Strategic Analysis of Nucor Steel Industry in 2010
Nov 29, 2014
Strategic Analysis of one of America's leading Steel Giant Nucor. This strategic analysis presents: 1. Porter's Five Forces to determine the Steel Industry in USA market. 2. PESTEL framework to understand the Political, Economical, Social, Technological, Environmental and Legal challenges faced by Nucor in 2010. 3. SWOT analysis to understand the Strengths, Weakness, Opportunities and Threats for Nucor. 4. Value Chain Analysis to understand the internal and external business analysis for Nucor. The analysis is followed by summarizing Problems and Issues of Nucor in 2010. This is further followed by a detailed recommendation for adoption of the right strategic-fit for Nucor to conquer and invade the market back again in the USA.
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NUCOR
Porter 5 forces Value Chain Analysis
PESTEL Analysis SWOT Analysis
Snapshot of Nucor
Problem & Recommendation
Overview of Analysis
NUCOR IN 2010
American steel company
Only continuous profitable firm for decades in America
NUCOR IN 2010
So what's their secret of success ?
About NUCOR
Incorporated: In 1955 as Nuclear Corporation of
America
Profile: 2nd largest steel manufacturer in USA
Headquartered: In Charlotte, North Carolina
1st place in 2005 in the Business Week
Difficult Times
Foreign Competition
Slow Demand for Steel
Insolvency
KEN IVERSON
Iverson restructured the company
Focus on 2 main lines of business:
Line of Business
Joist Production
Production of Steel from recycled scrapped metals.
Mission Statement
‘TAKE CARE OF OUR CUSTOMERS ’
Organization
Structure
Organization Structure
DecentralizedCorporate Centered
Chairman
Plant Manager
Department Manager
Supervisor
Integrated Strategy
RBV + IO Model
StrategyRBV
Productive workforce
Innovative technology
Reduced throughput time
Efficient Inventory Management System
Resources
Capabilities
StrategyIO Model ( Differentiation )
Mini Mill technologies and Electric-
Furnace, compare to old blast-furnace
methods
IO Model ( Cost Leadership )
Own fleet of trucks
Close proximity to customers
Innovation
Competencies
Competencies and Innovation
Building steel manufacturing facilities economically and operating
them productively.
Benchmarked organizational style and empowering division managers.
1st company to introduce computer inventory management systems and
engineering process.
Sophisticated in purchasing, sales and management and beat competition
by its design effort.
New technologies to lower operating cost.
Environment Friendly Technology
It used Hismelt process to produce iron from iron ore with less energy
and pollution, actually reducing the greenhouse emissions and costs.
It took care of environmental friendliness, worker safety, and its
contribution to the community.
World Ranking top steel producers - 2009
Rank Company mmt Rank Company mmt
1 ArcelorMittal 77.5 26 Hyundai 8.4
2 Baosteel 31.3 27 CELSA 7.8
3 POSCO 31.1 28 Metinvest 7.4
4 Nippon Steel (1) 26.5 29 Techint 6.9
5 JFE 25.8 30 Erdemir 6.5
6 Jiangsu Shagang (2) 20.5 31 Metalloinvest 6.5
7 Tata Steel (3) 20.5 32 Kobe 5.9
8 Ansteel 20.1 33 Usiminas 5.6
9 Severstal 16.7 34 JSW 5.5 10 Evraz 15.3 35 Essar 5.5
11 U.S. Steel 15.2 36 voestalpine (7) 5.5
12 Shougang (4) 15.1 37 Salzgitter (5) 4.9
13 Gerdau 14.2 38 Hadeed 4.8
14 Nucor 14.0 39 BlueScope 4.6
15 Wuhan 13.7 40 CSN 4.4 16 SAIL 13.5 41 Ezz 3.9 17 Handan 12.0 42 SSAB 3.6 18 Riva 11.3 43 Sidor 3.1
19 Sumitomo 11.0 44 Duferco 3.1
20 tdyssenKrupp (5) 11.0 45 Nisshin 3.1
21 Novolipetsk (6) 10.9 46 Vizag 3.0
22 IMIDRO 10.6 47 CMC 3.0
23 Magnitogorsk 9.6 48 AHMSA 3.0
24 China Steel 8.9 49 Dongkuk 3.0
25 Laiwu 8.9
Source: www.worldsteel.org
Perceptual Map
On a global scale there is an excess capacity of steel production and
dumping of steel in the USA, which diminishes profit.
Industry environment was volatile, due to economic recession and the
weakening dollar, Nucor Steel faced uncertain environment.
Another problem they face is lack of innovation of technology in the fast
paced markets.
Main Problems
Financial Growth
Source: www.worldsteel.orgStock Price: $38.09 as per July 16, 2010
Mission Statement
‘TAKE CARE OF OUR CUSTOMERS ’
Porter’s Five Forces Analysis of Steel Industry in the United States of America
Bargaining Power of Suppliers
Bargaining Power of
Buyers
Threat of Substitutes
Threat of new entrants
Internal rivalry within Industry
Bargaining Power of Buyer’s
With an increase in domestic
competition in steel sector in the USA,
the options for buyers are on a rise.
Low Product Differentiation.
Switching costs is low.
Buyers buying in large scale posses
strong negotiating power.Buyer’s Market !!!
Bargaining Power of Supplier’s
Scarcity of raw-materials
like steel shreds, iron ore,
coke, recycled steel.
Few Suppliers.
Most of the raw-materials
are imported.Cost strategy drives Joint ventures, Mergers and Acquisitions
between suppliers and manufactures !!!
Major players in the United States of America
Major M&A involving foreign partner
Internal Rivalry
Domestic market – more than
20 players.
Intense rivalry – Price wars.
No differentiated product.
Joint ventures helps in driving
economies of scale.
Low fixed manufacturing cost is the key !!!
Threat of Substitutes
No primary substitutes.
Secondary substitutes:
aluminium, plastic and
wood.
Continuous high demand for Steel !!!
Threat of New Entrants
Barriers to entry for Domestic entrants:
Low access to raw-materials.
Difficult to achieve economies
of scale. Lack of product
differentiation.
Huge capital requirements.
Opportunity for big international Steel Companies
to enter the USA market !!!
Porter’s Five Forces Analysis of Steel Industry in the United States of America
Bargaining Power of Suppliers
Bargaining Power of
Buyers
Threat of Substitutes
Threat of new entrants
Internal rivalry within Industry
Few suppliers.Mostly raw materials are imported.
Product differentiation, access to raw-materials, economies of scale and capital requirements are biggest barriers to entry for Domestic market.
Low switching costs for Buyer . Low product differentiation.
Few substitutes like Plastic, woods and other metals like Aluminium, but can not be compared with Steel’s durability and robustness.
Other Determinants:Low Government ‘s regulations in domestic market, high barrier for international entrants. Economy Slowdown
Intense Rivalry between Domestic Companies leading to Price Wars.
Domestic market:
Buyer power (High)
Supplier power (High)
Internal rivalry (High)
Threat from Substitutes
(Low)
Threat of new entrants (Low)
Porter’s Five Forces Analysis of Steel Industry in the United States of America
Unattractive Industry
With advance of Globalization,
and economy regaining
momentum, steel industry is
once again looking attractive.
There is huge demand for Steel.
Porter’s Five Forces Analysis of Steel Industry in the United States of America
Attractive Industry for Foreign Players
PESTEL Analysis
LegalEnvironment
Technological
Socio-culturalEconomical
Political
Organization
Political and Legislative Analysis
Anti Dumping Law :
U.S imposed countervailing duties and anti-dumping duties.
Laws were opposed by many European countries and WTO.
SOX Act :
To increase the transparency of the USA accounting standards.
To increase the responsibility of corporate office and board members.
The costs of compliance is quite high approx $3.4 million per company.
Long-term benefits of compliance: creating high barrier to entry, jeopardizes
bought up / take over and will also increase investor confidence in U.S
financial markets.
Economical Analysis
The steel industry is cyclical.
Heavy reliance upon economic growth in construction and infrastructure.
Prolonged slowdowns and economic recession have a direct impact on Nucor.
The weak dollar has provided a great opportunity for steel companies to
export. But Nucor does not have a global market to exploit.
This competitive dollar has also led towards more foreign investment across
the US steel market. This has become a threat to the US steel industry.
Social Analysis
Nucor’s employment policy and community positioning
is one that is very key to its success.
Nucor targets small rural towns in order to have a very
loyal community base.
The increasing age of baby-boomer’s has led to a
nationwide decrease in blue collar workers.
Students feel lack of social status while taking blue collar
workers.
Technical Analysis
The U.S. steel industry is heavily influenced by global development
Nucor was the first mover in adopting the new technologies in the U.S market.
Nucor used the mini-mill method to create steel, which has led towards an
industry revolution.
Nucor implemented a new information technology infrastructure that would
integrate all the planning, production, and order fulfillment aspects of the
business process. New computer systems have also been developed and
implemented to precisely control the quality of the steel produced.
Environmental Analysis
Nucor is ahead of the pack when it comes to being environmentally
friendly in the steel industry.
Nucor complied with the EPA adding 85 million pollution controls to its
14 plants.
Environmental Protection Agency found Nucor guilty of failing to curb
pollution and improperly disposing of hazardous waste. They also paid a
9 million dollar fine
The issues was handled with the EPA effectively and both Nucor and the
EPA showed excitement for the new technology.
SWOT Analysis
Industry leader in innovation and
minimization of pollution and
production cost.
Strong financial position.
Calculated risk taking culture.
Customers sharing their product
or business roadmap with Nucor.
STRENGTHS:
SWOT Analysis
WEAKNESS:
Nucor highly depends on the
United States domestic markets.
No diversification.
Lack of R&D.
Declining market share.
Environmental issues.
SWOT Analysis
Expansion in the USA market
through M&A.
Entry in Asia & Europe markets
through joint-ventures.
Innovate and reduce costs with
improvements in R&D.
OPORTUNITIES:
SWOT Analysis
THREATS:
Rising raw material and labor costs.
Rising debt to equity ratios.
Weak Government regulations
allowing dumping of steel by China.
Invasion of the USA domestic
market by foreign players.
Internal Analysis – Value Chain
Internal Analysis – Value Chain
Inbound Logistics
Primary logistics - Scrap Metal and Electricity.
Backward integration with David J. Joseph
Company.
2000+ rail cars for transportation of raw
materials.
Increasing energy prices by 105% in 2001.
Decreased energy consumption by 91%
through innovation - Mini-mill and Castrip .
Inbound Logistics
Lean management process and highly
motivated, productive and innovative
workforce.
Excellent inventory management processes
along with reduction of cist, waste and
pollution.
Lack of utilization of by-products
Production
Lean management process and highly
motivated, productive and innovative
workforce.
Excellent inventory management processes
along with reduction of cist, waste and
pollution.
Lack of utilization of by-products
Outbound Logistics
150-truck fleet for distribution of products
Production plants near customer locations but
restricted only to US
Shipment within 1.5 days anywhere in US
Market coverage with 14 steel plants in US
In-house shipping enables quick and on-time
delivery
But questionable when Nucor expands its
global presence.
Sales and Marketing
Sales to proximity customers and focus on long-term
relationships.
Market itself as environmental friendly and worker
safety product
Service to the community and compliant to
environment regulations
Insufficient research on predicting demand
Frequent and extensive market research to be done due
to cyclical demand conditions
VRIO Analysis
Issues & Problems
ISSUES
Nucor highly depends on US
markets.
Less R&D.
Declining market share.
Growing competition in
industry.
Cyclical demand.
PROBLEMS
Dumping of steel into US market.
Emergence of foreign players in the
USA.
Rising raw material costs.
Minimal management system creating
communication barriers.
Strict regulations of pollutants by E.P.A.
Recommendations
Recommendations
HR strategy to maintain strong leadership,
motivate workforce and foster innovation.
Streamline/coordinate purchasing, sales and
marketing activities.
To start and grow internal research and development (R&D)
Look for cost-effective, environmental friendly and productive manufacturing.
Turn waste and by-products into energy and re-usable products for other industries.
To identify new products matching customer future and current needs.
To identify alternative raw materials and reduce dependability on scrap metal.
Recommendations
Expand international presence through M&A
and JV with local partners in Asia, Europe and
South America, specially India, China and
Brazil.
Build long term relationship with customers by understanding their product and
business roadmaps.
Reduce impact of cyclical demand.
Determine products to be eliminated.
Tailor Nucor pre and after sales services based on customers’ need and expectation.
Strategic Fit
Strategic Fit
“Mission Invasion”
VS
“Mission Internal”
Strategic Fit
“Mission Invasion” “Mission Internal”
Benefits • Lower production costs
• Better relationships with
foreign nations
• Increased Profits
• Potential for innovative
methods
• Enter “BRIC” countries
• Lower production costs
• Increase throughput
• Hedge company for growth,
• Could move Nucor into top
position in U.S. market
Negatives• Damaging current
relationships with joint
ventures
• Could make supplier
bargaining power stronger
• Extremely high costs of new
technology
• May not achieve desired results
• Difficult to implement in old
mills
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