Competitiveness

DEPARTMENT OF ECONOMICS

COMPETITIVENESS OF THE FIRMS

IN INDIAN IRON AND STEEL INDUSTRY

BY

L. G. Burange

Shruti Yamini

WORKING PAPER UDE33/2/2010

FEBRUARY 2010

DEPARTMENT OF ECONOMICS UNIVERSITY OF MUMBAI

Vidyanagari, Mumbai 400 098.

Documentation Sheet

Title:

COMPETITIVENESS OF THE FIRMS

IN INDIAN IRON AND STEEL INDUSTRY

Author(s):

L. G. Burange

Shruti Yamini

External Participation:

-----

WP. No.: UDE33/2/2010

Date of Issue: February 2010

Contents: T 29, F 23, R 35

No. of Copies: 100

Abstract

The paper examines the performance of Indian iron and steel industry in the pre

and post-liberalisation periods in terms of primary indicators such as production,

consumption and foreign trade. It also studies growth in capacity utilisation, prices and

employment. It is deduced that the industry has grown manifold in all the aspects,

especially after the liberalisation of the economy except employment, which shows a

substantial fall during post-liberalisation when competition among the Indian

manufacturing firms has increased. Therefore, that leads us to investigate the

competitiveness of the sample firms in the industry through composite competitiveness

indices. On the basis of overall competitiveness, as well as financial and non-financial

aspects of competitiveness, the industry is mostly dominated by Tata Steel Ltd., even

though SAIL has a greater market share and proves to be superior with respect to non-

financial indicators. JSW Steel Ltd. stands tall on the index for major producers,

whereas Bhushan Power & Steel Ltd. leads the other secondary producers index of

competitiveness.

Key Words: Competitiveness, Indices, Financial and Non-financial Indicators.

JEL Code(s): L61

THE PERFORMANCE OF INDIAN IRON AND STEEL INDUSTRY

AND COMPETITIVENESS OF THE FIRMS*

L. G. Burange

Shruti Yamini

1. INTRODUCTION

It can apparently be stated that iron and steel has little or no competition

because of its ideal combination of strength, rigidity and workability and the

relatively high cost of alternative materials. Moreover, the steel industry has very

strong forward and backward linkages in terms of material flow, income generation

and employment creation; hence the economic prosperity and growth of an economy

is very closely related to the quantity of steel consumed by it.

The Indian iron and steel industry has traversed a long path since the first steel

plant went into operation in 1907. Starting at 1 million tonne (m. t.) capacity at the

time of independence, India has now risen to be the fifth largest crude steel producer

in the world and the largest producer of sponge iron. Moreover, India is expected to

become second largest producer of steel in the world by the year 2015. That the

industry has started to mark its presence world-wide is also evident from the fact that

its share in world production of crude steel has been constantly on a rise since the

industrys liberalisation, at a healthy compound annual growth rate (CAGR) of 2.86

percent between the period 1991 to 2007 and at astounding 14.44 percent in the last

eight years (World Steel Association 2008). As per an official estimate, the industry

contributes around 2 percent of the Gross Domestic Product and its weight in the

Index of Industrial Production is 6.20 percent (GOI 2008a, p.10). Further, with a share

of approximately 10 percent, the industry is amongst the largest contributors to the

central excise duty.

* The inputs of an anonymous reviewer are greatly acknowledged. However, the authors are solely

responsible for any remaining errors.

2

The first large scale production of iron and steel in India was made in 1829,

when Josiah Heath ventured on his famous enterprise of mining and smelting iron ore

at Salem and Porto Novo. However, due to high capital requirement the works was

wound up in 1867. Therefore, the credit of finally initiating the iron and steel industry

in India on a full-fledged scale goes to late Jamshedji Tata who in 1907 organised the

Tata Iron and Steel Company (TISCO, now Tata Steel Ltd.). The iron and steel

production increased quite rapidly following Independence as India attempted to

strategically invest in this core sector to bring about national industrial transformation

(DCosta 2006, p.8). According to the first Industrial Policy Resolution adopted in

1948, new production units of iron and steel were to be started exclusively by the

government in the public sector without disturbing the existing ones in the private

sector. Therefore, state ownership of steel plants in independent India began in the

1950s as some integrated steel plants were set up in the public sector and few steel

units in the private sector. The first push to this industry came during the first three

five year plans (1952-1970). Massive injections of investment in the public sector

coupled with a protected market environment laid the foundations of a viable and

competitive indigenous iron and steel industry. Unfortunately, India's steel capacity

was not augmented to any appreciable extent over the next two decades as the

economic slowdown adversely affected the pace of growth. Many factors contributed

to the slowdown. Most important were related to structural deficiencies, such as the

need for institutional changes in agriculture and the inefficiency of most of the

industrial sector. Wars with China in 1962 and with Pakistan in 1965 and 1971; a

flood of refugees from East Pakistan in 1971; droughts in 1965, 1966, 1971, and

1972; currency devaluation in 1966; and the first world oil crisis, in 1973-74, all

jolted the economy. However, this phase was reversed from 1991-92, when the

country replaced the control regime by liberalisation and deregulation in the context

of the New Economic Policy.

The Indian iron and steel industry was freed from the shackles of control and

liberalised in July 1991, which led it to grow in several dimensions. The main policy

measures taken with regard to the industry include (GOI 2007):

1. The industry was removed from the list of industries reserved for the public sector

and also exempted from the provisions of compulsory licensing.

3

2. The industry was included in the list of high priority industries for automatic

approval for foreign equity investment up to 51 percent. This limit has recently

been increased to 100 percent.

3. Price and distribution of steel were deregulated from January 1992.

4. The trade policy was liberalised where import and export was freely allowed.

5. Levy on account of Steel Development Fund was discontinued from April 1994,

thereby providing greater flexibility to main producers to respond to the market.

After passing through the initial phase of stabilisation following the economic

reforms and liberalisation, the steel industry experienced a growth of 22 percent and

14 percent during 1994-95 and 1995-96, respectively (Mazumder and Ghoshal 2003,

p.65). The industry however experienced a difficult phase between 1997 and 2001.

This was due to the severe recession in the global economy which led to demand-

supply mismatch with potential production capacity being much higher than demand.

Prices of a few types of steel during this period touched a 20-year low and most

producers in India made heavy losses. Many firms were forced to shut down leading

to loss of jobs. New capacities became uneconomical and surplus (Joshi 2006, p.2).

As noted by Muthuraman (2006), the industrial recovery in India really began to be

seen in 2002-03; was consolidated during 2003-04; gathered momentum during 2004-

05; and scaled new heights during 2005-06 and 2006-07. Consequently, the

competition between the firms within the industry has increased. This is mainly on

account of the better performance of the existing firms in all the fields of competence

and the resultant surge in competition for market share. Furthermore, due to the

expectant prospects of the industry in the near future, newer secondary producers

have entered the market making competition even more intense down the line. The

accompanying outcome is worth examining through the analysis of the current

scenario of competitiveness among the firms in the industry in the following sections.

The paper is organised as follows: Following the introduction, the second

Section deals with the performance of the industry in terms of some key indicators.

The third Section discusses the concept and measurement of competitiveness along

with the methodology and the data. Section four analyses the results of the study

4

while Section five examines the competitiveness of the firms in different segments of

the industry. The last Section concludes the paper.

2. PERFORMANCE OF THE INDUSTRY

The performance of the industry in key indicators such as production,

consumption, export, import, employment etc. has been studied by analysing their

growth rates. For the purpose, compound annual growth rates (CAGR) are computed

for the 32 years, from 1975-76 to 2006-07, as per the semi-log method (Appendix

table 2). Besides, the CAGR is estimated for two sub-periods, i.e. pre-liberalisation

period (1975-76 to 1991-92) and post-liberalisation period (1991-92 to 2006-07),

using the kinked exponential growth model (Boyce 1986, Goldar and Seth 1989,

Burange 2000). The main data sources used here are SAIL (2008), Joint Plant

Committee (2007) and Government of India (2009).

2.1. Production

The finished steel production in India has grown from a mere 1.1 m. t. in 1951

to 50.20 m. t. in 2006-07. During the first two decades of planned economic

development, i.e., 1950-60 and 1960-70, the average annual growth rate of steel

production exceeded 8 percent. However, this growth rate could not be sustained in

the following decades due to lack of demand. During 1970-80, the growth rate in steel

production came down to 5.7 percent p.a. and picked up marginally to 6.4 percent p.a.

during 1980-90 (GOI 2005a), which further increased to 8.61 percent p.a. during

1990-2000. The addition in production is all the more significant after recovery of the

industry on domestic as well as the global clues, i.e., after 2001-02. When CAGR is

estimated for the pre-liberalisation (1975-76 to 1991-92) and post-liberalisation

(1991-92 to 2006-07) periods, it is noted that growth rate is understandably higher in

the later period at 8.11 percent compared to 4.96 percent for the earlier period (table

1). After liberalisation, there have been no shortages of iron and steel materials in the

country as production has augmented. India's rapid economic growth and soaring

demand by sectors like infrastructure, real estate and automobiles, at home and

abroad, has put Indian steel industry on the global map.

5

2.2. Apparent Consumption

The apparent consumption (as commonly referred to) of steel is arrived at by

subtracting export of steel from the total domestic production and adding the import

of steel. Change in stock is also adjusted in getting the consumption figures. It is

treated as the actual domestic demand of steel in the country. Apparent consumption

of finished steel kept pace with production as it increased from 14.84 m. t. in 1991-92

to 44.33 m. t. in 2006-07 with the CAGR of 6.26 percent p.a. over the post-

liberalisation period as against 5.53 percent in the pre-liberalisation period (figure 1).

The CAGR for the entire period is 6.19 percent. However, the potential demand for

steel in India is still vast, as the present per capita consumption in the country is only

around 46 kg (GOI 2008a, p.10) against the world average of 150 kg and that of 400

kg in the developed countries. The consumption of iron and steel is primarily driven

by the manufacturing, construction and infrastructure sectors, which have witnessed

impressive growth in India in the past few years. The prospects for the market might

get brighter, if supported by government initiatives in the infrastructure sector, and an

expected early revival in the manufacturing sector.

2.3. Foreign Trade

Liberalisation of the foreign trade regime has had a favourable effect on Indian

exports. Exports, in volume terms, grew fast- at a rate exceeding 30.7 percent p.a.

between 1991-92 and 2006-07 (post-liberalisation period). This was in contrast to the

declining trend, at (-) 1.15 percent in the pre-liberalisation period of 1975-76 to 1991-

92 (table 1). During the post-liberalisation period, the countrys export basket also

changed in favour of more value added and sophisticated products. The major steel

items of export include hot rolled (HR) coils, plates, cold rolled (CR) and galvanised

products, pipes, stainless steel, wire rods and wires. The export destinations also got

widened with Indian steel reaching very large number of countries in all the

continents of the world. Indias major markets for steel items include USA, Canada,

Indonesia, Italy, West Asia, Nepal, Taiwan, Thailand, Japan, Sri Lanka and Belgium.

Import of steel, on the other hand, followed a different growth path. Contrary

to the declining trend in exports, it remained stable at around 4.1 percent (CAGR) in

6

5.45

14.16

6.19

6.85

4.10

-1.15

5.53

4.96

6.30

30.70

6.26

8.11

-5 0 5 10 15 20 25 30 35

Import

Export

Apparent Consumption

Production

Post- Liberalization Period Pre- Liberalization Period Total Period

the pre-liberalisation period. And, unlike exports, it increased only marginally at

around 6.3 percent CAGR in the post-liberalisation period. Most dramatic increase in

imports can be seen between 2003-04 and 2006-07, doubling itself from 1.45 m. t. to

4.39 m. t. in over just four years. As a result, for a major part of the post-deregulation

years India enjoyed the status of a net exporter of steel, even though the net export

levels varied widely. As noted by the Report of the Working Group on Steel Industry

for the Eleventh Five-Year Plan (GOI 2006), an association observed between the

growth in domestic demand and relative movements in imports and exports (i.e., net

exports) shows that the industry is ready to operate in an open economy where exports

and imports respond to increases or decreases in domestic demand driven primarily by

market signals (i.e., relative domestic and international price and relative realisation

on domestic versus international sales) and appropriate fiscal adjustments (i.e.,

changes in tax rate) .

Table 1: Growth Trend in Primary Performance Indicators (Percent)

Year Production Apparent Consumption (Production + Import) - Export

Export Import

Total Period CAGR

(1975-76 to 2006-07) 6.85 6.19 14.16 5.45

Pre- Liberalisation Period CAGR

(1975-76 to 1991-92) 4.96 5.53 -1.15 4.10

Post- Liberalisation Period CAGR

(1991-92 to 2006-07) 8.11 6.26 30.70 6.30

Figure 1: Comparison of CAGR of Key Performance Indicators

7

67

75

65

7982

86 8891 91 89 91

0

10

20

30

40

50

60

70

80

90

100

2.4. Capacity Utilisation

Capacity underutilisation, as in other industrial sectors, presents a major

drawback in the Indian iron and steel industry. Capacity utilisation, as measured by

total output divided by installed capacity multiplied by 100, has historically been

fluctuating. From a low start in 1970-71 of 67 percent average capacity utilisation, it

increased to 75 percent in 1980-81 and declined again thereafter to around 65 percent

in 1990-91. In 2000-01, however, it improved again to 79 percent (table 2). It needs to

be mentioned that the range of capacity utilisations amongst the plants is

considerable. In 1970-71 it ranged between 40 percent and 86 percent, and in 1977-78

two plants even registered capacity utilisation of over 94 percent (Schumacher and

Sathaye 1998). However, the capacity utilisation in mini steel plants is usually low

largely due to inadequate supply of scrap and power.

Table 2: Capacity Utilisation of Crude Steel

Years Capacity Utilisation

of Crude Steel (%)

1970-71 67

1980-81 75

1990-91 65

2000-01 79

2001-02 82

2002-03 86

2003-04 88

2004-05 91

2005-06 91

2006-07 89

2007-08 91

Source: JPC (2007) and Other

Sources Figure 2: Trends in Capacity Utilisation of Crude Steel

Capacity underutilisation in the pre-liberalisation period inevitably resulted in

high costs of production and losses. It was due to inadequate supply of coal and

power, transport bottlenecks and other infrastructural constraints, absence of proper

maintenance, poor management (e.g., caused by frequent changes in top management

of public sector plants), extensive labour unrests and in more recent years due to lack

of demand by engineering industries like railway wagons etc. (Datt and Sundharam

1998). Furthermore, public sector units seemed to be particularly inefficient. They

showed continuous losses since they were set up, additionally due to heavy

investments on social overheads and administered prices and controlled distribution

that did not allow these units to receive reasonable returns for their products.

8

0

50

100

150

200

250

300

However, in the post reform period, there has been significant improvement in the

capacity utilisation levels, as a result of expansionary phase in the general economy

and the consequent accelerated growth in demand for steel by the user sectors (GOI

2006), better export performance of the sector and high prices of steel .

2.5. Pricing Trends

The domestic prices of iron and steel have been market-determined ever since

the de-regulation of prices for integrated steel plants in 1991-92. Market prices remain

closely related to international prices, though generally lower. The main policy

instrument available to influence prices is the adjustment of the customs and excise

duty structure. An important feature of the de-regulated era is that prices of both

finished steel and its inputs have risen at a much faster rate and with a lot of volatility,

compared to the past. Table 3 below gives the trend in WPI (with base year 1993-

94=100) for iron and steel between 1990-91 and 2007-08. The Indian steel industry

experienced a significant slump in prices during the period 1998-99 to 2001-02 in line

with global trend, which adversely affected the profitability of domestic steel firms.

However, certain steel mills remained profitable during this period due to price

Table 3: Wholesale Price Index of Indian Iron and Steel

Source: GOI (2008b) Figure 3: Trend in Wholesale Price Index of Iron and Steel (Base Year: 1993-94=100)

Year WPI

1990-91 94.86

1991-92 91.85

1992-93 92.09

1993-94 100.00

1994-95 106.00

1995-96 116.60

1996-97 124.10

1997-98 129.80

1998-99 132.80

1999-00 134.50

2000-01 136.80

2001-02 136.60

2002-03 143.50

2003-04 181.10

2004-05 232.90

2005-06 250.10

2006-07 254.40

2007-08 278.10

CAGR (%) 6.69

9

100000

150000

200000

250000

300000

350000

400000

450000

500000

1975

-76

1976

-77

1977

-78

1978

-79

1979

-80

1980

-81

1981

-82

1982

-83

1983

-84

1984

-85

1985

-86

1986

-87

1987

-88

1988

-89

1989

-90

1990

-91

1991

-92

1992

-93

1993

-94

1994

-95

1995

-96

1996

-97

1997

-98

1998

-99

1999

-00

2000

-01

2001

-02

2002

-03

2003

-04

2004

-05

2005

-06

Number of Workers

control over key inputs such as coal, value addition in the production chain and

product diversity by introducing new types of steel meant for specialised usage.

Nonetheless the prices have recovered significantly after 2003-04.

2.6. Employment

The trend in employment (number of workers) in the iron and steel industry is

studied in the post- and pre-liberalisation periods with the help of ASI database

(Government of India 2009). The results are distinct in the sense that it is the

only performance indicator which has recorded negative growth during the total

period of 1975-76 to 2005-06. The estimated CAGR in employment in the period

between 1975-76 and 2005-06 is (-) 1.01 percent. However, the rate was a little better

at 0.35 percent in the pre-liberalisation period (1975-76 to 1991-92). The figures

indicate that the level of employment was worst in the post-liberalisation period

(1991-92 to 2005-06) where it declined at a rate of (-) 2.41 percent CAGR (table 4).

After deregulation of the industry, through the schemes such as voluntary retirement

and golden hands-shakes, industry tried to rationalise labour cost in the iron and steel

production. This led to decline in employment in the Indian iron and steel industry

during post-liberalisation period. The declining employment in the industry led to

improvement in labour productivity, although it is still low compared to most of the

steel producing countries. This phenomenon can be attributed to increased

mechanisation and technological advancement in the industry following decontrol,

which led to the substitution of labour with capital in iron and steel production.

Nevertheless, after stagnating in the years 2001-03, the number of workers in the

Table 4: Employment in Indian Iron and Steel Industry

Figure 4: Trend of Employment in the Industry

Time Period CAGR

(%)

Overall Period

(1975-76 to 2005-06) -1.01

Pre-liberalisation

Period

(1975-76 to 1991-92)

0.35

Post-liberalisation

Period

(1991-92 to 2005-06)

-2.41

Pre-liberalisation Post-liberalisation

10

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

Pig Iron Sponge Iron

industry has increased from 268459 in 2003-04 to 294974 in 2004-05 and to 323051

in 2005-06, indicating a positive signal for the employment in the industry. This

recent growth in employment is primarily due to the growth in the number of

producing units in the industry, especially in the private sector, as well as the growth

in the size of individual units.

2.7. Pig and Sponge Iron Industry

Pig iron is one of the basic raw materials required by the foundry and casting

industry for manufacture of various types of castings for the engineering industries. In

2006-07, the share of production of pig iron by secondary (smaller) producers was

82.8 percent, whereas primary producers produced only 17.2 percent. Along with the

production of steel, the production of pig iron in the country has also increased at a

modest rate of 6.3 percent in the post liberalisation period (table 5) due to positive

global demand, India being a major exporter. However, to help the industry, the

government should invest more on the development of the infrastructure sectors, such

as road and transport, so that the derived investment demand could flow into the

industry. Also, the foundries in India, particularly the smaller ones, are using obsolete

Table 5: Production in Indian Pig and Sponge Iron Industry (Million Tonnes)

Source: JPC (2007, Various Issues) Figure 5: Trend in Production in Indian Pig and

Sponge Iron Industry

Years Pig

Iron

Sponge

Iron

1991-92 1.59 1.31

1992-93 1.84 1.44

1993-94 2.25 2.40

1994-95 2.79 3.39

1995-96 2.80 4.40

1996-97 3.29 5.01

1997-98 3.45 5.35

1998-99 3.00 5.11

1999-00 3.15 5.18

2000-01 3.40 5.44

2001-02 4.07 5.66

2002-03 5.29 6.91

2003-04 3.76 8.09

2004-05 3.23 10.27

2005-06 4.70 12.65

2006-07 4.99 16.27

CAGR (%) 6.30 14.77

11

technology and need modernisation with better technology so that the cost of

production can come down. Although this might mean substitution of labour and

result in decline in employment in such units.

India is the worlds largest producer of sponge iron. Production of sponge iron

in the country as an alternative feed material to steel melting scrap (re-usable steel

waste), which was being imported hitherto in large quantities by the Electric Arc

Furnace units and the Induction Furnace Units, has resulted in considerable savings in

foreign exchange. The growth of sponge iron especially during last 5 years in terms of

capacity and production has been substantial. The installed capacity of sponge iron

increased from 1.52 m. t. p.a. in 1990-91 to 26.39 m. t. in 2004-05. The production

has increased from 1.31 m. t. in 1991-92 to 16.27 m. t. in 2006-07 (table 5) at 14.77

percent CAGR mainly due to de-licensing of the industry. Moreover, growth in

production in sponge iron in the last 5 years has been at an impressive 24.11 percent.

It may be summed up that the industry performance has definitely improved in

the post-liberalisation period in terms of production, consumption, trade, etc., the only

exception being employment. Furthermore, according to Pushpangandan and Shanta

(2009), the competition among the firms has also increased in the Indian

manufacturing industries after the economic liberalisation. This leads us to examine

the competitiveness among the firms in the industry.

3. CONCEPT AND MEASUREMENT OF COMPETITIVENESS OF THE FIRMS

It is presumed that because of superior iron and steel industry performance

initiated by various factors such as favourable government policies, desirable external

environment, increased competition, etc., the competitiveness of the firms has

improved. The present study moves on to examine this issue of competitiveness of the

firms within the industry with the help of empirical data.

In the existing literature, mainly two scientific approaches to measure and

analyze competitiveness, namely models and indices, are encountered. Models are

complex, usually custom-built to answer specific questions and require relatively

large investment in data collection and analysis. The principal alternative to models is

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indices, designed to measure and compare specific phenomenon, encompassing

several variables. Therefore, to achieve our objective of measuring competitiveness of

firms in the Indian iron and steel industry, a composite competitiveness index for the

firms has been constructed. Typically, it is a weighted linear (mathematical)

combination of individual indicators that represent different dimensions of a concept

whose description is the objective of the analysis (Saisana and Tarantola 2002).

Therefore, the competitiveness index evaluates the sample firms relative competitive

performance, represented by a number of indicators.

Typically, the first step towards construction of composite indices involves

defining the concept that is to be measured through it. Therefore, the concept of

competitiveness is introduced concisely. Most simply put, competitiveness is a

relative term, which means willingness and ability to profitably compete with

competitors. Due to the fact that competitiveness is a relative measure, one always

has to make the comparison with a base value. Nonetheless, the meaning remains

vague and ambiguous, until its application on the level of aggregation of an economy

(such as regions, nations, industries, firms and products) is ascertained. There is a

distinct divergence in definitions, as competitiveness at the different levels of the

economy is analysed, as each entitys competitiveness is sought to be examined

according to the factors most vital to the survival of the entity in its specific

competitive environment (Reiljan et al. 2000).

Following Porters (2002) viewpoint, where he maintains that wealth is

actually created in an economy at the microeconomic level, in the ability of the firms

to create valuable goods and services using efficient methods, we concern ourselves

with the firm-level competitiveness in the industry. However, it may be noted that

there is a complete lack of empirical research on the subject, as most of the studies

attempt to analyse and measure region, country or industry competitiveness. This

guides us to examine the definitions and theoretical models discussed by some of the

main studies initially, and thereafter identify the main variables explaining the

competitiveness of a firm following them.

According to Buckley et al. (1988, p.176), the most complete definition to

describe competitiveness at the firm level, as given by the Aldington Report (1985) is

13

as follows; a firm is competitive if it can produce products and services of superior

quality and lower costs than its domestic and international competitors.

Competitiveness is synonymous with a firms long-term profit performance and its

ability to compensate its employees and provide superior returns to its owners. This

comprehensive definition highlights the importance of quality of the product which is

dependent on the technology used by the firm, its financial and stock market

performance and investment on human resource by the firm.

In the same line of thinking, the Department of Trade and Industry (1994, p.9)

of U. K. states that; for a firm, competitiveness is the ability to produce the right

goods and services, at the right price, at the right time. It means meeting customers'

needs more efficiently and more effectively than other firms. Apart from stressing on

the productivity, quality and price aspects, the stated definition sheds some light on

importance of consumer satisfaction too.

D'Cruz and Rugman (1992, p.13) argue that the firm level competitiveness can

be defined as .the ability to design, produce and market goods and services, the

price and non-price characteristics of which form a more attractive package than

those of competitors. A distinction is often made between the price and non-price

competitiveness, the first representing a firms capacity to succeed in price

competition (for a given product quality) profitably, while non-price competitiveness

encompasses a host of other factors that account for a firms success such as product

technology, diversity, novelty or sales and marketing services.

Gelei (2003, p.43) has used the definition of firm competitiveness as the

basic capability of perceiving changes in both the external and internal environment

and the capability of adapting to these changes in a way that the profit flow generated

guarantees the long term operation of the firm. This definition interprets

competitiveness of firms as an ongoing struggle for survival, which is one of the most

complex phenomena of firms operation. She maintains that firm competitiveness is

basically a function of two factors. First, it is determined by the extent a firm can

identify the value dimensions that their customers expect and offer them those

through product and service package. In the long run a firm can be competitive only

when it is able to create value for their customers. The second factor of firm

14

competitiveness is the sum of resources and capabilities that makes a firm capable to

create and deliver the identified important value dimensions for the customer.

Prahalad and Hamel (1990) call the second set core competences. It may be noted

that Gelei (2003) has placed a well-defined stress on the long term goals of the firm,

when competitiveness is implicated.

Krugman (1994, p.31) rightly states that the competitiveness of firms has a

clearly defined bottom line: if a corporation cannot afford to pay its workers,

suppliers and bondholders, it will go out of business. So when we say that a

corporation is uncompetitive, we mean that its market position is unsustainable- that

unless it improves its performance, it will cease to exist. By this, he certainly gives

an emphasis to the significance of financial stability of a firm in its existence in

market. Moreover, human resource development and profitable returns to the

shareholders are also considered crucial. Altenburg et al. (1998, p.2), elaborates this

view further by maintaining that firm competitiveness is the ability to sustain a

market position. This ability requires the simultaneous achievement of several targets.

The firm must supply products of adequate quality on time and at competitive prices.

Moreover, as a rule it must be in a position to provide sufficiently diversified products

to meet a differentiated demand, and it must respond quickly to changes in demand

behaviour. Beyond this, success is contingent on a firm's innovative capacity, its

ability to build up an effective marketing system, to establish a brand name, and so

on. The given definition exaggerates the criticality of the firm to sustain the

competitive position in the industry over a longer term, and not only focus on its

current performance. This objective can be attained through proper investment in

technology and marketing of the products.

Moving on to the application of the concept, since a firm does not produce in a

vacuum, its competitiveness can only be measured within various types of market

territories at the sub-national, national and supra-national levels (UNCTAD 2002,

Sinner 2002). Hence at least three general types of competitiveness have been

identified or implied in various contexts:

1. Economy Competitiveness: The ability of all the firms in the economy to

compete, via price or other product attributes, with businesses located in other

15

countries. This is sometimes referred to as the competitiveness of a country the as

combined firm performance of two or more countries is compared.

2. International Competitiveness of Firms: The ability of specific firms or industries

to compete for market share with the same businesses located in other countries,

which affects the location of production across countries.

3. Domestic Competitiveness of Firms: The ability of specific firms or industries to

compete for market share with other firms or industries in the same country.

Problems with defining competitiveness and confusion in terminology are the

two most critical factors that limit its practical analysis. As the first issue has already

been addressed, a brief differentiation between the terms competition and

competitiveness maybe helpful in understanding the concept better. Most simply put,

there seem to be a causal link from competition to competitiveness, such that

increasing competition promotes internal and allocative efficiencies, which in turn

raises competitiveness. Competition signifies contradicting interests of economic

entities, whereas competitiveness reflects a position of one economic entity in relation

to others by comparing the qualities or results of activities reflecting superiority or

inferiority (Reiljan et al. 2000). Therefore, it may be said that competitiveness is a

much broader long term phenomenon than competition, implying overall comparative

standings of the firms determined by various aspects of performance and potential. In

contrast to this, competition is generally ascertained in only one or few aspects of

performance for a shorter term.

Grounded on the review of the concept, we identified the major factors of

competiveness and competitiveness of the firms in an industry has been defined for as

a multidimensional concept involving relative competitive performance and potential

of firms in an industry, for greater domestic market share and penetration in the

international market through foreign trade, with the help of financial as well as non-

financial factors such as sales and marketing tools, human resource, customer

orientation and technological up gradation. It is maintained therefore that the short

term goal of a firm relating to profit maximization and maximization of shareholders

wealth is not suffice for its long term competitiveness. The firm must also focus

adequately on the other developmental and welfare-based ends, which are non-

financial in nature, to remain competitive in the market and sustain its position.

16

3.1. Choice of Indicators and Sub-indicators

When it comes to measuring competitiveness of firms in an industry, as

mentioned earlier, there is a dearth of empirical studies. Therefore, for the first step of

identifying the indicators of competitiveness, the famous Buckleys model of three Ps

(1988) - Potential, Process and Performance is adopted. The underlying argument of

interlinking the three is that measuring only a potential does not reveal anything about

the actual performance. Moreover, a single measure of performance can raise the

question of the sustainability of that performance. Consequently, measuring the

management process also investigates the vital link that can turn potential into

performance. Thus, the suggested approach conceives the factors of potential, process

and performance as a framework of three interacting determinants that would together

explain sustainable competitiveness (Flanagan 2004, p.9).

We identified ten main indicators of competitiveness from the review of

available literature as well as from our perception of the concept and blended them

into the following model, which explains all the aspects of firms competitiveness at a

point of time. The three Ps interact together to establish the competitiveness of the

firm. Each indicator is then explained by a number of other sub-indicators. The

indicators of competitiveness for the firms in the Indian iron and steel industry,

weaved with the Buckleys Model, are exhibited in figure 6.

Figure 6: Model of Competitiveness Indicators Interrelation Source: Adapted from Buckley et al. (1988, p.184)

Competitive Performance

Productive Performance

Financial Performance

Foreign Trade Measure

Cost Effectiveness

Stock Market Performance

Competitive Potential

Technological and Environmental Factors

Growth Performance and Potential

Competitive Process

Sales and Marketing Strategy

Consumer Satisfaction

Human Resource Development and Social

Responsibility

17

Competitiveness is concerned with the ability of firms to perform better than

rivals, where performance is dependent on both financial and non-financial conditions

of the firm. Therefore, for the purpose of advance analysis, the ten indicators are re-

grouped into financial indicators which include financial performance, cost

effectiveness, stock market performance and foreign trade indicators and non-

financial indicators comprising productive performance, sales and marketing strategy,

consumer satisfaction, technological issues, human resource and growth variables.

Total number of sub-indicators (variables) employed for the competitiveness

index are 66 out of which 49 are taken from PROWESS database (CMIE 2007) and

17 from other data sources. Other data sources mainly include various reports of the

Joint Plant Committee (JPC) for steel, company websites and annual reports of the

firms. Besides, a field survey was carried out for all sample firms to collect few of the

qualitative data. The 66 sub-indicators, which are used to construct the

competitiveness index of the firms in the industry with their appropriate definitions

and adjustments, are listed in Appendix table 4. The data has been taken for the year

2006-07, so that the index represents the current competitive position of the firms in

the industry. However, as a firms operation is affected by short term fluctuations,

especially with respect to financial performance, we have used average values for the

last three years, for those sub-indicators.

After the conceptual foundation is made, the competitiveness index is

constructed by selecting the sample firms, normalising and weighting the selected

indicators and finally aggregating them to arrive at the competitiveness scores of the

firms. This computation ranks the firms not only in accordance with their overall

competitiveness but also in the various groups of main indicators. The details of the

specified methodology have been discussed in the following sub-sections.

3.2. Sample Selection

The sample of firms has been chosen on the basis of their market shares for

the year 2006-07. The market share of each of the firm is arrived at by dividing their

respective sales (Rs. Cr.) by industrys total sales and then multiplying it by 100. The

data used is given by CMIE (2007). All efforts have been made to include a

18

representative sample of firms having more than 1 percent of the market share. With

this, 14 firms were selected as the sample of the study, which covered more than 75

percent of the industrys total market share. The precise market share of the selected

14 sample firms are given in table 6.

Table 6: Market Share of Sample Firms in Iron and Steel Industry in 2006-07

Firm Market Share (Percent)

1. Steel Authority of India Ltd. 25.27

2. Tata Steel Ltd. 12.71

3. J S W Steel Ltd. 6.00

4. Rashtriya Ispat Nigam Ltd. 5.89

5. Essar Steel Ltd. 5.79

6. Ispat Industries Ltd. 5.42

7. Jindal Stainless Ltd. 3.39

8. Bhushan Steel Ltd. 2.70

9. Bhushan Power & Steel Ltd. 1.94

10. Uttam Galva Steels Ltd. 1.72

11. Mukand Ltd. 1.35

12. National Steel & Agro Inds. Ltd. 1.23

13. Lloyds Steel Inds. Ltd. 1.23

14. Shree Precoated Steels Ltd. 1.16

Total Market Share 75.80

Source: CMIE (2007)

3.3. Building the Index: Normalisation, Weighting and Aggregation

The differing units of measurement of the sub-indicators make normalisation

of the data inevitable, thus the Range Equalisation Method is used for the purpose. It

stood out to be most suitable for the study as it yields positive values, which is simple

for readers. Also, this method of re-scaling the data widens the range of indicators,

which makes the differences of raw data more distinct. It alters the data to standardise

into values between 0 and 100 with the help of equation 1.

Different factors of competitiveness have different impact on the

competitiveness index, both negative and positive. For this reciprocal of the value i.e.

100 - index value is calculated after normalising the sub-indicators, which solves the

issue of directionality.

19

As importance of different indicators in the index is not equal, the weights for

the indicators are calculated using the Budget Allocation Method. For this, a field

survey has been carried out, where a number of experts (from varied level of

hierarchy) from the industry, working in the sample firms, were asked to assign

relative importance (weights) to the ten main indicators. Effort was to include as

many responses as possible so that the weights would be representative of the overall

industry sentiment. However, the number of responses varied with firms due to

reluctance of the employees to respond on account of various reasons such as shortage

of time, inability to comprehend the issue, fear that their opinion would be considered

as that of the organization, etc.. These apprehensions of a few respondents could not

be sorted out in spite of explanation of the purpose of the exercise. In most cases, the

employees were interviewed individually in their offices, whereas in other cases,

responses were received through e-mail and post. While determining the weights of

the indicators of competitiveness, understanding of the sub-indicators which it is

composed of is essential. Therefore a reference sheet listing all the sub-indicators with

their explanations was attached with the questionnaire. The responses on the weights

of the ten indicators were finally averaged. However, the sub- indicators have been

given equal weights as the asking relative importance of 66 sub-indicators to the

respondents was not possible due to their unwillingness on account of much time

involved and stressful mental exercise. Table 7 shows the average weights of each of

the ten main indicators, which constitute the competitiveness index for Indian Iron

and Steel industry.

Since the industry is resource based, maximum weights have been assigned to

productive performance (14.50) of the firms. Moreover, cost effectiveness (13.40) is

considered important too by the experts for determining firms competitiveness as it

determines the profit indirectly. Sales and marketing performance (10.60) is crucial

too in any industry today as customer awareness has increased over time; hence it is

on the fourth position in the list of importance. It is visible that least weight is given to

stock market performance (6.50) maybe because the customers of the firms are

somehow limited and are not guided by it. Also, major firms are government

undertakings; therefore need no investors from the open market to operate efficiently.

20

Table 7: Weights of the Indicators

Figure 7: Relative Weights of the Indicators

The next step in constructing the competitiveness index for Indian iron and

steel industry is aggregating the sub-indicators and the main indicators (10) by

applying the linear aggregation rule (equation 2).

where, indicator, sub-indicator, and = 1, 2, .., n

The last step is of aggregating these ten weighted indicator indices into one

competitiveness index for a firm in an industry. This is done in the same manner as in

equation 2.

where, is the competitiveness index of firm and j = 1, 2, ..t (where t

is the total number of sample firms), W is the weight of the indicator, V is the indicator

and = 1, 2, .., m. Finally, in addition to the overall competitiveness index,

Indicators Average Weights

Productive Performance 14.50

Financial Performance 12.85

Cost Effectiveness 13.40

Sales and Marketing Strategy 10.60

Stock Market Performance 6.50

Consumer Satisfaction 8.05

Technological and Environmental

Indicators 8.20

Human Resource Development

and Social Responsibility 9.32

Foreign Trade 7.10

Growth Performance and Potential 9.48

Total Weight 100.00

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

21

two separate competitiveness indices have also been constructed, namely the financial

index and the non-financial index for the industry.

4. RESULTS AND ANALYSIS

The industry average score of the competitiveness index for the Indian iron

and steel industry has been calculated at 39.07 as seen in table 8, which is used to

examine the relative competitive performance of firms. Only five firms from the

sample of fourteen firms i.e. around 36 percent of the total sample size, show above

industry average competitive performance whereas the remaining nine are below this

average. The firms which are above the average score are Tata Steel Ltd., Steel

Authority of India Ltd., JSW Steel Ltd., Rashtriya Ispat Nigam Ltd., and Essar Steel

Ltd.. All of these firms belong to the major and other major producers category as

classified by the Ministry of Steel based on the production route they follow (a

detailed description of the classification of producers by Ministry of Steel is given in

section 6). The lone firm belonging to the other major producers group, which is

below the industry average, is Ispat Industries Ltd. at the eighth position. The other

firms that are below the industry average in 2006-07 such as Jindal Stainless, Uttam

Galva Steels Ltd., National Steel & Agro Ltd., Bhushan Steel Ltd., Shree Precoated

Table 8: Ranks and Scores of Firms in Overall Competitiveness Index

Rank Firm Score

1 Tata Steel Ltd. 55.16

2 Steel Authority of India Ltd. 50.28

3 J S W Steel Ltd. 47.76

4 Rashtriya Ispat Nigam Ltd. 45.15

5 Essar Steel Ltd. 39.86

Industry Average 39.07

6 Jindal Stainless Ltd. 38.87

7 Uttam Galva Steels Ltd. 37.60

8 Ispat Industries Ltd. 37.28

9 National Steel & Agro Inds. Ltd. 37.24

10 Bhushan Steel Ltd. 34.47

11 Shree Precoated Steels Ltd. 34.39

12 Bhushan Power & Steel Ltd. 34.23

13 Mukand Ltd. 30.75

14 Lloyds Steel Inds. Ltd. 24.00

22

24.00

30.75

34.23

34.39

34.47

37.24

37.28

37.60

38.87

39.07

39.86

45.15

47.76

50.28

55.16

0.00 10.00 20.00 30.00 40.00 50.00 60.00

Lloyds Steel Inds. Ltd.

Mukand Ltd.

Bhushan Power & Steel Ltd.

Shree Precoated Steels Ltd.

Bhushan Steel Ltd.

National Steel & Agro Inds. Ltd.

Ispat Industries Ltd.

Uttam Galva Steels Ltd.

Jindal Stainless Ltd.

Industry Average

Essar Steel Ltd.

Rashtriya Ispat Nigam Ltd.

J S W Steel Ltd.

Steel Authority of India Ltd.

Tata Steel Ltd.

Figure 8: Position of Firms in Overall Competitiveness Index

Steels Ltd., Bhushan Power & Steel Ltd., Mukand Ltd. and Lloyds Steel Inds. Ltd.

represent the other secondary producers group and are comparatively smaller in size.

4.1. Overall Competitiveness of the Firms

As stated earlier, the overall competitiveness index is nothing but a sum total

of the ten main weighted indicator scores it constitutes. Therefore, the ten indicator

scores aggregate to form a firms overall competitiveness score. A few general

observations regarding the indicator indices are made. The cost effectiveness may be

noted to be a high scoring index because of very little difference of performance

between the firms. In the said case where there are no outliers, when the data is

normalised using range equalisation technique, it yields more contiguous scores.

However, the case with the stock market performance index is different where it

registers very low scores. This character of the index is a result of the low weight

attached to it with regard to its importance in the overall competitiveness of the firms

in the steel industry. Furthermore, the consumer satisfaction index shows identical

scores of a few firms. This is mainly on account of two reasons, the first being lesser

number of sub-indicators in the index and the second being the qualitative nature of

all the sub-indicators which necessitated common ordinal observations. The

23

competitive ranks and scores of the individual firms in each of the indicators are

interesting to examine in order to interpret the overall competitiveness of the industry.

4.1.1. Tata Steel Ltd.

Tata Steel Ltd., the worlds sixth largest steel company, earlier known as

TISCO, is the oldest private sector steel producer in India with an existing annual

crude steel production capacity of 30 million tonne per annum (m.t. p.a.). Established

in 1907, it is the first integrated steel plant in Asia and is now the world`s second most

geographically diversified steel producer and a Fortune 500 Company. The company's

steel plant having a capacity of around 5 m.t. p.a. is located at Jamshedpur and

additionally, it has a production facility there which manufactures welded steel tubes

too. The company also has a ferro chrome plant in Orissa, bearings plant in

West Bengal and wire manufacturing facilities in Maharashtra and Karnataka. Its

marketing network spans 24 cities in India and 15 countries across the globe in North

America, Europe, Southern Africa and Asia. The company is setting up three more

Greenfield steel plants in eastern India in Chhattisgarh, Jharkhand and Orissa for a

combined capacity of 23 m.t. p.a.. The company is also aggressively expanding

through the acquisition route.

In the light of above discussion, it may be noted that Tata Steel Ltd. comes

first with 55.16 score in the overall competitiveness rankings. This excellence is

mainly because of its first rank in five out of ten main indicators of competitiveness

such as cost effectiveness, sales and marketing, stock market performance, consumer

satisfaction and technological indicators (table 9). The firm has the lowest cost

incurred as percentage of its sales in raw material, stores etc. and in some other

miscellaneous expenses too. Also, sales and marketing are its strengths with good

expenditure (5.53 percent of the total expenditure) on distribution of its products and

second best market share in the industry. When stock market performance is

considered, it has the best yield i.e. 1.93 percent and good earnings per share of Rs.

66.62 in the reference year. Moreover, the firm has the best technical know-how

expenditure among its competitors and good R&D efforts. This is well supported by a

strong production base of 9 plants as well as appropriate product differentiation with

good mix of different kinds of steel. However, its weakness lies in the productive

24

0.00

2.00

4.00

6.00

8.00

10.00

12.00

Firm Score Industry Average Score

performance on account of low labour productivity and foreign trade with minimal

exports, where it has secured twelfth and eleventh ranks respectively with poor scores.

It is evident from figure 9, that the firm is below the industry average scores in the

same indicators.

Table 9: Competitive Performance of Tata Steel Ltd.

Figure 9: Performance in Competitiveness Indicators

4.1.2. Steel Authority of India Ltd.

Steel Authority of India Ltd. (SAIL), a public sector enterprise, is the largest

steel producer in India with greatest market share. The firm has a strong foothold in

the industry because of its heavy dependence on the state in times of difficulty. It is a

fully integrated iron and steel maker, producing both basic and special steels for

domestic construction, engineering, power, railway, automotive and defence

industries and for sale in export markets. It was incorporated in the year 1973 and is

one of the Navratnas enjoying significant operational and financial autonomy. SAIL

produces iron and steel at five integrated plants and three special steel plants, located

principally in the eastern and central regions of India and situated close to domestic

sources of raw materials. The firm has the distinction of being Indias second largest

producer of iron ore and of having the countrys second largest mines network. This

gives SAIL a competitive edge in terms of captive availability of iron ore, limestone,

and dolomite which are inputs for steel making.

Indicator Weighted

Score Rank

Productive Performance 4.14 12

Financial Performance 7.41 3

Cost Effectiveness 10.31 1

Sales and Marketing

Strategy 5.43 1

Stock Market Performance 4.18 1

Consumer Satisfaction 6.04 1

Technology and

Environment 6.39 1

Human Resource

Development 3.79 3

Foreign Trade 2.99 11

Growth Variables and

Potential 4.47 4

Overall Competitiveness 55.16 1

25

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00


Steel Authority of India Ltd. follows the competitiveness index at the second

position with a score of 50.28 (table 10). The difference of 4.89 points between the

scores of two firms is noteworthy as it clearly reflects the unchallengeable and

dominant competitive position of Tata Steel in the industry. However, it may be

remarked here that SAIL, a profit making public enterprise, has better market share. It

has proved to be one of the most successful government undertakings in recent years.

SAIL has good overall score mainly due to sound investment in human resource

development where it has received first rank in 4 sub-indicators out of 8. Most

noteworthy among these is its expenditure on staff training as no other competitor has

spent even a rupee on it in the year 2006-07. Also as it is the largest firm in the

industry, it generates maximum employment. Similarly this firm also performs

relatively better in terms of consumer satisfaction acquiring first rank there.

Moreover, the firm exhibits effectual performance in sales and marketing (second

rank) with broad distribution base of 5 manufacturing plants and best R&D efforts in

technology indicators (second rank). Its stock market performance is also exceptional

with a score of 3.06 and second rank as its yield percentage is 1.92 which is

comparatively high. The firm has the same weaknesses as Tata Steel, i.e. productive

performance and foreign trade where it has secured last positions and below industry

average scores (figure 10), the exception being its below average performance in the

cost effectiveness index (eighth position).

Table 10: Competitive Performance of SAIL


Indicator Weighted

Score Rank




Sales and Marketing

Strategy 5.13 2



Technology and

Environment 5.07 2

Human Resource

Development 7.50 1



Potential 4.77 4


26

4.1.3. JSW Steel Ltd.

JSW Steel Ltd. belonging to the Jindal Group was incorporated in the year

1994. Jindal Iron & Steel Co Ltd. (JISCO), promoted Jindal Vijayanagar Steel Ltd.,

was renamed JSW Steel Ltd.. The firm today has a fully integrated steel plant

producing pellets to colour coated steel with a capacity of 7.8 m.t. p.a.. The registered

office of JSW Steel is at Mumbai. The plants are located at Vasind and Tarapur in

Maharashtra and Toranagallu in Karnataka. The facilities are well connected with

major ports and rail heads. Based in the rich iron ore belt of Bellary-Hospet,

Karnataka, the company is engaged in the manufacture of galvanised steel products.

JSW Steel Ltd. consists of the most modern, eco-friendly steel plants with the latest

technologies for both upstream and downstream processes. It has received all the

three certificates; ISO: 9001 for Quality Management System, ISO: 14001 for

Environment Management System and OHSAS: 18001 for Occupational Health &

Safety Management System.

The third position of the index is occupied by JSW Steel Ltd. with overall

competitiveness score of 47.76. The firm has distinctly established its performance in

growth variables and potential as it has the third rank there (table 11). Over the last

Table 11: Competitive Performance of JSW Steel Ltd.


Indicator Weighted

Score Rank




Sales and Marketing

Strategy 2.57 5



Technology and

Environment 3.91 3

Human Resource

Development 1.76 6



Potential 4.59 3


0.00

2.00

4.00

6.00

8.00

10.00

12.00


27

three years, its sales have grown at 37 percent and net worth at around 70 percent p.

a.. The other indicator where the firm has performed well (third rank) is related to

technology mainly because of its power efficiency and environmental protection

efforts. It has fared well in consumer satisfaction index too as the firm tries to

evaluate consumer related problems and solutions efficiently. Except for the

productive performance, where it has a 6.34 score, and is at a low eighth position

because of merely 70 percent of capacity utilisation; the firm has fared reasonably

well in other competitiveness indicators too.

4.1.4. Rashtriya Ispat Nigam Ltd. (RINL)

RINL, the other central government-commercial enterprise in the industry,

today is one of the emerging companies in Indian steel industry. It is basically a

holding company of Vishakhapatnam Steel Plant. The plant located in the city of

Vishakhapatnam, started its operations way back in 1971 with a capacity of 2.66 m. t.

p. a. of saleable steel and was commissioned in 1992 with a capacity to produce 3 m.

t. p. a. of liquid steel. The plant has been built in keeping with the international

standards in design and engineering with the state-of-the art technology, incorporating

extensive energy saving and pollution control measures. The company also has a blast

furnace grade limestone captive mine at Jaggayapeta, a captive mine for dolomite at

Madharam, a manganese ore captive mine at Cheepurupalli. All the captive mines are

located in the state of Andhra Pradesh. It has also got a mining lease for river sand in

river Champavathi. The company has always taken recourse to science and

technology for up gradation and is striving hard to reduce energy consumption by 1

percent p. a.. With the availability of the positive growth environment, the company is

registering a steady and consistent up trend in performance.

It may be noticed that RINL at fourth overall position has contrasting

competitive performances in most of the ten indicators of competitiveness (table 12).

This is evident as the firm has achieved the first rank in financial and consumer

satisfaction indicators, the second rank in human resource development, and on the

contrary managed only the twelfth rank in growth indicator and the thirteenth rank in

stock market and foreign trade performance. To start with, the firm has the strongest

financial indicators such as liquidity and turnover ratios, although its stock market

28

Table 12: Competitive Performance of Rashtriya Ispat Nigam Ltd.


performance is miserable with lowest yield and price to earnings ratio. Noteworthy is

its human resource initiatives (second rank) where it spends most among its rivals on

staff welfare schemes. It is observed that the public enterprises spend more on

employees welfare as compared to other firms in the industry. When sales and

marketing strategy is considered, it is noted that at the third position there, it has

remarkable expenditure on advertising. In the technology and environmental

indicators, the firm has performed well at the fourth rank with good expenditure on

research and development. One of the indicator indices, where RINL has performed

exceptionally badly is foreign trade reflected in negative forex earnings.

4.1.5. Essar Steel Ltd.

Essar Steel, owned by the Essar group, incorporated in 1976, is a global

producer of steel as it exports to the USA and European markets, and to the growing

markets of South East Asia and the Middle East. It is a fully integrated flat carbon

steel manufacturer, from iron ore to ready-to-market products. Its products find wide

acceptance in highly discerning consumer sectors, such as automotive, white goods,

construction, engineering and shipbuilding. The firm is Indias largest exporter of flat

steel products and aims to reach a capacity of 25 m. t. p. a., regardless of the current

Indicator Weighted

Score Rank




Sales and Marketing

Strategy 3.84 3



Technology and

Environment 3.83 4

Human Resource

Development 4.06 2



Potential 2.17 12


0.00

2.00

4.00

6.00

8.00

10.00

12.00


29

capacity of 9 m. t. p. a. only. Essar Steel has registered office at Surat in Gujarat. One

of its plants located at Hazira, Gujarat produces HBI and HR Coils. The steel goliath

also has an iron pelletisation plant at Vishakapatnam to meet the requirements of its

HBI plant. Essar Steel is the first steel company to set up the only retail chain for steel

products under the brand name Essar Steel Hypermart. It has a strong network of over

60 Steel Hypermarts. The outlets are conveniently located across the length and

breadth of the country to cater to the customised requirements of enterprises.

The fifth position, just above the industry average is held by Essar Steel Ltd.

(table 13), a private other major producer, as classified by the Ministry of Steel. The

difference of score with RINL is a vast 5.30, testifying to a divide between the first

four firms in the industry and the following firms. Essar Steel heads the consumer

satisfaction index (along with three other rivals) as it puts good efforts in the direction

in spite of the lesser weight of the indicator for competitiveness in the iron and steel

industry. Similarly, the firm performs reasonably well in productive performance,

sales and marketing strategy and foreign trade, standing at the fourth position in all the

three indices. It has the second best labour productivity in the industry, and on the

other hand it spends comparatively well on the marketing of the products. Noteworthy

is its performance in trade as it has recorded the best net forex earnings for the year.

Table 13: Competitive Performance of Essar Steel Ltd.


Indicator Weighted

Score Rank




Sales and Marketing

Strategy 2.71 4



Technology and

Environment 1.38 12

Human Resource

Development 0.51 8



Potential 2.74 11


0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00


30

The weakness of the firm lies in its unsatisfactory financial performance due to

inadequate liquidity and asset utilisation, lesser attention on technological up

gradation and poor growth trends in some of the key variables in the last few years.

4.1.6. Jindal Stainless Ltd.

Jindal Stainless Limited (JSL) was established in 1970 in the form of a single

unit plant at Hisar (Haryana). However, now one more plant has been added at Vizag

(Andhra Pradesh). JSL, a ISO: 9001 and ISO: 14001 company, is also setting up a

greenfield integrated stainless steel project in the state of Orissa with capacity of 1.6

m. t. p. a.. Formally incorporated in 1980, the firm fulfils the country's demand of

stainless steel and manufactures continuous cast slabs and blooms, hot rolled stainless

steel coils, hot rolled annealed pickled coils, hot rolled annealed pickled plates, cold

rolled stainless steel coils, chequered plates, customised products for crucial

applications like nuclear applications and applications in turbines. The R&D division

at Hisar plays a pivotal role in retaining and consolidating company's leadership role

in stainless steel business by continuous up gradation of quality, process and services,

and innovating development strategies to come up with new products with cost

competitiveness. The R&D division closely interacts with reputed national and

international laboratories to avail of expert services for critical investigation.

The sixth position in the overall competitiveness in the iron and steel industry,

just below the industry average, is occupied by Jindal Stainless Ltd. with a total score

of 38.87. As can be seen from table 14, Jindal Stainless Ltd. has its strength in

consumer satisfaction and foreign trade with good net foreign exchange earnings and

export as a percentage of sales. Also the firm has performed fairly well in

technological and environmental performance (fifth rank) as it has balanced its energy

usage and paid attention to environmental issues. However, its poor performance due

to low productivity (tenth rank) and indifference to human resource development

(tenth rank) has led to its comparatively lower overall score. Its stock market

performance at the eighth position is also one of the weaknesses, as the yield

(dividend divided by the current market price) and EPS are very low. The firm has

scored below industry average scores in 6 out of ten main indicators of

competitiveness (figure 14).

31

Table 14: Competitive Performance of Jindal Stainless Ltd.


4.1.7. Uttam Galva Steels Ltd.

Uttam Galva Steels Ltd., an ISO 9001- 2000 and TS 16949/2002 accredited

company, is one of the largest manufacturers of cold rolled steel and galvanised steel

in Western India. It has also been awarded the highest exporter award by the

Engineering Export Promotion Council of India for the past 11 years in succession.

More than 70 percent of the company's products are currently exported to over 138

countries worldwide and it has a strong customer base in many advanced markets

such as Australia, France, Germany, Greece, UK and the USA to name a few. The

company's manufacturing facilities are located at Khopoli, in Maharashtra, which are

close to Nhava Sheva and Mumbai ports. This provides the company with easy access

to imports of HR coils and also for exporting its products. A close proximity to the

ports gives the company the advantage of lowering its transportation costs too. The

company's domestic sales are also within the radius of 500 kms from its

manufacturing facilities. The firm has expanded and modernised its operations at

Khopoli which have increased its cold rolling capacity. The firm has also increased its

Galvanised Plate (GP) capacity to 750000 metric tonne p. a. and added a new colour

coated line as of March 2008.

Indicator Weighted

Score Rank




Sales and Marketing

Strategy 2.56 6



Technology and

Environment 3.13 5

Human Resource

Development 0.26 10



Potential 2.79 10


0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00


32

Uttam Galva Steels Ltd. is the second firm below the steel industry average

score (39.07) at seventh position with a score of 37.60 (table 15). However, when its

performance is examined in the individual indicator indices, it is noticed that the firm

seems to be promising in foreign trade and cost effectiveness, where it stands in

second and third positions respectively. This is mainly on account of good exports by

the firm and cost efficiency in terms of miscellaneous expenditures. It is worth

mentioning that Uttam Galva has ensured the last position in the sales and marketing

strategy index because of very low market share, no expenditure on advertising and

minimal expenditure on distribution in the year 2006-07. Human resource

development and stock market performance also needs to be improved by the firm for

a better overall competitive position in the industry.

Table 15: Competitive Performance of Uttam Galva Steels Ltd.


4.1.8. Ispat Industries Ltd.

Ispat Industries is the flagship company of Ispat Group, and was incorporated

in 1984 as Mittal Galvazinc Ltd.. The company started operations at Kalmeshwar in

Maharashtra for the manufacturing of thin gauge galvanised steel sheets in technical

collaboration with Japan-based Nippon Denro manufacturing company in 1985.

Subsequently, its name was changed to Nippon Denro Ispat Limited and in 1996 to

Indicator Weighted

Score Rank




Sales and Marketing

Strategy 1.59 14



Technology and

Environment 2.13 8

Human Resource

Development 0.23 11



Potential 2.83 9


0.00

2.00

4.00

6.00

8.00

10.00

12.00


33

Ispat Industries, as the company started to produce primary steel products. It operates

a 3 m. t. hot rolled coils plant at Dolvi in Maharashtra. It has flexibility in the choice

of steel making route, be it the conventional blast furnace route or the gas-based

electric arc furnace route. The dual technology process gives it the flexibility to

choose different combinations of raw materials for its production. It also operates a

direct reduced iron plant of 1.6 m. t. and a pig iron plant with an annual capacity of 2

m. t.. The pig iron plant was added to Ispat Industries on account of amalgamation of

Ispat Metallics, a loss making company of the group in 2005. The company in recent

times has expanded its capacities as well as taken steps to integrate its manufacturing

operations. Production capacity for HR coil was increased from 2.4 m. t. to 3 m. t.. It

also added a 2.3 m. t. sinter plant and an oxygen plant with a daily capacity of 1260

tonnes for its captive consumption during 2005-06.

Ispat Industries Ltd., a major steel producer, holds the eighth position on the

competitiveness index with a 37.28 score (table 16). To start with the strong points, its

high labour productivity has ensured third position on the productivity index. The

firm also performs well on the growth index (fifth rank) and the stock market (sixth

rank) because of good insurance expenditure and highest price to earnings ratio.

However, it has proven to be less cost competitive and shown poor comparative

Table 16: Competitive Performance of Ispat Industries Ltd.


Indicator Weighted

Score Rank




Sales and Marketing

Strategy 2.54 7



Technology and

Environment 3.05 6

Human Resource

Development 0.61 7



Potential 3.43 5


0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00


34

performance with the last rank in the financial indicators such as return on net worth,

debt to equity ratio and asset utilisation ratio. The firm also needs to improve its

foreign trade and cost effectiveness to remain competitive in the industry.

4.1.9. National Steel & Agro Inds. Ltd.

National Steel & Agro Inds. Ltd., incorporated in 1985, was formerly known

as National Steel Industries Ltd.. It was set up in technical collaboration with CMI,

Belgium; Phoenix Works, Belgium; and Stein Heurtey, France. It belongs to Ruchi

Group and is engaged in the manufacture of secondary steel products and trading of

agro products. The company's plant is located at village Sejwaya, in Madhya Pradesh.

It manufactures galvanised plain steel coils and sheets and galvanised corrugated steel

sheets. The products manufactured by the company have applications in agricultural

implements, electrical appliances, automobiles, air conditioning ducts, consumer

durables, construction, electrical panels, rolling shutters, engineering fabrications,

packaging, storage, roofing, furniture, ducting and slide walls. Its Agro Trading

Division started in 1990, deals in raw and processed pulses, beans and other

agricultural products. The company exports its produce in the markets of South East

Asia, African Countries, Middle East and other neighbouring countries.

The firm, National Steel & Agro Inds. Ltd., stands ninth on the overall

competitiveness index, with a 37.24 score as seen in table 17. Remarkably, it has

highest capacity utilisation levels of 130 percent, which has helped it to secure a

second position on the productivity index. Its productive superiority is also evident

from the fact that its score (9.87) in the index is far above the industry average score

(6.16) (figure 17). Furthermore, the firm has proved to be cost effective too as it has a

10.10 score and second position on the index mainly because of lesser financial and

extraordinary charges. However, barring the consumer satisfaction index (third rank);

it has not proved itself on any other index, getting last ranks in technology and

environment and human resource development. The firm has literally no expenditure

on either research or on technology imports. Its indifference to HRD is also visible

with little or no expenditure on various employee compensation schemes as well as

their training for betterment of skills. The firms stock market, sales and marketing

and growth performance also needs attention in order to be competitive in the

35

industry. Notably, all this has pulled its overall score down. It may therefore be

concluded that being competitive in the industry implicates overall performance in all

the indicators, since conducting well in only a few of them does not help.

Table 17: Competitive Performance of National Steel & Agro Inds. Ltd.


4.1.10. Bhushan Steel Ltd.

Bhushan Steel Ltd. was promoted by a takeover of Jawahar Metal Industries in

1987. The name of the company was changed in the year 1992 to Bhushan Steel &

Strips Ltd. and again in June 2007 to Bhushan Steel Ltd. The firm has consistently

over the years expanded capacities and added new products to its portfolio. Cold

rolled steel and galvanised steel remain its major products. However, it also produces

value-added products like pre-painted galvanised steel, tubes, wire rods, steel

strapping and high tensile strapping. It operates two plants located at Sahibabad in

Uttar Pradesh and at Khopoli in Maharashtra. The company is also planning backward

integration by setting up a hot rolled steel manufacturing plant in Orissa. This will

transform the company into a fully integrated steel manufacturer, having operations

ranging from iron ore mining to steel products. Its technical collaboration with

Sumitomo Metals helped it to become a significant supplier to almost all original

equipment manufacturers.

Indicator Weighted

Score Rank




Sales and Marketing

Strategy 1.75 11



Technology and

Environment 1.23 14

Human Resource

Development 0.07 14



Potential 1.60 13


0.00

2.00

4.00

6.00

8.00

10.00

12.00


36

Bhushan Steel Ltd. has secured the tenth position (34.47 score) on the overall

competitiveness index in a sample of 14 firms. The firm has an average performance

in most of the indicator indices (table 18), although it excels in stock market

performance at third rank (2.60 score) with a good earnings per share. It has managed

the fifth rank in two of the indices, i.e. consumer satisfaction and foreign trade with

around Rs. 362 cr. foreign exchange earned for the year. In the growth variables

(eighth rank), the firm has exhibited ample sales (34.03 percent) and assets (40.90

percent) growth in the last three years. However, its rank and score on the cost

effectiveness and human resource development indices are dismal as it stands on the

twelfth position in both the indices. The high financial and procurement costs incurred

by the firm and minimal expenditure on staff welfare and training have led to this

poor performance.

Table 18: Competitive Performance of Bhushan Steel Ltd.


4.1.11. Shree Precoated Steels Ltd.

Incorporated in 1985, Shree Precoated Steels Ltd. (SPSL) is part of the Ajmera

Group of Companies. The company manufactures clad, plated or coated flat rolled

steel products, aluminium plates, sheets and strips and doors, windows and their

frames, etc.. As a direct corollary to its commitment to quality standards, SPSL has

already been accredited with the ISO: 9001 Certificate by DNV Netherlands. The

Indicator Weighted

Score Rank




Sales and Marketing

Strategy 2.26 8



Technology and

Environment 1.90 9

Human Resource

Development 0.16 12



Potential 2.85 8


0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

10.00


37

registered office of the firm is at Mumbai and its manufacturing facility is at

Sanaswadi in Maharashtra. The products of the company are exported to Europe, the

Far East, and the North American markets. Its products are marketed with the brand

names of Metacor, Metagalva and Metacolor. Metacolor plant is installed with

technical collaboration from Cockerill Mechanical Industries, Belgium. This plant

uses equipment like coating-laminating-embossing-printing stations, ovens combined

with reverse roller coating technology for organic coating to produce Metacolor.

There are some interesting observations when the competitive performance of

Shree Precoated Steels Ltd. is analysed. The firm has secured eleventh position and

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Documents

Competitiveness