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APPLICATION OF
PORTER
ANALYSIS TO
STEEL INDUSTRYJ E E T B A H A D U R K U N WA R
V L A D I M I R D E N I S O V
PORTER’S FIVE FORCES FRAMEWORK
IF ALL THE FORCES ARE
HIGH, THE INDUSTRY IS
NOT PROFITABLE!
FIVE FORCES (1)
• Threat of entry dependent on barriers to entry such as:
– Economies of scale and experience
– Capital re...
FIVE FORCES (2)
• Supplier power (high)
– Concentration of suppliers supplying differentiated products
– There are many sm...
THE CASE OF STEEL INDUSTRY
• For a long time, it was considered as unprofitable.
• More than 50 independent steel producer...
THREAT OF ENTRANTS IS HIGH
•Large Russian producers are entering the
market
–Severstal; Evraz
•Chinese producers are also ...
THREAT OF SUBSTITUTE IS ALSO
HIGH!
• Aluminium is a substitute of steel in cars, for example
• Plastics is a substitute in...
BUYER POWER IS ALSO HIGH!
• Key buyers are car
manufacturers
– Totyota, Ford, Volkswagen
e.g.
• Key buyers are also can
pr...
SUPPLIER POWER IS ALSO HIGH
• Key raw material for steel producers is Iron
ore
• There are only three big producers
–CVRD
...
CONCLUSIONS
• However, competitive rivalry is decreasing
–Big steel manufacturers are buying small
players!BUYER POWER CON...
THANK YOU FOR YOUR ATTENTION!
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Application of porter analysis to steel industry jeet

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Application of porter analysis to steel industry jeet

  1. 1. APPLICATION OF PORTER ANALYSIS TO STEEL INDUSTRYJ E E T B A H A D U R K U N WA R V L A D I M I R D E N I S O V
  2. 2. PORTER’S FIVE FORCES FRAMEWORK IF ALL THE FORCES ARE HIGH, THE INDUSTRY IS NOT PROFITABLE!
  3. 3. FIVE FORCES (1) • Threat of entry dependent on barriers to entry such as: – Economies of scale and experience – Capital requirements of entry – Strengths of established relationships with customers and suppliers • Buyer power (high) – Concentration of buyers – Many small operators in the supplying industry supplying standardized products – Switching costs are low – Buyers are well informed about the suppliers, their operations, prices and quality and needs
  4. 4. FIVE FORCES (2) • Supplier power (high) – Concentration of suppliers supplying differentiated products – There are many small buyers – Switching costs are high – Suppliers are well informed about the buyers, their operations and needs • Competitive rivalry (high) – There are low entry barriers – Substitutes threaten – Buyers or suppliers exercise control – Fairly low concentration ratio • Threat of substitutes through: – Product substitution (price/performance ratio) – Substitution of need – Users can do without
  5. 5. THE CASE OF STEEL INDUSTRY • For a long time, it was considered as unprofitable. • More than 50 independent steel producers went into bankruptcy in the USA • Lots of changes recently – Mittal paid $35 bn to buy European steel company Arcelor – Tata bought Corus for $13bn
  6. 6. THREAT OF ENTRANTS IS HIGH •Large Russian producers are entering the market –Severstal; Evraz •Chinese producers are also entering the market –Capacity of production increasing
  7. 7. THREAT OF SUBSTITUTE IS ALSO HIGH! • Aluminium is a substitute of steel in cars, for example • Plastics is a substitute in packaging • As steel is getting stronger, we need less steel for same purpose – Reduced use
  8. 8. BUYER POWER IS ALSO HIGH! • Key buyers are car manufacturers – Totyota, Ford, Volkswagen e.g. • Key buyers are also can producers – Crown Holdings e.g. – Produce 1/3 of world supply
  9. 9. SUPPLIER POWER IS ALSO HIGH • Key raw material for steel producers is Iron ore • There are only three big producers –CVRD –Rio Tinto –BHP Billiton • They control 70% of the market
  10. 10. CONCLUSIONS • However, competitive rivalry is decreasing –Big steel manufacturers are buying small players!BUYER POWER CONDITIONS SUPPLIER POWER HIGH THREAT OF SUBSTITUTES HIGH THREAT OF ENTRY HIGH COMPETITIVE ENTRY DECREASING YOU DECIDE !!!!!!!
  11. 11. THANK YOU FOR YOUR ATTENTION!

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