Competing Against Low Cost Steel Imports

Competing Against Low Cost brand name ImportsNucor is the second prominentst sword causer in North America on total production capacity in the end of 2006, with 18 brings. With the stratum 2006 Nucor was the most usefulness competent brand manu detailuring business by having the capacity to produce 25 million stacks of make with revenues of $14.8 billion and net kale of $ 1.8 billion. In the late mid-sixties Nucor assembleed the brand name mini-mill assiduity and since that time, mini-mills wear plump broadly exist in the bighearted incorporated firebrand companies out of most niche merchandises. Nucor in the late 1980s do a brave entry into the flat-rolled firebrand foodstuff, afield of big stigma. Nucor acquire small- constitute leadership strategy, product development by employ variety and technologies, shade systems, safe relationship between employees and productiveness, corporate culture and using focus diffrenation, in range to reduce and achieve piteous be per ton produced. The commercialize sh be of Nucor plus by 17% in both twelvemonths 2005 and 2006. According to the four generic competitory strategies Nucor appraise suffering-coast provider strategy as their strategic direction. They argon de endpointined to come over lower overall be then rivals and tempting to a blanket(a) range of consumers. Nucor followed ontogeny strategies which atomic number 18 naked as a jaybird acquisitions, new plants construction, continued plant upgrades and personify lessening efforts, and joint ventures. Nucor internally has formal a unrefined materials strategy to suppress forthwith and indirectly through worldwide fuck offth with joint ventures, the production of 6 to 7million tons of iron of high-pitched quality metals for consumption of its leaf blade mills. Such acquisition is imperative to get together purchaser consume for manufactured sword priceys. Nucor has a wide array of products and distributively product must go through a unlike ope rations regular recurrence. This is an implication to the susceptibility of each unit. Nucor outsidely has the qualification to deliver shipments anywhere in USA. This is a profit equal competitory receipts that arrests quick and on-time pitching of products. Nucor adopts prospered tradeing and sales strategies. In line with its goals of becoming a globular player, it continues to build long-term relationships with contract clients who purchase value added products, 92% of the production of Nucors brace mills was change to out come out customers in 2005-2006. It shows how Nucor is chief(prenominal)(prenominal)taining long- term contracts, and maintaining profitable value-added products. Nucor is known for developing and commercializing new efficient product technologies for the mark manufacturing subscriber line. The alike(p) enables it to reduce its operating costs and compete effectively in the market. Considering Nucor i nfrastructure, centralization at the connection in the early 2000s has supported the current success and supported the various units. Solid training and employee relation structure fetchs to the continuous growth. As for services and quality, Nucor focuses on fast delivery and affix customer integrated technologies. Quality bind is considered outstanding to maintain the potency and exact specifications of the manufactured product. Considering political factors, variations amongst countries laws provides favorable and unfavorable circumstances for a large connection to do headache in that country. Nucor deals with tax insurance in USA catch up at bottomg federal, state, and local taxes, bear on its bottom line. Nucor has to get wind the taxes of other countries planned for contracts implementation. As for economic factors, exchange rate fluctuations and pertain group rate changes are considered by Nucor as bases for decisions on expansion, and disputation. Markets ar e enthralling for steel companys entrance when the currency is week, and interest rates low. No striking advancement has had to a greater extent opposition on the steel assiduity than the new technological improvements. While some(prenominal) industries are outsourcing much of their manufacturing, Nucor has been able to play the opposite sexual climax and pass in the interior(prenominal) market. Technology increases efficiency of factories, decreases inventory, and enhances product quality. The efficient mini-mill is an example of this.Strategic IssueGiven the internal and external factors, that steel situations in the world had been improved by 2005-2006. The termss were high in the U.S by 50% in 2000 as well as Nucors Sales. However conflicting steel companies, dumping in home domestic market and U.S market on a lower floor market prices that leads to over capacity and more supply than demand. Inside US and Outside US market. The Demand increase by 6% should Nucor c ontinue focusing on the U.S steel market or begin to expand into another foreign markets? Or should they soak up to deal with budding volume of low priced foreign imports in the US market and how to compete with foreign steel producers? Do they postulate to expand the capacity of the company steel-making and start building new plants, new acquisitions, and new joint ventures?External EnvironmentExternal factors include those influences cut side the persistence in the macroeconomic that should be considered in shaping the companys strategies in long-term direction are legislative factors, economic, socioeconomic, and technological factors.Political and legislativeBusinesses are heavily regulated, from state to federal to international. These regulations challenge the ease of achieving profit tolerances. A channel must deal with the local laws and regulations of another business when attempting to compete in a foreign territory. For Nucor mass, the growing international arguing directs addressing and dealing with various types of laws, mainly taxation. Nucor deals heavily with the tax insurance and regulations in the United States paying federal, state, and local taxes. Each imposes heavy effects on their bottom line.Taxes however do not invariably negatively continue a business. many international steel companies were selling their products at below market cost to undercut domestic rivalry. Taxes imposed protect the domestic intentness. The same is important when competition is high. Nucor is a large company that is vitrine to international trade agreements. It is monetaryly essential for a company to guess the costs associated to all regulations and tariffs on import and export summonses, especially that competition ad world(a)ization are required to maintain net profit in the future.Economic factorsAs Nucors strategy has evermore been to become a market leader, much of its growth comes from international markets, especially developing ones. Thus, it is always lavatoryisterdid to exchange rate fluctuations. Markets become attractive when their currency is weak. This was the situation of the steel industry during the economic downswing in 2001. When markets become attractive repayable to weak currency, the demand for steel would increase and consequently the supply to tack together the increasing demand.To finance the large expenditures, loans are very common. As interest rates decrease, corporate loans increase to fabricate an expansionary economy. The same lead create positively charged effects on corporate spending of major steel buyers, and consequently suppliers. Hence, steel demand and supply would increase.Socioeconomic factor steel industry operates on a business to business model. The same allows for greater efficiency and protects from the take chances impact of negative social factors. These factors include consumer behavior, fashions, geographic positioning, consumer intellections, ectA company li ke Nucor must understand the sub-cultures of each market piece where it exists, and concentrate on the most profitable.Nucor considers expansion through acquisition. This carries along the attempt of mixing two distinct cultures. Nucor must be able to proceed and embrace new knowledge employees, skilled labor, and other valuable assets. Moreover, the real individual cultures layabout be a source of risk, so ensure adequate safety environment should be a priority. Nucor differentiates itself by high wages, incentive establish pay, and a flat organization. Each of these has a positive impact on the existing Nucor organizational structure. The existing challenge and risk would be to create equilibrium between preserving a positive culture, and an increased profit strategy of which lower wages is nighhow a must.Nucor community recognizes its map in protecting the environment. It gives attention to the environment of the communities in which it operates and recognizes its immen sity to the employees. Protecting the environment is critical to its operations and long-term success. To illustrate, Environmental compliancy is a priority for Nucor management equal with all other business functions.Technological factorsWhile many competitors within the steel industry are outsourcing many of their manufacturing payable to increased technology, Nucor is able to take the opposite approach and expand in domestic market. Technology increases efficiency, decreases inventory, and improves the product quality. Nucor, for example was able through the new technology utilize to efficiently use the gnomish factory production mini mill to increase its capacity utilization. The mini-mill simplifies the shape when compared to the more tradition integrated mill. It cuts many corners in the production cycle and also uses larger percentage of mo metal. This in return cut back the amount of pollution from making steel heartyly by eliminating the some(prenominal) elements of the old blast furnace process.Technology also provides greater enhancement for technology and sales. The products build detailed computerized models with test statistics, and efficiency attributes. The sales department is able to directly deal with customers through the internet. Transactions are seamless(prenominal) and process quickly. Technology has enhanced the steel industry processes but it has its d sensitive backs that need to be considered. For example, computer failure, database errors, and any simple user error can affect the business. Having specialists and IT managers lead make up its positive impact on domineering these risks.Industry AnalysisThere have been two major factors influencing the steel industry- consolidation of global companies, and revolutionary technological changes among competitors affecting prices, production, and consumer satisfaction. National boundaries have melted to encompass an ever increasing world market.Since, the beginning of the tw enty-first century, the industry has been hovering around 75% capacity utilization, a level withal low for many companies, thus, forcing them to globally consolidate. Examples of these consolidations are the three European companies who co-ordinated to act the worlds largest steel producer and the two Japanese companies who did the same to form the second-largest steel producer. Driving ForcesThe defining characteristics of the industry are increasing globalization of the industry, and technological changes. As for globalization, it is a driving force as it allow for have an effect on the overall industry growth. When considered, globalization willing pave the way for consolidation between companies allowing them to be beardown(prenominal) players in the industry where their success or failure will have an impact on the overall industry growth. Technological changes can have great impact on the industry. When more improved technologies are used, production and prices will be a ffecting the industry growth. The global steel market grew by 8.2% in 2007 to reach a value of $529.7 billion. In 2012, the global steel market is forecast to have a value of $759.1 billion, an increase of 43.3% from 2007. find out Success FactorsThe Key success factors (or KSFs) are competitive factors most affecting every industry members ability to prosper. KSFs includeNecessary resources, competencies, and capabilities (organizational style)Competitive capabilitiesexpertness in a particular technologyScale economies or eff curve benefitsStrong network of wholesale distributors, and suppliersNucor was established in 1966 and continues to grow strongly according to a number of mark success factors and strategic organizational strengths. The companys organizational style is remarkable and features a number of factors that contribute to Nucors success. First, the company employs a decentralized business style. In 1966, Iverson assumed the role of president to be decentralized mann er has been used and been very successful. A decentralized business style distributes the administrative responsibilities or powers among several(prenominal) government rather than a large number (Decentralization). This style has permitted Nucor to empower their managers and employees. By Improving the level of empowerment allows each division manger control over day-to-day decisions and transactions that will increase profitability. Nucors decentralized business style also helps the Co. to be lean. Lean manufacturing incorporates the production of goods using less waste, less human effort, manufacturing, spears, inventory, and less time. Equivalent to their lean business style, Nucor is continually seeking for improvement. Stable aim to decrease production cost is always a priority and ultimately helps to lower costs of steel to buyers. Moreover, a focus on dealing with employees helps in reducing employee turnover and increase productivity. Safety is an important consideration for Nucor and is consistently monitored and improved. Employee surveys are conducted every 3 years which helps to give an insight on employee attitudes and concerns. Management then compares the surveys crossways plants and divisions to control potential problems areas and increase employee satisfaction. Finally, Nucor focuses on creating strong relationships with outside parties. This enables it to establish long-term sustainability with these parties. Furthermore, structure and supply cost will often be decreased which allows for lower costs for buyers. Strong relationships established ensure long-term sustainability and lowered prices for Nucor. The booming business structure of Nucor along with the management styles plant has allowed the Co. to become a leader in the industry. The Company has established a reputable brand and has created brand awareness both domestically and internationally. It presently has a significant market constituent of the U.S. market and is buddin g as a global leader in tough industry. Moreover, their increase in size has helped them increase production capacity. Last but not least, Nucor has a strong technological focus and is works at all quantify to boost manufacturing and production pace. Innovation also is always considered and helps the company hang on a leader.Being the largest steel manufacturer, Nucor remains a profitable company in one of the most alternating(prenominal) industries in the economy. Nucor enjoys this success for several reasons, employee relations, quality, productivity, and aggressive focus on innovation and technical excellence. Nucors strategy low cost providing, they know they are selling a commodity for which the competitive edge in the industry is lowering prices through innovation and productivity. Firms in other Industries Offering Substitute ProductsPorters tailfin forces analysisSuppliers of Raw Materials, Parts, Components, or Other ResourceInputsRivalry among competing SellersCompetit ive pressures created by the joc rudimentarying of rival marketers for mitigate market position and competitive advantageBuyersPotential New EntrantsThey basketball team competitive forces affecting industries attractiveness areCompetitive rivalry (High Threat)The global competition in the steel industry faces Nucor and the vast array of competitors that exact the industry. Intense competition among competitors in the domestic market of Nucor causes a cyclical effect within the industry. Each competitor strives to win bids of contracts, causing a stiff price war in the market. As price is the main factor for specialty among competitors and it is the bases of the industry, the company with the lowest mend costs will survive the longer, and be the most profitable. Nucors use of both base pay and incentive pay ensure output is relative to pay and, therefore, decreases its improve costs.The business model differentiation is also primary means of competition. Nucor has a decentral ized structure with control being at the factory level. This advantage allows for focused decision making, and efficient use of profits.Extremely high spend barriers are a major risk to competitive competition. During clock of economic downturn or overproduction, inefficiencies are weeded out. The United States boasts one of the strongest protections for businesses with its bankruptcy laws to ensure they can make it through these tough times. Counter this though, the U.S. also has some of the toughest laws over against closing ineffective plants. Extremely high exit barriers are a major risk to competitive competition.Competition from Substitutes (Low to moderate Threat)This terror is considered low as there are some substitutes for the use of steel. From auto manufacturing, to geomorphological supports, to fasteners, there are relatively few products available with the strength, durability, and cost efficiencies of steel. The largest pick to steel would be use of another mat erial. Plastics are on the nip of the list, but have not found the same durability as steel. Wood may have aesthetic appeal but cannot rubbish with steels robustness. Alternatives increase market presence at times of economic downturn and times of increase in steel material cost. To hedge this threat many manufacturers maintain inventories of steel reserves. Large companies also trade steel futures to ensure stability of price and guaranteed supply for a future condition time. The goal is to maintain low costs and market share during times of economic fluctuation.Bargaining Power of Buyers (High Threat)The buyers impose the greatest they are the bases for price competition by influencing the demand. The ultimate goal of the buyer is to get the best quality product at the lowest price. The ultimate goal of the seller (Nucor) is to get most attainable profit for the least cost. Because the market is modify with numerous suppliers and taking into account the two different goals o f suppliers and buyers, the steel industry is commonly a buyers market.Bargaining power of Suppliers (High to moderate Threat)The supply of raw materials, steel shreds, iron ore, or recycled steel can have a great effect on the cost strategy. Most of the steel used for manufacturing in US is imported. Due to the difficulty in suppliers ability to unendingly meet the demands of the companies such as Nucor, joint ventures between suppliers and manufacturers are established. The same ensures low costs for manufacturers. Acquisition of the supplier might also be undertaken by the manufacturer. Also, the power of unions labor and unionized labor, could affect the labor costs for steel produces in placing weak competitive force and on cost disadvantage vis--vis firms with nonunion labor.The Threat of Entry (Moderately Strong Threat)The main definitive for an entry into an industry is the costs associated. Barriers to entry have increased due to merging and globalization growing of many c ompetitors. Economies of scale and capital requirements are the greatest barriers I the steel industry. Larger quantity orders of raw materials are usually discounted. Higher production volumes directly discount the associated costs. During times of strong growth, such as the 1960s-1980, economies of scale are very good. During stagnation or recession, these approaches often cause diseconomies due to under utilization of capacity.Product differentiation is also a major barrier to entry. Steel is not sold on its overall difference, but more commonly on price. legion(predicate) manufacturers utilize the same technologies and process. Price wars are seen in minimization of fixed costs as stated earlier. Directly with this, there are few switching costs from one manufacturer to another. Little brand committal is recognized in an industry that does not appeal to consumer loyalty or brand image. Entrants must find a way to compete based on lower costs.Access to raw materials is addition ally a barrier. Many times raw materials must be bought in large quantities (economies of scale). The cost disadvantages associated with small material purchases can be huge and directly increase overall manufacturing costs this make competition challenging in a market where margins are already slim. Government policy is not a major threat to entry on the domestic level, but at the international level the barriers are enormous. Well established relationships by large steel manufactures with governments allow for easy creation of contracts in a foreign territory.The creation of these contacts takes time, executive work hours, and vast amounts of money. As most steel manufacturers must be globally competitive to maintain profits, government policy is threatening entry barrier. At first glance it may count the mature steel industry would not be very attractive. This may be true to a new entry on a small scale, but with the advance of globalization the steel industry is again becoming v ery attractive.Industry Profile and AttractivenessThe Industry position and competitive structure future for a low-cost steel producer such as Nucor is attractive due to the good shape of their financial situation to gain sales and market share however the industry market environment maybe un attractive to some rivals but for some other rivals it may indicate some opportunities. The demand for steel globally has been rising strongly in recent years, and this is likely to continue. The industry has become attractive for new entrants from the international market since these companies are not overburdened by union contracts and since governments may provide special incentives in order to help them establish a customer base in steel, which can help in forming an important part of a nations economic infrastructure. Although the U.S is already dumped with outsider steel products, it is still considered to be a reliable and potential market for other global companies.As summary of the Nu cor case gives many insights into the company and the industry. In general, the steel industry is a very strong industry to compete in successfully. The question here is the steel industry an attractive one? The answer would yes, if the entering company is already in the industry and well set up and highly regarded. Moreover, its very important that the company is in a position to acquire other companies and/or form joint ventures. Nucor currently has done an amazing job woful itself up from near bankruptcy to an industry leader. Major numbers of challenges have been met and overcome throughout the companys life. However, this does not mean that there will not be more major challenges for Nucor. Nucor is nowadays is facing growing competition from both domestic and international rivalries. Its critical that Nucor continues to grow and increase global market share. Current management must continue to specialize in Nucors tenderness product and capitalize on a proven successful orga nizational structure. Can Nucor continue to succeed as a global steel company into the future? This is the main concern.Nucor is capable of continuing its entrepreneurial spirit as it grows larger because its marketing and management techniques. Since Nucor has been an innovative and risk-taking company, their profits will continue to expand. Nucor has embodied techniques that have been profitable to the company. An example of these techniques is the fact that Nucor managers would set standards for quality and output for groups of 25 to 30 employees and reward them with every week bonuses. By emphasizing quality and efficiency in employees and then honour them for it, Nucor only increases its own profits. Company SituationNucor Situation IntroductionNucor deals with key specific issues in the steel industry including the fast growth of steel producers in the world reflecting as an increased capacity in steel production creating prices war, and the competition in an industry where technology usage has been a way for saving costs. Despite their specialization into steel, Nucor Corp. has become a benchmark for both the U.S. steel industry and U.S. industry in general. Nucor is one of the accelerated growing and most efficient steel producers in the world. Despite the declining demand for steel, Nucors growth has been phenomenal, from pouring its first batch of steel in the 1960s to support in-house operations the company has become one of the top five producers of steel in the U.S.Nucor has repeatedly achieved technological feats other steel producers thought impossible. Their hourly pay is among the lowest in the industry, yet they have the highest productivity per worker of any steel producer in the U.S. But can it continue to do so?Financial AnalysisAccording to Nucor Corporation Financial Ratios data for 2005 2006 provided in Table 2 positivity1 Profitability ratios are used to assess a businesss ability to generate bread as compared to its expenses and other relevant costs incurred during a specific fulfilment of time. For most of these ratios, having a higher value relative to a competitors ratio or the same ratio from a previous period is indicatory that the company is doing well.Gross profit margin FYE212/06 increased by 14% reflecting an increase in sales for 2006.Liquidity ratios remained almost the same reflecting the continuous ability of the company to meet its obligations and invest further in the new technologies adoption strategy.Activity3 Are ratios that measure a firms ability to convert different accounts within their balance sheets into cash or sales Inventory turnover and total asset turnover were positive and most in-line with past results. Nucor maintains the ability to draw class investors with its relatively strong financial exploit, though down a bit from previous years. The increase in activity ratios is affected by the increase in sales FYE 12/06.Leverage4 Ratios used to calculate the financial leverage of a company to get an idea of the companys methods of financing or to measure its ability to meet financial obligations. There are several different ratios, but the main factors looked at include debt, equity, assets and interest expenses. Leverage ratios decreased by 1% FYE12/06 as compared to year 2005. The same reflects the ability of the company to meet its obligations and the reduction in reliance on leverage to meet its strategic plans.As globalization and acquisition is the focus, the leverage ratios are important. Debt has remained relatively low as compared to assets and equity, 23% and 44%respectively.Liquidity5 Are ratios used to determine a companys ability to pay off its short-terms debts obligations. Generally, the higher the value of the ratio, the larger the margin of safety that the company possesses to cover short-term debts. The current strategies may require short-term loans to finance acquisition. With these ratio levels, Nucor is in the position to shop for g ood interest rates. Total cash reserves for 2007 were roughly $1.4Billion, which will directly aid a globalization and expansionistic approach.As conclusion, at the end of year 2006 Nucor was in very good shape financially and the financial performance is strong for the 2004-2006. The date in table 1 shows how Nucor increased tons sold during the year 2000- 20006 with increasing in sales and market share of their products.SOWT AnalysisIn this part which is simply but powerful tool for sizing up a companys resource strengths and competitive efficiencies, its market opportunities, and the external threats to Nucor future well-being of Nucor Table 2. Nucors strengthsTechnology Innovation Is one of Nucors key strengths due to the amount of resources they can save because of it. Nucor also has established plants with low pollution levels. The ability for Nucor to use this to its advantage allows them to be more competitive with the market by substantially lowering their production cost. It also allows them to be environmentally friendly, which is a huge worldwide social concern these days. unbroken Innovations allows Nucor to hold its technological edge on the competition. Nucor is always moving and always improving its business cycle through the use of continuing innovation. Nucor is an industry leader when it comes to innovation.Strong market position Nucor Corporation has many different competencies that allow it to hold a strong position in the steel industry. These include its adopted new technologies, successful management structure, strong established market relations, and the long successful existence in the market. The company has heaven-sent industry position and positive financial results for the past over 40 years.Corporate Philosophy One of Nucors strategic strengths is its philosophy of empowering its workers and reducing the inefficient layers that plagues corporate. Company structure is decentralized with minimal management layers.Cost control Nuc or focuses on cost control. To be competitive in a market with little product differentiation, price is the main competitive factor. One of Nucors core competencies is that its expertise in keeping costs low. The same is maintained by adopting technological innovation that helps increase production at lower costs.Nucors WeaknessesA weakness is something a firm lacks, does poorly, or a condition placing it at a disadvantage in the marketplace and these are6Missing capabilities in key areas leading to dependence on a volatile market location Nucor faces some significant weaknesses with its location. Nucor has plants, all of which are located within the US. The problem is that Nucor cannot effectively serve international markets as good as competitors having plants worldwide. The shipping of steel to overseas countries is extremely expensive. Nucor is not in a great market position. Customers can go some place close together(predicate) to buy their steel essentially knocking off a lar ge shipping cost. Nucor also does not give deals on quantities purchased. Nucors most significant weakness lies with its domestic market. With the US Market being its primary customer base, Nucor is not able to offset losses because of a diversified location worldwide. Nucor is currently in a Market where growth is declining significantly.Deficiencies in competitively important physical, organizational, or intangible assets through high expansion and technology costs The expansion policy accompanied with dependency on scrap steel and energy prices and the vol