Nucor Steel Case Study Essay

p curveel determination of deviceout CapacityNucor make has the self-aggrandizingst intersection subject matter capability in trade union America. However, they squander some deficiencies in this battlefield in that in 2010 they utilise retributive 70 portion of capacity, though it change magnitude in 2011 it was still just 74 percent. Gaining gigantic take capability al secondary boil d experience personifys and in moment increase the internetability of the comp all. fill in 2Rising Scrap metallic element PricesNucor maintains its free-enterprise(a) good th rough out its let loose cost yield, and their do of electric arc furnaces and recycled chuck out metals to produce firebrand. Prices for scrap brand was not higher than $137 until 2004, and oscilloscopeed a gunpoint of $438 in 2008 before the frugal street corner mutilate. In 2009 and 2010 wrongs were $303 and $351 respectively, and so in 2011 hit an incomparable high of $439. With their per unit cost structure relying heavily on these scrap nerve prices, their ability to get greater profitability is cutd. Nucor needs to find a way to off-set these rising prices in dis lay out to maintain its low cost strategy. governing body issue 3 world(prenominal) rivalry and impertinent SubsidiesUS producers of stain and vane results extradite fallen victim to war-riddenly hawkish pricing from transnational firms. In 1999 the US government determined that hexad countries were thus dumping stainless firebrand into the US commercialise. Half of those countries governments were facilitating this mental process by providing crank subsidies to offset the firms losings from selling at beneath commercialize prices. In 2001, the Bush administration installed a 30 percent tariff on those countries found guilty of illegal dumping. This self said(prenominal)(prenominal) issue is still prevalent directly as China has been accused of doing the resembling(p) lo se weightg. They strike signifi screwtly get d knowledge prices than American firms due to the fact that China has been devaluing their funds in install to make exports dirtyly cheaper. The US government must deputise and installan anformer(a)(prenominal) tariff on Chinese sword proceedss in order to protect its domestic producers from unfair distant emulation.RecommendationNucor Corporation should install an aggressive international expansion strategy to achieve several goals. It should be aimed at riposte its premier profitability that it had in 2007 and 2008 in general by reducing cost. It should strive for throwing an increased commercialise shargon in exploitation international merchandises that were not as complete by the recession in regions of Asia and the nerve eastern. With that increased withdraw for make and stigma products, Nucor should not acquire chip initional capacity, alternatively they should make to a greater extent efficient use of its tr ustworthy capacity with the goal of stint 90 percent employment of capacity. In an effort to reduce be, Nucor should increase its efforts of reverse-integration in order to permit itself with cheaper raw visibles and lower its per unit achievement costs. International grocery storeplace expansion, increased raw material production, and increasing plant capacity competency should be the main focus paltry forward as Nucor attacks to create a much cost efficient production process, increase r tear downues, grow its profitability, and hatch to fork up its stockh experienceders with hind endly dividends and increased yformer(a) dividends as it has for the past 40 years. vermiform process A Dominant Economic CharacteristicsMarket coat and Growth RateHow large is the perseverance and how fast is it growing?The worldwide effort of crude leaf blade production reached all-time highs with total production equaling 1,559 million haemorrhoid in 2010 and 1,680 million haemo rrhoid in 2011. creative activitywide production capacity was hale-nigh 2,090 million heaps in 2011, which resulted in a utilization rate of 80 percent in 2011. The worldwide production of crude brace has grown consistently since 2000 despite two significant periods of economic downturn and decreased unavoidableness. According to the World make Association, the crude steel production growth rates were 6.2 percent from 2000-2005, 4.4 percent from 2005-2010, and 4.4 percent from 2010-2011. Scope of Competitive contestationIs the geographic region over which al about companies compete local, regional,national, multinational, or orbicular? A combination of both national and globalPrimary National CompetitorsUS brandArcelorMittal the StatesTop general CompetitorsArcelorMittal Worldwide (Luxembourg)Baosteel (China)POSCO ( southbound Korea)Nippon Steel (Japan)JFE (Japan)Jiangsu Shagang (China)Tata Steel (India)Ansteel (China)Gerdau (brazil nut)Severstal (Russia)Wuhan (China)Thy ssenKrupp (Ger m whatsoever an(prenominal))Evraz (Russia)Is having a comportment in abroad grocery stores becoming more in-chief(postnominal) to a confederacys prospicient-term competitive winner? Yes, oddly in times of domestic economic downturn. In the recession of 2009-2011, steel postulate in developed countries such(prenominal) as the US and Japan was greatly diminished. However, demand for steel in developing regions such as India, China and the Middle East was exceeding local producers capacities. Thus, in that respect is significant opportunity to prosper internationally and better apply current production capacities.Specifically for Nucor, in 2007 they contumacious that international growth was a necessity, and their strategy hinged on two elements Opening distant gross revenue offices 60 percent of Nucors current steel plants were located on deep water access atomic number 18as which allowed for tardily access to international shipping atomic number 18as wi thout a significant increase in cost. voice Ventures Nucor began developing partnerships with reputable and successful foreign firms in an attempt to greater utilize their mutual competencies as well as allow Nucor to establish itself in international markets. Product InnovationIs the patience categorized by rapid product grounding and short product life cycles? not for the steel constancyInnovation is most-valuable but with the typical size of it of projects, it is in no way rapid The steel perseverance is categorized by long product life cycles, only methods of manufacturing wear been changed in the lengthy history of the fabrication How important is R&D and product base?R&D and innovation are extremely important more or less study advancements in the past 60 years ache resulted in industry breakthroughs that seduce cut costs and environmental impact dramatically are there any opportunities to overtake key rivals by macrocosm first-to-market with next generation pr oducts? Yes, any unused technology that entrust reduce costs and/or increase productiveness will almost certainly add to a caller-ups competitive advantage Being first-to-market with new innovational production methods will absolutely put forward an opportunity to overtake rivals This is evident in Nucors rise to being champion of the top steel producers in North America, their use of electric arc furnaces, thin slab casting process, and strip casting technology gave them a significant boost when attempting to period US Steel and the USs largest steel producer Economies of ScaleIs the industry characterized by economies of scale in purchasing, manufacturing, advertising, shipping, or some other(a) activities? Yes, especially in manufacturing as a company can reduce its per unit fixed costs with greater production capacity Do companies with largescale operations ware an important cost advantage over pettyscale firms Yes, smaller firms are a couple of(prenominal) and far between and during the 2000s some(prenominal) an(prenominal) were bought by larger firms in an attempt to increase their total plant capacity, recognize market per centum, and gain a vehementer position in specific geographic areas nurture/Experience Curve EffectsAre certain industry activities characterized by strong scholarship and experience tack togethers ( tuition by doing) such that unit costs decline as a companys experience in playing the activity builds? Yes, as the firms plants operate, their line workers go away more and more capable of executing the job, fixing probable problems, and generating ideas to improveproduction As the workers become more knowledgeable and experienced, they become more efficient and productive which in turn lowers labor costs and increases total product available for sale and revenues Do any companies have significant cost advantages because of their learning/experience in performing extra activities? Nucor has an advantage in this p articular area because of their egalitarian company culture where managers and periodic employees discuss emf improvements and changes on a regular basis They are excessively actually decentralized and are gift to new ideas, Nucor truly believes that their best inception of knowledge for potential improvements in manufacturing is from the employees that are on the front line of the manufacturing process adjunct B PESTEL analytic thinking policy-making FactorsThe main political factor that is affecting the steel industry pertains to the US market and foreign competition Nucor and many other American steel companies have appealed to the US government that they have been facing unfair competition from foreign firms, they believed that several foreign steel producers were practicing illegal dumping of steel and steel products into the US market In March of 1999, the US Department of mercantilism concluded that steel companies in six countries had illegally dumped stainless stee l in the US CanadaSouth KoreaTaiwanItalyBelgiumSouth AfricaThe governments in Belgium, Italy, and South Africa further facilitated this workout by providing subsidies that would cover revenue losings for firms selling steel at below market prices This is still an issue at once as US steel producers are facing similar competition from China, where most steel companies are government owned and operated, China has also de comfortd its own currency in order to provide significantly lower prices Economic ConditionsThe steel industry is relatively affected by economic conditions Since prices and percentage use of capacity are determined by market supply and demand forces, when the delivery is healthy, then demand is strong and steel companies can be gainful. On the other hand, when the economy enters a recession, then demand is trim down greatly and most firms cannot be profitable This is evident with the economic downturns that occurred in the early 2000s as well as in 2009-2011 whe n most firms saw revenues and win decrease dramatically Nucor saw sales drop from 25,187,000 tons in 2008 to 17,576,000 tons in 2009 and accordingly saw authorise profits drop from $1.8 billion in 2008 to a loss of $293 million in 2009 Sociocultural ForcesThere is a express effect of sociocultural forces with respect to the steel industry There will be peasant influence ground on the growth rate of the population, as with a faster growing population, the need for schools, hospitals, roads, and other public buildings will increase which will in turn increase demand for steel and steel products Technological FactorsThe expert advances in the steel industry have been revolutionary over the years and have provided other industries with valuable information on how to improve their own production facilities and capabilities However, in youthful years it hasnt provided for the take of many new industries stemming from those innovations, nor has it provided significant value to soci ety Environmental ForcesRising force out prices are hurting steel companies so-and-so line in that they cannot generate the same amount of power as they could in former years without increasing expenditures and elevator their per unit costs each quarter Plant emission requirements are rigorously enforced by the EPA and the US government In the past 50 years, the steel production industry has made great strides in becoming more environmentally conscious and efficient Nucor has developed new techniques and technologies that allow for a more environmentally responsible production process particularly their steel production efforts in Brazil where they use a eucalyptus nurture for the fuel in their blast furnace or else than coal, and the eucalyptus farm absorbs more speed of light dioxide from the atmosphere than the plant emits and completelyneutralizes the effect of global warming Legal and restrictive FactorsLabor laws greatly affect the steel industry, Nucor has few issues with these as they compensate their employees well over federal requirements and industry averages guard duty regulations are also a major factor as compliance with OSHA and other safety organizations in a requirementAppendix C Five Forces abbreviationThreat of New EntrantsWeakThe costs associated with entering the steel industry are excessive and the threat of a company doing so is very limited Competition from SubstitutesWeakCompanies in industries that require steel and steel products, can only use steel and steel products, as other metals dont possess the same metallurgical qualities like carriage and strong suit required There is some potential that other metals like aluminum, titanium, tungsten and many others could pose a threat, but the majority of Nucors customers need steel vendee queenModerateCustomers have the availableness to shop different companies as price is the main determining factor in the industry Since prices and competitive advantage is generally dete rmined by cost and market supply and demand forces, then customers have a moderate ability to supplement another companys, or even another countrys, price against a particular supplier Supplier PowerModerateIn previous years, Nucor had been at the mercy of rising raw materials prices barely in recent years they have begun an aggressive backward-integration strategy to begin producing 6 million to 7 million tons of steel for use in its steel product manufacturing plants Their move to provide their own raw materials has greatly reduced their belief on raw steel suppliers in the midst of ever-increasing prices RivalryStrong national competition from US Steel and ArcelorMittal regular army is extremely fierce Foreign competition from both European and Asian firms is unbelievably stout as well Since advantage is determined mostly by low costs and low prices, competition is a constant price warAppendix D Drivers of Change in the painsInnovation of new production techniquesProduction efficiencyEfficiency of capacity usageAbility to reduce costs and accordingly lower pricesGlobalizationNew merchandise strategiesResiliency to changing economic and market conditionsDiffusion of technological know-how across companies and countries integration of companiesRegulatory influences and government policy changesAppendix E circulating(prenominal) StrategyIn 2000, Nucor began a five-part growth strategy that multiform New acquisitionsNew plant windingContinued plant upgrades and cost decline effortsInternational growth through voice venturesGreater control over raw materialsTheir overall strategy includes all of the above as well as being a low-cost producer and low-price market leader in the steel industry Appendix F Competitor abridgmentCompetitor synopsis FrameworkCurrent StrategyUS SteelPositioned as the long-time industry leaderIts competitive advantage, if any is based in brand strength ArcelorMittal ground forcesPositioned alongside US Steel and Nucor in production capacity and servesmany of the same industries Competitive Advantage lies in its sales volume and earningsObjectivesUS SteelDue to significant losings both domestically and in Serbia, strategic financial changes should be expected ArcelorMittal USACurrently experiencing profitable operations, only minor changes should take place in the prospective CapabilitiesUS SteelStrengthsBrand senseYears of experienceWeaknessesUnionized manpower take in losses in recent yearsArcelorMittal USAStrengthsInternational subordinate word of ArcelorMittal, thus have knowledge beyond US market Production capacity, sales revenues, and profitsWeaknessesLack of brand sentiencyAssumptionsUS SteelAs the old guard, have operated in the red in several years, and assume that they arent deviation anywhere and that the market will turn in their favor ArcelorMittal USAWith their sweep over knowledge from international operations, and being a subsidiary of the largest single steel producer in the world, they assume that their market share and drive for low costs will eventually prevail Strategic encountering MapThe above chart displays the market positioning of the main three competitors in the US steel production industry. The size of each circle is determined by the volume of steel products shipped. All statistical data used is from 2011. Volume of steel products shipped is very comparable, and the totalnumber of production plants in the US is also very similar between the three. The largest disparity is on the net profit axis where ArcelorMittal USA led with $2.3 billion in profit, Nucor bring in $778 million, and US Steel shows losses of $53 million. Weighted Competitor Strength abbreviation and Key Success FactorsThis chart enlarge the strengths and weaknesses of each of the major three companies in the US steel market based on four key success factorsAppendix G SWOT AnalysisAppendix H Financial AnalysisNet Profit MarginNet profit margin shows the percentage of aft er-tax profit of sales, the chart above shows the true effect of the economic recession that hit in the fourth quarter of 2008, and the slow recovery of the market since then. The market is expected to gain strength in 2012 and Nucor and its stockholders are hoping that medical prognosis is true as they strive to reach their peak performance levels that they obtained in 2007-2008. double back on Invested CapitalReturn on invested capital is a measure of the ease up that shareholders are earning on long-term invested financial capital. This particular measure shows how the economic recession effected Nucors shareholders and their overall issue on invested capital. 2011 provided a significant recant in ROIC and Nucor will need to bear on to trend this measure upward to meet investor expectations. inseparable Cash FlowInternal cash flow is a rough estimate of how much cash a companys business is producing and would have for potential dividend even upments or capital expendit ures. The inhering cash flow measure is as yet another representation of how much the global recession of 2009 and 2010 effected Nucor and its ability to continue its operations as it had in previous years. Despite the drastic reduction in its internal cash flow, Nucor still managed to pay itsshareholders a dividend as it had for 156 consecutive canton while also increasing the dividend hire paid to stockholders every year since 1973.