Out of seven general environmental sectors, following three trends pull the most attention. Economic sector. Steel industry depends on the cyclical economic condition and highly reliant on many other industries such as automobiles, construction, appliances and so on. If the economy is negatively affecting on its dependent industries, it will influence negatively for the Tata Steel. In 2007, when Tata Group acquired British based Corus Company, it became the 6th largest Steel Producer in the world, however it affected very negatively at the time because of U. S economic crisis.
As the economy is recovering year by year, the Corus Company acquisition is giving tremendous benefits and profit for the Tata Group. Therefore, overall today’s economy has a positive effect on Tata Steel. Sociocultural Segment. According to the Tata Steel Annual Report, Tata Steel got the Golden Peacock Global Award in 2009, and this award is the evidence to all customers and suppliers that the company acclaimed the highest honor and accreditation in the business. The Tata Steel Company has wonderful cultural values, which are proven in their business ethical behavior and constant improvement of their employees and their families’ lives.
Furthermore, Tata Group donates and improves in health issues, economic well-being, and education facilities to the India. All these factors are positively affecting for the company, and it is building much stronger brand name. Political/Legal Segment. Tata Steel operates in few unstable countries like Iran, Bangladesh, and Mozambique, and sometimes this brings some political uncertainty issues in those countries. Furthermore, Indian government plays a key role in the economics of Tata Steel. It has a role as a resource allocator of mining policies, as a regulator, and as a competitor for being the public sector steel company.
In a global environment, steel business is hindered by the large presence of tariffs. In order to avoid high tariffs, it is usually better to acquire plants within tariff-protected areas to reach those markets. Overall, the political/legal segments are negative because Tata Steel Company does not have 100% control over its resources and future outcomes. Porter’s Five Forces: Based on Exhibit 1, Steel industry is unattractive industry because both rivalry and power of buyers are pretty high, and suppliers have medium power.
Despite of unattractive industry, Tata Steel performs highly profitable because they chose the proper competitive position within the industry. The most significant three forces were bargaining power of buyers, rivalry, and threat of substitute products. First, the bargaining power of buyers is high because steel companies have very small product differentiation and low switching cost. Therefore, buyers can put some pressure on steel companies. However, Tata Steel has made a good control system for buyers who can maintain lower inventories and order more frequently. Second, the threat of substitute products is moderate.
Although there are few substitute materials such as plastics, aluminum and other advanced composites, the steel market is pretty stable due to the improvement of technology. Plus, nothing can replace steel in automobiles and construction industries in near future. At last, the intensity of rivalry among competitors in steel industry is pretty high because there is very small product differentiation among the competitors. Now, most of the big steel companies are concentrating on emerging markets, especially China, and it brings a huge war among them. Forces Ratings Reasons Threat of New Entrants Low
Entering steel industry requires high capital investment for manufacturing and logistics. Setting up supplier and customer relationship is time consuming and costly. Bargaining Power of Suppliers Moderate There are many raw material sources out there, and suppliers do not offer highly differentiated components. Instead, they offer standardized product. Plus, lots of steel industries are their own suppliers of raw materials. Bargaining Power of Buyers High Price competition steams from buyers having low switching costs and low product differentiation. Buyers have the power to negotiate down a deal to their terms. Rivalry Among Competing Firms
High There are more than 20 competitors ranging from large-scale operations to the small and regional. Competition among these competitors causes a cyclical effect within the industry. Ultimately, the company with the lowest fixed costs will survive the longest and most profitable. Threat of Substitute Products Moderate Plastics and composites are getting more and more popular these days, and it eventually started replacing some of the steel because it is cheap (automobiles industry). Competitor analysis: There are many competitors for Tata Steel Company such as JFE, Arcelor Mittal, Nippon Steel, Posco, and so on.
These companies are all located in relatively high-wage countries. Therefore, Tata Steel has a small advantage in terms of labor-cost. However, its biggest competitor, Arcelor Mittal manages to perform very efficiently last couple decades. Netherland based Arcelor Mittal Company is the largest steel company in the world, and its biggest advantage would be its humongous resources and capabilities. Arcelor Mittal Company makes each and every person working on their behalf feel valued. It also has the number one R&D in the steel industry; over 1,400 full time researchers with budget of approximately $300 million.
Another big advantage of Arcelor Mittal would be its distribution network, which provides customized steel solution for more than 200,000 customers (arcelormittalsa. com). However, this company has few weaknesses as well. First, it has very high investment cost with low. Second, it is struggling with Chinese market because of all the regulation on FDI in steel industry and political conflicts. Arcelor Mittal current strategy is to gain higher market share from Chinese steel industry and maintain their cost-competitive position in Europe and Asia.
They are also planning to keep investing in their R&D and try to find the new markets around the world (Mittal Annual Report). Therefore, they are inferior to its competitors because they do not have as strong operations or logistics as Tata Steel in Asian market Internal Analysis: ************** Add the chart at the end The major advantages in the value chain for Tata Steel include operations and human resources management (See exhibit 2). First of all, Tata’s operations are highly efficient. Within last ten years, Tata Steel managed to reduce the workforce by 30,000 while at the same time nearly doubling the production.
Also, Tata Steel has been praised as the world’s best steel company (World Steel Dynamics) Second, its human resources management built very healthy organizational culture by providing outstanding health and financial satisfaction for their employees. In return, Tata Steel gained their employees’ loyalty and devotion, which is shown by their productivity within the company. Developing core competencies are crucial for creating competitive advantages. For Tata Steel, their main tangible resources include their solid financial status, which gives them favor for their foreign companies’ acquisitions.
Their intangible resources would be their strong commendable vision and leadership culture from its beginning. Tata Steel has created outstanding employer-employee and customer relationships over the time. For their employees, they even built nice flourishing city named Jamshedpur, and now it is one of the highest living standards city in India. From exhibit 3, the two most important core competencies are the company’s ability to utilize its human resources and perception of its brand name, which automatically implies great quality.
Human resources are the main basis for its competitive advantage. They emphasized the vision from the top management level, which made it possible at the ground level. They also created beautiful environment for their employees that easily attract some talents. Within last ten years, it doubled its productions and got awarded as the world’s best steel company. Customer’s perception of Tata Steel brand is also a key core competency. Comparing to other competitors, Tata Steel affiliated with its parent company Tata Group, which is very well respected and well-known company.
Moreover, it is been in steel business over a century and is definitely hard to imitate its quality branding. All these facts provide the company a sustainable competitive advantage. Resources Valuable Rare Inimitable Non-substitutable Core Competencies Captive Mines Yes Yes Yes Yes Sustainable Human resources Yes Yes Yes Yes Sustainable Brand name Yes Yes Yes Yes Sustainable Product quality Yes Yes Yes Yes Sustainable Customer relationship Yes Yes No Yes Temporary Organizational culture Yes Yes Yes Yes Sustainable Channel of distribution Yes Yes Yes Yes Sustainable
Business-level strategy Low-end products Highest quality mini milled steel Offer low and competitive prices Lean management style Corporate Level strategy Optimize existing operations Use Greenfield technology Acquisitions Go global Strategy: Low-cost leadership strategy. Being a low-cost provider, they gave incentive workforce and advance technology and processes. Their plants are built inexpensively and operate efficiently. nVertical CSA §Partnering firms share resources & capabilities from different stages of the value chain to create a competitive advantage. nHorizontal CSA
§Partnering firms share resources & capabilities from the same stage(s) of the value chain to create a competitive advantage §Commonly used for long-term product development and distribution opportunities SWOT Analysis Strengths Successful marketing strategies High R&D capabilities Strong retail and distribution network Decentralized business units, high employee empowerment Opportunities Acquisition strategies Leverage, extend technology advantage High demand of steel in all sectors New market opportunities and improved bargaining power through acquisitions and mergers Weaknesses High cost of *************** mill operation
Exposure to economic, business cycles of customers Lack of international presense************** Threats High price of raw material Increasing consolidation/Oversea competitors Changes in the cost of electricity and natural gas Strengths Impact on Opportunities or Threat Successful marketing strategies High R&D capabilities Tata Steel Part II: Analysis of TATA Steel 1. Application of Business Strategy Model’s to TATA Steel 10. 1 SWOT Analysis SWOT analysis is done for a company, to find out its overall Strengths, Weaknesses, Threats and opportunities leading to gauging the competitive potential of the company.
The SWOT Analysis enables a company to recognize its market standing and adopt strategies accordingly. Here SWOT analysis of ICICI bank is made to understand the positioning of the bank better: STRENGTHS 1. Tata Steel’s Indian operations are self-sufficient in the case of its major raw material iron ore through its captive mines. 2. Very advanced Research and Development wing which is carrying out researches and experiments in the areas of raw materials, blast furnace productivity, steel making, product development, process improvement etc. Several thrust area projects were taken up 3.
Tata had a strong retail and distribution network in India and SE Asia. Tata was a major supplier to the Indian auto industry and the demand for value added steel products was growing in this market. 4. The Company is on its way to reach a crude steel capacity of 10 million tonnes per annum by FY 2011. The first phase of reaching the crude steel capacity of 6. 8 million tonnes per annum, Brown field projects, is nearing completion 5. The Company has in place adequate internal control systems and procedures commensurate with the size and nature of its business.
The effectiveness of the internal controls is continuously monitored by the Corporate Audit Division of the Company. Corporate Audit’s main objective is to provide to the Audit Committee and the Board of Directors, an independent, objective and reasonable assurance of the adequacy and effectiveness of the organisation’s risk management, control and governance processes. Corporate Audit also assesses opportunities for improvement in business processes, systems & controls and may provide recommendations, designed to add-value to the organization.
It also follows up on the implementation of corrective actions and improvements in business processes after review by the Audit Committee and Senior Management. 6. Tata Steel has been on a path of accelerated growth with foray into several geographies and markets through aggressive mergers and acquisitions. 7. Tata Steel now is in the process of implementing a structured approach in risk management called Enterprise Risk Management (ERM). The key objectives of the Company through ERM are: To enshrine the process of ERM as a usual Business Process and integrate into all decision making and planning processes.
To ensure that all levels of Management identify and monitor risks through a properly defined framework. To provide periodic information and updates to the Board and the Shareholders on the significant risks and the ways of mitigating the same. 8. Tata Steel addresses the risk of cyclicality of the Steel industry by marinating rich product mix and higher value added products whose volatility is lower. Moreover, the industry itself has been undergoing some structural changes with Consolidations. These changes are expected to bring in greater stability to prices. 9.
Tata Steel with its modernization plans has ensured that it deploys the best technologies to ensure quality, cost-efficiency and environment-friendly processes. Through acquisition of Corus and with new Greenfield ventures, Tata Steel has ensured that it has diversified the concentration risk in single technology of Iron & Steel making WEAKNESS 1. Endemic Deficiencies: These are inherent in the quality and availability of some of the essential raw materials available in India, eg, high ash content of indigenous coking coal adversely affecting the productive efficiency of iron-making and is generally imported.
Advantages of high Fe content of indigenous ore are often neutralized by high basicity index. Besides, certain key ingredients of steel making, eg, nickel, Ferro-molybdenum are also unavailable indigenously. 2. India is deficient in raw materials required by the steel industry. Iron ore deposits are finite and there are problems in mining sufficient amounts of it. India’s hard coal deposits are of low quality and the prices of coking and non-coking coal are ever increasing. 3. Raw materials for steel production are rapidly depleting and are nonrenewable; company has to come up with sustainable methods in steel production.
4. Steel production in India is also hampered by power shortages. 5. Insufficient freight capacity and transport infrastructure impediments to hamper the growth of Indian steel industry. 6. Low Labour Productivity: In India the advantages of cheap labour get offset by low labour productivity; eg, at comparable capacities labour productivity of SAIL and TISCO are 75 t/manyear and 100 t/manyear, for POSCO, Korea and NIPPON, Japan the values are 1345 t/man year and 980 t/manyear.
7. High Cost of Basic Inputs and Services: High administered price of essential inputs like electricity puts Indian steel industry at a disadvantage; about 45% of the input costs can be attributed to the administered costs of coal, fuel and electricity, eg, cost of electricity is 3 cents in the USA as compared to 10 cents in India; and freight cost from Jamshedpur to Mumbai is $50/tonne compared to only $34 from Rotterdam to Mumbai. OPPORTUNITIES 1.
The biggest opportunity before Indian steel sector is that there is enormous scope for increasing consumption of steel in almost all sectors in India. 2. Unexplored Rural Market: The Indian rural sector remains fairly unexposed to their multi-faceted use of steel. The rural market was identified as a potential area of significant steel consumption way back in the year 1976 itself. However, forceful steps were not taken to penetrate this segment. Enhancing applications in rural areas assumes a much greater significance now for increasing per capital consumption of steel.
The usage of steel in cost effective manner is possible in the area of housing, fencing, structures and other possible applications where steel can substitute other materials which not only could bring about advantages to users but is also desirable for conservation of forest resources. 3. Excellent potential exist for enhancing steel consumption in other sectors such as automobiles, packaging, engineering industries, irrigation and water supply in India. New steel products developed to improve performance simplify manufacturing/installation and reliability is needed to enhance steel consumption in these sectors 4.
It is estimated that world steel consumption will double in next 25 years. Quality improvement of Indian steel combined with its low cost advantages will definitely help in substantial gain in export market. 5. The Tata Steel Group is leveraging the Group’s collective Research and Development experience in the Group’s various geographies to further enhance the Group’s performance and also the integration process. 6. Corus acquisition bring in a tremendous technological advantage by access to best practices in global steel industry 7.
Global M&A brought in following synergies • Greater productivity leading to increased output and market size. • Greater economies of scale leading to cost reduction through combined buying • Cross fertilization of Research and Development capabilities and operational best practices, leading to greater innovation and operational efficiencies. 8. Booming infrastructure has opened up high demand for steel worldwide THREATS 1. In the developed world, industries have been facing rising environmental costs due to the increased concerns on Global Warming.
It is, therefore, a challenge and responsibility for the Steel industry to be the trustee in conservation of nature for future generations 2. It is recognised that the steel and aluminium industries are significant contributors to man-made greenhouse gas emissions as the manufacture of steel produces carbon dioxide (CO2), and the manufacture of primary aluminium generates both CO2 and perfluorocarbons (PFCs). 3. High raw material input cost and scarcity of nonrenewable raw materials are a threat to the industry. (eg: Coal, limestone etc) 4.
Threat of Substitutes: Plastics and composites pose a threat to Indian steel in one of its biggest markets automotive manufacture. For the automobile industry, the other material at present with the potential to upstage steel is aluminum. However, at present the high cost of electricity for extraction and purification of aluminum in India weighs against viable use of aluminum for the automobile industry. Steel has already been replaced in some large volume applications large diameter water pipes (RCC pipes), small diameter pipes (PVC pipes).
Recommendation: I would recommend to Dan DiMicco to acquire Mittal Steel, dominate the domestic market, continue brand marking, all plants should be ISO 9000/14001, continue foreign JVs, innovate backward integration, reduce dependence on acquired scrap steel and iron ore and divest forward integration. Strategy Recommendation: Acquire plants abroad, especially in emerging markets like China. By catching a market share in China or other emerging markets will serve as a basis for growth within these economies as they themselves grow.