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Scope of the project:
This project has been specifically constructed with the explicit intension of gaining an insight into the current scenario of the Indian Steel Industry, its key issues, constraints, regulatory outlook & a brief overview of the steel industry. The report aims at approaching the global scenario keeping the Indian potential in mind.
A strong Iron & Steel sector is backbone of a strong economy. Being a core sector, steel industry tracks the overall economic growth in the long-term. The steel industry has been witnessing a robust growth both in domestic as well as international market. High demands of steel by sectors like infrastructure, automobiles, capital goods, consumer durables, home and real-estate has given a boost to steel industry. This explains the growing demand for iron and steel throughout the global economy.
INDIAN STEEL INDUSTRY
The Indian Steel Industry is almost 100 years old now. Till 1990, the Indian Steel Industry operated under a regulated environment, insulated markets & large scale capacities reserved for public sector. India is currently the 5th largest steel producing nation in the world with the production of 53.4 MTPA (million tonnes per annum). The industry took the first faltering steps in 1907 with the setup of the first integrated steel plant in Jamshedpur by TISCO. Since then the Indian Steel industry has emerged as one of the core sectors in the Indian economy with a very significant impact on economic growth.The Indian steel industry comprises producers of finished steel, semi-finished steel, stainless steel & pig iron. The private sector controls almost 2/3rd of the steel market.
Figure- 1, Industry Classification based on Products1
PEST ANALYSIS OF THE STEEL INDUSTRY
A scan of the external macro-environment in which the firm operates can be expressed in terms
of the following factors: Political Economical Social Technological Figure 2: PEST Analysis Diagram
POLITICAL FACTORS: i. Funding, grants & initiatives:
The Ministry of Steel has been interacting with All India Financial institutions to expedite clearance of projects. The ministry has also been making presentations to the financial institutions and banks highlighting the emerging scenario in steel sector, technological issues need for development of the steel industry in India etc. Ministry of Steel identifies infra-structural and related facilities required by steel industry so that their absence does not lead to bottlenecks in the future growth of the Iron and Steel Sector, and takes up these issues with the concerned ministries.
ii. Regulatory Bodies and processes:
Steel sector is regulated by Ministry of Steel, Government of India headed by Shri Ram Vilas Paswan. It’s functions are: a) Co-ordination and planning of the growth and development of Iron and Steel
b) Formulation of policies in respect of production, pricing, distribution, import and export of iron & steel, ferro alloys and refractories; and Development of input industries relating to iron ore, manganese ore, chrome ore and Refractories etc. , required mainly by the steel industry.
a) Prepare and implement an action plan for achieving the strategic goal of 110 MTPA of steel production by 2019-20 b) Prepare and implement road maps for technological and productivity improvements benchmarking them to global standards. c) Provide a single-window clearance for large projects, to be followed by statutory clearances by the concerned ministries. d) Monitor the implementation of the National Steel Policy.
The trade policy has been liberalised and import and export of iron and steel is freely allowed. There are no quantitative restrictions on import of iron and steel items.The only mechanism regulating the imports is the tariff mechanism Advance Licensing Scheme allows duty free import of raw materials for exports.Iron and Steel industry has been included in the list of `high priority' industries for automatic approval for foreign equity investment upto 100%. Price and distribution of steel were deregulated from January 1992.
v.Wars and conflicts: v.
Wars are a curse to any nation be it developed or underdeveloped. It brings with it only death and destruction. But for the steel industry it is a blessing in disguise. Iron and steel are needed to make the weapons of destruction. Its first effect was seen during the First World War. In 1914 the First World War broke out, steel produced in Britain now had to meet the demands of war in Europe. So imports of British steel into India declined dramatically and the Indian Railways turned to TISCO for supply of rails. As the war dragged on for several years, TISCO had to produce shells and carriage wheels for the war. Figure 3: One of the major tanks used during World War I 2
ECONOMICAL FACTORS: Figure 4: Expected economic growth of India3 INDIAN ECONOMY IS EXPECTED TO SURPASS JAPAN BY 2032
Overseas economies and trends:
• Global Scenario In 2007 the World Crude Steel output reached 1343.5 million metric tons and showed a growth of 7.5% over the previous year. It is the fifth consecutive year that world crude steel production grew by more than 7%. (Source: IISI) China remained the world’s largest Crude Steel producer in 2007 also (489.00 million metric tons) followed by Japan (112.47 million metric tons) and USA (97.20 million metric tons). India occupied the 5th position (53.10 million metric tons) for the second consecutive year. (Source: IISI) The International Iron & Steel Institute (IISI) in its forecast for 2008 has predicted that 2008 will be another strong year for the steel industry with apparent steel use rising from 1,202 million metric tonnes in 2007 to 1,282 million metric tonnes in 2008 i.e. by 6.7%. Further, the BRIC (Brazil, Russia, India and China) countries will continue to lead the growth with an expected increase in production by over 11% compared to 2007. Situation in home economy and home economy trends • Domestic Scenario The Indian steel industry have entered into a new development stage from 2005-06, riding high on the resurgent economy and rising demand for steel. Rapid rise in production has resulted in India becoming the 5th largest producer of steel.
It has been estimated by certain major investment houses, such as Credit Suisse that, India’s steel consumption will continue to grow at nearly 16% rate annually, till 2012, fuelled by demand for construction projects worth US$ 1 trillion. The scope for raising the total consumption of steel is huge, given that per capita steel consumption is only 40 kg – compared to 150 kg across the world and 250 kg in China. The National Steel Policy has envisaged steel production to reach 110 million tonnes by 201920. However, based on the assessment of the current ongoing projects, both in green field and brown field, Ministry of Steel has projected that the steel capacity in the county is likely to be 124.06 million tonnes by 2011-12. Further, based on the status of MOUs signed by the private producers with the various State Governments, it is expected that India’s steel capacity would be nearly 293 million tonne by 2020.
• Taxation specific to product/services
VAT is 4% on the products of steel The plant which imports stainless steel slab for conversion into HRSS coil/CRSS coil/STRIPS has asked the government to reduce duty on to 15% from the present 25% duty. Custom duty on steel was brought down uniformly from 25 to 20 percent Sales tax was withdrawn but special additional duty (sad) of 4% was imposed on all imports
• Interest and exchange rates4
Cash reserve ratio-5.5% Statutory liquidity ratio-25% 1$=Rs48.53 Prime lending rate-12.75% Bank rate-6% 1€=Rs66.02
A reduction in CRR infuses liquidity into the economy but is useful monetary tool only when there is liquidity crunch and heavy demand for loans in the economy for productive purposes. In the current scenario there is global economic recession so lowering of CRR from 8.5% to 5.5% did not reduce the financial crisis. Also lowering the PLR rates encourages steel producers to avail capital at low cost and increase their production. But this does not suffice that demand for finance increases with reduction in key rates bank rates as the most important part for steel producers is the demand and supply of steel in domestic and international market. The exchange rates play a major role in EXIM trade. Any fluctuations in exchange rates directly affect the importers and exporters. And at times when there is huge depreciations in rupee not only the importers suffer but the exporters also have to export at a lower rate as their customers have latest knowledge about exchange rates which gives them more bargaining power
SOCIAL FACTORS:● Labor related issues: Major events and influences5- Below mentioned are some of the initiatives introduced by Tata Steel which were later incorporated by the Factory Act 1948. 1.8 hour working day 2. Establishment of welfare department 3. Leave with pay
• Life style trendsThe infrastructure sector comprises of roads, railways, airports & power. The Eleventh plan has lined up massive investment in all the related sectors. As per the reports of the Indian Steel Alliance, the projected investment towards the infrastructure sector during the Eleventh Plan is likely to be Rs.20,27,000 crores. This is an increase of 180 percent over the Tenth Plan which will ultimately lead to an increase in the demand of steel. Steel construction is now identified with speed. Since India is gearing up for speedy implementation with quality output, steel is the best alternative for fast track construction which in long run could match global standards. As the construction sector is growing faster than the country’s projected GDP growth, there exists a tremendous potential for development in related areas. The Indian automobile sector, which is the second fastest growing auto market after China, has emerged as the prime demand driver of alloy steel. The sector which is experiencing growth and high competition is likely to be one of the major drivers of steel consumption in the coming years. Alloy and special steel are gaining more importance by the day in order to make vehicles lighter and fuel efficient. Out of around 2.8 million tonnes per annum of the total capacity of alloy and special steel, nearly 2 million tonnes per annum will be auto grade special steel, the forging sector being one of the largest consumers.
• Media viewsMedia highlights all the pros and cons of the industry. It is reactive of all actions done by the industry. It not only praises the socio-corporate responsibilities and other ethical values followed by the industry but it also highlights the darker side of the industry. All the environmental damages caused by the industry attract harsh views from the media. In the current scenario media has strongly opposed the darker side of the industry. • Brand & technological imageThe industry is proud of contribution that steel makes to the modern society. It is indispensable in the welfare of mankind. However, recent surveys indicate that most of the population is ignorant of the contribution that steel makes to the society. Figure 5: Image of Steel among different aspects of population6
● Consumer preference & opinion:
Customer’s preferences for steel are strongly in favor of the industry for the commodity of necessity. They prefer steel over other products for the properties that steel possess. But also there are continuous opinion from the NGOs about the environmental hazards caused by the steel industry’s waste disposal method and a new era of eco-friendly customers is emerging who don’t use products that harm mother nature in any way. • Consumer buying pattern- Consumers of steel sector can be divided in two categories: a) Business to business (b2b) - Typically the b2b customers purchase steel from large steel producers in the country, for further processing. About 80% of the transactions are b 2 b transactions. Customers included in this segment are the automobile sector, construction industry, capital goods industry, etc. b) Business to customer (b2c) - The end users who use steel in the finished form provided by the company are important because the image of the product lies in their hands. The brand building of the product is in customers hands which depend on the quality of products they receive.
• Ethical issues“Think ethical, think the Tata way” This line aptly reflects the ethical culture that has been established in the industry by Tata Steel. In an industry which has been criticized for exploiting labor as well as the natural environment, Tata Steel has shown how and why the industry should be responsible towards all its stakeholders.
TECHNOLOGICAL FACTORS: Competing technology development: With globalization and an increasing scale of
operations, technological self-reliance has become a necessity. In keeping with global ethics of Intellectual Property, it has become necessary for steel companies to have their own resources of Research and Development. Hence self-reliance in technology has become a virtual prerequisite to innovation and growth.
Research funding A: India’s expenditure on Research and Development has been negligible
not only in absolute terms but also as a percentage of GNP at 0.86 percent. In the case of steel industry, the ratio of expenditure on R&D as a percentage of turnover is only 0.26 percent. In the five year Plan for steel sector, a new scheme named ‘Scheme for promotion of R&D in the Iron & Steel Sector’ has been included with a budgetary provision of Rs. 118 crores. Steel Technology Centre at IIT, Kharagpur to promote R&D in iron & steel sector was approved, at a cost of Rs. 22.26 crores for 5 years.
Technological developments in core industries like steel consume lot of resources so the researchers try and invent technologies which would have a significant life span. So the replacement technology is less. For instance, the first modern plant set up at Jamshedpur by TISCO was setup at cost of Rs 10000 crore7
Maturity of technology B: R&D has not limited itself only towards improvement in
production process or capacity. It also aims at sustainable development and incorporates the following factors: a) Reducing the CO2 intensity of steel b) Enabling transfer of technology to revamp and improve the energy efficiency of outdated steel plants c) Investing in breakthrough technologies for long-term solutions d) Working with customers and industry partners to maximize the contribution of new steels in reducing life cycle CO2 emissions, particularly in high impact applications such as transport and construction.
Privatization of steel sector8
Prior to privatization policy of the government, attempts were made twice in 1971 and 1979 to nationalize TISCO. Privatization of steel sector started in 1991. The government of India, as a policy measure, systematically reduced the role of the public sector in steel industry. It forced the SAIL management to appoint McKinsey, a World Bank sponsored MNC consultancy firm, to suggest restructuring of the organisation. Mckinsey recommended sale of Alloy Steel Plant Durgapur, Salem Steel Plant and Visweshwarayya Iron and Steel Co. Ltd. It also recommended privatisation of IISCO. It further advised SAIL to drastically reduce the manpower and increase the workload on the workers. But the central government merged IISCO with SAIL due to agitation of workers. It was only due to the strong trade union movement in these plants that they were saved from privatisation and sale. Salem Steel Plant developed a big political movement to oppose selling it to Jindals and Tatas. While undermining the public sector, the government of India encouraged Tatas, Mittals, Essar and Jindals to develop and expand their capacity. While SAIL management had to work under heavy restrictions by the bureaucrats and capricious ministers of steel, the private sector was completely free to take decisions. Despite SAIL acquiring the status of a Navaratna company, lack of autonomy prevented it from developing faster while the private sector received every encouragement for increase in capacity.
Tata Steel had taken over the Ferro-alloys plant in Bamnipal in Jaipur district, which was considered as one of the first successful disinvestment. In September 1991, Tata Steel took over the then "sick" unit for Rs. 156 crores from erstwhile OMC Alloys. The plant has now surpassed its installed capacity of 50,000 TPA of charge chrome/ferro-chrome. Tata Steel Ltd pursuant to the Definitive Agreement signed on 15th January 2007, has acquired 100 per cent of equity stake in Rawmet Industries Private Limited (Rawmet), a company having
its registered office at Kolkata, at an enterprise value of Rs 101 crores. This is the second 100 per cent acquisition of Tata Steel Ltd in Orissa. The new feather in the Tata Steel's cap is yet another step to further strength the hundred year's relationship between the State and the Company.
Duty on coking coal fully exempted. The customs duty on primary steel and ferro-alloys stainless steel has been reduced from 7.5% to 5 % The duty on seconds and defectives of steel reduced from 20% to 10%. Export duty has been imposed on iron ores and concentrates at Rs 300 per tonne and on chrome ore and concentrates at Rs 2,000 per tonne. The present EXIM policy permits export of iron ore from Goa and Redi sector to all destinations by the iron ore producers; irrespective of the iron content. Some types of high-grade iron ore (Fe content above 64%) from specific areas like Bailadila in Chhattisgarh are allowed to be exported with restrictions on quantity imposed primarily, with a view to meet domestic demand on priority.
Kudremukh Iron Ore Company Limited (KIOCL) is the canalizing agency for its own products since it is a 100% E.O.U. (export oriented unit). The export of iron ore with Fe content above 64% is canalized through Minerals and Metals Trading Corporation Limited (MMTC). The Government has setup these agencies for the better development of trade. Export of Iron of Goa origin to China, Europe, Japan, South Korea and Taiwan (irrespective of Fe content) and Export of ore from Redi region to all markets (irrespective of Fe content) is not canalized.
Advance Licensing Scheme allows duty free import of raw materials for exports. Imports of seconds and defectives of steel are allowed only through three designated ports of Mumbai, Calcutta and Chennai.
Mandatory pre inspection certificate by a reputed international agency for every import consignment of seconds and defectives. In the union Budget 2007-08 the import duty on seconds and defective has been further reduced from 20% to 10%
The trade policy has been liberalized and import and export of iron and steel is freely allowed. There are no quantitative restrictions on import of iron and steel items. The only mechanism regulating the imports is the tariff mechanism. Tariffs on various items of iron and steel have drastically come down since 1991-92 levels and the government is committed to bring them down to the international levels. Reduction in customs duty of melting scrap of iron or steel and Metallurgical coke from current level of 5% to 2%
Customs duty on stainless steel raw materials like ferro-nickel and Stainless steel scrap should be reduced from 5% to 2%. Custom duty on iron or steel melting scrap cut from 5% to Nil. Reduction in customs duty of aluminum scrap has been reduced from 5% to Nil. Customs duty on steel melting and aluminum melting scrap reduced from 5% to 0%.
Public Ltd (BSE: 500470)
Headquarters: Jamshedpur Mumbai Key people: Ratan Tata, Chairman B.Muthuraman, Managing Director Steel Hot and cold rolled coils sheets Wire and rods Construction bars Pipes Structural forging quality steel US$ 33 billion 82,700(2007) Tata Group www.tatasteel.com
Revenue: Employees: Parent: Website:
TATA IRON AND STEEL COMPANY LIMITED
Tata Steel is the symbol of India’s industrial growth founded by Late Jamsetji Nusserwanji Tata in 1907 who ranks among the greatest visionaries of industrial enterprises all of time. Tata Group of Companies is renowned all over the world for its ethical values and work culture. On 26th August, 2007 Tata Steel completed 100 glorious years of its presence in the global business arena. The original name of Jamshedpur was Sakchi. In 1919, Sakchi was renamed as Jamshedpur in tribute to Tata Steel's Founder Jamsetji Nusserwanji Tata. The plant at Jamshedpur is to attain production capacity of 10 MTPA (million tonnes per annum) from the current 6.8 MTPA. Tata Steel is the world's 5th largest steel company with an existing annual crude steel capacity of 30 million tonnes. Asia's first integrated steel plant and India's largest integrated private sector steel company is now the world's 2nd most geographically diversified steel producer, with operations in 26 countries and commercial presence in over 50 countries.
Competitive edge over others:
One of the lowest cost producers in the world Self sufficiency in iron ore extraction Regarded as ethically sound company with healthy work culture
Figure-6 Current ownership pattern :
MERGERS & ACQUISITIONS12 Corus : Europe’s second largest steel maker with operations in the UK and mainland Europe and over 40,000 employees worldwide. Its long and strip products cater to the construction, automotive, packaging, engineering and other markets worldwide. Corus is implementing major investments at its plants at IJmuiden, in the Netherlands and at Scunthorpe in the UK as part of its drive to strengthen product differentiation, improve operational efficiency and reinforce existing competitive position, particularly in the construction and automotive sectors, including the development of new advanced high strength steels.
Tinplate Company of India Limited (TCIL) : With a market share of over 35%, it is the industry leader in India. It has the capability to supply all tinning line products including electrolytic tinplate / tin-free steel and cold-rolled products. Tata Ryerson Limited (TRYL) : TRYL Is in the business of steel processing and distribution. It offers hot and cold rolled flat steel products in customised sizes and quantities through processing services and materials management services. Tata Pigments Limited : TPL's range of products includes oxides of iron, dry cement paint, exterior emulsion paint and distemper. Its products are used in paints, emulsion, cement floors, plastic etc. Mjunction services limited : mjunction, operating at the cutting edge of Information Technology, is a 50:50 venture of SAIL and Tata Steel. It is India's largest eCommerce company and the world's largest eMarketplace for steel. mjunction offers a wide range of selling, sourcing and knowledge services that empower businesses with greater process efficiencies. Tata BlueScope Steel Limited : A joint venture with BlueScope Steel Limited, Australia, Tata BlueScope Steel Limited offers a comprehensive range of branded steel products for building and construction applications. The Company is constructing a state-of-the-art metallic coating and painting facility at Jamshedpur. NatSteel Holdings (NSH) : A leading supplier of premium steel products for the construction industry. NatSteel Holdings became a 100% subsidiary of Tata Steel in February 2004. NSH produces about 2 MT of steel products annually across its regional operations in seven countries. Tata Steel Thailand : The company is the dominant steel producer in Thailand. The company has the capacity to produce 1.7 million tonnes of steel for the construction industry per year.
Date 20 August 1907 Feb, 1912 1928
1934 1980 23rd March 1982
1991 1994-95 2000
2005 17th February,2005 2006 2nd April 2007
21 July 2008
Major happenings13 Tata Iron and Steel Company was registered, shares were issued to investors. The 1st ingot of steel was rolled out Netaji Subhash Chandra Bose (then President of the Jamshedpur Labor Association) visited Jamshedpur and a historic agreement was signed between him and Sir N B Saklatvala, Chairman, Tata Steel Profit-sharing bonus was granted for the 1st time in India 1st Social Audit conducted by Tata Steel Tata Steel entered a new era of steel making with the commissioning of the 1.1. Million tonne per annum L.D. (Basic Oxygen Furnace) Shop. At that time, Tata Steel was the first institutions in India to have gone for total computerization as part of a modernizations process Lifeline Express, the world’s first hospital-on-wheels sponsored by Tata Steel was started Tata Steel became the First Steel Plant in India to be ISO - 14001 Certified. Tata Steel launched the ''Green Millennium'' wherein 1.5 million trees were planted by the company across all its locations. Tata steel ranked as No.6 in Indian MAKE (Most Admired Knowledge Enterprises) survey. Nat steel Singapore base company merger with Tata Steel To boost the economy of South Africa and also add significantly to the Indian economy, Tata Steel commenced the work on Ferro Chrome Plant. Tata Steel acquired Corus Europe’s 2nd largest steel producer at US$ 12 Billion, which made Tata Steel the sixth largest steel producer globally and the second-most geographically diversified steel producer in the world Tata Steel entered into an agreement to acquire controlling equity stake in two rolling mills located in Haiphong, Vietnam. Plant in Vietnam. Tata Steel was ranked 231 in the Fortune 500 list.
Recent Awards Received14:
May 07, 2008: National safety awards for Tata Steel’s West Bokaro and Jharia Division August 28, 2008: Prime Minister’s Shram Awards for Tata Steel employees August 14, 2008: Tata Steel Wins Think Odisha Leadership Award for 100 years Service to the Nation February 22, 2008: Amity Corporate Excellence Award December 17, 2007: National Energy Conservation Award March 14, 2007: Award for Corporate Social Responsibility in Public Health February 22, 2007:Genentech Safety Gold Award December 06, 2006:Mother Teresa Award for Corporate Citizen October 03, 2006: Tata Steel ranked no.1 by MAKE Survey March 31, 2006:Tata Steel ranked as World’s Best Steel Maker of
Tata Steel awarded as Company of the Year 2007-08C Brand Power Rating D Tata Steel rated AA+, the highest grade awarded this year Brand Finance India’s Top 50 most valuable (Company) Brands Tata Steel ranked 14, much ahead of JSW Steel Ltd. At 42nd place D And the view that matters a lot to the company The view of stakeholders F:
MICHAEL POTTER’S FIVE FORCES MODEL FOR TATA STEEL
The strongest competitive forces determine profitability of an industry & so are of greatest importance in strategy formulation. Even a company with a strong position in an industry unthreatened by potential entrants will earn low returns if it faces a superior or a lower-cost substitute product. Different forces take on prominence, of course, in shaping competition in each industry. Every industry has an underlying structure or a set of fundamentals economic & technical characteristics, that gives rise to these competitive forces. How these forces shape strategy? Awareness of these forces can help a company stake out a position in the industry that is less vulnerable to attack. The collective strength of these forces determines the ultimate profit potential of an industry. MICHAEL POTTER’S FIVE FORCES MODEL
THE FORCES THAT ACT ON BUSINESS ARE BROADLY CLASSIFIED AS:
BARRIERS TO ENTRY COMPETITIVE RIVALRY BUYERS & THEIR BARGAINING POWER SUPPLIERS & THEIR BARGAINING POWER THREAT OF SUBSTITUTES
BARRIERS TO ENTRY: New Entrants to an industry bring new capacity, the desire to
gain market share & often substantial resources. The seriousness of threat depends on the reaction from the existing competitors that entrants can expect. There are six barriers to entry: Government policy E: - The government can limit or even foreclose entry to industries with such controls as license requirements & limits on access to raw materials. The Tamil Nadu
government has agreed to help Tata Steel producers nearly 10,000 acres for its Rs 25-billion titanium dioxide project in Tuticorin district.
Economies of scale: The economies of scale deter entry by forcing the aspirant either to come
in on a large scale or to accept a cost disadvantage. Economies of scale are the biggest hurdle in distribution, utilization of the sales force, financing, & nearly any other part of business. The success of Tata Steel rests on Economies of Scale achieved. Economies of scale through a strategic tie-ups, cost production techniques, mergers & acquisitions in India and abroad.
Favorable positioning: Tata Steel is the biggest domestic player in the sector. It has the dual
advantage of being one of the lowest cost producers in the world and it has its presence in over 50 countries.
Brand loyalty: Tata Steel produces superior quality steel and is sold at premium price. Since
the company has the reputation of delivering trusted quality products the consumers are loyal to the company as they know that quality always comes at a cost.
Capital requirements(1): The initial investments required to establish a steel company runs
into crores of rupees. Also being a core sector the existing major players may create hurdles for any company which is newly established to expand on a large scale. And to set up a plant of 700 metric tonnes/annum requires one year time and estimated cost of Rs 30 crores.
No. of firms and their share:
6 MAJOR PRODUCERS ACCOUNT FOR 66% OF TOTAL FINISHED PRODUCTION
ISPAT 12% 4%
ISPAT 2.1 JSW 2.2 ESSAR 2.6 RINL 3.0 TSL 4.6
TATA STEEL 18%
TATA STEEL 8%
SAIL + 9.2 IISCO
OTHERS 61% RINL 16%
All fig in million tonnes Source : JPC, Team Analysis
FLAT PRODUCT IS MORE CONSOLIDATED WHEREAS 17 LONG PRODUCT IS HIGHLY FRAGMENTED.
State of growth of industry15: It is believed that by 2016, India is going to be the
second largest producer of steel and its annual production is going to be around 137 MT. Combined with huge production, the exports of steel has also increased to 6.26 %. During the last 3 years the consumption of steel has also grown by 12.5%.
Indivisibility of capital augmentation: Steel is a core sector and the government treats
it as high priority industry. The production has to be done on a large scale which requires heavy investment and risk taking capacity. Hence production has to be done only on a large scale with heavy fixed investment.
Product standardization: Steel is a standard product hence much variation is not seen in
the steel products. As Tata Steel produces steel from high quality raw material which gives the company a quality edge over others as some companies produce steel by recycling scrap materials.
Exit barriers: Steel industry is an oligopoly market so there are no exit barriers only
consideration for the leaving company is the amount recovered from its liquidation.
BUYERS AND THEIR BARGAINING POWER: Volume of purchases and its total share in sales:
Importance to buyer: The buyers of Tata Steel use the products of Tata Steel as raw materials in their respective products. Also steel does not have any close and suitable substitute which makes more important to the buyers. Standardization of product in today’s globalised world: All the companies are looking to standardize their product so that they are globally accepted and they can reap the benefits of globalization. This also helps them in reducing cost and achieve economies of scale
Potential backward integration by buyers: There are less chances of backward integration by buyers as it is not easy for them to acquire all the financial, technical and human resources needed for steel production. Extend of buyers information: As the buyers are very much aware of rates at which all the major producers sell their steel products so their bargaining power automatically has increased. Suppliers and their bargaining power: Concentration and domination of supplier: Steel has major three input raw materials which include iron ore, coking coke and coal. Tata Steel has its own collieries for iron-ore and coal extraction but best quality of coal is found in Australia which the company imports and coke is procured indigenously. Also the company has made overseas acquisitions to achieve self reliance in raw materials. Table 1: Top five suppliers of Tata Steel(2005-06)16: Suppliers Tata International Tata Refractories Tata (UAE) FZE ITW India Ltd Tata South East Asia (%) of Total Purchases (44.68%) (3.07%) (2.51%) (2.14%) (1.85%)
Importance of product to producers: The raw materials needed for production are found in nature and which makes it mandatory for the company to use them in production for the characteristics they possess and they cannot be replaced by other materials. Figure 4: Raw material consumption17
Switching costs of suppliers: The companies are adopting the policy of acquiring the mines from where extraction of raw materials is done in order to have a stock of the essential inputs for production as the resources are limited. So now the producers are doing backward integration instead of switching the suppliers. Potentials of forward integration by suppliers: Just as in case of buyers the suppliers stay away from forward integration as most of them are already steel producers and the rest do not try to do it as there are many risks associated to start the business and survive in today’s competitive global market Threat from substitutes: There is no close of Iron & Steel because of its strength & availability as well as the cost factor. Wood, aluminium, copper and plastic are alternatives available still they are unable to fully replace steel. The picture shows importance of steel from the smallest needle to the longest bridge
Future plans of Tata Steel18: With global steel demand expected to touch 1,000 million tonnes in the next 25 years at an annual growth rate of around 3-4 per cent, Tata Steel has firmed up plans to augment its steel making capacity to 33-34 MTPA by 2015 at an estimated investment of Rs 100,000 crores. The capacity of the existing plant at Jamshedpur would be augmented from the present 5 mtpa to 10 mtpa at an investment of Rs 11,000 crores. Besides, a 12-mtpa greenfield integrated steel plant would be set up in the Manoharpur or Chandil area of Jharkhand at an estimated investment of Rs 42,000 crores. Two other greenfield steel plants of 6 mtpa and 5 MTPA capacity would be set up at Orissa and Chhattisgarh, respectively. These investments would be funded from the company's internal resources and debt. The Jharkhand Government has committed to make available iron ore reserves for meeting the company's raw material requirements. Tata Steel plans to acquire a 2 MTPA steel plant in South East Asia. Tata Steel has also firmed up plans to set up a 50:50 joint venture with BlueScope of Australia for providing total construction solutions. A 250 TPA colour coated sheets manufacturing facility would be set up at Jamshedpur. The total investment in the proposed joint venture is estimated to be Rs 1,500 crore. The steel major has also been going ahead with its proposed titanium project that would be
located at Tuticorin in Tamil Nadu.
Quality circles: Tata Steel was one of the first to adopt the Tata Business Excellence Model (TBEM). It helped to detail the business processes, benchmark with the best and enhance them. In the last few years the company has adopted several other initiatives such as TPM and Six Sigma. And the company is now in the process of bringing improvement initiatives under a single umbrella of Total Quality Management (TQM) to enthuse reach newer heights of excellence19. Most of the units of Tata Steel are certified to ISO-14001 and OHSAS-18001. Units, which cater to the requirements of external customers like Finishing Mills are certified to ISO-9001-2000 and other departments/sections, (upstream production & service units) which have internal customer focus, are certified to Tata Steel Standard TS-13001, which is equivalent to ISO-9001. The units, which cater to the Auto industry requirements e.g. Flat Products and Bearings, are certified to TS16949. In addition, the Steel Works and Sukinda Mines are certified to SA-800020. Tata Steel has its own Quality Assurance department with testing facilities that include chemical, physical and non-destructive testing as well as a metrology laboratory. It also has ultrasonic, Xray, Gamma Ray, Die Penetrant and Magnetic Particle testing facilities. Besides, Growth Shop constantly pursues on the principles of Total Productive Maintenance (TPM) & Total Quality Management (TQM) that has the satisfaction of the customer as its prime focus. Apart from quality circles, value engineering and quality improvement projects, 'Total Operating Performance' (TOP) with the help of McKinsey was also done which reduced the cost of production considerably21.
Bangladesh is one of the largest export markets for Indian trade. The bilateral trade between the two nations is carried out as per guidelines given in the Bangladesh Trade Agreement which provides beneficial arrangement for the use of waterways, railways and roadways passage of goods between two places in one country through the territory of the other. India exports primary and semi finished iron and steel to it. On 6 June 1997, a sub-regional grouping was formed in Bangkok and given the name BIS-TEC (Bangladesh, India, Sri Lanka, Thailand Economic Cooperation). Myanmar joined the organization as a full member at a Special Ministerial Meeting held in Bangkok on 22 December 1997, upon which the name of the grouping was changed to BIMST-EC. BIMSTEC provides a unique link between South Asia and Southeast Asia bringing together 1.3 billion people - 21 percent of the world population. A study shows the potential of US$ 43 to 59 billion trade creation under BIMSTEC FTA. BIMSTEC covers 13 Priority Sectors lead by member countries including Iron and Steel.
India is in talks with ASEAN to become its member as China has already started its trade with ASEAN countries and if India lags behind a major share of steel market will be in hands of China which will hamper the Indian steel producers23.
SOCIAL AUDITF: Meaning: Social audit is a tool for evaluating how satisfactorily a company has discharged its social responsibilities. It enables the public as well as company to evaluate the social performance of the company. Objective of social audit of Tata Steel : Social responsiveness became integral to organizational objectives of Tata Steel formally incorporated its commitment to the stakeholder concerns, including those of the nation, and environment. In order to objectively and effectively assess its corporate social responsibility in terms of the impact of its activities on stakeholders, Tata Steel conducts a Social Audit of the organization every ten years, carried out by an Audit Panel consisting of members, independent of, and unconnected with, the Company, selected by the Board. Social audit conducted by Tata Steel till the year 2008, three times • 1st Social Audit (1980) • 2nd Social Audit (1991) • 3rd Social Audit (2002-03)
Tata Steel was the pioneer company to introduce the concept of social responsibility in India. Till today no company is able to achieve the heights in India in serving the society as Tata Steel has done.
Table 2: Organizations under Tata Group for social welfare24 ROTARY CLUBS OF JAMSHEDPUR Lions Clubs of Jamshedpur Artificial Limb Fitting Centre Arogya Bhawan Jamshedpur Sports Association Tata Steel Zoological Society (TSZS) Tata Steel Rural Development Society (TSRDS) Tribal Cultural Society (TCS) RD Tata Technical Institute
Initiatives on HIV & AIDS:
Initiatives on HIV/AIDS are integrated into the ongoing social and welfare programs for the 38,182 employees at the workplace at all locations, as well as the community residing in and around Jamshedpur. Tata Steel has a very strong culture of social responsibility, which is imbibed and practiced by employees and the citizens of Jamshedpur, resulting in a large army of social volunteers and social entrepreneurs.
Ensuring human rights:
Tata Steel has five core values – Trusteeship, Integrity, Respect of Individual, Credibility and Excellence. Based on these values, the Tata Code of Conduct has been created as given in Annexure II. Clause 4 of the Code of Conduct commits Tata Group to be an equal opportunity employer where discrimination of employees based on caste, religion, color etc. should not be done. This clause also emphasizes that the work place should be free of sexual harassment.
No child labor:
As per the Factory Act 1948, the minimum age required for employment is 18. Tata Steel engages no child labor
No forced & compulsory labor:
There is no forced and compulsory labor in Tata Steel. The Grievance Redressal Committee and Ethics Counsellor adequately monitor violations of this requirement
Tata Steel has fulfilled its responsibility towards all stakeholders and the fact is that at Tata Steel environment is also a stakeholder. The tables & figures below are satisfactory to show the consciousness and dedication of Tata Steel for environment.
Table 2: Tree plantation by Tata Steel25
Figure 5: Carbon - di- oxide emissions from Tata Steel Works25
Figure 6: Expenses to reduce pollution25
Internet web addresses
1Source:http://www.researchandmarkets.com/reports/2388/Indian_iron_and_steel_industry.pdf 2 Source:http://www.worldwars.com/gallery/military_tanks_of_war.html 3 Source:http://www.slideshare.net/Estragon/economic_growth_india.html 4 Source:http://www.rbi.org 5 Source: http://www.tatasteel.com/social_responsibility/first_by_tata.html 6 Source: http://www.slideshare.net/Estragon/perception-of-the-steel-industry.ppt 7 Source: http://www.domain-b.com/companies/companies_t/tata_steel/20070131_hundred_years.htm 8 Source:http://stee.nic.in/government_policies/199091/privitization_steel/tata_steel.html 9 Source:http://stee.nic.in/government_policies/199091/disinvestment_public_steel_sector.html 10 Source:http://freemanstrikes.blogspot.com/2008/03/analysis-of-union-budget-2008-09.html 11 Source:http://www.hemresearch.com/Indian_companies/steel_companies.asp 12 Source:http://tatasteel.com/mergers_acquisitons/recent_mergers.html 13 Source:http://www.tatasteel.com/newsroom/award-national-safety.asp 14 Source:http://www.tatasteel.com/newsroom/awards.asp 15 Source:http://steel.nic.in/Annual20%Report%20/English 16 Source: http://tatasteel.com/hindi07/corporatesustainability/sustainability05-06/page-037.htm 17 Source: http://tatasteel.com/hindi07/corporatesustainability/sustainability05-06/page-044.htm 18 Source:http://www.tatasteel.com/newsroom/future_plans/expansion.asp 19 Source:http://www.domainb.com/companies/companies_t/tata_steel/20070131_hundred_years.htm 20 Source:http://tatasteel.com/hindi07/corporatesustainability/sustainability05-06/page-033.htm 21 Source: http://www.tatasteel.com/growthshop/quality-assurance.asp 22 Source:http://www.infodriveindia.com/Exim/Guides/How-To-Export/Ch_20_Export_To_SAARC.aspx 23 Source:http://www.commerce.gov.mm/eng/dot/ftas.html 24 Source: http://tatasteel.com/hindi07/corporatesustainability/sustainability05-06/page-038.htm 25 Source: http://tatasteel.com/hindi07/corporatesustainability/sustainability05-06.htm
Reports & Magazines:
A Source: Annual Report (2007-08) of steel B Source: 2008 Sustainability Report of the World Steel Industry C Source: The Economic Times Ahmedabad Monday 29 September 2008 D Source: The Economic Times Ahmedabad Tuesday 2 September 2008 E Source: Facts For You, October 2008 F Source: 3rd Social Audit of Tata Steel for 2002-2003
Telephonic talk :
(1)Source: A talk with Mr. Jitendra Agarwal an employee of Tata Steel, Mumbai
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