Strategy Project_Group No 10

8/2/2019 Strategy Project_Group No 10

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Strategy project Industry analysis of TATA steel

4/14/2012[Type the company name]

Anchal Khare Roll No 3

Amit Mukherjee Roll No 10

Anuragdeep Badyal Roll No 12

Ashok Rawat Roll No 13


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IndexA glance at the Indian steel industry.3Tata steel- a global power..3External analysis of the steel industry.. 3Internal analysis of the steel industry.. 9Business level strategies.12Tetra threat framework..17Recommendations..18References.18


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A glance at the Indian steel industryIndia is the fifth largest producer of steel in the world as per September 2010. A major

supporting factor to this growth in production has come about by the economic reforms of 1991. The benefits that steel got from these reforms are increased participation of the private

sector ad removal of restrictions from the creation of capacity and exports. The market grew toan estimated US$ 55.1 billion in 2011 from US$ 22.8 billion in 2006 with compound annualgrowth rate (CAGR) of the market over the period was 19.3 per cent

Tata steel-a global powerTata steel is the 10 largest producer of steel in the world. Incorporated in 1907 Tata

steel has a century of successful steel production behind it. It is a global player with Indiaconstituting only about 26% of the total revenue generation. It is well established in other partsof Asia excluding India and Europe. It has set a benchmark globally for value creation andcorporate citizenship. Considering the global reach of Tata steel a global analysis of Tata steelhas been done in this report.

External analysis of the steel industry

Porters 5 forces analysis of the global steel industryThe steel industry has been successful in registering an amazing rate of growth over the

last few years. The domestic industry also had a double digit growth rate in a growing economy.China is the major steel producer in the world producing up to 17% of world steel althoughemployability in the steel industry is led by the European nations like Austria, Denmark andBelgium. The industry on the global front is at a mature stage. The following is an analysis of theglobal steel industry using porters 5 forces framework.


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1. Threat of new entrants : The threat of new entrants is high. The major reason forthis is the fact that the steel business is a capacity intensive business a large playerhas a huge benefit. Wherever production factors are supportive and labor costs arelow new entrants throng the market for potential profits. However for entrantssmaller in magnitude following factors have to be considered :-

Capital Requirement : The Steel industry requires huge capital investments. Capacityexpansion and initial Greenfield expansions are a major consideration for players in the steelindustry.

Economies of scale : Lower costs, lesser R& D expenses and better bargaining powerwhile sourcing raw materials are the major reasons of economies of scale. The fact that amajority of the steel companies have their own mines and thus supplies of raw materialsbecomes extremely cheap which is not a feat which can be matched by new entrants in theindustry which are of smaller magnitude.

Rivalryamongst

competitorsHigh rivalry

amongstcompetitors

Threat of productsubstitutes

Medium threatfrom the

aluminiumindustry

Bargaining powerof suppliers

High effect of supplier

bargaining

Threat of newentrants

High threat of new entrants in

the industry

Bargaining powerof buyers

High effect of buyer bargaining


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Government Policy : The government policy of a country plays an important part inthe steel business. A supportive host country government is a must for success in the business.

Product differentiation : Steel has very low barriers in terms of product differentiationas it doesn't fall into the luxury or specialty goods and thus does not have any substantial pricedifference. However Tata Steel still enjoys a premium for its products because of its quality andits brand value created more than 100 years back.

2. Bargaining power of buyers : The bargaining power of buyers is high. Buyers buyingin bulk quantities have a huge advantage in price negotiations. Also, switching costsfor the buyers are low when choosing from a multitude of equivalent steel products.

3. Bargaining power of suppliers : The bargaining power of suppliers is high. Most of the sourcing is done from foreign markets due the unavailability of raw materials inmost of the countries. Suppliers command a price premium due to this reason.

4. Rivalry amongst competitors: Rivalry amongst competitors is high in the global steelindustry. It is mostly based on price and potential source for differentiation is verylow. Arcelor mittal is the major steel producer in the world. Posco, Nucor and Heibeiare the other main steel producer s in the world. Tata steel is ranked in the number10 position.

5. Threat of substitutes : It is low. Aluminum, carbon fiber and plastic are the majorsubstitutes for the steel industry. Although usage of aluminum has been increasingit hardly poses any significant threat to steel as the latter cannot be replacedcompletely and the cost differential is also very high.


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Life cycle analysis of TATA steel

TATA steel has become a large global player through huge projects in a numberof countries in South East Asia, UK and other parts of Europe. It has seen growththrough acquisition of firms like Corus steel, Millenium steel and Natsteel holdings. Ithas sufficiently achieved economies of scale, scope and large scale consolidation of thesteel industry. Due to its ability to continuously raise the entry barriers of new entrantsand forcing them remain competitive or face the risk of acquisition we can say thatTATA steel is in the shakeout phase of its life cycle.

Strategic Groups


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Indian Iron and steel industry can be divided into two main segments

Integrated producers

Those that convert iron ore into steel. There are three major integrated steel

players in India, namely Steel Authority of India (SAIL), TATA Iron and Steel CompanyLimited (TISCO) and Rashtritya Ispat Nigam Limited (RINL). Secondary producer

These are the mini steel plants (MSPs) which make steel by melting scrap orsponge iron and a mixture of the two, Essar Steel, Ispat Industries and Lloyds are thelargest producers of steel through the secondary route.

TATA steel is one of the top most Indian companies in the integrated steel producerssegment. Investment in innovation and R&D which helps it in achieving low cost and

thus get higher margins from the industry. Tata steel is also backward and forwardintegrated having captive mines; Logistics Company etc. which further helps it in gettinghigher margins.

The company focuses on:-

The domain of high value added products.

a strong customer focus for brand creation.

The steel industry has been racing along at a surprisingly high speed during recent years,largely due to the huge buying from China. Tata Steel has also done extraordinarily wellas the industry moved upwards, but the next big challenges are already seen on thehorizon: global reach with global branding.

Opportunities and threats in the global steel industryOpportunities :

The huge scope for increasing consumption of steel in almost all sectors in the world.

Expectation of growth in the U.S. and U.K. markets by double digits in the next 25 years andgrowth rates of 9.2% increment in overall global markets.

Booming infrastructure has opened up high demand for steel worldwide Speedy globalization leading to faster opening up of newer markets.


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Threats :

Rising environmental costs due to the increased concerns on Global Warming is apotential threat to the steel industry.

The generation of CO2 and per fluorocarbons (PFCs) which occur during themanufacture of the steel constitute another type of environmental threat to steel.

High raw material input cost and scarcity of non- renewable raw materials are a threatto the industry.

Constant threat of foreign players invading the markets. Capacity management measures need to be implemented to prevent constant

occurrences of over-capacity.

Key success factors

Improved cost structures Good Top Management Technological expertise Rapid adjustment of capacity to output Global marketing capability


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Internal Analysis of the steel industry

How the Resources/Capabilities support its generic strategy??


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Resource based view

RBV Test Brand Raw material Capacity R&D

Inimitable? No No No No

Durable?

Appropriable?

Non-Substitutable?

Competitivesuperiority?

Brand

Based on the performance of all Tata Group companies over many years, the Tata brand hascome to stand for quality, trust, business leadership, the highest ethical standards and respectfor all its stakeholders. The specific attributes associated with Tata Steel, including productexcellence and safe, and sustainable manufacturing, have led the Tata Steel brand to representreliability and quality to customers; fairness and opportunity to employees; creation of wealthto shareholders; and corporate responsibility to local communities and society at large.

Tata Steel has, in turn, created a number of sub-brands for its speciality businesses andproducts each of which carries the same values and attributes.

Capacity

Throughout its century-long history, Tata Steel in India has been a pioneer in industrial andemployment practices. Today it has a 6.8 mtpa crude steel production plant as well as asignificant presence in all the key product segments. Capacity expansion is a key strategy forTata Steel in India, where it derives much of its competitive advantage as a low-cost producerfrom the quality and yield of its raw material sources. The mines have provided raw materialsecurity and also partially insulated Tata Steel from the volatility within the global markets forthese raw materials. Work is currently under way to increase steelmaking capacity atJamshedpur to 9.7 mtpa of crude steel by 2012. This additional capacity will enable thecompany to increase its market share in flat products and to use its existing resources moreefficiently, including manpower, utilities and its captive mines. Looking further into the future,


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the company plans to continue to increase its capacity significantly through both brownfieldand greenfield developments.

Raw material

A pioneer in prospecting, discovering and extracting iron ore, coal and other minerals requiredfor steelmaking, Tata Steel has almost a century of experience in mining raw materials safely,efficiently and sustainably. The companys long -term strategy is to have as much control aspossible over its raw material resources and to ensure security of supply for its operationsglobally. Company-owned and operated mines and collieries have met most of the raw materialneeds of the Jamshedpur steel plant since its inception. Tata Steels raw materials division inIndia produces over 14 million tonnes of ores a year from its captive collieries, iron ore minesand quarries in the states of Jharkhand and Orissa.

Other significant investments in raw materials include a recently enhanced holding in theRiversdale Mining Limited coal project, development of an iron ore project with NewMillennium Capital Corporation, and Dhamra Port Company Limited a 50:50 joint venturebetween Tata Steel and Larsen & Toubro to construct a deep water port on the eastern coast of India. Tata Steel also has several joint ventures in Africa, Australia and Canada to furtherincrease its raw material security.

Research and Development

A collaborative approach, cross-fertilisation of better practices and technology absorptionthrough integration of processes have led to measurable and continuous improvement in manyaspects of Tata Steels performa nce. In addition to its ongoing drive to improve the quality andquantity of the steel it produces, Tata Steel continues to conduct extensive research with theobjective of making its steel production operations more energy efficient, cost-effective andenvironmentally sustainable.

The research and development (R&D) centres are located at IJmuiden in the Netherlands,Rotherham and Teesside in the UK, and Jamshedpur in India. A clear focus on development of cutting edge technology has enabled Tata Steel to become one of the lowest cost steelproducers worldwide. Current activities in this area include research on agglomerates

chemistry, blast furnace burden distribution, integrated through-process modelling, andreduced zinc consumption during tube galvanising, and many others. A number of researchgroups in India and Europe are actively engaged in developing new products. Research relatingspecifically to the automotive sector, for example, includes the development of advanced highstrength steels, new forming techniques, new and improved joining techniques, innovativecoatings, and improved fatigue life of components. Tata Steels R&D centres also conduct many


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programmes to improve the life cycle and sustainability of its products. These include projectsto r educe energy consumption, CO and other emissions.

Business Level Strategies

Cost Leadership Strategy

At present, Tata Steel outsource their selling and purchase needs to metaljunction.com which,in turn, leverages on the Internet to facilitate "procurement at smart rates and sales at highestpossible rates.'' This is done on a case-to-case basis and in expectation of a commission that isbased on the value of the transaction.As an overall integrating tool, the Tata BusinessExcellence Model (TBEM), a business assessment model based on the Malcolm Baldridge Modelof US, which has been adopted by most of the Tata Group Companies, is being rolled out acrossTata Steel Europe. The TBEM methodology has been designed to help improve organisational

performance practice, capabilities and results.

Around 60 per cent of Tata Steels products are sold through contrac ts quarterly, half-yearlyor annually and so these products are naturally protected from price fluctuations. It is,therefore, the remaining 40 per cent that are subject to price fluctuations. This is wherebranding becomes important. Tata Steel is spending between 1 per cent and 1.3 per cent of brand-related turnover to establish the brands, and it pays off. The company claims that as aproduct example, Tata Agrico currently commands a premium of 15 per cent over competingbrands. Company sources say t here are plans to increase Agricos market share even furtherthan 25 per cent. Keeping customers is only one side of the picture. At another level steelcompanies have come to believe that branding can create a greater level of awareness andinterest at the shop floor level. The theory is that if workers know where their products areheaded and what they will be used for, it creates a higher level of commitment.

A strong Continuous Improvement (CI) culture is embedded in Tata Steels Indian operations.Kar Vijay Har Shikhar (Conquer Every Peak), the fl agship CI initiative, has been implementedacross the Company and has resulted in savings of `312 crores. In terms of engineeringprocesses, a cost reduction exercise carried out by the Engineering and Projects divisionresulted in savings of nearly `1,000 crores in project costs.

Competitive Advantage : Metal junction is now the largest e-marketplace for steel industry inthe world, having sold over 4 m tonnes of steel for its clients and currently selling at an averagerate of 150,000 tonnes per month. No other Steel maker in India could really reach this level of sale.


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First Mover Advantage : It was in the mid-2000 that Tata Steel realized that trading on theInternet will happen and will be there to stay. Company decided to get together, form a taskforce and put in place a mechanism whereby we could leverage on the Internet not just formutual benefit but for the benefit of the entire steel industry as well, to begin with. So in this

way it was TATA Steel who got the first mover advantage in India.

Value Chain Analysis

With the use of technology Tata Steel is able to enhance value in its value chain. There are twochannels E-procurement and E-sales. Metaljunction.com has truly succeeded in leveraging thepower of the Internet to re-engineer, simplify and streamline processes across the entire steelvalue chain. Earlier, strength has been on selling steel and procuring inputs required in the steelindustry, it has initiated the process of augmenting its service offerings and adding newproducts, such as minerals and ferro alloys, to its portfolio. Good fiscal and economic

management will therefore be needed to stimulate economic growth while at the same timecurbing inflationary forces. There will need to be measures in place to control speculation andexploitation resulting in runaway prices of commodities and mineral resources which cascadethrough the entire value chain.

TSE is continuously working towards higher levels of operational excellence through improvingasset performance in regards to quality, reliability and lower costs. An initiative of 100 millionof short payback capital projects to improve operational efficiency across Europe was launchedthis year while the 185 million rebuild of the No. 4 furnace will improve operational efficiencyat Port Talbot.

Performance Improvement Teams (PITs) contributed in the area of manufacturing during thefinancial year 2010-11 by implementing improvement projects in multiple locations of the TataSteel Group. As of April 2011, 21 Performance Improvement Teams (PIT) are operatingeffectively across the Group as against 17 in the financial year 2009-10. 14 PITs have dedicatedwork streams for focused problem solving, targeting areas of importance for the group. NewPITs in Billet Casting and Tubes have been introduced during the year. With most of Europegradually coming out of recession, PITs have concentrated on improving manufacturingeffectiveness and efficiency of operations.

Notable contributions of the PITs have been on:

(a) Using higher percent low cost coals with reduced coking times in coke making,

(b) Increased usage of reverts thus saving on cost of iron ore, cost of landfill while meeting theenvironmental regulations;


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(c) Improvements in steelmaking and casting by reducing process variations, improving yield,etc;

(d) Improving quality and yield while reducing cost in rolling.

In the financial year 2011-12, efforts are being made to extend PITs to other functions likeSupply Chain, Commercial, etc.

Inbound Logistics

At the current production level of four million tonnes of hot metal annually, Tata Steel'sJamshedpur plant handles about 13million tonnes of raw materials.Tata Steel has urged theRailways to take note of the projected requirement and plan for making available the rakeswhen the demand for additional traffic actually materialises. But, then, making availableadditional rakes is only one part of the story. Equally, if not more, important is line capacity. On

its part, Tata Steel is also taking steps to improve its infrastructure keeping in view theprojected increased volume of raw materials it will have handle. It is spending Rs 60-70 crore toupgrade its various facilities. Thus, the company's own railway system will e electrified,signalling system improved and tracks upgraded. More track hoppers are being acquired. Theintroduction of the engine-on-load system within the plant is to halve the unloading time of aniron ore rake from eight-nine hours.The coal unloading system is being revamped, and with itthe tippling capacity, so that the detention of rakes is also halved to 12 hours or so. Thefacilities are being created to handle a full rake, which is not possible now.Tata Steel wants theRailways not only to enlarge the average size of wagons but also to introduce high capacity

wagons so that the average rake capacity increases to 7,000-10,000 tonnes from the 3,500tonnes now. The company has also mooted a proposal for laying high capacity 30-axle load line.

Operations

Kar Vijay Har Shikhar (conquer every peak) is a new initiative launched during the year,focused on Tata Steels a spiration to improve its EBITDA. It is a multi-unit, multi-location, crossfunctional improvement programme that aims to excel across the entire steel value chain allthe way from the raw materials mining to marketing and sales of finished steel.

Take a look at Tata Steel's integrated value chain, from the mining of different raw materials,through their processing, right up to the final product. You will see that all activities sales anddistribution, material management, finance are lean and mean with the use of SAP (ERP). Thecompany operates seven collieries and 14 mines and quarries spread over Jharkhand, Orissaand Karnataka, all of which are comprehensively e-connected. It describes the phasing out of old units and outdated technologies, and the use of the very latest. Through this process, Tata


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Steel keeps up the tradition of getting the best resources in the world involved for the creationof wealth and the continuing development of a basic industry for nation building.

Outbound Logistics

Tata Steel is also taking steps to improve its infrastructure keeping in view the projectedincreased volume of production it will have handle.TM International Logistics Limited (TMILL)and its subsidiaries offer logistic services pertaining to port and terminal handling, maritimeshipping, ship agency, custom clearance and freight forwarding. The company is involved in theactivity of handling port operations at Haldia and Paradip on the east coast of India backed byfully dedicated customs clearance and shipping agency services at both the ports. It runs a cleancargo terminal at berth number 12 at Haldia, which is equipped with modern handling facilitiesincluding heavy equipments, shore cranes and vast open storage area as well as coveredwarehousing facilities.

Marketing and Services

The company soon realized that a strong customer focus is essential if any branding approachwas to be successful. It soon began to introduce internal campaigns in order to bring thecustomer-centric message to its employees. In the late 1990s, the company launched severalinternal marketing programs to emphasize customer focus and service. The programs hadtaglines such as, customer first her haal mein (Customer comes first in any case), customerfirst her haal mein, her saal (customer comes first in every case, every year), customer kikasam hain taiyaar hum (We pledge to the customer that we are ready for him). These are

the mantras behind Tata Steels success. This transfer from producer logic to customer logicwas seen as the path to influence customer behavior for mutual gain.

Before jumping on to the crucial brand wagon, Tata Steel set up a branding task force inJanuary 2000 to explore the possibilities of branding Tata Steel products. Only after threemonths, the task force evolved into a brand management department. Within this departmentthey created the distinct sub functions market development, order generation and orderfulfillment which were computerized, enabling Tata Steel to reduce its customer respon setime significantly. The company also initiated the concept of customer account managerswho were authorized and empowered to solve specific customer grievances immediately. Thecompany further sought to increase customer interaction in order to better understandcustomer needs and to explore new and improved ways and means to meet these needs andexpectations.


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Supporting Activities

Performance Ethic Program (PEP) Total Productive Maintenance (TPM) programHuman resource

completed five phases of the modernizationprogramTechnology

Access to capital of Tata groupInfrastructure

Access to high quality raw materialProcurement


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Tetra threat framework

Threat of imitation

Considering Indian scenario of TATA steel it is very difficult for existing competitors to imitatebecause of resources that TATA steel has. The brand image of TATA steel has created afavourable position for it the market which is an intangible resource and is not easily imitableby the competitors.

Threat of substitution

Steel faces threats from the aluminum, rubber and the carbon fiber industry. However, due theextreme usage of a variety of steel in different sectors of production and its inexpensive costcompared to other substitutes, steel is not easily replaceable in most of the industries.

Threat of Hold-up

As TATA steel has its own mines for supplies of raw materials like coke and iron-ore, it is lessdependent on suppliers. Also, it has mines in various parts of the world which makes rawmaterial extraction extremely inexpensive for TATA steel. Bulk buyers however have many

ImitationBrand Image

Scale economies

SubstitutionAluminum , Rubber, Carbon fiber

Hold-upLow bargaining power of suppliers

High bargaining power of buyers

Slack

Less effect of management slack

Added Value

Appropriated value


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options from leading steel manufacturers all over the world and thus maintain a constantthreat over the TATA steel.

Threat of slack

The management at TATA steel is extremely competent and has set global standards. Howeverconstant threats like labor strikes, over capacity, changes in government regulations, etc. havekept the management on their toes. Overall the management slack is very low for TATA steel.

Recommendations

Continual investment revenue contribution as it is a major supportive growing businessin the steel industry.

Focusing on innovative steel production techniques and procurement strategies tolessen overall costs.

Tapping the rural markets on the domestic front where there is a huge potential forincreasing consumption of steel.

References

www.metaljunction.com

www.tatasteel.com

www.tata.com

www.businessweek.com

www.tatasteel.com/newsroom/financial-result/11.pdf

www.investopedia.com

http://www.tatasteelservices.com/en/products_and_services/consulting_services/environmental_services/lifecycle

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Strategy Project_Group No 10