Nucor Corporation is one of the leading steel-producing companies in the United States. The company was founded in 1940, in Charlotte North Carolina. It is the largest steel recycling company in North America. The company uses electric arc furnace technology which enables it recycle one ton of steel every two seconds. To effectively compete and outdo its competitors, the company has diversified its product range. They include; carbon, steel products sheets that are flat-rolled, alloy steel bars, decks, beams steel joists and decks, and others. To effectively produce all its products, the company is supported by a well-experienced labor force. It has 21,700 employees. The company’s annual average sale is about $ 23.66 billion (Preston 13-15).
Currently, business environment has become very challenging. The changes in business environment are affecting the firm’s operations. For instance, new technologies are being incorporated within the steel industry. In addition, more firms are integrating the concept of internationalization in their strategic management processes. This has culminated in an increment in the degree of competition within the domestic and foreign markets.
In an effort to attain a highly competitive position and a large market share, the firm’s management team has incorporated growth strategies in its strategic management. Some of these strategies relate to formation of mergers and acquisitions. For instance, the firm acquired brands of Gulf States Manufacturers, CBC steel Buildings, American Building Company and the Kirby Building Systems at a cost of US$ 280 million.
The external environment plays a significant role in the success of firms in different economic sectors. Technological innovations within steel industry are enabling firms in the industry to be efficient in their operation. As a result, firms are able to reduce their operational costs and maximize their profit level.
Technological innovation has resulted in an improvement in the performance of firms in this industry. This is due to the fact that these firms are able to increase their production capacity while maintaining a high quality of their products. In addition, technological advancement has culminated in an increase in the number of investors who have ventured into this industry. Some of these technologies include minimills and the electric arc furnace. Electric arc furnaces enabled steel firms to create quality products within a short time. On the other hand innovation of minimills resulted in a large number adopting recycling of steel scrap as a major source of raw materials. Technological innovation has also culminated in improvement of the quality of steel products.
Legislation and regulation
The US legal environment is also playing a major role in the success of firms in the steel industry by enhancing a good operating environment. For instance, the US government is committed to ensuring that the other global players do not violate the steel industry regulations. In 2007, the US government requested World Trade Organization (WTO) dispute settlement committee to look into the claim that China was violating steel industry trading rules. The claim was that the Chinese firms which export steel products into US were being subsidized by the government. As a result, the foreign imports were injuring the US steel market. The US government’s concern about the steel industry has greatly contributed towards protection of the domestic firms from unfair foreign competition.
In addition, various demographic factors are contributing to the success of the industry. For instance, the society is increasing its concern about environmental pollution (Scheuerman 94-99). This has contributed towards the society embracing firms that help in minimizing environmental degradation. To attain this, firms in the steel industry are incorporating Corporate Social Responsibility (CSR) in their operation. For instance, steel firms in US are increasingly teaming up with environmental organizations in effort to reduce environmental pollution. This results from the fact that the US government has formulated strict regulations aimed at safeguarding environmental pollution (Ecology Centre Para. 3-4).
Economical factors affect the demand for products and services. The US steel market is very large and it is growing at a fast rate. As a result, there is a high probability of Nucor Corporation attaining a high market position. Considering the fact that Nucor Corporation is amongst the largest steel firms in US, changes in the global steel market will result in its growth. This is due to the fact that the global demand for steel is increasing. However the global economic recession has had adverse effects on the industry due to a reduction in consumer purchasing power.
Firms in the steel industry are increasingly being more concerned with ensuring that their operations are user-friendly. More emphasis is being given to ensuring that the steel products made are light weighted. In addition, management teams are becoming more concerned with how they can make their operations to environmental friendly. The market for final and intermediary steel products is increasing both in the domestic and the foreign market. This means that there is a high probability of the industry witnessing rampant growth in the future as demand rises (Economy watch Para. 1-6).
Driving forces in steel industry
In its strategic management, Nucor Corporation has integrated a low-cost leadership as its generic strategy. Over the years, the firm has been able to attain a low cost of production compared to other firms in the industry. Several forces are paramount in the success of the steel industry. These forces include industry consolidation and raw materials, products, cost and people.
Availability of raw materials and industry consolidation
Availability of raw materials plays a significant role in the success of every industry. In the operation of steel industry, it is expected that the margin between the firm’s revenue and the cost of production will narrow as demand for scarce raw materials increases. This will have the effect of increasing the cost of raw materials. Currently, the steel industry is in its maturity stage which has culminated in reduction of raw materials. Due to scarcity of raw materials in the industry, more emphasis is being given to steel recycling. In addition, scarcity of raw material is culminating in increased formation of mergers and acquisitions between firms in this industry in an effort to increase their competitiveness.
The technological environment is enabling firms to conduct recycling of steel materials cost-effectively. For instance, incorporation of thin-slab technology has enabled Nucor Corporation to venture into product segments that were initially dominated by integrated mills. The technological innovation has culminated into an increment in competitive pressures within the steel industry. To attain a competitive advantage, it is important for firms to integrate emerging steel technologies. Nucor Corporation is amongst the firms which are leading in incorporating new low-cost steel product manufacturing technologies.
According to Pfeiffer (6), steel industry is shifting from being technology-oriented to people-oriented. Institutional and individual customers are increasing their emphasis on the value of the steel products. As a result, steel product manufacturers are integrating value addition in their strategic management processes with the objective of improving the quality of their products. To improve the quality of their products, steel firms are improving on their downstream installation by integrating the current technologies (Pfeiffer 7).
Permanent reduction of production cost is amongst the steel industry’s driving force. Cost consideration is enabling firms in this industry to mitigate the effects of a decline in the margin between the firm’s revenue and cost. To attain this, firms in the steel industry are incorporating various strategies. Some of these strategies relate to investment strategies aimed at expansion. One of the most common strategies in steel industry includes formation of mergers and acquisitions. In addition, firms are integrating operational strategies such as using automation systems in an effort to reduce cost (Pfeiffer 7).
Pfeiffer (7) asserts that the success of every industry depends on the quality of its human capital about the qualification and motivation of the personnel. Considering the increasing complexity of the steel industry, more emphasis is being given to human resource development and creation of a good working environment. In an effort to minimize labor turnover, firms in steel industry are incorporating ‘robotization and automation of operations which are risky for the firm’s operation. In addition, firms in steel industry are incorporating flexible work-to-life concepts in their strategic management. As a result, employees are able to attain a high level of job satisfaction.
Key Success Factors
In order for a company to prosper in a competitive environment, it must address the key success factor in the industry. Key success factors are competitive factors that affect the operation and hence the profitability of the firms in the industry. It addresses those factors that determine whether a firm fails or succeeds. The key success factor enables a firm to remain competitive in the industry. This is due to the fact that the firm is able to implement the best operational strategies. As a result, the firm becomes proactive in responding to market changes and exploiting available market opportunities.
In their operation, it is important for the management teams of firms in steel industry to consider integrating key success factors. The key success factors in this industry relate to a number of concepts which include diversified customer base, profitability and cost efficiency and value addition.
Customers are a key element in the success of firms in different economic sectors. For firms to attain a high level of market share, they should formulate strategies on how to increase their customer base. A firm’s customer profile in a given industry has an effect on its position within the industry. Considering the fact that steel industry is mature, it is important for firms in this industry to formulate strategies aimed at increasing their customer base as a survival tactic. To attain this, these firms should conduct a consumer market analysis with the objective of identifying potential customers. In conducting consumer market research, the management of Nucor Company should consider both individual and institutional customers. Some of the key steel institutional customer to be considered includes automobile firms, firms in shipping, oil and gas production firms.
Steel industry is characterized by pricing volatility, high sensitivity to economic conditions and high fixed cost of operation. As a result, attaining a high level of operational efficiency is paramount in the successful firms in this industry. This will be realized by making sure that there is enough distribution in both human and financial the research and development processes. Through research and development, Nucor will be able to improve its risk and innovation culture. By attaining a high level of operational efficiency, firms in steel industry will be in a position to survive the global economic downturns. In addition, attaining a high level of operational efficiency will enable the firms to cope with the fluctuations in price of raw materials.
The quality of the products produced by firms in the steel industry plays a significant role in the success of these firms. A variety of products are produced by firms in the steel industry. Value addition is paramount for firms in the steel industry. This is due to the fact that that it will contribute towards improvement of the quality of the firm’s products and services o attain a high competitive advantage. To successfully add value to its products, it is important for firms to consider the consumers’ demands before producing their products. The consumers should give the consumers a roadmap on what to produce. This will ensure that the products produced are in accordance with the customer requirements. Nucor has also to ensure its clients share the roadmap to ensure a win-win condition all.
Porter’s 5 Forces Analysis
The success of firms in every sector is determined by industry structure. In analyzing industry structure, there are a number of models that can be utilized. One of these models is the Porter’s five forces. Porter’s five forces analysis is based on the principles that dictate the conditions of a market and an industry’s overall profitability. Through industry analysis, the management of a firm is in a position to determine the firm’s competitive position. These factors directly affect the firms’ capacity to meet the requirements of its customers while maintaining a high level of profits. Any change in one or more of these forces must force the firm to reconsider its marketing mix and adjust accordingly so as to maintain the profitability enjoyed before the change of the affected force. Firms strive to develop business models through application of their core competencies with an aim of attaining higher profits than the entire industry. Among the porter’s five forces, threat of substitute products, new entrants and the threat of established rivals denote horizontal competition. The remaining two forces, the bargaining power of suppliers and customers denotes vertical competition within an industry (Porter 52-56)
Threat of substitute products
The existence of steel industry is threatened by the existence of a number of substitute products. The substitute products can be used as an alternative to steel However, the threat of substitute products in steel industry is moderate. This is due to the fact that some of the substitute products cannot fully replace steel products in some industries. Some of the substitute products that threaten steel industry include those made from aluminum and plastic. Growth of petrochemical industry has culminated into an increment in the number of substitute products for steel. For instance, the plastic industry has developed substitute products that replace the use of some steel products. This has reduced the demand for steel. For example, introduction of plastic pipes has replaced utilization of steel pipes within the construction industry.
The change of demand however is less significant because plastic products cannot effectively replace steel products. Plastic products are not as durable as those of steel and hence not a major challenge. The firm must consider and address the propensity of the consumer’s ability to consume the alternative products. The firm must consider the propensity of the buyer to substitute, the availability of the substitute products, the buyers switching costs as well as the ease at which the buyer shifts to the substitute products (Porter 68-69).
The threat of new entrants in the industry
Due to the heavy initial capital investment required in the steel industry, the threat by new entrants is minimal. However new entrants in the industry do occur. Due to ever-increasing demand for steel, the industry looks promising. The profit enjoyed by these firms is usually high. Entrance by new firms into the industry is limited by the number of resources that are required in terms of machines, human development and machines required. Venturing into steel business therefore is limited to only few firms that enjoy a large capital base. In such business that requires heavy initial investment, the firms in the industry are few. Those firms might strike a compromise to block new firms from entering the market. The threats of entry into this industry are therefore low (Porter 69-71).
However, formation of mergers and acquisitions presents a potential for new firms to enter the industry. This is due to the fact that the acquisitions are presenting an opportunity for other steel companies to venture into production of products of the acquired firm.
According to Porter (73-77), rivalry within an industry is determined by the number of firms in the industry. Increased competition in the steel industry has culminated into an increment in the degree of rivalry mainly on price variables. Firms in the steel industry have effectively incorporated production of quality products. As a result, it is difficult to differentiate steel products of a given manufacturer from those of another. This makes customers use price as the key determinant in purchasing steel products. In addition, institutional and individual customers are becoming more concerned with efficiency of product delivery. To deal with rivalry in the industry, the management team of Nucor Corporation is figuring out how it can use emerging steel technologies to effectively utilize scrap steel in manufacturing its products. Nucor Corporation has been able to degree with industry rivalry through venturing into various product segments.
The bargaining power of buyers
Bargaining power of buyers in steel industry varies depending on demand and supply. When demand is high and supply low consumer bargaining power ranges from being moderate to weak. However, when the demand is low and supplies high, buyers’ bargaining power tends to be high. According to Porters, buyer switching cost is relatively high if there are only a few suppliers in the industry. However, buyers switching cost in steel industry is relatively low. This results from the fact that there are a large number of suppliers from whom the buyers can select. This means minimal cost is involved in switching from one buyer to another (80-84)
The power of suppliers
Firms in the steel industry enjoy a moderate supplier bargaining power. This is mainly so for firms that deal with steel scrap metal. However, there is a high probability of a reverse in this trend in the future considering the change in price of scrap steel. This arises from the fact that steel scrap prices are a function of the overall market forces and are not determined by the supplier.
In addition, there is a probability that supplier power will be increased by action of labor unions pressurizing for reforms in the industry.
Nucor Corporation has been successful over the years. This has been attained from the fact that the firm has efficient human resources. As a result, the firm has been efficient in formulation and implementation of effective operational strategies.
The 2007 global financial crisis had a negative impact on the firm’s level of profit. However the industry’s profitability is still promising. 2007 was one of the toughest years in relation to its financial performance. The firm’s return on assets and return on equity witnessed a reduction with a margin of 8%. Increased rate of globalization and the formation of acquisitions in the industry is resulting in a highly competitive challenge. The effects of these trends were also experienced during 2008 and 2009.The table below gives an illustration of the firm’s financial ratios during the 2008-2009 financial years.
|Return on the firm total assets||0.149||0.22|
|Return on equity||0.29||0.36|
|Net profit margin||0.08||0.11|
|Fixed asset turnover||2.32||2.30|
|Total asset turnover||1.68||1.87|
Nucor Corporation has managed to attain a strong market position compared to its competitors. This results from the fact that the firm has a strong resource base. This plays a significant role in enhancing the firm’s production capacity.
In addition, the firm has integrated the current steel technology. Some of these technologies include the electric arc furnace and minimills. These technologies enable the firm to be effective in producing steel products from steel scrap.
However the firm is faced with a number of internal weaknesses. Some of these weaknesses relate to the fact that the firm has not been able to penetrate the entire global market. This results from the fact that the firm’s management team has not successfully integrated the concept of internationalization in the course of the firm’s operation. As a result, the firm’s global market coverage is minimal.
The external environment presents a potential opportunity for the firm to expand into the international market. This can be attained through formation of mergers and acquisitions. Nucor Corporation’s management team should scan the environment to identify potential firms with whom it can enter into a merger and acquisition contract. This will enable the firm to penetrate the global market successfully.
Alternatively, the firm can attain a high growth potential by incorporating Greenfield investment strategies. This can be attained through establishment of other plants within its domestic market. In addition, green investment can be conducted in its foreign market by conducting foreign direct investment.
In its operation, the firm is faced with a number of threats. For instance, increase in competitive intensity poses a threat to the firm’s survival. A large number of firms within the steel industry are incorporating consolidation strategies in an effort to attain a high market position. In addition, the large steel firms in US are acquiring small firms. In addition, steel industry is currently characterized by an increment in the cost of raw materials. As a result, firms in this industry are witnessing a reduction in their profit level.
The steel industry is characterized by being very cyclical. This means that the industry is very sensitive to changes in the external environment. This is due to the fact that the industry produces goods that are durable and hence a high probability of the demand declining in the future.
Considering the fact that the firm has strong financial and human resources, it will be possible for the firm to formulate and implement effective survival strategies.
If Nucor’s management team is committed to fulfilling its mission of off-shoring low-cost steel from the foreign market in its pursuit of low-cost leadership and narrowing its market share outside US through formation of joint ventures, it should consider how to deal with the market threats. To survive in the market, the firm should consider how to improve its market share.
For Nucor Corporation to attain its low-cost leadership strategy, the firm’s management team should improve on its strategic management process. The following are some of the recommendations it should consider.
- Increase its operation into more geographic regions. The management of Nucor Corporation should consider focusing on other geographic regions in an effort to increase their sales revenue. This will contribute towards enhancing the firm’s growth.
- Nucor Corporation should consider serving additional market segments by customizing its products. This will contribute towards the firm increasing its customer’s level of satisfaction.
- In addition to the formation of mergers and acquisitions, Nucor Corporation should consider integrating green investment both in its domestic and foreign markets. Venturing the foreign market should be conducted through the incorporation of foreign direct investment.
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