Second Largest Steel Producer example essay topic

Nucor Corporation in 2001: Pursuing Growth in a Troubled Steel Industry Table of Contents Introduction 3 Nucor's History 3 Current Strategy and Future Expectation 4 Analysis and evaluation 4 Dominant Economic Characteristics of the Steel Industry Environment 4 Competition analysis in the Steel Industry 5 SWOT Analysis 6 Recommendations 9 Introduction Nucor's History Nucor Corporation is the second-largest steel producer in the United States and has had net sales of $4.6 billion in 2000. Nucor recycles approximately 10 million tons of scrap steel. It operates in 9 states and produces carbon and alloy steel in bars, beams, sheet, and plate; steel joists and joist girders; steel deck; cold finished steel; steel fasteners; metal building systems; and light gauge steel framing. The company emerged from near Bankruptcy in 1966 to become one of the fastest-growing steel.

Despite the recession in 1991, Nucor grew into one of the biggest and best-known global producers of steel. Nucor's origins are with auto manufacturer Ransom E. Olds, who founded Oldsmobile and then Reo Motor Cars. Through a series of transactions, the company Olds founded eventually became the Nuclear Corporation of America. Nuclear Corporation was involved in the nuclear instrument and electronics business in the 1950's and early 1960's. The company suffered through several money-losing years, and when facing bankruptcy in 1964, installed F. Kenneth Iverson as President and Samuel Siegel as Vice President of Finance. This change in management led to a restructuring and a decision to rebuild the company around the major profitable operations; the steel joist businesses in Florence, South Carolina and Norfolk, Nebraska called Vulcraft.

The company moved its headquarters from Phoenix, Arizona to Charlotte, North Carolina in 1966, and expanded the joist business with new operations in Texas and Alabama. Management then decided to integrate backwards into steel making by building its first steel bar mill in Darlington, South Carolina in 1968. In 1972 the company adopted the name Nucor Corporation. Since that time, Nucor has built three more Vulcraft facilities, eight steel mills, and expanded into other steel products. Current Strategy and Future ExpectationNucor is pursuing long-term growth and wants to improve its position from the second-largest U.S. steelmaker by overtaking U.S. steel, who is the industry leader.

Its current strategy is to be the lowest cost provider of steel by finding opportunities to reduce cost. It emphasizes on technological leadership by aggressive pursuit of innovation and technical excellence. It puts strong emphasis on employee relations and provides fair compensation and egalitarian benefits. Nucor has a simple, streamlined organizational structure to allow employees to innovate and make quick decisions. The company is highly decentralized, with most day-to-day operating decisions made by the division general managers and their staff. Nucor is committed to uncompromising quality, responsive service, and competitive pricing through dedication to the customer, and concentration on productivity from a highly motivated work force.

Analysis and evaluation Dominant Economic Characteristics of the Steel Industry Environment The steel industry worldwide has a huge excess capacity, forcing many companies to operate in red. An unprecedented number of steel producers have filed for bankruptcy. Among them are Bethlehem Steel Corporation and LTV, who were the country's third- and fourth-largest steel producers respectively. With a lot of world's economies in recession in late nineties, there was a surge in the import of steel. With unfair subsidies from their governments, foreign steel producers were dumping steel in the U.S. market at cut-rate prices.

In 1999, the United States had decided not to impose any import restrictions. With 75% capacity utilization, a level too low for many companies, three European companies decided to merge to form the world's largest steel producer. Two Japanese companies did the same to form the second-largest steel producer. These new mega-steelmakers could easily out muscle their U.S. competitors. The largest steel producer in the US, US-U.S. Steel group was already at number 11, with a threat of falling even below with consolidation in the industry.

The terrorist attacks on September 11, 2001, reduced the demand for steel even further. Efforts were underway to negotiate a worldwide reduction in steel production. In addition to cheap imports the U.S. steel producers were facing higher energy prices, increasingly tough environmental rules and a changing cost structure among producers. The steelmakers around the world were watching the development of continuous "strip casting" technology, which was believed to be the next leap forward for the industry. This would eliminate the slab-casting stage and all of the rolling in the hot mills.

Strip casting was facing some technological challenges but was already being adopted around the world outside the U.S. Competition analysis in the Steel Industry The pressures form substitutes, suppliers and new entrants are low, as shown in figure 1 below. Since buyers are less in number and buy in huge quantities, the competitive pressure is high. The intensity of the rivalry is very high especially after the consolidation of international steel makers. The number of players is less and there is huge excess capacity. The product is standard and not much can be done to create differentiation, so the basis of competition is cost. There is a huge pressure to keep up with the emerging technology.

Figure 1: Porter's Five-Forces Model of Competition SWOT Analysis Strengths. Nucor is the second-largest producer of steel in the U.S. It enjoys the brand name advantages, and has well established relations with the suppliers and the buyers... Nucor is very good at identifying cost cutting opportunity. It has always kept the cost low, maintaining a very high quality. It integrated backwards and started producing steel to reduce the material cost for joists. Nucor plants have always been situated near the markets they serve...

Nucor had always been aggressive pursuit of Innovation and technical excellence in technology. It has monitored the R&D activities around the world and has reviewed it for possible adoption. In the U.S., it has been the first to adopt the electric arc furnace and continuous strip casting technologies... Nucor is known for constructing state-of-the-art facilities at the lowest costs. When Nucor introduced the mini mills the average cost of capital was $135 per ton of capacity, almost one-tenth of the cost of the competitors. It has the most modern mills in the U.S. equipped with the latest technology...

Nucor has a stripped down, no non-sense thrifty organization under a very strong corporate leadership. It has a very lean corporate staff and simple corporate facilities. There are no corporate perquisites. The organization is decentralized and each division is autonomous... It has a very strong employee relationship. It has empowered the employees to make the decisions and allows them to fail, which brings out their innovative ideas.

Its compensation and incentives programs has boosted the productivity to levels nearly double the industry average. There is no union and the annual compensation package is higher than their union counterparts. Weaknesses. Nucor's divisions operated as decentralized profit centers with all the functions, including marketing and sales being performed at the division level.

As a result, the divisions were often competing with each other. Furthermore, there were some duplicate efforts occurring at all the divisions... For a long period of time there was no strategic vision or plan for Nucor, each division worked as an independent and unrelated entity. Nucor has very recently started having strategic planning sessions.

It is a very big challenge for the new general manager of strategic planning to communicate the vision and maintain the focus on the strategy and protect Nucor's overall market share... Nucor is facing environmental issues. Its mill in Crawfordsville had been cited by Environmental Protection Agency for alleged violations of Federal and State clean air rules... Nucor spends a huge amount of money on R&D and sometimes the efforts were futile.

The company spent $2 million in an unsuccessful effort to utilize resistance heating and even more on induction melting. Opportunities. The steel industry is undergoing consolidation and there are companies filing for bankruptcy. Nucor has the opportunity to grow its size by identifying and acquiring some of these companies which fit in strategically... There are researches going around the world, to come up with a better technology in all production areas.

Nucor could quickly recognize and utilize them to maintain its role as a technology leader in the U.S. Strip casting is one such technology... Bush administration was under a mounting pressure to impose 40 percent import tariffs and quotas to provide relief to the domestic steel producers. Nucor could increase the pressure by using its influence... There is an opportunity for Nucor to expand its business by joining with other steel producers outside the United States and have the advantages of low energy and labor cost. Threats. Weakening demand for steel in the U.S. and worldwide, following the recession is a big threat.

There is huge excess capacity in the steel industry worldwide. Even if all the steel producers in the U.S. stopped producing, some excess capacity would remain... The weakened Asian economy has caused the international steel producers to dump the steel in the United States. This, followed by the terrorist attacks on September 11, has reduced the domestic demand for steel... Strengthening International competition is a threat. The consolidation in the industry is resulting into very big steel producers who can out muscle Nucor...

Increasing energy price in the United States is increasing the cost of production... Increasing prices of scrap steel is going to increase the cost of production, wherever it is used as the raw material... Increase in environmental regulations would lead to additional cost for compliance. It could lead to costly modifications or closing of old plants. Recommendations My analysis shows, that Nucor should strongly align all the divisions to work together towards the strategic goals and objectives of the company.

The management should put more efforts in communicating the mission and vision of the company. Nucor should centralize some of the functions, like sales to avoid the divisions competing with each other. It would reduce cost by removing the redundant duplicate efforts by the divisions. It would also bring the top executives on the same page and controlling the business would be much easier for them. Nucor should continue to be the low-cost, quality provider by using all its strengths. It should continue to be the technological leader by quickly identifying and adopting new technologies.

With the competition getting so tough, Nucor should partner with companies coming up with the newest technology, instead of trying to do it on their own. This would reduce the R&D effort and cost and help Nucor get to the technology faster. Nucor should grow by acquiring other companies, but care must be taken to see that they fit strategically. It should also look outside the U.S. for consolidation opportunities.

By going outside of the U.S. it may be able to reduce the energy, raw material and labor costs, which will give it an edge over its domestic competitors. Finally, it should use all its influence to increase the mounting pressure on the Bush administration, to impose 40 percent import tariffs and quotas that will provide some relief from the dumping by the foreign steel producers..