Slide 1
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NUCOR2
Porter 5 forcesValue Chain AnalysisPESTEL AnalysisSWOT
AnalysisSnapshot of NucorProblem & RecommendationOverview of
Analysis3
NUCOR IN 2010American steel company Only continuous profitable
firm for decades in America
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NUCOR IN 2010
So what's their secret of success ?5
About NUCOR Incorporated: In 1955 as Nuclear Corporation of
America Profile: 2nd largest steel manufacturer in USA
Headquartered: In Charlotte, North Carolina 1st place in 2005 in
the Business Week6
Difficult Times
Foreign Competition Slow Demand for Steel Insolvency
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Ken Iverson8
Iverson restructured the company Focus on 2 main lines of
business: Line of Business
Joist ProductionProduction of Steel from recycled scrapped
metals.9
Mission Statement
TAKE CARE OF OUR CUSTOMERS10
Organization Structure11
Organization StructureDecentralizedCorporate
CenteredChairmanPlant ManagerDepartment ManagerSupervisor12
Integrated StrategyRBV + IO Model 13
StrategyRBV Productive workforceInnovative technologyReduced
throughput time Efficient Inventory Management System
ResourcesCapabilities14
StrategyIO Model ( Differentiation ) Mini Mill technologies and
Electric-Furnace, compare to old blast-furnace methods
IO Model ( Cost Leadership )Own fleet of trucksClose proximity
to customers
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Innovation
Competencies16
Competencies and InnovationBuilding steel manufacturing
facilities economically and operating them productively.
Benchmarked organizational style and empowering division managers.
1st company to introduce computer inventory management systems and
engineering process. Sophisticated in purchasing, sales and
management and beat competition by its design effort. New
technologies to lower operating cost.17
Environment Friendly TechnologyIt used Hismelt process to
produce iron from iron ore with less energy and pollution, actually
reducing the greenhouse emissions and costs.It took care of
environmental friendliness, worker safety, and its contribution to
the community.
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World Ranking top steel producers -
2009RankCompanymmtRankCompanymmt1ArcelorMittal77.526Hyundai8.42Baosteel31.327CELSA7.83POSCO31.128Metinvest
7.4 4Nippon Steel (1)26.5 29 Techint 6.9 5JFE25.8 30 Erdemir 6.5
6Jiangsu Shagang (2)20.5 31 Metalloinvest 6.5 7Tata Steel (3)20.5
32 Kobe 5.9 8Ansteel20.1 33 Usiminas 5.6 9Severstal16.7 34 JSW 5.5
10Evraz15.3 35 Essar 5.5 11U.S. Steel15.2 36 voestalpine (7) 5.5
12Shougang (4)15.1 37 Salzgitter (5) 4.9 13Gerdau14.2 38 Hadeed 4.8
14Nucor14.0 39 BlueScope 4.6 15Wuhan13.7 40 CSN 4.4 16SAIL13.5 41
Ezz 3.9 17Handan12.0 42 SSAB 3.6 18Riva11.3 43 Sidor 3.1
19Sumitomo11.0 44 Duferco 3.1 20tdyssenKrupp (5)11.0 45 Nisshin 3.1
21Novolipetsk (6)10.9 46 Vizag 3.0 22IMIDRO10.6 47 CMC 3.0
23Magnitogorsk9.6 48 AHMSA 3.0 24China Steel8.9 49 Dongkuk 3.0
25Laiwu8.9 Source: www.worldsteel.org19
Perceptual Map20
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On a global scale there is an excess capacity of steel
production and dumping of steel in the USA, which diminishes
profit.
Industry environment was volatile, due to economic recession and
the weakening dollar, Nucor Steel faced uncertain environment.
Another problem they face is lack of innovation of technology in
the fast paced markets.
Main Problems22
Financial Growth
Source: www.worldsteel.orgStock Price: $38.09 as per July 16,
201023
Mission Statement
TAKE CARE OF OUR CUSTOMERS24
Porters Five Forces Analysis of Steel Industry in the United
States of AmericaBargaining Power of SuppliersBargaining Power of
BuyersThreat of SubstitutesThreat of new entrantsInternal rivalry
within Industry25
Bargaining Power of BuyersWith an increase in domestic
competition in steel sector in the USA, the options for buyers are
on a rise.Low Product Differentiation.Switching costs is low.Buyers
buying in large scale posses strong negotiating power.
Buyers Market !!!The bargaining power of buyers is high due to
various factors. First, there is intense battle in the domestic
market with more than 20 players with US Steel, Nucor, Gerdau
leading from the front. Thus providing lot of options for Buyers as
these battle out the Price war.Second, there is low level of
product differentiation and switching cost for buyers is also very
low. Competition is basically on price. Third, there is a cyclical
demand for steel, and as such there tend to be (sometimes)
oversupply and this gives additional bargaining power to buyers.
Moreover, Buyers buying in large scale posses strong negotiating
power.Thus its a Buyers market!!!!26
Bargaining Power of SuppliersScarcity of raw-materials like
steel shreds, iron ore, coke, recycled steel.Few Suppliers.Most of
the raw-materials are imported.
Cost strategy drives Joint ventures, Mergers and Acquisitions
between suppliers and manufactures !!!
Bargaining power of suppliers is also high.Firstly due to
scarcity of raw materials especially scrap metals whereby suppliers
are raising the price. Secondly, there are only few
suppliers.Thirdly, most of the raw materials are imported from
China and European countries.
So Companies strive for cost leadership strategy to earn
economies of scale and as such are in lookout for JV, M&A with
suppliers.
For example 1. Early in March 2010 Nucor announced a JV with
Japanese Mitsui with 50% interest in a newly created Company NuMit.
Mitsui is a supplier of iron and steel products and raw
materials.
2. In 2007, Steel Dynamics acquired Omni Source Corporation one
of the countrys largest ferrous scrap processors.27
Major players in the United States of America
Major M&A involving foreign partner
Netherland based ArcellorMittal acquired ISG, which acquired the
failing Bethelem steel.US Steel the #1 Steel producer for USA
acquired Stelco CanadaJapanese Nippon of course acquired ran a JV
with US Corporation inland Steel way back in 1990.Nucor recently
acquired Harris Steel group of Canada in 2007 to gain access to
Canada market, however they had to shut some of the failing mills
because of low demand during recession. There are news of Nucor
Other big players include Gerdau, AK Steel, Severstal28
Internal Rivalry
Domestic market more than 20 players.Intense rivalry Price
wars.No differentiated product.Joint ventures helps in driving
economies of scale.
Low fixed manufacturing cost is the key !!!As previously
discussed, there is intense rivalry among domestic players leading
to price wars.Moreover, as there are no differentiated products,
low fixed manufacturing cost is the key.
Ofcourse, JV with suppliers helps in driving economies of
scale.29
Threat of Substitutes
No primary substitutes.Secondary substitutes: aluminium, plastic
and wood.
Continuous high demand for Steel !!!There is no primary
substitute of Steel.Although, at many places aluminium metal is
increasingly used in place of steel but cannot replace steel
because of the strength and power Steel possess. Apart, Plastic and
wood are increasingly used to reduce cost, but again cannot replace
steel because of Steels robustness and durability.
As such, there is still a huge demand for Steel, whether its for
Aircraft industry, or automobiles or building infrastructure or
simply royal watches.30
Threat of New Entrants
Barriers to entry for Domestic entrants: Low access to
raw-materials. Difficult to achieve economies of scale.Lack of
product differentiation. Huge capital requirements.
Opportunity for big international Steel Companies to enter the
USA market !!!
Threat of New Entrants is actually low for Domestic players
because of the barrier to entry created by 4 factors:Low access to
raw materialsDifficult to achieve economies of scale.Lack of
Product differentiation.Huge capital requirements.
However, these does not apply to big International players who
have cheap access to raw-materials, huge capital. The only threat
for foreign players comes from the USA Government
regulations.31
Porters Five Forces Analysis of Steel Industry in the United
States of AmericaBargaining Power of SuppliersBargaining Power of
BuyersThreat of SubstitutesThreat of new entrantsInternal rivalry
within IndustryFew suppliers.Mostly raw materials are imported.
Product differentiation, access to raw-materials, economies of
scale and capital requirements are biggest barriers to entry for
Domestic market.Low switching costs for Buyer . Low product
differentiation.
Few substitutes like Plastic, woods and other metals like
Aluminium, but can not be compared with Steels durability and
robustness.Other Determinants:Low Government s regulations in
domestic market, high barrier for international entrants. Economy
Slowdown
Intense Rivalry between Domestic Companies leading to Price
Wars.To sum up we see low threats from Substitutes and new
entrants.High bargaining power of buyers and suppliers, with high
internal rivalry leading to Price wars.32
Domestic market: Buyer power (High) Supplier power (High)
Internal rivalry (High)Threat from Substitutes (Low)Threat of new
entrants (Low)Porters Five Forces Analysis of Steel Industry in the
United States of AmericaUnattractive Industry
Although there is low threat of substitutes, and new entrants
with high demand of Steel Steel Industry is still an unattractive
industry.This is mainly because of Few Suppliers with scarcity of
raw-materials this is the biggest concern for Steel industry in the
USA.
With intense rivalry and bargaining power of buyer with no
product differentiation is leading to Price wars and Cost
Leadership strategy for Domestic companies.33
With advance of Globalization, and economy regaining momentum,
steel industry is once again looking attractive.
There is huge demand for Steel.
Porters Five Forces Analysis of Steel Industry in the United
States of AmericaAttractive Industry for Foreign Players
Further, the global steel industry was hit hard by the
recession, which had cut demand for steel used in construction, the
auto and appliance industries and the capital goods sector.
With advance of Globalization, and economy regaining momentum,
steel industry is once again looking attractive.Already we have
seen ISG (International Steel Group) was acquired by Arcellor
Mittal.Once again economy is opening up and demand for steel is
rising after the economy slowdown during Global Financial
crisis.
So, it is expected to see other Asian and European Steel
companies to eye on American market. However, it is highly
recommended for Nucor to acquire and expand its presence rather
than sitting idle waiting for someone to pick.
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PESTEL
AnalysisLegalEnvironmentTechnologicalSocio-culturalEconomicalPoliticalOrganization35
Political and Legislative AnalysisAnti Dumping Law :U.S imposed
countervailing duties and anti-dumping duties.Laws were opposed by
many European countries and WTO.
SOX Act :To increase the transparency of the USA accounting
standards.To increase the responsibility of corporate office and
board members.The costs of compliance is quite high approx $3.4
million per company. Long-term benefits of compliance: creating
high barrier to entry, jeopardizes bought up / take over and will
also increase investor confidence in U.S financial markets.
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Economical AnalysisThe steel industry is cyclical.
Heavy reliance upon economic growth in construction and
infrastructure.
Prolonged slowdowns and economic recession have a direct impact
on Nucor.
The weak dollar has provided a great opportunity for steel
companies to export. But Nucor does not have a global market to
exploit.
This competitive dollar has also led towards more foreign
investment across the US steel market. This has become a threat to
the US steel industry.
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Social AnalysisNucors employment policy and community
positioning is one that is very key to its success.Nucor targets
small rural towns in order to have a very loyal community base.The
increasing age of baby-boomers has led to a nationwide decrease in
blue collar workers.Students feel lack of social status while
taking blue collar workers.
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Technical AnalysisThe U.S. steel industry is heavily influenced
by global development
Nucor was the first mover in adopting the new technologies in
the U.S market.
Nucor used the mini-mill method to create steel, which has led
towards an industry revolution.
Nucor implemented a new information technology infrastructure
that would integrate all the planning, production, and order
fulfillment aspects of the business process. New computer systems
have also been developed and implemented to precisely control the
quality of the steel produced.
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Environmental AnalysisNucor is ahead of the pack when it comes
to being environmentally friendly in the steel industry.
Nucor complied with the EPA adding 85 million pollution controls
to its 14 plants.
Environmental Protection Agency found Nucor guilty of failing to
curb pollution and improperly disposing of hazardous waste. They
also paid a 9 million dollar fine
The issues was handled with the EPA effectively and both Nucor
and the EPA showed excitement for the new technology.
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SWOT AnalysisIndustry leader in innovation and minimization of
pollution and production cost.Strong financial position.Calculated
risk taking culture. Customers sharing their product or business
roadmap with Nucor.
STRENGTHS:
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SWOT AnalysisWEAKNESS:Nucor highly depends on the United States
domestic markets.No diversification.Lack of R&D.Declining
market share.Environmental issues.
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SWOT AnalysisExpansion in the USA market through M&A.Entry
in Asia & Europe markets through joint-ventures.Innovate and
reduce costs with improvements in R&D.OPORTUNITIES:
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SWOT AnalysisTHREATS:Rising raw material and labor costs.Rising
debt to equity ratios.Weak Government regulations allowing dumping
of steel by China.Invasion of the USA domestic market by foreign
players.
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Internal Analysis Value Chain
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Internal Analysis Value Chain47
Inbound LogisticsPrimary logistics - Scrap Metal and
Electricity.Backward integration with David J. Joseph Company.2000+
rail cars for transportation of raw materials.Increasing energy
prices by 105% in 2001.Decreased energy consumption by 91% through
innovation - Mini-mill and Castrip .
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Inbound LogisticsLean management process and highly motivated,
productive and innovative workforce.
Excellent inventory management processes along with reduction of
cist, waste and pollution.
Lack of utilization of by-products
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ProductionLean management process and highly motivated,
productive and innovative workforce.
Excellent inventory management processes along with reduction of
cist, waste and pollution.
Lack of utilization of by-products
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Outbound Logistics150-truck fleet for distribution of
productsProduction plants near customer locations but restricted
only to USShipment within 1.5 days anywhere in USMarket coverage
with 14 steel plants in USIn-house shipping enables quick and
on-time deliveryBut questionable when Nucor expands its global
presence.
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Sales and MarketingSales to proximity customers and focus on
long-term relationships.
Market itself as environmental friendly and worker safety
product
Service to the community and compliant to environment
regulations
Insufficient research on predicting demand
Frequent and extensive market research to be done due to
cyclical demand conditions
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VRIO Analysis
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Issues & Problems
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ISSUESNucor highly depends on US markets.Less R&D.Declining
market share.Growing competition in industry.Cyclical demand.
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PROBLEMSDumping of steel into US market.Emergence of foreign
players in the USA.Rising raw material costs.Minimal management
system creating communication barriers.Strict regulations of
pollutants by E.P.A.
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Recommendations
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RecommendationsHR strategy to maintain strong leadership,
motivate workforce and foster innovation.Streamline/coordinate
purchasing, sales and marketing activities.
To start and grow internal research and development
(R&D)Look for cost-effective, environmental friendly and
productive manufacturing.Turn waste and by-products into energy and
re-usable products for other industries.To identify new products
matching customer future and current needs.To identify alternative
raw materials and reduce dependability on scrap metal.58
Recommendations
Expand international presence through M&A and JV with local
partners in Asia, Europe and South America, specially India, China
and Brazil.
Build long term relationship with customers by understanding
their product and business roadmaps.Reduce impact of cyclical
demand. Determine products to be eliminated. Tailor Nucor pre and
after sales services based on customers need and expectation.59
Strategic Fit
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Strategic Fit
Mission InvasionVS
Mission Internal61
Strategic FitMission InvasionMission InternalBenefits Lower
production costs Better relationships with foreign nations
Increased Profits Potential for innovative methods Enter BRIC
countries Lower production costs Increase throughput Hedge company
for growth, Could move Nucor into top position in U.S.
marketNegatives Damaging current relationships with joint ventures
Could make supplier bargaining power stronger Extremely high costs
of new technology May not achieve desired results Difficult to
implement in old mills62
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