1. Unscientific mining
2. Low productivity
3. Coking coal import dependence
4. Low R&D investments
5. High cost of debt
6. Inadequate infrastructure
Opportunities
1. Unexplored rural market
2. Growing domestic demand
3. Exports
4. Consolidation
Threats
1. China becoming net exporter
2. Protectionism in the West
3. Dumping by competitors
2.1.8 INDIAN STEEL INDUSTRY - A SWOT ANALYSIS
Strengths
India has rich mineral resources. It has abundance of iron ore, coal and many other
raw materials required for iron and steel making. It has the fourth largest iron ore reserves
(10.3 billion) after Russia, Brazil, and Australia. Therefore, many raw materials are available
at comparatively lower costs. It has the third largest pool of technical manpower, next to
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United States and the erstwhile USSR, capable of understanding and assimilating new
technologies. Considering quality of workforce, Indian steel industry has low unit labour
cost, commensurate with skill. This gets reflected in the lower production cost of steel in
India compared to many advanced countries (Table 3). With such strength of resources, along
with vast domestic untapped market, Indian steel industry has the potential to face challenges
successfully.
Weaknesses
Endemic Deficiencies
These are inherent in the quality and availability of some of the essential raw
materials available in India, eg, high ash content of indigenous coking coal adversely
affecting the productive efficiency of iron-making and is generally imported. Advantages of
high Fe content of indigenous are often neutralized by high basicity index. Besides, certain
key ingredients of steel making, eg, nickel, ferro-molybdenum is also unavailable
indigenously. Systemic Deficiencies However, most of the weaknesses of the Indian steel
industry can be classified as systemic deficiencies. Some of these are described here. High
Cost of Capital Steel is a capital intensive industry; steel companies in India are charged an
interest rate of around 14% on capital as compared to 2.4% in Japan and 6.4% in USA. Low
labour Productivity In India the advantages of cheap labour gets offset by low labour
productivity; eg, at comparable capacities labour productivity of SAIL and TISCO is 75
t/man year and 100 t/man year, for POSCO, Korea and NIPPON, Japan the values are 1345
t/man year and 980 t/man year. High Cost of Basic Inputs and Services High administered
price of essential inputs like electricity puts Indian steel industry at a disadvantage; about
45% of the input costs can be attributed to the administered costs of coal, fuel and electricity,
eg, cost of electricity is 3 cents in the USA as compared to 10 cents in India; and freight cost
from Jamshedpur to Mumbai is $50/ton compared to only $34 from Rotterdam to Mumbai.
Added to this are poor quality and ever increasing prices of coking and non-coking coal.
Other systemic deficiencies include:
Poor quality of basic infrastructure like road, port etc.
Lack of expenditure in research and development.
Delay in absorption in technology by existing units.
Low quality of steel and steel products
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Lack of facilities to produce various shapes and qualities of finished steel on-demand
such as steel for automobile sector, parallel flange light weight beams, coated sheets
etc.
Limited access of domestic producers to good quality iron ores which are normally
earmarked for exports, and
High level taxation.
Besides these Indian steel makers also lacked in international competitiveness on
determinants like product quality, product design, on-time delivery, post sales service,
distribution network, managerial initiatives, research and development, information
technology and labour productivity etc. As is evident in Table 4, the weaknesses gets
reflected in India‟s poor standing in the global competitiveness as measured in terms of
indicated parameters.
Opportunities
The biggest opportunity before Indian steel sector is that there is enormous scope for
increasing consumption of steel in almost all sectors in India. Table 6 gives a glimpse of
untapped potential of increasing steel consumption in India; eg, even to reach the comparable
developing and lately developed economies like China and other Europe, a quantum jump in
steel consumption will be required.
Unexplored Rural Market
The Indian rural sector remains fairly unexposed to their multi-faceted use of steel.
The rural market was identified as a potential area of significant steel consumption way back
in the year 1976 itself. However, forceful steps were not taken to penetrate this segment.
Enhancing applications in rural areas assumes a much greater significance now for increasing
per capital consumption of steel. The usage of steel in cost effective manner is possible in the
area of housing, fencing, structures and other possible applications where steel can substitute
other materials which not only could bring about advantages to users but is also desirable for
conservation of forest resources. Other Sectors Excellent potential exist for enhancing steel
consumption in other sectors such as automobiles, packaging, engineering Industries,
irrigation and water supply in India. New steel products developed to improve performance
simplify manufacturing/installation and reliability is needed to enhance steel consumption in
these sectors. Main objective here have to be improvement of quality for value addition in
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use, requirement of less material by reducing the weight and thickness and finally reduction
in overall cost for the end user. Latest technology must be adopted by Indian steel
manufacturers for production of superior quality of steel for these applications. For example,
pre-coated sheets can be used in manufacture of appliances, furnishings, electric goods and
public transport vehicles. Production and supply of superior grades of steel in desired shapes
and sizes will definitely increase the steel consumption as this will reduce fabrication need;
thereby reduce cost of using steel. Few other perceived opportunities are: Export Market
Penetration It is estimated that world steel consumption will double in next 25 years. Quality
improvement of Indian steel combined with its low cost advantages will definitely help in
substantial gain in export market.
Threats
Slow Industry Growth
The linkage between the economic growth of a country and the growth of its steel
industry is strong. The Indian steel industry is no exception. The growth of the domestic steel
industry between 1970 and 1990 was similar to the growth of the economy, which as a whole
was sluggish. This sluggish growth in the steel industry has resulted in enhanced rivalry
among existing firms. As the industry is not growing the only other way to grow is by
increasing one‟s market share. Consequently, the Indian steel industry has witnessed spurts of
price wars and heavy trade discounts, which has done Indian steel industry no good as a
whole. Threat of Substitutes Plastics and composites pose a threat to Indian steel in one of its
biggest markets. For the automobile industry, the other material at present with the potential
to upstage steel is aluminum. However, at present the high cost of electricity for extraction
and purification of aluminum in India weighs against viable use of aluminum for the
automobile industry. Steel has already been replaced in some large volume applications:
railway sleepers (RCC sleepers), large diameter water pipes (RCC pipes), small diameter
pipes (PVC pipes), and domestic water tanks (PVC tanks).
Technological Change
Technological changes often force the industry structure to change. For a developing
country like India where capital itself is costly, technological obsolescence is a major threat.
Price Sensitivity and Demand Volatility The demand for steel is a derived demand and the
purchase quantity depends on the end-user requirements. The traders discounts. This
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volatility of demand often affects the integrated steel manufacturers because of their inability
to tune their production in line with the market demand Fluctuations. Some other threats are:
Ever decreasing import duty on steel.
Dumping of steel by developed countries.
High quality products from developed countries available for import at very
competitive prices.
Non-availability of capital from financial institutions for iron and steel sector.
2.1.9 STRATEGIC RESTRUCTURING
A Comparative Analysis
The effect of globalization on steel industries in different regions or countries has not
been uniform. Each region is unique in its own way in terms of raw materials availability,
technology adopted, market conditions, trading policies, etc. Consequently restructuring of
steel industries in different regions have been done in a manner that best suits the needs and
situations of the country or region (Table 7). The divergent strategies adopted for
restructuring by steel industries in different countries/regions provide the right perspective for
building a turnaround strategy for Indian steel industry
2.1.10 STEEL DEMAND
Urban Areas: The present steel consumption per capita per annum is about 30 kg in
India, compared to 150 kg in the world, and 350 kg in the developed world. 2
The estimated
urban consumption per capita per annum is around 77 kg in the country, expected to reach
approximately 165 kg in 2019-20, implying a CAGR of 5 percent. Apart from the anticipated
growth in the construction, automobile, oil and gas transportation, and infrastructure sectors
of the economy, conscious promotion of steel usage among architects, engineers and students
by the Institute of Steel Development and Growth (INSDAG) and the large producers will
drive this additional consumption. Steps would be taken to encourage usage of steel in
bridges, crash barriers, flyovers and building construction. Benefits of steel usage would be
added to the technical education curricula in the country.
Rural Areas: The rural consumption of steel in India remains at around 2 kg per
capita per annum, primarily because steel is perceived to be expensive among the village
folks. Based on the promotional efforts mentioned above, and an active focus on opening new
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block level rural stock points, a target is set for raising the per capita rural consumption of
steel to 4 kg per annum by 2019-20, implying a CAGR of 4.4 percent.
Exports: Although the focus of Indian steel industry is on the domestic market,
export will be another window on the demand side. The growth of exports of steel from India
has been around 10 percent per annum over the past decade. That speaks for the international
cost competitiveness of the steel sector. It takes assiduous effort to create, and hold on to
export markets. While the business decision to export will depend on the prevailing relative
prices, the Government would encourage strategic alliances with buyback arrangements and
dedicated export production through 100% export-oriented units. A growth rate of around 13
percent per annum is envisaged up to 2019-20. The issues related to exports have been
discussed in section 13 on Trade Policy.
2.1.11 INDUSTRY PERFORMANCE
The performance of Indian steel industry has been analysed in the medium term from
1997 to 2011. The sample for analysis includes data from SAIL and Tata Steel among the
ISPs and JVSL, Ispat, Essar and Lloyds among the secondary majors7.
Category wise estimated demand for iron and steel all India 2002-2003
Category Quantity, × 103 t
Bars and rods 10500
Structural 2500
Railway materials 845
Plates 2250
HR coils/skelp 6600
HR sheets 500
CR coils/sheets 3300
GP/GC sheets 1930
Electrical steel sheets 200
Tin plates 325
Pipes 850
Total finished steel 29500
Important performance indices such as Debt-Equity Ratio (D/E), Return on Net worth (Post
tax) (RONW), Net Sales/Total Assets and Net Profit/Net Sales have been calculated and
depicted in the Figures 3-6. Figure 3 depicts the rising trend of D/E from 2.13 to 2.90 in the
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last four years. This shows that the industry is shouldering an increasing debt burden and
becoming more leveraged. Figure 4 shows an improvement in Net Sales/Total Assets (Asset
Turnover Ratio) from 0.42 to 0.52, although this figure lags behind international standards.
(This ratio for the US steel industry was 1.2 during the period 1975-1993)8. This
improvement indicates that the industry is utilizing its assets more efficiently and/or is
shedding assets. RONW (Post-Tax), as depicted in Figure 5, has plummeted from a + 3%
return in 1997-1998 to 0.9% before making a partial recovery to 0.3% in 2001-2002. This
indicates that the industry in general is eroding its net worth, losing money and thus,
becoming unattractive to the equity investors.
2.1.12 UNEXPLORED RURAL MARKETS
The Indian rural sector remains fairly unexposed to their multi-faceted use of steel.
The rural market was identified as a potential area of significant steel consumption way back
in the year 1976 itself. However, forceful steps were not taken to penetrate this segment.
Enhancing applications in rural areas assumes a much greater significance now for increasing
per capital consumption of steel. The usage of steel in cost effective manner is possible in the
area of housing, fencing, structures and other possible applications where steel can substitute
other materials which not only could bring about advantages to users but is also desirable for
conservation of forest resources.
2.1.13 STEEL PRICES
Following de-regulation of prices for integrated steel plants in 1991-92, the domestic
prices of steel have become market-determined. Market prices remain in step with
international prices, though generally lower. During industry downturns, prices fall and
during upturns, they rise. While rationalization of the customs and excise duty structure is
aimed primarily at reducing fiscal and revenue deficits, it has an indirect influence on
consumer prices. At present, there are around three thousand units manufacturing steel and
steel products, which are marketed by over 100,000 traders for ultimate consumers. This
dispersal of the distribution chain has been the principal reason why no price regulation of the
steel trade has ever been in force. Government has recently set up a Competition Commission
to look into complaints of monopolistic pricing.
Steel futures: The cyclical nature of the steel industry deters fresh investments due to
risks of recession. The mismatch between demand and supply also leads to price volatility
witnessed during recent times. Stagnation in steel prices for long periods followed by sudden
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spurt also affects the consumers and the infrastructure industry. Therefore, the efforts of
various stakeholders to develop risk-hedging instruments like futures and derivatives would
be supported.
2.1.14 HUMAN RESOURCES
The anticipated steel production of 110 mT by 2020 would require an additional
workforce of 220,000 after accounting for the expected productivity improvements.7 Further
the creation of 1 man-year of employment in the steel industry generates an additional 3.5
man-years of employment elsewhere in the economy due to its strong linkages with other
sectors such as transport, mining, construction, machinery, and steel fabrication. The total
additional employment generated in the economy due to expected production of 110 mT by
2020 would be around 1 million.
The profile of the required human resources will have a larger share of the skilled and
semi-skilled labour force. It is a matter of concern that availability of scientists, engineers and
technicians per thousand of population in India is 7.05 compared to 113 in Japan, 90 in U.K.,
53 in Korea, 54 in Australia and 85 in Germany.8 Further, the task is not limited to increase
in the stock of technical manpower. The technical and professional institutes of the country
would also be required to impart new competencies and capabilities in tune with changes in
technology and the needs of globalization. The existing training and research institutes under
the Ministry of Steel would be brought under an umbrella organization with representation
from each segment of the industry. The functions of this organization would include (a)
suitable training programmes especially for the secondary small scale units, (b) promotion of
steel consumption through dissemination of information on availability and suitability of steel
for various applications, and (c) collection and analysis of data on important parameters of
the industry.
2.1.15 TECHNOLOGIES, RESEARCH AND DEVELOPMENT
Though the choice of technology will be determined by entrepreneurs based on
techno-economic considerations, the Government would encourage adoption of technologies,
which:
• Have synergy with the natural resource endowments of the country.
• They are conducive to production of high-end and special steel required for
sophisticated industrial and scientific applications
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• Minimize damage to the environment at various stages of steel making and mining.
• Optimize resource utilization.
• Facilitate modernization of the steel industry so as to achieve global standards of
productivity and efficiency.
• Development of front end and strategic steel based materials.
India‟s expenditure on Research and Development has been negligible not only in
absolute terms but also as a percentage of GNP at 0.86%. This can be compared to the
developed world with an average ratio of 2.5%. In the case of steel industry, the ratio of
expenditure on R&D as a percentage of turnovers is only 0.26%.
The low priority to indigenous R&D has given rise to adoption of technologies that
are more suited to conditions prevailing in the developed world. For example, resource
position of raw materials requires development of technologies, which can use indigenous
coking coals and non-coking coals and for improvement in quality of high alumina Indian
iron ore. But lack of innovation and adaptation to Indian conditions is resulting in large-scale
import of coking coal and low performance in iron making. Aggressive R&D efforts would,
therefore, be mounted to create manufacturing capability for special types of steel, substitute
coking coal, enrichment and agglomeration of iron ore fines, develop new products suited to
rural needs, enhance material and energy efficiency, utilize waste, and arrest environmental
degradation. Public sector steel companies would enhance R&D expenditure in the coming
years to finance internal R&D efforts and sponsor outside research, which may provide a
framework for inter-disciplinary cooperation with the private sector across national
boundaries. Government‟s contribution to fostering basic and applied R&D will be enhanced
2.1.16 STEEL INDUSTRY-MAJOR PROBLEMS AND CONCERNS
The Indian steel manufacturers are faced with some major problems and concerns,
which work as inhibiting factors to their effort towards gaining the competitive edge. A few
of these are: Un remunerative Prices Stagnating demand, domestic oversupply and falling
prices in the last four years have hit Indian steel makers. Barring the sporadic rise in demand
in the recent months, it has suffered from UN remunerative prices to the extent that
companies have been finding it difficult to maintain capital costs. Stagnating Demand for
Steel According to McKinney and Co the domestic steel industry is set to witness a 33% over
capacity in the hot rolled coil
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2.1.17 ONGOING CHANGES IN THE IRON AND STEEL INDUSTRY
The ongoing trend of expanding and modernizing steel production is expected to
maintain in the future. Major investment and expansion projects are currently underway that
will substantially increase the availability of steel on domestic as well as international
markets. With the addition of two newly set up integrated steel plants, crude steel production
capacity in the country will reach 30 Mt by the year 2000 (as opposed to 20.77 Mt as of
1995). Future production of crude steel has been estimated regressing crude steel production
on
a) GDP total and
b) GDP industry.
GDP total is assumed to increase at its 1990-95 trend rate of 5.4% p.a., while GDP
industry is assumed to grow at 6.2% p.a. (1990-95 trend rates). Projections based on these
assumptions as well as the average of the two production estimates are given in Table 4.1.
Regressing crude steel production on GDP iron& steel showed lower explanatory power and
did not yield diverging predictions. Detailed regression results are presented in Appendix C.
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COMPANY PROFILE
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COMPANY PROFILE
Vision
To be a continuously growing world class company we shall
Harness our growth potential and sustain profitable growth.
Deliver high quality and cost competitive products and be the first choice of
customers.
Create an inspiring work environment to unleash the creative energy of people.
Achieve excellence in enterprise management.
Be respected corporate citizen, ensure clean and green environment and develop
vibrant communities around us.
Mission
To attain 16 million ton liquid steel capacity through technological up-gradation,
operational efficiency and expansion; to produce steel at international standards of
cost and quality; and to meet the aspirations of the stakeholders.
Objectives
Expand plant capacity to 6.3 Mt by 2008-09, with the mission to expand further in
subsequent phases as per the corporate plan.
Sustain gross margin to turnover ratio>25%.
Be amongst top five lowest cost liquid steel producers in the world by 2009-10.
Achieve higher levels of customer satisfaction than competitors.
Instill right attitude amongst employees and facilitate them to excel in their
professional, personal and social life.
Be recognized as an excellent business organization by 2008-09.
Be proactive in conserving environment, maintaining high levels of safety and
addressing social concerns.
2.2.1 PROFILE OF VIZAG STEEL PLANT
To meet the growing domestic needs of steel, the decision of the Government of India
to set up an integrated Steel Plant at Visakhapatnam was announced by the Prime committee
chooses the site near Balacheruvu creek and the prime minister did the formal inauguration
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and laid the foundation stone on 20th
January 1971. The consultant, M/s M.N.Dastur and
Company ltd., submitted a techno-economic feasibility report for the plant, with an annual
capacity of about 3 million tones of liquid steel, in October 1977. The service examined the
detailed project report prepared by Dastur Company and offered Technical and Economic
operation for the same. The government and erstwhile USSR signed agreement on June 12th
1979, for co-operation in setting up a 3.4 million tones integrated steel plant at
Visakhapatnam. In terms of this agreement, soviets and Indian design organization revised
the earlier detailed project report of Dastur Co., jointly and a comprehensive revised detailed
project report for VSP was submitted in November 1980. A new company i.e. Rashtriya
Ispact Nigam Ltd. (RINL) was incorporated to have independent decision taking facility
with more concentration on this particular unit. The construction of the project commenced
in 1982 with a schedule of 4 and 6 year for the first and second stage respectively. During
construction due to inadequate found availability, the project could not be adhered to,
resulting in huge cost and time overruns. In a bid to reduce the capital investment
Rationalized concept was adopted in 1985. As per this one steel melt shop and one rolling
mill i.e. the universal beam mill were dropped. The other steel melt shop of 2.2 MTPA of
liquid steel without any additional facilities. The Honorable Prime Minister
Sri.P.V.Narasimha Rao dedicated the plant to the Nation on 1st August 1992. Unlike other
integrated steel plants in the country. New technology, large-scale computerization and
automation etc., are incorporated in the plant. To operate the plant at international levels and
attains such labor productivity; the total manning of the organization has been limited to
17500 employees. The plant has a capacity of producing 3.0 MT of liquid Steel and 2.656
MT saleable steel.
2.2.2 HISTORY OF THE VIZAG STEEL PLANT
The decision of the government of India to set up an integrated steel plant at
Visakhapatnam was announced in parliament by the Prime Minister Smt.Indira Gandhi on
17th
April 1970. The selection committee chose the site near balacheruvu creak and the
prime minister did the formal inauguration on January 20, 1971. The Consultant,
M/S.M.N.DASTUR & company private limited submitted a techno economic feasibility
report in February 1972, and a detailed project report for the plant, with an annual capacity
of about 3 million tone of liquid steel in October, 1977. In setting up the 3.4 million tones
integrated steel plant at Visakhapatnam. In terms of this agreement the earlier DPR of
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Dastur & Co was revised jointly by Soviets and India design organizing and a
comprehensive revised DPR (CRDPR) for VSP was submitted in November 1971.
The project was estimated to cost Rs. 8397.28 corers, based on prices as in the 4th
quarter of 1981. However, during the implementation of the project it was observed that the
project cost has increased substantially over the sanctioned cost, mainly due to prices
escalations and under provision of DPR estimates. In view of these and the critical fund
situation, alternatives for implementation of the project with rationalization of the approved
concept were studied in 1986. Under the rationalized concept 3.0 million tones of liquid
steel to be produced in a year and the project is estimated to cost Rs.5822.17cr as on fourth
quarter of 1987.
2.2.3 REASONS FOR ESTABLISHMENT
All the steel plants in India were located in the non coastal area of the country;
because of that reason the plant authorities were incurring high import and export expenses
in the form of tax besides the transportation cost of the raw materials, finished products,
spares and other equipments for various purposes. The concern authority has gone in deep
discussion to reduce this type of cost for at least to the latest steel plant for this reason and
the political threat for locating the steel plant in Visakhapatnam are the main points.
Compared to the other steel plants in India it is the 1st shore based steel plant.
In the year 1979-80 the construction took high speed and in following year i.e.
1981 contract signed with Soviet Union for preparation of working drawing for coke
ovens, blast furnace and sinter plant.
1982, there were drastic changes in the management of VSP i.e. from SAIL to RINL.
During the year 1985, Govt of India thought of dispensing with the scheme of
installing of steel plant at Visakhapatnam once for all, because of high capital cost of the
exercise and very own phase getting returns on the investment. At his stage there were
around 30 to 35 thousand contract labours working in the construction under various
contract jobs.
In the early stages, the Govt. has given assurances to the people that they will be
given jobs in the steel plant whose lands are lost in the acquisition. The total area gathered
by the steel plant, authority is 27000 acres. The land owners in this area were most of them
farmers. Most of the farmers are uneducated. This type of people is around 6000 that is
performing different non technical, inexpensive and transportive etc.
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2.2.4 INFRASTRUCTURE OF VISAKHAPATNAM STEEL PALNT
a) Location and General layout
The plant is located on the coast of Bay of Bengal, 16 kms to the South – West of the
Visakhapatnam port. It lays between the northern boundaries of the national highway No.5
from Chennai to Kolkata and 7 kms to the south west Howrah – Chennai railway line.
b) Climate
Visakhapatnam has warm and humid climate. April to June is the warmest months of the
year and December to February are the coldest months. The benefits from he South west
monsoon and he northeast monsoons. The average annual rainfall is 873.6 mm. Highest
mean monthly maximum temperature is 37.8 deg. C.
2.2.5 MAJOR PLANT FACILITIES
VSP has the following production facilities
Three coke ovens batteries of 67 ovens, each having 41.6 m3 volumes.
Two sinter machines of 312 sq.m area.
Two blast furnace of 3200 m3 useful volumes.
Steel melting shop with three L.D. converters ( two operating and one standby –by of 150
tons each of capacity each and 6nos. of four strand continuous blooms casters
Light and medium merchant mill (LMMM) of 7,10,000 tones per year capacity
Wire rod mills ( WRM) of 8,50,000 ones per capacity
A. Modern Technology
VSP is the most sophisticated and modern plant in the country. Modern technology
has been adopted in many areas of production some of them for the first time in the country.
Among them are
Selective crushing of coal
7-meter tall coke ovens
Dry quenching of coke
On ground blending of sinter base mix
Conveyor charging and bell less top for blast furnace
100% continuous casting of liquid steel
Gas expansion turbine for power generation utilizing blast furnace top gas pressure
Hot metal desulphurization
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Extensive treatment facilities of effluents for ensuring proper environmental protection
Computerization for process control
Sophisticated high speed and high
B. Major Units of VSP
The seven major units of VSP, which are successfully running in the production of
steel, and Pig iron, are:
C. Coke Ovens & Coal chemicals Plant
Coking coal after selective crushing and proper blending is subjected to destructive
distillation (heating in the absence of air) in the Coke Ovens. After heating for nearly a period
of 16-18 hours at a temperature of about 1100 degree C, Coke is obtained and is used as a
fuel as well as reducing agent in the Blast Furnace. The Coke Ovens of VSP are engineering
feats by themselves. They are the tallest ovens meter constructed in the country. The Plant
has 3 batteries of 7 mtr. Another feature is the dry cooling of coke carried out by the inert gas