A New Era for Steel Drivers Implications and Risks - Case Study Example

Executive Summary 1.1 Problem Statement: Nucor has successfully dominated the United States steel industry, but it faces substantial operational and performance threats due to steel dumping in the U.S markets by foreign firms. 1.2 Analysis: A critical analysis of the company highlights the following key factors about Nucor: The company has realized immense growth and development since its establishment in the 1950s. One of the primary strategies for its success is acquisition of firms with an operational advantage. Nucor has a technological advantage over its competitors following the use of Castrip technology in the production of steel. Scrap metal is Nucor’s key raw material in the production process. Nucor has a significant bargaining power in the industry due to its size and influence in the industry. Low-cost steel imports from China, Russia, Brazil, and India have engaged the company in stiff competition in the U.S markets. 1.3 Course of Action: To overcome the underlying operational and performance threats posed by low-cost steel imports in the U.S, Nucor needs to diversity its product base and brand, and further differentiate its products even further. Since technological aspects have granted Nucor a competitive advantage in the U.S steel industry, the company should invest in creative and innovative technologies in a bid to outperform rival firms. Most importantly, the company should consider going global in order to exploit emerging opportunities with globalization. 1.4 Recommendations: The most commendable actionis for the company to go global. This will diversify its operations by establishing business across the world markets. It is also a better hub within which its technological aspects can be fully put to use, thereby enhancing its competitiveness against rival firms and cheap imports. 1.5 Implementation: Plan implementation by Nucor has to identify market and industry gaps, and then take advantage of the situation. This may require the company to reevaluate its strategic and long term planning, and assess both financial and non-financial implications of the operational decisions made. This is more so in relation to acquisition of firms, self-development, product and brand development. Problem Statement The U.S steel industry has become significantly competitive as the number of operating firms increase. Foreign firms continue to dump low-cost steel in the U.S markets, thereby affecting the operations of domestic firms, and most importantly those of Nucor. Nucor has had to compete against low-cost steel imports in the U.S, as China, Russia, Brazil, and India continue to dump their steel in the U.S markets. Industry Analysis and Evaluationof Nucor’s Position The analysis of the U.S steel industry and the subsequent position held by Nucor in that industry are based on Porter’s five forces model. Nucor’s integration of this model into its operations can be summarized by the figure below: Competition in the U.S steel industry is intense and characterized by both domestic and foreign firms (Thompson 214). Foreign firms compete with the domestic firms on the basis of supplying steel imports to the United States. Nucor engages Mittal Steel and U.S Steel in stiff competition since all the three firms are set up in the United States. In other words, the two companies are the key competitors for Nucor in the industry, together with low-cost importers in the United States. Rivalry in the U.S steel industry intensifies over time, with new players entering the industry from time to time. However, due to high competition in the U.S market, the industry is becoming relatively unattractive. Nucor’s acquisition of Crawfordsville introduced Castrip technology that made the company outperform local companies and low-cost imports from outside U.S(Thompson197-201). Every individual player in the industry is interested in summing up as much bargaining power as possible. The bargaining power in an industry increases as the number of suppliers in that industry reduces (Hamilton 255).Through a series of acquisitions, Nucor has secured a significant portion of the U.S steel industry. The company operates as a single firm even after all the acquisitions it has made, a scenario that has seen its bargaining power increase throughout its acquisition practices. The company’s bargaining power has further been enhanced through product diversification in terms of producing different steel products by the acquired companies (Thompson 196). High number of players in an industry makes that industry unattractive. The U.S steel industry has significantly high number of players, and product differentiation should be accounted for to increase competitive advantage. Industry unattractiveness implies that new entrants will be reluctant to establish business in the industry due to the underlying operational and performance uncertainty. In the U.S steel industry, entry barriers have substantially increased with the current trends in globalization and market liberalization. Amid this, Nucor has significantly addressed possible threats from new entrants through economies of scale and state of the art technology (Castrip), thereby posing entry barriers to existing companies and new entrants in the industry (Nucor Corporation Website, 2010). Alternatives to steel in the industry are few orlimited, and none in some aspects where the only required properties must be those of steel. This phenomenon gives the steel industry an outstanding benefit over threats posed by substitute products. Plastics among other closely related products substitute steel to some extent but not fully. However, this is in most casesobserved in times of economic hardships and when steel prices are substantially high.Low substitution of steel follows its properties, which exhibit strength, durability, and cost efficiency across auto manufacturing, structural supports, and fastening activities in places where steel is used (Hamilton 256). SWOT Analysis Strengths Nucor’s acquisition activities over the years have increased the capacity and size of its operations, thereby improving its performance in the industry. Due to its diversified product line resulting from backward group players and differentiated products realized from technological advancements, the company enjoys numerous economies of scale. As a result, the competitive advantage of the company has significantly grown, triggering high revenue generation and profitability.The company also enjoys technological advantages especially in relation to Castrip technology employed in the production process (Thompson 201). This technology outperforms that of many rival firms in the industry. Since its establishment and amid substantial operational and performance challenges, the company has maintained a growing and developing trend. Over and above this, many strategies employed by the company are low-cost, especially in relation to labor costs. The company employment programs are favorable, a scenario that improves operational efficiency. The company also runs environmental programs under its corporate social responsibility, thereby creating a brand name in the market and in the society at large. Weaknesses Nucor effectively competes with key rival firms in the industry, but it exhibits aspects of weakness in a number of ways. In its expansion strategies, the firm has over the years concentrated on growing larger, disregarding non-financial implications of the practice to some extent.Over the years, Nucor has become more self-conscious through expansion of its operational base, and has failed to critically account for industry rivalry and extensive product diversity (Nucor Corporation, 2011). Opportunities Nucor’s acquisitions have enhanced its competitive advantage in the local market (Thompson 200). The company can now focus on going international following globalization trends. The company stands a better chance to serve global markets. Threats Low-cost imports in the U.S market is a threat to the company.The use of scrap metal as a primary raw material can jeopardize the firm’s strategy of operating at low cost in production. Costs of energy in the production process are also building up a substantial threat to the company. Course of Action The course of action should entaildesigning, formulating and implementing a competition strategy that accounts for all relevant competition aspects in Nucor Company. Aspects of interest to be captured are presented in the figure below: Nucor faces a number of problems and threats in the industry, with the most critical being competing against low-cost steel imports. The company can employ alternative courses of actions that could solve the underlying problems and threats facing the company. Venturing into global markets would exploit benefits that globalization has provided to domestic and foreign firms (Hamilton 258). The company can venture in all the countries that dump low-cost steel in the United States. However, this should follow critical analysis, evaluation, and assessment of targeted markets to enhance operational success in those countries. Since the company depends on scrap metal for steel production, it should design mechanisms to outsource scrap metal from cheap suppliers from within and without the United States. On the same note, the company can target cheap raw material suppliers. Dumping of steel at the household level should be considered in the process of obtaining raw materials for the company, taking into account environmental concerns.Most importantly, Nucor can focus on self-development of its brands other than acquisitions. Recommendations Nucor should go global as a single firm. There are emerging markets across the globe, and they are yet to be fully exploited. Countries with emerging economies have a high need for infrastructure development, and targeting them would be would be exceptionally strategic. Another aspect that would work well with Nucor is low-cost pricing through its established competitive advantage. In the event that low-cost imports still threaten the operations of Nucor, the company should deliberate the situation with the relevant agencies for assistance. However, in liberalized markets, this recommendation might not work. Therefore, the company should advance its state of the art technology to continue outperforming its rivals. The company needs to improve its product differentiation through its low-cost strategies and technology. Too many acquisitions should be avoided, since its large size may not account for relevant customer base and operational success. Energy costs are ever rising, and the company should pursue use of creative and innovative technologies that would enhance energy and production efficiency. Furthermore, the dynamism and volatility that characterizes the steel industry should act as an eye opener to the company in relation to acquiring its raw materials at the minimum cost possible. Implementation Implementing the above recommendations requires overhaul of the operations and over time performance of the company. The industry in which Nucor operates in should be taken into account, and the changes and trends in the industry be assessed against the firm’s position in that industry. Evaluate the possible benefits of global operations in relation to the strategic and long term plans of the company. Focus on brand development other than acquisition of companies with an operational advantage. Exploit the available opportunities in the industry, work on the weaknesses, and design mechanisms that alleviates potential threats to the company. For any business decision or strategic planning made, considering both financial and non-financial factors will be vital. Works Cited Hamilton, Lawrence. A new era for steel-drivers, implications and risks.Ironmaking & Steel Making, 36(4), 255-258. Doi: 10.1179/174328109X439261. Nucor Corporation. Data Monitor: Nucor Corporation SWOT analysis, 1-9.Retrieved from Business Source Premier Database, 2011. Nucor Corporation Website. Retrieved May 29, 2010 fromhttp://www.nucor.com/ Thompson, Arthur. Nucor Corporation: Competing Against Low-Cost Steel Imports. Crafting And Executing Strategy: Concepts and Cases, 17th Edition. Read More