CarolynHi, my name is Carolyn, and this is Daniel, Stella, and Karl.We’re here today to introduce to you Baosteel and the suggestions we have for this company in order for to achieve its goals of becoming a more successful and green steel enterprise.Citationshttp://www.life.com/image/73002616http://www.baosteel.com/group_e/index.asp
CarolynOur agenda for today is to first give an overview of Baosteel, which will include a brief history, and introduction to its organizational culture, values, products, and business environment. Following that will be the issues we find that Baosteel faces, objectives and strategies that recommend for the company to undergo, and a timeline for implementing these strategies. Lastly, there will be a question and answer period for any inquiries. Now I will pass it off to Daniel who will talk about the history of Baosteel…
Daniel1978: Founded due the introduction of economic reforms by the Chinese government. China needed more infrastructure, and cheaper to product locally than to import. Slowly grew over this period (in line with China’s GDP).1997: Asian Financial Crisis caused a lot of smaller companies to struggle and become very vulnerable. BaoSteel took advantage of this and bought some of them out, leading to their expansion and prosperous period.Present Day: Bao Steel is the 2nd largest Steel producer in China. They face a number of problems however, as we will highlight later…
Stella:The corporation culture plays a significant role in Baosteel’s business practice and its corporate development. The company sticks to principles of improving competitiveness through technology innovation. It believes the most advanced technology is the key to the future business success. Baosteel thus focuses on developing new steel products and perfecting its R&D system by increasing investment in innovation, optimizing decision-making and policy orientation. The workers it hires are all college-graduates who are highly educated and innovative. The company possesses good faith and sprit of strictness, which enable them to strive for the first-class target and produce premium products in the world market.
Carolyn: Here you can see a quite recent report on Baosteel’s rankings for proactive sustainability and environmental awareness within China. The rankings include 29 of China’s largest corporations--Lenovo Group, China mobile, China construction bank, etc. are all on the list. As you can see, Baosteel places 3rd out of these 29 corporations, and was given the grade of A- by a Californian university and SynTao Sustainability Solutions that conducted this report, based on Pacific Sustainability Index scores. This is quite impressive considering the nature of the Baosteel Group being one of metal extraction, an industry that is notoriously recognized for polluting the environment. After approximately the 10th corporation in, the grades are not exactly to the highest calibre (below the D+ range), indicating how many corporations in China are not quite yet putting sustainability and the environment up there as one of their top priorities. Of these corporations, 11 of them having received failing grades in this field. It is a part of Baosteel culture that they be first-class performers in every aspect, and their current goal is to become a first-class green steel enterprise.
Carolyn:Here is a visual representation of theBaosteel Group and its involvement with the environment and social aspects to its business. It scores extremely well under environmental intent, and moderately well in the other categories. Environmental intent scores include topics about the firm’s environmental vision and commitment, environmental policy and certifications, environmental aspects and impacts, choice of environmental, performance indicators and those used by the industry, environmental initiatives and mitigations, and environmental goals and targets. For instance, in 2007, Baosteel
DanielPosco: Korean firm, in Joint venture with US firm. Have many clients in China (affecting domestic sales), although smaller international reach.Nippon: Largeexporter in Japan, exports triple that of BaoSteel (~10mmt)Arcelor: Huge International reach, making it very hard for BaoSteel to compete in the international market.
CarolynThese are the issues or constraints that we find that Baosteel faces: dealing with the current socio-economical trend of going green, volatilities in pricing (such as the iron ore pricing negotiations and the effects of a slowly rising RMB), and government intervention (as Baosteel is a state-owned enterprise).
CarolynAs afore-mentioned, the steel industry is not an environmentally-friendly one to begin with, traditionally viewed as an industry pertaining to “high pollution and high consumption”. Baosteel’s organizational culture and mentality embodies high-class attitudes towards any goals and ambitions undertaken, which is also evident in its policy of only hiring university graduates. The current socio-economic trend is to go green, to be environmentally friendly, and to be sustainable, which Baosteel is currently trying to follow, with the hopes of becoming a first-class green steel enterprise in the near-future. With these values, Baosteel wishes to express itself as a successful enterprise of high calibre that makes well thought out, long-term decisions, with many more years to come in this business. Successful so far, it has ranked very highly in Environmental Intent according to PSI standards and has been rewarded (very recently) the Shanghai 2010 Excessive Pollution Reduction Award for its commendable efforts in reducing 1600 tonnes of sulphur dioxide from entering the atmosphere. Sulphur dioxide is the important in measuring and defining whether the atmosphere is polluted. The emission of sulphur dioxide is seriously controlled in steel corporations. Recently, Baosteel Co Ltd has committed to sulphur dioxide pollution reduction by building up desulphurizing system subsequently in No 1 and No 2 lines of electric power plant and No 3 sintering machine.
As you can see here, Baosteel requires a lot of energy and raw material consumption in order to make its products and keep its business running.http://www.baosteel.com/group_e/03management/ShowArticle.asp?ArticleID=1420
Carolyn:Baosteel has invested in lots of large, heavy, and costly machinery in order to produce its products. It can only compete to a low degree with new technology, and the strategic impact of existing technology systems is high. Therefore, Baosteel is categorized under Factory, meaning it is not so easy to keep up with and integrate new environmentally-sustaining technologies into the current systems. I will now pass it on to Stella to discuss the next issue…
Rising price of raw material (iron ore)A rising RMB? – external pressuresRising labour costs in China
Carolyn:With all the issues we have identified, we frame our solutions under two main objectives:1. to decrease negative socio-environmental externalities (inefficient energy consumption, pollution etc.) and2. to reduce the cost of production and raw material by 17.5both under a 5 year time period.
Carolyn:The 3 main strategies we have for sustainability are1. to prioritize the downstream expansion of supply chain management2. emphasize on research and development and3. emphasize on external hiringIt is reported that Baosteel Group is speeding up construction of its own fleet with a view to cut its seaborne freights.Shanghai Baosteel Shipping Co Ltd a subsidiary of Baosteel Resources Co Ltd signed agreements with Jiangsu East Heavy Industry Co Ltd and Fujian Guanhai Shipbuilding Industry Co Ltd on building of nine bulk carriers totally. The carriers will be delivered to their owner from 2011 through 2013.The move is an indication that Baosteel has been building its own fleet.
If one steel maker has a deal with one mining company, the price will be accepted by all (in the world universal pricing)Established in 2009
Baosteel net profits have decreased by 25.97%<br />The price for steel has decreased by 12% (From 4423 RMB to 3913 RMB per ton) due to global recession<br /> Government is requesting a decrease in steel production to increase the price of steel.<br />Current Crisis<br />
Premium products strategy<br />Innovation concept<br />Develop new steel products<br />Promote research on key technological processes<br />Form and perfect the R&D system<br />Make technology as valuable assets of the Company<br />Educated workers<br /> Construct harmonious labor relationship<br />People-oriented management<br />Chinese Business Environment<br />Corporate Culture<br />
Chinese Business Environment<br />2009 Sustainability Reporting in China’s Largest Coporations<br />
Chinese Business Environment<br />2009 Sustainability Reporting in China’s Largest Coporations<br /><ul><li>Recently (2009) beaten by Hubei Iron and Steel Company as the largest steel producing company in China
40.2 vs. 38.9 million tonnes</li></li></ul><li>International IndustryAnalysis<br />
International Competitors<br />Huge International Network<br />Clients within 27 countries worldwide<br />Threatens Domestic Sales<br />Many clients throughout China <br />Large Asian Exporter<br />Nippon Steel exports triple that of BaoSteel<br />
Increase in RMB will result in a better position for BaoSteel to import raw materials.
Rising labour costs in China due to government regulations & increase in skilled labour.</li></li></ul><li>Government Intervention<br />Government Intervention<br /><ul><li>85.41% ownership by the government
Government demand lowering steel production in China due to decreasing steel cost
Government reducing export rebates</li></li></ul><li>Objectives<br />
Timeline<br />2011<br />2012<br />2013<br />2014<br />2015<br />Objective #1: Sustainable<br />Government & board approval<br />Initiate Diversity Improvement Program <br />Incorporate 25 million yuan incentive plan to mass technical innovation.<br />R&D Funding on New Sustainable Solution <br />Objective #2: Cost Reduction<br />Government & board approval<br />Vertical Expansion of SCM<br />Decrease Supply of Steel <br />
Diluted culture<br />Allocation of senior managements to new acquisition & develop corporate bonding through social events.<br />Ineffectiveness of steel decreasing policy<br />By acquiring parts of SCM<br />Risk of low or negligible results from R&D<br />By increasing diversity in the workforce<br />Risk and Mitigations<br />