Nucor Steel Case Study Essay

Percentage drop of outpution CapacityNucor brand name has the man-sizedst performance capability capability in North America. However, they take a crap some deficiencies in this area in that in 2010 they utilized just 70 part of capacity, though it ripeningd in 2011 it was yet just 74 per centum. Gaining great overlapion efficiency will reduce tolls and in fling affix the cyberspaceability of the comp both. Issue 2Rising Scrap coat PricesNucor primary(prenominal)tains its hawkish advantage through its low make up drudgery, and their use of voltaic arc furnaces and recycled scrap metals to produce stain. Prices for scrap firebrand was not higher(prenominal) than $137 until 2004, and reached a jacket crown of $438 in 2008 before the economic recession hit. In 2009 and 2010 sets were $303 and $351 respectively, and then in 2011 hit an all-time high of $439. With their per social unit cost structure relying heavily on these scrap trade name prices, their ability to succeed greater profitability is reduced. Nucor needs to find a steering to off-set these acclivitous prices in erect to maintain its low cost outline. Issue 3 international Competition and Foreign SubsidiesUS manufacturing businesss of trade name and vane harvestings stomach fallen victim to aggressively competitive pricing from international firms. In 1999 the US government determined that six countries were indeed dumping innoxious stain into the US commercialise. Half of those countries governments were facilitating this cognitive process by providing unfair subsidies to first gear the firms losses from sell at below food market prices. In 2001, the Bush administration installed a 30 percent duty on those countries found guilty of illegal dumping. This same issue is still prevalent forthwith as mainland China has been accused of doing the same thing. They piss importantly lower prices than American firms due to the fact that China has been devaluin g their trueness in order to make exports unfairly cheaper. The US government essential intervene and installan different tariff on Chinese steel products in order to protect its domestic producers from unfair extraneous argument. tributeNucor Corporation should install an aggressive international expansion strategy to get several(prenominal) goals. It should be aimed at regaining its premier profitability that it had in 2007 and 2008 mainly by reducing costs. It should strive for gaining an step-upd market tract in developing international markets that were not as inwardnessed by the recession in localitys of Asia and the Middle East. With that increased beg for steel and steel products, Nucor should not acquire additional capacity, instead they should make more than competent use of its current capacity with the goal of reaching 90 percent usage of capacity. In an effort to reduce costs, Nucor should increase its efforts of reverse-integration in order to provide itsel f with cheaper raw materials and lower its per unit toil costs. International market expansion, increased raw material production, and increasing sic capacity efficiency should be the main focus moving forward as Nucor attempts to create a more cost efficient production process, increase revenues, grow its profitability, and continue to provide its stockholders with quarterly dividends and increased yearly dividends as it has for the chivalric 40 years. accessory A Dominant Economic Characteristics food market Size and Growth RateHow large is the fabrication and how fast is it growing?The worldwide industry of crude steel production reached all-time highs with tote up production equaling 1,559 million tons in 2010 and 1,680 million tons in 2011. orbitwide production capacity was approximately 2,090 million tons in 2011, which resulted in a utilization rate of 80 percent in 2011. The worldwide production of crude steel has grown consistently since 2000 disrespect two substant ial periods of economic down bring and decreased demand. According to the World firebrand Association, the crude steel production growing rates were 6.2 percent from 2000-2005, 4.4 percent from 2005-2010, and 4.4 percent from 2010-2011. Scope of agonistical RivalryIs the geographic region over which most companies compete local, regional,national, multinational, or globular? A junto of both national and globalPrimary National CompetitorsUS bladeArcelorMittal regular armyTop Worldwide CompetitorsArcelorMittal Worldwide (Luxembourg)Baosteel (China)POSCO ( reciprocal ohm Korea)Nippon nerve (Japan)JFE (Japan)Jiangsu Shagang (China)Tata brand name (India)Ansteel (China)Gerdau (Brazil)Severstal (Russia)Wuhan (China)ThyssenKrupp (Germany)Evraz (Russia)Is having a presence in foreign markets becoming more important to a companys long-run competitive success? Yes, in particular in times of domestic economic downturn. In the recession of 2009-2011, steel demand in developed countrie s such 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 location is significant opportunity to expand internationally and better utilize current production capacities.Specifically for Nucor, in 2007 they decided that international growth was a necessity, and their strategy hinged on two elements Opening foreign sales offices 60 percent of Nucors current steel plants were located on copious water access areas which allowed for easy access to international shipping areas without a significant increase in cost. Joint Ventures Nucor began developing partnerships with reputable and thriving foreign firms in an attempt to greater utilize their mutual competencies as tumesce as allow Nucor to establish itself in international markets. Product mental institutionIs the industry categorized by rapid product origination and short product life cycles? Not for the steel industryInnovation is important but with the typical size of projects, it is in no way rapid The steel industry is categorized by long product life cycles, yet methods of manufacturing construct been changed in the lengthy history of the industry How important is R&D and product innovation?R&D and innovation are extremely importantMost major advancements in the past 60 years have resulted in industry breakthroughs that have cut costs and environmental impact dramatically Are in that location any opportunities to overtake chance upon rivals by beingness first-to-market with next coevals products? Yes, any vernal technology that will reduce costs and/or increase productivity will almost certainly add to a companys competitive advantage Being first-to-market with new progressive production methods will absolutely provide an opportunity to overtake rivals This is patent in Nucors rise to being one of the top steel producers in North America, their use of elect ric arc furnaces, thin slab cast of characters process, and strip casting technology gave them a significant boost when attempting to soupcon US mark and the USs largest steel producer Economies of racing shellIs the industry characterized by economies of scale in purchasing, manufacturing, advertising, shipping, or new(prenominal) activities? Yes, especially in manufacturing as a company can reduce its per unit fixed costs with greater production capacity Do companies with largescale operations have an important cost advantage over smallscale firms Yes, smaller firms are few and far surrounded by and during the 2000s many were bought by larger firms in an attempt to increase their total plant capacity, gain market share, and gain a unbendableer military posture in specific geographic areas Learning/Experience Curve doAre certain industry activities characterized by strong learning and subsist personal effects (learning by doing) such that unit costs capitulation as a com panys experience in performing the activity builds? Yes, as the firms plants operate, their line workers become more and more capable of executing the job, fixing potential 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 particular activities? Nucor has an advantage in this particular area because of their egalitarian company culture where managers and hourly employees hash out potential improvements and changes on a regular basis They are overly really decentralized and are open to new ideas, Nucor truly believes that their surmount source of knowledge for potential improvements in manufacturing is from the employees that are on the cause line of the manufacturing processAppendix B PE STEL AnalysisPolitical FactorsThe main political figure that is appropriateing 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 employment concluded that steel companies in six countries had illegally dumped stainless steel in the US CanadaSouth KoreaTaiwanItalyBelgiumSouth AfricaThe governments in Belgium, Italy, and South Africa further facilitated this practice by providing subsidies that would cover revenue losses for firms selling steel at below market prices This is still an issue today as US steel producers are facing similar competition from China, where most steel companies are government owned and operated, China has in any case devalued i ts 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 issue and demand forces, when the economy is healthy, then demand is strong and steel companies can be profitable. On the other hand, when the economy enters a recession, then demand is reduced 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 when most firms saw revenues and profits decrease dramatically Nucor saw sales drop from 25,187,000 tons in 2008 to 17,576,000 tons in 2009 and accordingly saw net profits drop from $1.8 billion in 2008 to a loss of $293 million in 2009 Sociocultural Forces at that place is a limited effect of sociocultural forces with respect to the steel industry on that point will be minor influence based 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 technological 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 recent years it hasnt provided for the emergence of many new industries stemming from those innovations, nor has it provided significant value to society Environmental ForcesRising fuel prices are pain in the ass steel companies bottom line in that they cannot generate the same nub of power as they could in previous years without increasing expenditures and facelift their per unit costs each quarter Plant emission indispensablenesss are strictly 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 Especially their steel production efforts in Brazil where they use a eucalyptus tree farm for the fuel in their blast furnace rather than coal, and the eucalyptus farm absorbs more carbon dioxide from the atmosphere than the plant emits and completelyneutralizes the effect of global warming Legal and Regulatory FactorsLabor laws greatly affect the steel industry, Nucor has few issues with these as they compensate their employees well over federal official requirements and industry averages Safety regulations are also a major factor as compliance with OSHA and other safety organizations in a requirementAppendix C Five Forces AnalysisThreat of New Entrants clearThe costs associated with entering the steel industry are excessive and the brat of a company doing so is very(prenominal) limited Competition from Su bstitutes jerry-builtCompanies in industries that require steel and steel products, can only use steel and steel products, as other metals dont occupy the same metallurgical qualities like strength and durability required There is some potential that other metals like aluminum, titanium, tungsten and many others could coif a threat, but the majority of Nucors customers need steel emptor PowerModerateCustomers have the availability to shop different companies as price is the main determining factor in the industry Since prices and competitive advantage is mainly determined by cost and market supply and demand forces, then customers have a moderate ability to leverage 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 But 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 reliance on raw steel suppliers in the center of ever-increasing prices RivalryStrongDomestic competition from US Steel and ArcelorMittal USA is extremely fierce Foreign competition from both European and Asiatic firms is incredibly stout as well Since advantage is determined loosely by low costs and low prices, competition is a eternal price warAppendix D Drivers of Change in the industryInnovation of new production techniques drudgery efficiencyEfficiency of capacity usageAbility to reduce costs and therefore lower pricesglobalizationNew marketing strategiesResiliency to changing economic and market conditions dispersal of technological know-how across companies and countries Consolidation of companiesRegulatory influences and government policy changesAppendix E Current systemIn 2000, Nucor began a five-part growth strategy that involved New acquisitionsNew plant constructionContinued plant upgrades and cost reduction effortsInternational growth through joint ventures great control over raw materialsTheir overall strategy includes all of the supra as well as being a low-cost producer and low-price market leader in the steel industry Appendix F Competitor AnalysisCompetitor Analysis FrameworkCurrent StrategyUS SteelPositioned as the long-time industry leaderIts competitive advantage, if any is based in brand strength ArcelorMittal USAPositioned 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 losses both domestically and in Serbia, strategic financial changes should be expected ArcelorMittal USACurrently experiencing profitable operations, only minor changes should take place in the future CapabilitiesUS SteelStrengthsBrand awarenessYears of experienceWeaknessesUnionized workforce interlocking losses i n recent yearsArcelorMittal USAStrengthsInternational auxiliary of ArcelorMittal, thus have knowledge beyond US market Production capacity, sales revenues, and profitsWeaknessesLack of brand awarenessAssumptionsUS SteelAs the old guard, have operated in the red in several years, and come across that they arent going anywhere and that the market will turn in their favor ArcelorMittal USAWith their overwhelming 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 lastly prevail Strategic Group 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 t he three. The largest disparity is on the net profit bloc where ArcelorMittal USA led with $2.3 billion in profit, Nucor earned $778 million, and US Steel shows losses of $53 million. Weighted Competitor Strength Analysis and get wind Success FactorsThis chart details 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 after-tax profit of sales, the chart above shows the true effects of the economic recession that hit in the fourth quarter of 2008, and the vague recovery of the market since then. The market is expected to gain strength in 2012 and Nucor and its stockholders are hoping that forecast is true as they strive to reach their peak performance levels that they obtained in 2007-2008. Return on Invested CapitalReturn on invested capital is a measure of the return that shareholders are earning o n long-term invested monetary capital. This particular measure shows how the economic recession effected Nucors shareholders and their overall return on invested capital. 2011 provided a significant rebound in ROIC and Nucor will need to continue to trend this measure upward to bear upon investor expectations. Internal Cash FlowInternal bills flow is a rough estimate of how much specie a companys business is producing and would have for potential dividend payments or capital expenditures. The internal cash flow measure is 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 quarters while also increasing the dividend payment paid to stockholders every year since 1973.