Strategic Analysis of Nucor Steel Industry in 2010
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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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Strategic Analysis of Nucor Steel Industry in 2010
- 2. NUCOR
- 3. OverviewofAnalysis Snapshot of Nucor Porter 5 forces Value Chain Analysis PESTEL Analysis SWOT Analysis Problem & Recommendation
- 7. Headquartered: In Charlotte, North Carolina
- 9. Slow Demand for Steel
- 14. Organization Structure Decentralized Corporate Centered Chairman Plant Manager Department Manager Supervisor
- 15. Integrated Strategy RBV + IO Model
- 19. Efficient Inventory Management SystemCapabilities Resources
- 23. Benchmarked organizational style and empowering division managers.
- 24. 1st company to introduce computer inventory management systems and engineering process.
- 25. Sophisticated in purchasing, sales and management and beat competition by its design effort.
- 28. Perceptual Map
- 31. Industry environment was volatile, due to economic recession and the weakening dollar, Nucor Steel faced uncertain environment.
- 33. MissionStatement âTAKE CARE OF OUR CUSTOMERSÂ â
- 34. Porterâs Five Forces Analysis of Steel Industry in the United States of America Threat of new entrants Bargaining Power of Suppliers Bargaining Power of Buyers Internal rivalry within Industry Threat of Substitutes
- 37. Switching costs is low.
- 38. Buyers buying in large scale posses strong negotiating power.Buyerâs Market !!!
- 40. Few Suppliers.
- 41. Most of the raw-materials are imported.Cost strategy drives Joint ventures, Mergers and Acquisitions between suppliers and manufactures !!!
- 42. Major players in the United States of America Major M&A involving foreign partner
- 44. Intense rivalry â Price wars.
- 46. Joint ventures helps in driving economies of scale.Low fixed manufacturing cost is the key !!!
- 48. Secondary substitutes: aluminium, plastic and wood.Continuous high demand for Steel !!!
- 50. Difficult to achieve economies of scale.
- 51. Lack of product differentiation.
- 52. Huge capital requirements.Opportunity for big international Steel Companies to enter the USA market !!!
- 53. Porterâs Five Forces Analysis of Steel Industry in the United States of America Product differentiation, access to raw-materials, economies of scale and capital requirements are biggest barriers to entry for Domestic market. Threat of new entrants Bargaining Power of Buyers Bargaining Power of Suppliers Few suppliers. Mostly raw materials are imported. Low switching costs for Buyer . Low product differentiation. Internal rivalry within Industry Intense Rivalry between Domestic Companies leading to Price Wars. Other Determinants: Low Government âs regulations in domestic market, high barrier for international entrants. Economy Slowdown Few substitutes like Plastic, woods and other metals like Aluminium, but can not be compared with Steelâs durability and robustness. Threat of Substitutes
- 57. Threat from Substitutes (Low)
- 58. Threat of new entrants (Low)Unattractive Industry
- 60. There is huge demand for Steel.Attractive Industry for Foreign Players
- 61. PESTEL Analysis Environment Technological Socio-cultural Economical Political Legal Organization
- 63. U.S imposed countervailing duties and anti-dumping duties.
- 64. Laws were opposed by many European countries and WTO.
- 65. SOX Act :
- 66. To increase the transparency of the USA accounting standards.
- 67. To increase the responsibility of corporate office and board members.
- 68. The costs of compliance is quite high approx $3.4 million per company.
- 70. Heavy reliance upon economic growth in construction and infrastructure.
- 71. Prolonged slowdowns and economic recession have a direct impact on Nucor.
- 72. The weak dollar has provided a great opportunity for steel companies to export. But Nucor does not have a global market to exploit.
- 74. Nucor targets small rural towns in order to have a very loyal community base.
- 75. The increasing age of baby-boomerâs has led to a nationwide decrease in blue collar workers.
- 77. Nucor was the first mover in adopting the new technologies in the U.S market.
- 78. Nucor used the mini-mill method to create steel, which has led towards an industry revolution.
- 80. Nucor complied with the EPA adding 85 million pollution controls to its 14 plants.
- 81. 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
- 85. Calculated risk taking culture.
- 88. Lack of R&D.
- 91. Entry in Asia & Europe markets through joint-ventures.
- 93. Rising debt to equity ratios.
- 94. Weak Government regulations allowing dumping of steel by China.
- 96. Internal Analysis â Value Chain
- 98. Backward integration with David J. Joseph Company.
- 99. 2000+ rail cars for transportation of raw materials.
- 100. Increasing energy prices by 105% in 2001.
- 102. Excellent inventory management processes along with reduction of cist, waste and pollution.
- 104. Excellent inventory management processes along with reduction of cist, waste and pollution.
- 106. Production plants near customer locations but restricted only to US
- 107. Shipment within 1.5 days anywhere in US
- 108. Market coverage with 14 steel plants in US
- 109. In-house shipping enables quick and on-time delivery
- 111. Market itself as environmental friendly and worker safety product
- 112. Service to the community and compliant to environment regulations
- 113. Insufficient research on predicting demand
- 115. Issues & Problems
- 117. Less R&D.
- 119. Growing competition in industry.
- 121. Emergence of foreign players in the USA.
- 122. Rising raw material costs.
- 123. Minimal management system creating communication barriers.
- 126. Streamline/coordinate purchasing, sales and marketing activities.
- 127. To start and grow internal research and development (R&D)
- 128. Look for cost-effective, environmental friendly and productive manufacturing.
- 129. Turn waste and by-products into energy and re-usable products for other industries.
- 130. To identify new products matching customer future and current needs.
- 132. Reduce impact of cyclical demand.
- 133. Determine products to be eliminated.
- 134. Tailor Nucor pre and after sales services based on customersâ need and expectation.
- 136. Strategic Fit âMission Invasionâ âMission Internalâ VS
- 137. Strategic Fit
Editor's Notes
- The bargaining power of buyers is high due to various factors. First, there is intense battle in the domestic market with more than 20 players with US Steel, Nucor,Gerdau leading from the frontâŠ. Thus providing lot of options for Buyerâs as these battle out the Price war.Second, there is low level of product differentiation and switching cost for buyers is also very low. Competition is basically on price. Third, there is a cyclical demand for steel, and as such there tend to be (sometimes) oversupply and this gives additional bargaining power to buyers. Moreover, Buyers buying in large scale posses strong negotiating power.Thus itâs a Buyerâs market!!!!
- Bargaining power of suppliers is also high.Firstly due to scarcity of raw materials especially scrap metals whereby suppliers are raising the price. Secondly, there are only few suppliers.Thirdly, most of the raw materials are imported from China and European countries.So Companies strive for cost leadership strategy to earn economies of scale and as such are in lookout for JV, M&A with suppliers.For example â 1. Early in Marchâ 2010 â Nucor announced a JV with Japanese Mitsui with 50% interest in a newly created Company NuMit. Mitsui is a supplier of iron and steel products and raw materials.2. In 2007, Steel Dynamics acquired Omni Source Corporation â one of the countryâs largest ferrous scrap processors.
- Netherland based ArcellorMittal acquired ISG, which acquired the failing Bethelem steel.US Steel the #1 Steel producer for USA acquired Stelco CanadaJapanese Nippon of course acquired ran a JV with US Corporation inland Steel way back in 1990.Nucor recently acquired Harris Steel group of Canada in 2007 to gain access to Canada market, however they had to shut some of the failing mills because of low demand during recession. There are news of Nucor Other big players include Gerdau, AK Steel, SeverstalâŠ
- As previously discussed, there is intense rivalry among domestic players leading to price wars.Moreover, as there are no differentiated products, low fixed manufacturing cost is the key.Ofcourse, JV with suppliers helps in driving economies of scale.
- There is no primary substitute of Steel.Although, at many places aluminium metal is increasingly used in place of steel but cannot replace steel because of the strength and power Steel possess. Apart, Plastic and wood are increasingly used to reduce cost, but again cannot replace steel because of Steelâs robustness and durability.As such, there is still a huge demand for Steel, whether its for Aircraft industry, or automobiles or building infrastructure or simply royal watchesâŠ.
- Threat of New Entrants is actually low for Domestic players because of the barrier to entry created by 4 factors:Low access to raw materialsDifficult to achieve economies of scale.Lack of Product differentiation.Huge capital requirements.However, these does not apply to big International players who have cheap access to raw-materials, huge capital. The only threat for foreign players comes from the USA Government regulations.
- To sum up â we see low threats from Substitutes and new entrants.High bargaining power of buyers and suppliers, with high internal rivalry leading to Price wars.
- Although there is low threat of substitutes, and new entrants with high demand of Steel â Steel Industry is still an unattractive industry.This is mainly because of Few Suppliers with scarcity of raw-materials â this is the biggest concern for Steel industry in the USA.With intense rivalry and bargaining power of buyer with no product differentiation is leading to Price wars and Cost Leadership strategy for Domestic companies.
- Further, the global steel industry was hit hard by the recession, which had cut demand for steel used in construction, the auto and appliance industries and the capital goods sector.With advance of Globalization, and economy regaining momentum, steel industry is once again looking attractive.Already we have seen ISG (International Steel Group) was acquired by ArcellorMittal.Once again economy is opening up and demand for steel is rising after the economy slowdown during Global Financial crisis.So, it is expected to see other Asian and European Steel companies to eye on American market. However, it is highly recommended for Nucor to acquire and expand its presence rather than sitting idle waiting for someone to pick.