Corporate strategy case on Nucor Corporation
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Corporate strategy case on Nucor Corporation
- 1. MGT 711- Corporate Strategy, Fall 2018, EMBA Program, BRAC Business School Nucor Corporation in 2014 Combating Low-Cost Foreign Imports and Depressed Market Demand for Steel Products Group 3
- 2. Rohul Amin 11174012 Aktaruzzaman 16274022 Monjori Monica Drong 17374024 Dabasish Saha 17174014 Siddiquzzaman 16174006 Group 3 - Members
- 3. Agenda …….
- 4. Company Overview & Background Nucor is the United States’ largest steel manufacturer, and the nation’s largest recycler Rated 26 on Forbes' Best Companies to Work For list - 2016 Founded in 1904– by Ransom Eli Olds (REO Motor Car Company) Strategic realignment around the Vulcraft steel joists division (1965 – 1966) Expansion in steel joists, and the introduction of minimills (1966 – 1970) Rapid growth in steel production and fabrication (1970 – 1986) Expansion of product line (1986 – 1996) Moving forward with new leadership (1996 – 2006)
- 6. Market Price – Low Cost Advanced Technology Plant Efficiency Employee Satisfaction Cut Costs – Even Higher Management Nucor’s Strategic and Financial Objectives Increase market share to become the largest steel producer in the US Lead the industry in technological innovation Expand steel production though new acquisition and plant upgrades From joint venture to expand globally Reduce input cost though vertical integration of raw materials production Develop a wide range of value-added products Objective to deliver improved returns at every point in the economic cycle Higher than highs-higher returns during good times Higher than lows-higher return during bad times, (Compared to the competitions in the market) Low Cost Producer
- 7. Diversification Strategy Nucor’s acquisition straighten their position as North America’s most diversified producer of steel & steel products Diversity=Increased profitability & market share in multiple product 2001 Acquisition of Itec Steel Inc, & subsidiary: steel truss & Frame Corp. Provides /a platform for Nucor to rapidly expand in a emerging load bearing gauge steel framing industry This acquisition fits Nucor’s strategy & will further broaden its product diversification
- 8. ExternalEnvironment Porter’s Five Forces Analysis • Increase in domestic competition • Low Product Differentiation. • Low switching costs. • Large scale negotiating power. • Globally, the top three mining giants BHP Billiton, CVRD and Rio Tinto supply nearly two-thirds of the processed iron ore to steel mills and command very high bargaining power. • Buyers have increased choice in material selection (aluminum, plastics, ceramics, etc.) • New materials technologies may increase substitute pressure • High barriers to entry • Low numbers of entry candidates • Incumbents have the ability to block • Growth and profitability are modest • Weak domestic demand • Excess global capacity • Maturing industry • Low switching costs • High exit barriers • Rising cost conditions
- 9. ExternalEnvironment PESTEL Analysis + - P Anti Dumping Duty Protects jobs & domestic companies from unfair competition Affects business revenue & profit shares E Economic Recession Provided an opportunity to acquire troubles companies growth Continuous pressure from environment groups S Pressure to be Green 1/10th the greenhouse gases vs competitors in the steel industry T Technology 1969: mini mill, Electric Arc Furnace, Thin –slab casting, Micro mill, Castrip Ultra-Thin cast steel E Pollution/ Recyclizing Responsible attitude has attracted new customer to buy ethically derived products L Tariffs Devastating impact on US trade if steel tariffs are removed
- 10. Financial Analysis InternalEnvironment ROIC Performance EPS Financial Strength (Cash From Operation)
- 11. InternalEnvironment Financial Analysis (Highlights 2014) Financial Highlights Liquidity/Financial Health Ratio Profitability Ratio
- 12. InternalEnvironment Competitive Strength Assessment KSF Weight Strength Rating Nucor’s Wight Strength Rating Us Steel Weight Strength Rating Baosteel Weight Innovation .20 10 2.00 5 1.00 3 0.60 Low Cost .15 5 0.75 6 0.90 9 1.35 Acquisition .05 9 0.45 6 0.30 3 0.15 Market Coverage .15 5 0.75 9 1.35 5 0.75 Product Breath .17 10 1.70 5 0.85 6 1.02 Distribution .13 5 0.65 9 1.17 5 0.65 Financial .10 8 0.80 7 0.70 10 1.00 Sum of Weight .17 Total Rating 1.00 7.10 6.27 5.52
- 13. InternalEnvironment VRIN Testing Resources Is it valuable Is it rare Is it hard to imitate Is it non substitutable Competitive consequences Performance implication Corporate culture Y Y Y Y Sustainable Above average to average return Technology & Innovation Y Y Y N Temporary Above average to average return Operational Y Y N N Temporary Above average to average return Low Cost & Innovation Y Y Y N Temporary Above average to average return
- 14. InternalEnvironment Value Chain Analysis Supply chain management -Purchasing scrap material and other inputs at low cost -Backward integration to supply raw materials -Relocating operations close to energy source Operations -Manufacturing Steel product of high value to customer at low cost -Investing in efficient Technology (eg. electronic arc furnace thin slab casting) -Acquiring new facilities -Continually improving production Sales & Marketing -Selling and marketing Steel products through and in house sales team -Signing short long term contract with customer that include price adjustment -Establishing joint venture to access for and Markets -Relocating operation close to market Distributing -Delivering Steel products on time to wide variety of customer -Changing customers for shipments -Relocating operation close to market and efficient shipping and rail car route Service -Responding to customers promptly -Providing quality service to tailored to needs of customer at each facility
- 15. InternalEnvironment SWOT Analysis S - W O - T• Intense competition • Aggressive rivals • Environmental compliance • Rising prices for scrap steel • Backward linkage • Strategic acquisitions (11 acquisition) and expansions • Joint Ventures into growing markets (4 joint Venture) • Partnerships with the energy providers • Depressed prices for steel products • Too much dependency on US market • Capital investment and maintenance • They don’t do their own R&D • Leading in Position from 1966 • 9 different & Diversified product line • Unique management philosophy • Adoption of new technology to improve productivity
- 16. Is Nucor’s Strategy Winner Fit Test Competitive Advantage Test Performance Test Low Cost -Increased Market Share -High Profit Margin Acquisition Gain Market Share Innovation & Sound Management -1968 Darling Mill was one of the first plants of major size in U.S -Posted a dividend for 156 straight quarters Lower Production Cost -Low cost per ton produced(allowed them to compete with foreign manufacturers Mission-Highest Quality -Nucor Corporation Honored by Volkswagen as a Best Supplier -Most Productive 60% of steel in the U.S. is made in EAF (By Nucor)
- 17. Recommendation (Against Five forces, Weakness & Threat) Against Weakness & Threat -Pursue the strategy of Market Development in expanding into the international market (Such as India) -Nucor should look for joint venture which will avoid political risk, potentially allows access to new technology -Develop own R&D -Continue aggressive acquisition strategy -Nucor should consider the external factor (culture gap, local policy) Tackle Bargaining Power of the Suppliers -By building efficient supply chain -By experimenting with product designs using different materials -By developing dedicated suppliers Tackle the Bargaining Power of Buyers -By building a large base of customers. -By rapidly innovating new products. Tackle the Treat of Substitute Products / Services -By being service oriented rather -By understanding the core need of the customer rather -By Increasing the switching cost for the customers. Tackle Intense Rivalry -By building a sustainable differentiation -By building scale so that it can compete better -Collaborating with competitors
- 18. Thank you for your time
Editor's Notes
- Assalamulaikum and welcome you all to our group 3 presentation. We are going to go through pretty much same stuff as all have gone through so far. Probably we wouldn’t be able demonstrate as we should due to very short time of study and off course along without day to day professional task. However, it was obviously very inspiring case study as we were studding this case within very short time, we have found that Nucor corporation is of one of the fastest growing company which has been a pioneer fast growing. Before we jump into case demonstrate, lets once again introducing you to our group member again
- So here we are the 5 member group, unfortunately Monjori appo is not here. We 4 will be coving all the slide. Including the contents
- ………………Read Contents-I myself going to kick off with company background and strategy
- in 2014 Nucor Corporation with production capacity approaching 27 million tons was the largest manufacturer of Steel and steel products in North America and ranked as the 14th largest steel production company in the world It was regarded as a low cost producer and it had global a leader of introducing innovative still making Technologies through out its operation. Nucor began its journey as a steel industry leader in 1960 operating under the name of Nuclear Corporation Of America in 1950 and early 1960 the company was a maker of nuclear instrument and electronic product. After suffering though several money losing years and facing bankruptcy 1964, they have decided to exit nuclear instrument and electronics business and rebuild the company 1972 naming under Nucor corporation and start producing steel. By 1985 Nucor had become the 7th largest steel company in north America and by 2000 Nucor was the second largest in USA
- Mission "Nucor Corporation is made up of approximately 20,000 teammates whose goal is to "Take Care of Our Customers." We are accomplishing this by being the safest, highest quality, lowest cost, most productive and most profitable steel and steel products company in the world. We are committed to doing this while being cultural and environmental stewards in our communities where we live and work. We are succeeding by working together. "
- The strategy of resource based view is to productive strategy
- The pie chart below shows the diversity of product mix by total tons sold to outside customers in 2014. They are the North America’s most diversified steel producer. Since 2009 they have made investments of nearly $6 billion on projects that are not only diversifying their product offerings but also the markets that they serve. These investments will grow our long-term earnings power by expanding of product portfolio into higher value-added offerings that are less vulnerable to imports, improving the cost structure and further building upon our market leadership positions.
- Threat of Entry is Low High barriers to entry, Low numbers of entry and have the ability to block Growth and profitability Bargaining Power of Suppliers Globally, the top three mining giants BHP Billiton, CVRD and Rio Tinto supply nearly two-thirds of the processed iron ore to steel mills and command very high bargaining power Bargaining Power of Buyers 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. And also Buyers buying in large scale posses strong negotiating power. We also see the Rivalry Intensity is High As the domestic demand is Weak domestic demand Maturing industry as well the High exit barriers Threat of Substitutes is Moderate Buyers have increased choice in material selection as well as New materials technologies may increase substitute pressure
- As we can see the net earning table Nucor had earned a profit in every quarter of every ear since 1966- a truly remarkable accomplishment in a mature and cyclical business. However The company had 2013 revenue of $19.1 billion and net profit of $488 million well bellow of peak in 2008 23.7 million. As well as they had misery situation during 2009-2010 when Steel industry in USA was deep downturn. That’s why if we look at return on invested capital on the right graph we can see the due to great recession it has fallen apart. Which also shown on the below graph of Earning per share, where pick record in 20018 However, if you look at Financial Strength (Cash From Operation) the average cyclical recorded ’09-’13 $1.1 Billion compare to $ 495 million from 2001-2003, Now lets have look they performance in 2014
- Where we see Nucor had a much improved year financially in 2014, earning $713.9 million, an increase of 46% over 2013 earnings of $488.0 million. Consolidated net sales increased 11% to $21.11 billion compared with $19.05 billion in 2013. Total tons shipped to outside customers increased by 7% over 2013. In the 41 years since Nucor began paying dividends, the Board of Directors has elected to increase the base cash dividend every year. We can see the these performance of reflection both graph
- VRIN Analysis There resource or capability is competitively valuable. They have production capacity of 27 million tons and were the largest steel manufacturer in North America. The resources are not rare and not inimitable. The rivals were offering wide range of products and their facilities were considered to be modern and efficient. So the resource is substitutable.
- Leading Market Position in North America Diversified and balanced product mix Performance is not tied to any one steel market due to their product line diversity Unique Management Philosophy Their management policy is so unique than any other competitor and they also has Strong and efficient Administration And they also continuously adopting with the new technology Weakness Depressed prices for steel products Currently depressed prices for steel products have cut deeply into Nucor’s profit margins, thus weakening company cash flows and working capital and limiting the funds available to finance new acquisitions. Too much dependency on US Market There is a lack of market diversification as it derives most of its revenue from the US. This exposes them to the fluctuation in the US economy as demand for steel will decrease when the economy slacken and they would not have an alternative avenue to derive their revenue. Capital investment and maintenance expenditures The company's operations are capital intensive. The business also requires substantial expenditures for routine maintenance. High capital investments and maintenance expenditures would reduce the revenues of the business. And they also don’t do their own R&D …………………………………………………………………………………………. Opportunity Strategic acquisitions and expansions The onslaught of cheap steel imports is driving many inefficient US steel makers into bankruptcy. This represents an opportunity for Nucor to expand through acquisition Joint Ventures into developing and growing markets A joint venture with JFE Steel for instance Corporation of Japan to build a plant in central Mexico to supply that country’s growing automotive market. Partnerships with the energy providers Nucor’s long-term agreement with Encana Oil & Gas (USA) Inc. that will ensure a reliable, low cost supply of natural gas for Nucor's existing and expected future needs for more than 20 years. …………………………………………. Threat - Now lets, talk about threat, Well- Nucor is the standout performer in the U.S. steel industry during the past 35+ years—no other company in the U.S. industry can come close to matching Nucor’s achievements (but certainly the rapid climb of few Steel in the past 5 years is also a very impressive ). Here are some highlighted threat we are about to capture that they can workout with … Intense competition Nucor faces strong competition from other steel producers and imports that compete with the products on price and service. The steel markets are highly competitive and a number of firms, domestic and foreign, participate in the steel and raw materials markets. Aggressive rivals (like Mittal Steel) become much more proficient in cutting their costs at existing steel mills and/or acquire cost-efficient steel-making assets that improve their competitiveness vis-à-vis Nucor. Environmental compliance The operations are subject to numerous federal, state and local laws and regulations relating to protection of the environment Rising prices for scrap steel (could cut deep into Nucor’s profi t margins) .
- Nucor is way forward in terms of competitive advantage, that’s way we though they have won in the competitive performance test, one of their strategy was low cost which allow to increased market share and profit as well as the acquisition strategy also let them gaining huge market share.
- How Nucor Corporation can tackle Bargaining Power of the Suppliers By building efficient supply chain with multiple suppliers. By experimenting with product designs using different materials so that if the prices go up of one raw material then company can shift to another. Developing dedicated suppliers whose business depends upon the firm. One of the lessons Nucor Corporation can learn from Wal-Mart and Nike is how these companies developed third party manufacturers whose business solely depends on them thus creating a scenario where these third party manufacturers have significantly less bargaining power compare to Wal-Mart and Nike How Nucor Corporation can tackle the Bargaining Power of Buyers By building a large base of customers. This will be helpful in two ways. It will reduce the bargaining power of the buyers plus it will provide an opportunity to the firm to streamline its sales and production process. By rapidly innovating new products. Customers often seek discounts and offerings on established products so if Nucor Corporation keep on coming up with new products then it can limit the bargaining power of buyers. New products will also reduce the defection of existing customers of Nucor Corporation to its competitors. How Nucor Corporation can tackle the Treat of Substitute Products / Services By being service oriented rather than just product oriented. By understanding the core need of the customer rather than what the customer is buying. By increasing the switching cost for the customers. How Nucor Corporation can tackle Intense Rivalry among the Existing Competitors in Steel & Iron industry By building a sustainable differentiation By building scale so that it can compete better Collaborating with competitors to increase the market size rather than just competing for small market the local market has become saturated and has become less attractive for Nucor to operate I will recommend that the firm pursue the strategy of Market Development in the expanding into the international markets. Such as the expansion by acquiring a steel maker with significance presence in India. This is due to its proximity to Middle East, the center of a construction boom due to profit from oil sales