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TATA Steel: Strategy Analysis by Group 3

STRATEGY MANAGEMENT PROJECT REPORT On TATA STEEL

Submitted on: December 06, 2010

Submitted by: WMP 5003 (Alok Sawalia) WMP 5009 (Ankur Khullar) WMP 5023 (Gaurav Katyal) WMP 5024 (Gurudutt Virmani) WMP 5026 (Kanika Bijlani) WMP 5056 (Sudhakar Y)

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TATA Steel: Strategy Analysis by Group 3

Contents
1. Introduction .................................................................................................................................... 3 1.1 1.2 2. Industry Definition.................................................................................................................... 3 Indian Steel Industry................................................................................................................. 4

Market Dynamics ............................................................................................................................ 5 2.1 2.2 2.3 2.4 Market Overview...................................................................................................................... 5 Market Trends .......................................................................................................................... 5 Key Drivers ............................................................................................................................... 6 Major Issues and Implications................................................................................................... 6

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Vision and Mission statement of Tata Steel .................................................................................... 6 3.1 3.2 Vision ................................................................................................................................... 6 Mission................................................................................................................................. 6

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Financial Ratio Analysis of Tata steel (Is the Firm successful?) ........................................................ 7 4.1 4.2 4.3 4.4 4.5 4.6 Asset Turnover Ratio ............................................................................................................ 7 Interest Coverage Ratio ........................................................................................................ 8 Profit Before Interest Depreciation And Tax Margin .............................................................. 8 Adjusted Profit After Tax Margin .......................................................................................... 9 Return On Capital Employed ................................................................................................. 9 Return On Net Worth ......................................................................................................... 10

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PEST Analysis ................................................................................................................................. 11 5.1 External Environment Analysis For Tata Steel Using Pest Framework .................................. 12

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SWOT Analysis............................................................................................................................... 14 6.1. 6.2 6.3 6.4 Strengths ............................................................................................................................ 14 Weaknesses........................................................................................................................ 15 Opportunities ..................................................................................................................... 15 Threats ............................................................................................................................... 16

7. 8.

Porter Five Forces Model............................................................................................................... 17 Identifying Core Competencies and Competitive Advantage using Value Chain Analysis. ...... 23 8.1 8.2 8.3 8.4 Primary activities (with respect to Tata Steel Limited)......................................................... 24 Support activities: (With respect To Tata Steel Limited) ...................................................... 27 Core Competencies of Tata Steel Limited on the Basis of Value Chain Analysis ................... 29 Competitive Advantages of Tata Steel Limited on the Basis of Value Chain Analysis. ........... 30

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TATA Steel: Strategy Analysis by Group 3

8.4.1 9.

VRIO Framework............................................................................................................. 30

Identifying Critical Success Factors ................................................................................................ 31

10. Current Strategy of TATA Steel ...................................................................................................... 33 11. Conclusion ..................................................................................................................................... 33 12. References..................................................................................................................................... 34

1. Introduction
1.1 Industry Definition

17 MT in the period under review.3 Consumption The domestic steel consumption grew by 9. Recently.82 MT during AprilSeptember 2010 over the year-ago period. said that India will become the world's second-largest steel producer by 2012.1 per cent to 4. with a capacity of 124 million tonnes (MT) as part of the push being given to assist overall infrastructure development. the domestic steel demand in India remains robust.66 MT which is around 14 per cent higher than the corresponding quarter last year.72 MT. Meanwhile. driven by robust growth in infrastructure.4 Investments . steel consumption rose 4. while Tata Steel's total sales for the quarter stood at 1. while the public sector producers have the remaining one-third market share.14 MT on the back of a steady rise in demand.2 Production India's steel production during 2009-10 was 64. up 11 per cent from a year ago.88 million tonne (MT).1 Sector structure/Market size The steel industry in India has been moving from strength to strength and according to the Annual Report 2009-10 by the Ministry of Steel. autos and construction and constrains on additional supply by 2011. semi-finished steel. stainless steel and pig iron.2. SAIL registered sales of 3.15 MT in the same period a year ago.2. Minister for Steel. 1.53 MT in the year-ago period.4 TATA Steel: Strategy Analysis by Group 3 The Indian steel industry comprises producers of finished steel. according to Mr A Sai Pratap. Led by strong demand for autos and engineering services. consumption was at 27. The private sector controls almost two-thirds of the steel market.2 Indian Steel Industry 1.8 per cent to 29. Mr Virbhadra Singh.2. JSW Steel's production during the quarter grew by 8 per cent to 3. 1. As per the provisional data from the Ministry of Steel. 1. steel majors Tata Steel and Steel Authority of India Ltd (SAIL) reported a high growth in steel sales. as per Moody's sectoral analysis on Asia's steel sector. In September 2010. 1.2. Minister of State for Steel. According to the analysis. During the second quarter ended September 2010. against 4. the outlook for the domestic operating environment is positive. on the back of steady demand from sectors like automobile and consumer durables. India has emerged as the fifth largest producer of steel in the world and is likely to become the second largest producer of crude steel by 2015-16.

in the Union Budget 2010-11. Tata Steel plans to invest US$ 226. Exchange rate used: 1 USD = 42. with an expanding consumer market. Market Dynamics 2.4 billion to the infrastructure sector and has increased the allocation for road transport by 13 per cent to US$ 4. the government has allocated US$ 37. Hypermart and retail outlet. Chhattisgarh and West Bengal.5 Government Initiative As per the Press Information Bureau (PIB). the Indian steel industry is likely to receive huge domestic and foreign investments.17 million to commission its proposed ferroalloys plant and bar mill at its industrial park at Gopalpur and a greenfield steel plant at Kalinga Nagar. Jindal Steel has completed the acquisition of Oman-based Shadeed Iron and Steel Co LLC for US$ 464 million. India¶s per capita steel consumption is low at 30 kg compared to global standards for developed countries at 400 to 500 kg. according to Mr A Sai Prathap.8 million tonne per annum (MTPA) to 32 mtpa through greenfield and brownfield projects.2 Market Trends Low Per Capita Consumption Rise of the Private Sector Public Sector versus Private Sector Gradual Industry Consolidation .3 billion which will further promote the steel industry. Jharkhand.2.1 Market Overview India occupied the eighth position in terms of worldwide crude steel output. Essar Steel plans to expand its exclusive steel showrooms. Minister of State for Steel.21 INR (as on October 2010) 2. The domestic steel sector has attracted a staggering investment of about US$ 238 billion. 2. Moreover. Furthermore. Central value added tax (CENVAT) on steel items was reduced from 14 per cent to 10 per cent with effect from February 2009. 1. the government took a number of fiscal and administrative steps to contain steel prices. during 2009. Expressmart in Madhya Pradesh. This consists of nearly 222 MoUs signed between the investors and various state governments mostly in the states of Orissa.5 TATA Steel: Strategy Analysis by Group 3 A host of steel companies have lined up major investment proposals. Japan's Nippon Steel will begin a manufacturing operation in India making steel pipes for use in automobiles and plans to invest US$ 37 million on production and sales operations. JSW Steel plans to invest US$ 17 billion over the next 10 years to ramp up capacity from 7.

1 Vision ³We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship´ 3. The means envisaged to achieve this are high technology and productivity. Vision and Mission statement of Tata Steel 3. . and thereby reaffirms its faith in democratic values. Tata Steel strives to strengthen India¶s industrial base through the effective utilization of staff and materials. Tata Steel recognizes that while honesty and integrity are the essential ingredients of a strong and stable enterprise. the Company seeks to scale the heights of excellence in all that it does in an atmosphere free from fear.4 Major Issues and Implications Rising Raw Material Prices High Cost of Imported Coking Coal Low R&D Expenditure Inefficient Mining of Iron Ore Demand-Supply Gap 3.6 TATA Steel: Strategy Analysis by Group 3 2.3 Key Drivers Huge Investment in Infrastructure Booming Industrial Production 2. Overall. profitability provides the main spark for economic activity.2 Mission Consistent with the vision and values of the founder Jamsetji Tata. consistent with modern management practices.

4. Financial Ratio Analysis of Tata steel (Is the Firm successful?) All the graphs that we have plotted below point towards the fact that the financial health of the Tata steel is pretty good and on most of the occasions it has performed better than the industry. We do not plan to elaborate more on the financial analysis of the firm as it is out of the scope of the project.2 1 0.6 1. The idea to here was to have a look at the key financial ratios before taking a deep dive into the firm and industry analysis.1 Asset Turnover Ratio 1.4 1.6 0.7 TATA Steel: Strategy Analysis by Group 3 4.2 0 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Steel Industry Tata Steel Asset turnover ratio YEAR .8 0.4 0.

3 Profit Before Interest Depreciation And Tax Margin 45 40 35 30 25 Steel Industry 20 15 10 5 0 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Tata Steel PBIDTM(%) .8 TATA Steel: Strategy Analysis by Group 3 4.2 Interest Coverage Ratio 35 30 25 20 INTEREST COVERAGE RATIO Steel Industry 15 10 5 0 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Tata Steel YEAR 4.

4 Adjusted Profit After Tax Margin 25 APATM(%) 20 15 10 5 0 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 -5 -10 Steel Industry Tata Steel YEAR 4.9 TATA Steel: Strategy Analysis by Group 3 4.5 Return On Capital Employed 70 60 50 40 Steel Industry 30 20 10 0 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Tata Steel ROCE(%) YEAR .

6 Return On Net Worth 70 RONW(%) 60 50 40 Steel Industry 30 20 10 0 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 Tata Steel YEAR .10 TATA Steel: Strategy Analysis by Group 3 4.

They can determine barriers to entry. exchange rates and the inflation rate.11 TATA Steel: Strategy Analysis by Group 3 5. population growth rate. These factors have major impacts on how businesses operate and make decisions. Furthermore. This can be done using PEST analysis. Trends in social factors affect the demand for a company's products and how that company operates. y Technological factors include technological aspects such as R&D activity. an aging population may imply a smaller and lesswilling workforce (thus increasing the cost of labor). age distribution. technology incentives and the rate of technological change. For example. For example. career attitudes and emphasis on safety. interest rates. quality. A brief description of each of the factors is as follows:- y Political factors include areas such as tax policy. tariffs. interest rates affect a firm's cost of capital and therefore to what extent a business grows and expands. environmental law. y Economic factors include economic growth. Technological and Legal influences on a business. and political stability. an investigation of the Political. Economic. minimum efficient production level and influence outsourcing decisions. PEST Analysis Before creating business strategy or when evaluating existing ones it is important to 'scan' the external environment (general environment). labor law. Exchange rates affect the costs of exporting goods and the supply and price of imported goods in an economy y Social factors include the cultural aspects and include health consciousness. Social. i. trade restrictions. All these factors significantly impact the way in which the business will operate and formulate its strategy. and lead to innovation. technological shifts can affect costs. . automation.e.

12 TATA Steel: Strategy Analysis by Group 3 5. 3. there can be restriction in acquisition of resources (land. 6. R&D or expansion plans. 4. 1. 5. Low cost of capital in the country. corruption. scope for adding capacity as more steel consumption will happen as the economy grows. Easy availability of cheap labor.1 External Environment Analysis For Tata Steel Using Pest Framework External Factors Political External factors Affecting Tata Steel. Reduces the profitability of exports. 1. 2. 4. Predictable exports profit no surprises in terms of reduction in export profits due to sudden change in the exchange rates. coal mines etc) . Doing business can be difficult in such environment. Limits the scope of steel export. 4. 2. 6. Upper cap on the export of steel. 3. 1. National steel policy 2005 targets the steel production of 100 million tonnes by 20192020 2. April-December 2009-10 steel industries experienced 4% growth compared to the same period last year. Threat of foreign competition. red tapes. Social 1. India is a young country with a large percentage of young working population. 5. bureaucracy. strong unions. Stringent labor laws. 3. Low import tariffs leading to cheap imports. Cannot reduce manpower easily in lean times. Imposition of Export tax on steel (10%) 4. High GDP growth rate (8-9%). Huge Scope for expansion in India with possible government support. Easy funding available for any kind of growth. 2. 3. The exchange rate of the Indian rupee vs dollar has been more or less stable and in an acceptable range over the past years. Higher growth of the industry means more profits for Tata steel. Economic 1. . High political intervention. Business Implications For Tata Steel. 1. Huge scope for expansion.

if not acted upon it can threaten their market share. 4. Leads to more efficient operations.13 TATA Steel: Strategy Analysis by Group 3 2. Must invest in R&D to achieve more and more in this area. 3. use of renewable resources.(about 65%. source of competitive advantage 6. failure to continue innovation in this area can give a lead to competition. Skilled labor not easily available. reduction in co2 emission. 1. they are already low cost players can improve on that further. Low Literacy rate. can give competitive advantage. 3. Adoption of advanced and new IT concepts eg SML (steel markup language) . Growing awareness towards environment issues. Focus on delivering high quality and strength steel. 2. Shift in focus towards use of cleaner technologies. Need for cost saving and efficient technologies. Better utilization of resources. 5. Higher disposable income Technological 1. can be a differentiation strategy. This is a source of competitive advantage. Large rural sector. 6. Can attain Higher profits. 5. 3. 4. 4. 4. Urban India growing at a fast rate. 2. Scope for expansion. 2. Scope for growing profits.2001 census) 3. Scope for expanding into rural India.

y y Tata Steelµs Indian operations are self-sufficient in the case of its major raw material iron ore through its captive mines Tata has a strong retail and distribution network in India and SE Asia. which is roughly little more than half the cost of the Greenfield site.1. also we have analyzed the external industry environment by looking at the opportunities and threats. y y y y . It gives the steel major access to very matured and developed markets in Europe where it can go downstream much more than in a developing country like India and even to some extent China.14 TATA Steel: Strategy Analysis by Group 3 6. 6. Strengths Definition: characteristics of the business or team that give it an advantage over others in the industry. SWOT Analysis We have used this tool to do an internal analysis of the firm¶s (strengths and weaknesses). Tata is a major supplier to the Indian auto industry and the demand for value added steel products is growing in this market Tata Steel addresses the risk of cyclicality of the Steel industry by maintaining rich product mix and higher value added products whose volatility is lower. Highly diversified (2nd most geographically diversified steel producer). Corus acquisition brings Tata Steel 19 million tonne of capacity at once and at a cost.

Huge product portfolio with products catering to following industries: construction.5 million tonne plant in Vietnam (feasibility studies underway) 6. 6 million tonne plant in Orissa (India) 2. One of the world¶s lowest cost producers of steel which means it is highly competitive when it comes to pricing.3 Opportunities Definition: External chances to make greater sales or profits in the environment. 12 million tonne in Jharkhand (India) 3. Packaging. Engineering. 4. Aerospace. y y y Large Debt around 25000 crores in 2009-2010. Over 100 years of experience in the steel industry. Consolidation of coal mining and steel industry. Exposure to Untapped foreign markets. 3-million tonne plant in Iran 5. the Automotive Engineering Group (United Kingdom) and the Jamshedpur R&D Centre (India). Security and Defense. the Ijmuiden Technology Centre (the Netherlands). 1. 2. Ship Building. the Swinden Technology Centre (United Kingdom). . Rail. Number of green field projects already lined up .4-million tonne plant in Bangladesh 6. y y y y Consistent growth rate could take tata-corus to 4th place within the next 3-4 years.15 TATA Steel: Strategy Analysis by Group 3 y y y y y y y y y Large Size (The world¶s 10th largest steel company). Higher pressure on margins as the capacity increases. Research & Development (R&D) activity within the Tata Steel Group takes place in 5 major centres namely. 5 million tonne capacity expansion at Jamshedpur (India) 7. Strong R & D department which help Tata steel stay ahead of competition.2 Weaknesses Definition: characteristics that place the firm at a disadvantage relative to others. 5 million tonne in Chhattisgarh (India) 4. Large Asset Base. Automotive. Employee strength over about 34000. Materials handling. 6. Value chain efficiencies as compared to other competitors. Corus was thrice as big as Tata hence there is short term operational issues till the synergies of the takeover kick in. the Teesside Technology Centre (United Kingdom). Low per capita steel consumption within the country.

rehabilitation. Usage of plastic and composites as substitutes.4 Threats Definition: External elements in the environment that could cause trouble for the business. regional demand & supply imbalances and volatile swings in market demand. Low cost of export market penetration. Potential risk in the area of plant expansion in India. Safety & Environmental Risks y y y .16 TATA Steel: Strategy Analysis by Group 3 y y y Unexplored rural markets within India. forestry and environment. Growing Domestic demand of steel. The inherent risks of periodic overheating that continued rapid growth can unleash. Health. which have a longer gestation period because of possible delays that may arise on issues of land. 6. Dumping by competitors. y y y y y China becoming net exporter. Protectionism in the West. especially with Greenfield projects. The steel industry is subject to cyclical swings arising from factors such as excess capacity.

000 crore. However. capital requirements. R& D expenses and better bargaining power while sourcing raw materials. It would prove to be very difficult for any new entrant to come up with such huge investment outlays. Economies of scale: As far as the sector forces go.17 TATA Steel: Strategy Analysis by Group 3 7. Intensity of rivalry among existing competitors The bargaining power of suppliers The threat of substitute products The bargaining power of buyers y y y y y Entry barriers: High y Capital Requirement: Steel industry is a capital intensive business. The company has invested Rs 8. namely: Threats of new entrants: the willingness and ability of firms to enter a particular industry depends on the barriers to entry. It is estimated that to set up 1 mtpa capacity of integrated steel plant.8 mtpa to 10 mtpa with an estimated investment of Rs 15. Tata Steel has already made sufficient efforts to safeguard itself in this regard. Such barriers include. economies of scale. Benefits of economies of scale are derived in the form of lower costs. it enjoyed a double digit growth rate backed by a robust growing economy. it requires between Rs 25 bn to Rs 30 bn depending upon the location of the plant and technology used. In fact.8 mtpa at Jamshedpur with an investment of Rs 5. Porter Five Forces Model Backed by robust volumes as well as realizations. Iran & Vietnam). scale of operation does matter. We have analyzed the domestic steel sector through Michael Porter¶s five force model so as to understand the competitiveness of the sector as well as pointed out the initiatives taken by Tata Steel to safeguard its position from all the five forces of threats. It has a lineup of Greenfield projects which it plans to establish not only in domestic markets (Jharkhand. Orissa &Chhattisgarh but also internationally (Bangladesh.000 crore. the current liquidity crisis seems to have created medium term hiccups. while it is in the process of expanding the capacity from 6. The situation in the domestic industry was no exception. it has already completed its expansion capacity of its existing plant from 5 mtpa to 6. steel Industry has registered a phenomenal growth across the world over the past few years. government policy & product differentiation. Besides. y .000 crore out it and it expects to achieve10 mtpa capacity by 2011-12.

Steel.800 hectares for prospecting in the Ankua area. Oman and Mozambique. Tata Agrico (hand tools and implements). Tata Wiron (galvanized wire products). there are certain discrepancies involved in allocation of iron ore mines and land acquisitions. However. Tata Steel owns raw material assets such as coal and limestone mines through joint ventures or completely.Apart from these product brands. the company also has in its folds a service brand called ³steel junction´. Government Policy: The government has a favorable policy for steel manufacturers. The Jharkhand government on May 24th 2009 has granted a prospecting license (PL) to Tata Steel for the Ankua iron ore mines. are posed to be the biggest threat as they plan to enter the Indian Steel Industry very soon. Tata Steel still enjoys a premium for their products because of its quality and its brand value created more than 100years back.18 TATA Steel: Strategy Analysis by Group 3 y Tata Steel being an integrated steel company has its own mines for key raw materials such as iron ore and coal and this protects them for the potential threat for new entrants to a significant extent. Tata Shaktee (Galvanized Corrugated Sheets).Mittal. which is the world¶s largest I and POSCO.000 acres of land will be allocated to them for their project in Ranchi. being a commodity it is. Tata Bearings. with the assets spread across countries such as Australia. Furthermore. branding is not common and there is little differentiation between competing products. Tata Steel being a century old company under the flagship Tata Sons which is known for its Corporate Social Responsibility already enjoys a respectable position in front of the Indian Government. Product differentiation: Steel has very low barriers in terms of product differentiation as it doesn¶t fall into the luxury or specialty goods and thus does not have any substantial price difference. Currently two Global Steel majors namely Arcelor. However. Tata Tiscon (re-bars). Tata Pipes (pipes for construction) and Tata Structura (contemporary construction material). the regulatory clearances and other issues are some of the major problems for the new entrants. Tata Steel has introduced brands like Tata Steelium (the world's first branded Cold Rolled Steel). A senior company official said that Tata Steel has been allocated 1. Another 10. . y Competition: High The steel industry is truly global in terms of competition with large producing countries like China significantly influencing global prices through aggressive exports.

19 TATA Steel: Strategy Analysis by Group 3 The 4 major domestic rivals are SAIL. as a percentage. y Value of Herfindahl index for Indian Steel industry is 0. ISPAT & ESSAR STEEL. ESSAR. JSPL have announced massive expansion plans recently: o SAIL has announced that it will achieve production capacity of 40 Million Tons by 2020. JSW.  The four firm concentration ratio of the Iron and Steel industry is 71%  This implies that there is oligopoly in the industry as it is dominated by few major players. whereas increases imply the opposite.2470 . This may also assist in determining the market form of the industry. As such.  Herfindahl Index: The Herfindahl index. the concentration ratio of an industry is used as an indicator of the relative size of firms in relation to the industry as a whole. Decreases in the Herfindahl index indicate a loss of pricing power and an increase in competition. which consists of the market share. IN general. The market shares of the 5 major players in the Indian Steel Industry are: Competition Analysis  Concentration Ratio: In Economics. Rest all are smallish mills which together accounts for 30 % of the total market share. It is defined as the sum of squares of the market shares of each individual firm. ESSAR have similar production expansion plans which will contribute in overall achievement of 200 Million Tons steel production by the year 2020. the N-firm concentration ratio is the percentage of the market output generated by the N-largest firms in the industry. of the four largest firms in the industry. JSW. One commonly used ratio is the four-firm concentration ratio. also known as the Herfindahl-Hirschman index or HHI. is a measure of the size of the firms in relationship to the industry and an indicator of the amount of competition amongst them. o JSW plans to expand its production to 32 Million Tons by 2020 o Other players such as JSPL. It is an economic concept but widely applied in competition law and antitrust. it can range from 0 to 1moving from a very large amount of very small firms to a single monopolistic producer. Major percentage of the market output is generated by the 4 largest firms in the industry All the major domestic competitors like SAIL.

the Top three mining giants BHP Billiton. y Tata Steel and state-owned SAIL have largely been able to withstand raw material price fluctuations due to captive iron ore mines. hit by steep iron ore and coal prices. Tata Steel is self-sufficient to the extent of 25 per cent .´ said managing director B Muthuraman while elaborating on the century-old company¶s performance. However. y Globally. have passed on the hikes to the customers. a considerable amount of raw materials has to be imported. India¶s hard coal deposits are of low quality. prompting the government to clamp down on price increases to control inflation. In India too. iron ore deposits are finite and there are problems in mining sufficient amounts of it. which imports coking coal.20 TATA Steel: Strategy Analysis by Group 3 It implies that the competition in the steel industry is medium to high and high concentration.5 million tons of scrap have already been imported in 2006. The rising output of electric steel is also leading to a sharp increase in demand for steel scrap. those who are non-integrated or semi integrated has to depend on suppliers. Other private steel companies. An example could be SAIL. Bargaining power of suppliers: High y The bargaining power of suppliers is low for the fully integrated steel plants as they have their own mines of key raw material like iron ore coal for example Tata Steel. y The company is dependent on imports for a major portion of its raw material ² iron ore and coking coal ²requirements. In the coming years imports are likely to continue to increase thanks to capacity increases. Some 3. For example. Tata Steel is also one of the least cost markers of steel in the world. Tata Steel has forayed much earlier into the strategy of µBackward Integration¶. compared with just 1 million tons in2000. For this reason hard coal imports have increased in the last five years by a total of 40% to nearly 30 million tons. In fact we¶ve believed in owning raw materials for the past 100 years. India is the world¶s sixth biggest coal importer. NMDC is a major supplier to standalone and non±integrated steel mills. y Since domestic raw material sources are insufficient to supply the Indian steel industry. CVRD and Rio Tinto supply nearly two-thirds of the processed iron ore to steel mills and command very high bargaining power. ³Ownership of raw materials and a continuous improvement in production have been the key to Tata Steel¶s profitability. Almost half of this is coking coal (the remainder is power station coal). y In order to safeguard itself from the high bargaining power of the buyers.

nickel¶s fluctuations will continue to create problems for the stainless industry worldwide. Tata Steel is making it difficult for the suppliers of raw material to bargain exorbitant prices. the company has formed a joint venture with an Australian company for producing coal in Mozambique. iron ore. The joint venture was floated to handle ocean transportation of bulk cargoes such as coal. large diameter water pipes (RCC pipes).Tata NYK Shipping Pte Ltd. To achieve coal security by way of imports. Tata Steel has entered into a joint venture with the Al Bahja Group of Oman for a 70 per cent stake. at present in India the high cost of electricity for extraction and purification of aluminum weighs against viable use of aluminium for the automobile industry. and . Overall. Perhaps the most attractive alternative to stainless is aluminium. y However. For the automobile industry. In the meantime. With supplies coming in from its mines at New Millennium Corporation in Canada and potentially from the Ivory Coastover a longer term. For limestone. Stainless producers themselves are offering their customers a range of alternatives in an effort to prevent business being lost tonon-ferrous or carbon steel materials.21 TATA Steel: Strategy Analysis by Group 3 y y y for iron ore needs. not only for Tata Steel but also for others including other Tata Group companies. the Singapore-based joint venture (50:50) between Tata Steel and Nippon Yusen Kabushiki Kaisha (NYK Line). small diameter pipes (PVC pipes). Such options include lower-nickel duplex grades and ferritic types. the other material at present with the potential to upstage steel is aluminium. The joint venture will undertake mining of limestone in the Uyun region in Salalah province of Oman. a Japanese shipping major has entered into a long-term charter for eight supramax/panamax vessels and orders have been placed for building two new supramax vessels. y Threat of substitutes: Low y Plastics and composites pose a threat to Indian steel in one of its biggest markets ² automotive manufacture. By undertaking such long term strategies to increase its raw material security. acquired strategic interest of five per cent with 20 per cent off take-rights in the coal mining project in Australia in partnership with several other foreign companies and formed a 50:50 joint venture with Steel Authority of India Ltd (SAIL). Steel has already been replaced in some large volume applications: railway sleepers (RCC sleepers). both imports and exports. its iron ore security would gradually increase to around 62 per cent by 2015. raw material security would reach 50 per cent by 2015 and go up to about 60 per cent by 2018. It is also evaluating several other mineral projects in Brazil and Australia Progressing towards the goal of achieving logistics control. limestone as well as finished steel.

shipping.22 TATA Steel: Strategy Analysis by Group 3 domestic water tanks (PVC tanks). oil & gas. However. small and retail consumers who are scattered and consume a significant part do not enjoy these benefits. consumer durables and power generation enjoy high bargaining power and get favorable deals. . The substitution is more prevalent in the manufacture of automobiles and consumer durables. Bargaining power of Consumers: Mixed Some of the major steel consumption sectors like automobiles.

23 TATA Steel: Strategy Analysis by Group 3 8. The below diagram depicts a typical Value±Chain: . As per the Text Book ³Strategic Management´ by Dess/Lumpkin/Eisner ³Value-Chain analysis views the organization as a sequential process of value-creating activities . Identifying Core Competencies and Competitive Advantage using Value Chain Analysis. Keeping this in mind we will try to study the ³Core Competencies´ and ³Competitive Advantage´ of Tata Steel Limited under the framework of value chain. Value Chain Analysis helps identify a firm's core competencies and distinguish those activities that drive competitive advantage.The approach is useful for understanding the building blocks of competitive advantage´ .

The Group¶s various operations across the globe have all undertaken numerous initiatives to realize improvements in this area.4 Lost Time Injury Frequency Rate (LTIFR) by 2012. Testing and Maintenance) y Environmental sustainability has become an increasingly important item on the Tata Steel Group Agenda.1 Inbound logistics: ( Materials Transportation) y handling. y y y 8. Warehousing. The dispatch from Ores Mines and Quarries (OMQ) Division to the Steel Works was 11.2 Operations: (Machine Operating. Measures to reduce the inventory levels drastically in order to free up working capital which could be used in other investment opportunities.1. Packaging.42 million tonnes in FY 09. there was a significant improvement in Tata Steel India¶s safety y . The following are the auditor¶s comments. In line with the Group¶s vision of achieving 0. Inventory control. In Year 2009-2010 Focused campaign launched to improve the safety in the area of Material handling.1 Primary activities (with respect to Tata Steel Limited) 8.24 TATA Steel: Strategy Analysis by Group 3 8.08 million tonnes and registered a substantial increase of 18% as compared to the dispatch of 9. Assembly.1. The inventory management at Tata Steel is efficient and proper verification processes are in place as suggested by the following excerpt from the annual report 2009-2010.

Following is an excerpt from the 2009-2010 annual report to depict the same.56 in this period due to implementation of many process related safety initiatives. For sustainability of its operations and reducing process hazards by strengthening safety in processes.56 million tonnes) and saleable steel (6.6 LTIFR in FY 10.25 TATA Steel: Strategy Analysis by Group 3 performance in FY 10 with a 30% reduction in LTIFR as compared to the previous year¶s. The newly commissioned µH¶ Blast Furnace achieved a remarkable milestone by producing 3. y The Company achieved best ever production of hot metal (7.23 million tonnes). Adoption of new technologies continuously and striving to improve the operations at all times has been an Endeavour of Tata steel limited. Against a plan of 0.07 million tonnes in the first full year of its operation registering an impressive increase of 23% as compared to its rated capacity of 2.44 million tonnes) registering an impressive increase of 16% for hot metal and crude steel production and an increase of 20% for saleable steel production.5 million tonnes. y y y . Commitment towards continuous improvement and its development of cutting edge technology have supported the company to become one of the lowest cost steel producers worldwide. The prime objective of Process Safety Management is to achieve ³Operating excellence through operational discipline´. the Indian operations have initiated implementation of Process Safety & Risk Management (PSRM) in high hazard operations. crude steel (6. the actual LTIFR dropped to 0. PSRM will be implemented in all facilities by the financial year 2011-12.

warehousing.1. During the financial year 2009-10.26 TATA Steel: Strategy Analysis by Group 3 y Large number of Downstream businesses which keep their production in sync with the steel production and drive the profits of the company very well.f. July 2009. Tata has a strong retail and distribution network in India and SE Asia. Transportation and Tata Steel Processing and Distribution Limited (erstwhile Tata Ryerson Limited) became a 100% subsidiary of Tata Steel Ltd. The company with a steel processing capacity of around 2 million tonnes with 5 steel processing centres across India.e.Eg Downstream Businesses.4 million tonnes 27% higher than that of last year and recording the highest profit t before tax in its history of operations. such as Tubes and Wires performed very well in the second half of the year 2009-2010 8. w. the company recorded an all time high tolling and distribution volume of around 1. Tata is a major supplier to the Indian auto industry and the demand for value added steel products is growing in this market y .3 Outbound logistics: Distribution. is the largest steel service centre in the country.) y (Order processing.

Rewards systems) . Finance. y y 8. The Tata Steel Group lays significant emphasis on sustainable Health & Safety performance as it has a direct impact on performance. Created a single global strategic marketing team with a goal to become the ³best supplier to best customer´ and deliver profitable growth. No Data available in annual reports.Subsequent phases are now in progress.27 TATA Steel: Strategy Analysis by Group 3 8. 25 stores of Steeliumzone. Servicing.4 Marketing and management) y sales: (Advertising. Around 100 people across TSE¶s sales & marketing team worked on the first phase which was completed in February 2010.1. 8. Planning. an exclusive retail store of TATA Steelium CR coils and sheets and 100 stores of Shaktee Sansaar that retail TATA SHAKTEE GC sheets were opened in 2009-10. Investor relations) y Health and Safety continues to be one of the prime drivers of the Corporate Vision of your Company. Legal. y 8. Promotion. Education.2. Promotion. Health and Safety is reviewed at all Board meetings of Tata Steel with a Health. Spare Part Management. identifying quick wins and developing a customer satisfaction tool.1 Firm infrastructure: (General Management. identifying initiatives for executing these plans. Pricing.000 people. Selling.5 Service: Installation. Safety & Environment Committee established to carry out more detailed reviews.1.2. The Company is continuing its µSafety Excellence Journey¶ with a philosophy that µSafety is a Line Management function and all injuries can be prevented¶.2 Human resource management: (Recruitment. Huge Investor base of around 800. which include developing 3 to 5 year plans for each sector.2 Support activities: (With respect To Tata Steel Limited) 8. several initiatives were taken. Highly Qualified management headed By ³Ratan N Tata´ gives Tata steel a leading edge over its competitors. Product catalogues have been developed and high-level metrics have been defined. Channel To increase the market reach.

8. Turbine at µG¶ Blast Furnace. 2. the culture values are that the people are not penalized for failures they should be educated and led them to continuous improvement. 20 per cent takes place through coaching. y y The group empowers people to make decisions about their own jobs. 100% utilization of By-Product gases as fuel by Installation and commissioning of Power House #6. Leadership development and succession planning. Career planning and job rotation. it has played a pivotal role in the development of steel products and process routes that have given the Company a competitive advantage in local and global markets. technical discussions. More than 3. Customer orientation -³Employee Contact Program´ has been initiated and reviewed on a monthly basis to improve on the HR connect with the Line functioning. people and society. The Company carries out its business activities in ways that seek to enhance the Earth¶s resources rather than deplete them. Since its inception. 2. 3. y Energy Conservation measures taken: 1.300 employees have been provided basic Hindi literacy and 28 e-learning centres have been opened in various locations of the Company in India and around 300 PCs have been provided for these eLearning centres.2. thereby helping create a sustainable world for future generations to inherit. Learning and development process through 70:20:10 where 70 per cent of learning & development takes place from real life and on-the job experiences. working under guidance by superiors or experts while 10 per cent of the learning comes from formal class room training. The following steps are taken in the human resources front to ensure that the Company in India can continuously cater to the changing business adversities and opportunities. 1. This is achieved by focusing on a number of initiatives and principles that are consistently applied across the Group. product and Process development) y The Jamshedpur R&D centre in India was established in 1937 and is one of the oldest industrial R&D centres in the country. mentoring. shadowing. IT. 5.3 Technology development: (Research & development. problem solving and self study. Generation of electrical energy by recovering waste energy through installation and commissioning of Top Recovery 3.28 TATA Steel: Strategy Analysis by Group 3 y Corporate Sustainability at Tata Steel has always meant focusing on the environment.000 employees during the fi nancial year 2009-10. 4. . tasks. E-learning ± 137 e-learning modules have been developed indigenously to impart computer literacy classes to 11.

IT. Ability to acquire resources/raw material and feed the other industries such as steel and automobile. Raw Materials. 5. Mozambique. listens to the customers And place excellent emphasis to deliver quality. Consolidation and cross-sourcing of Contracts for bulk shipping. Supplier Contract Negotiations) y Company continued to implement its long-term strategy to secure ownership of assets that will increase its raw materials security and share of value-added products. Vast knowledge and experience of the Tata Steel Group. Experienced senior management that has a clear understanding of their business as well as micro and macro environment. y The following major Improvement Projects were undertaken in the area of Procurement: 1. coal. During the financial year 2009-10 the Company¶s primary focus was on expediting implementation of its existing ventures. Shut down of old & inefficient Blast Furnaces. Higher L. The integrated Procurement function intends to combine the skills of procurement across the group and work with a strong business alignment while strengthening the earlier established processes like lead buying. reliability and high level of service. Some the projects are Benga Coal Project. 8. Reduction in LDO consumption at Boiler Houses of Power House #4 by Modification in oil burner.4 Procurement: (Purchasing raw materials.D.2. During the year the concept of Lead Buyers was also extended to the South East Asian (SEA) operations and the efforts were focused on maximizing the buy within the Tata Steel Group companies. Lease properties. 8. Maximizing procurement from within Tata Steel Group. Gas recovery and utilization. y Four research groups are actively engaged in developing new products and processes for all businesses. This is a Customer and Market Oriented corporate. etc.29 TATA Steel: Strategy Analysis by Group 3 4.3 Core Competencies of Tata Steel Limited on the Basis of Value Chain Analysis y y Low cost manufacturing of steel. Limestone Project in Oman etc. y y y . 2. 6. Coal Mining Project in Australia (CDJV).

y y y 8. Low cost Manufacturing of steel. 8. Mature manufacturing processes which are highly efficient. Loyal and Experienced work force. Valuable? Yes Yes Rare? Yes Yes Difficult To Imitate? Yes Yes Without Substitutes? Yes Yes Implications For Competitiveness. Highly Experienced Top management. Access to Global markets. by giving them liberty and encouraging entrepreneurship.4 Competitive Advantages of Tata Steel Limited on the Basis of Value Chain Analysis. Strong R &D department. Over Hundred years Experience in Steel making.30 TATA Steel: Strategy Analysis by Group 3 y Commitment towards continuous improvement and its development of cutting edge technology. (Strong R & D wing).1 VRIO Framework Resource Description Captive Mines. Sustainable Competitive Advantage Sustainable Competitive Advantage Temporary Competitive Advantage Competitive parity Temporary Competitive Advantage Competitive parity Competitive parity Yes Yes No No Yes Yes No Yes No No No No Yes Yes No No No No No No Tata has a strong retail and distribution network in India Large steel production capacity. High productivity through the people. Access to latest cutting edge technology.4. Highly Diverse product portfolio Yes Yes No No Temporary Competitive Advantage Yes Yes No Yes Temporary Competitive Advantage Competitive Parity Yes No No No .

 Technology: The future growth prospects of SMEs in steel industry largely depend on efficient use of available energy resources. The art of using efficient technology can enable company to achieve a competitive cost position. the key success factors in the steel industry are: y Diversified customer base: Customer profile in any segment of the steel industry determines its business position. small scale plants can achieve low costs through flexibility and high productivity. small and retail consumers who are scattered and consume a significant part do not enjoy these benefits. Diversification may also be across the geographies including export sales. It was recognized that small and medium enterprises not only need greater awareness but also technical. excess capacity. oil & gas. consumer durables and power generation enjoy high bargaining power and get favorable deals. HOW DO FIRMS SURVIVE COMPETITION? (Analysis of competition) y Commodity products. By analyzing customer needs and preferences and the ways in which firms compete to serve customers we identified the general sources of competitive advantage in an industry-critical success factors. y Thus. financial and institutional support in order to develop and adopt efficient technologies. excess capacity. y Product consistency. environmental compliance and other differences. high fixed costs. Some of the major steel consumption sectors like automobiles. shipping. Effective diversification of customer base exhibits a greater degree of revenue consistency. CRITICAL SUCCESS FACTORS (INDUSTRY) Conventional sources of cost efficiency include: large-scale plants. exit barriers. WHAT DO CUSTOMERS WANT? (Analysis of demand) y Low price. and rapid adjustment of capacity to output. . which can vary extensively on a geographic basis due to regulatory. Identifying Critical Success Factors Business strategy is concerned with establishing competitive advantage.31 TATA Steel: Strategy Analysis by Group 3 9. but meet other obligations. y Alternatively. high technology. y Cost efficiency and strong financial resources essential. low-cost location. y Specific technical specifications for special steels. and substitute competition mean intense price competition and cyclical profitability.  Differentiation through technical specifications and service quality. However. y Cost efficiency & profitability: Factors that measure costs and operating efficiency help in assessing a company's ability to operate through economic downturns and its ability to not only continue servicing its debt. y Reliability of supply.

The recovery of TATA steel from the debt would have been faster had there been no global recession. As a consequence steel prices across the world declined significantly. TATA Steel was able to buy Corus at eight billion US dollars which made the deal to be fixed at 455 pence per share which needed to be paid in cash by the TATA Steel to the shareholders of Corus. elements that are within a company's ability to manage. such as cost structure and operating efficiency. . sensitivity to underlying economic conditions.32 TATA Steel: Strategy Analysis by Group 3 y y y y y y  Operating Efficiencies Given the industry characteristics of underlying pricing volatility. limited producer pricing power. are important considerations in the rating analysis. Diverse product mix & proportion of value added products Access to raw materials at low costs Proximity to inputs and market Financial structure Ability to export Differentiation through technical specifications & service quality Critical Success Factor Diversified Customer Base Cost efficiency & Profitability Diverse product mix & proportion of value added products Access to raw materials at low cost Proximity to inputs & markets Financial Structure Ability to export Differentiation through technical specifications & service quality Present in Tata Steel?        S. particularly at the integrated producers. 1 2 3 4 5 6 7 8 The current financial structure of Tata Steel is not favorable as it had taken up huge loans to finance its acquisition of the Corus group. The immediate impact of this recession on the steel industry was the sharp decline in volume due to the lack of credit among customers. and a relatively high fixedcost base. No. This deal was a highly expensive one and Tata Steel is trying to reduce the debt each year.

Added in Markets and have been very involved in various CSR programs. Their strategy has focus on capacity expansion and adding more value to their products . . it looks that Tata Steel is looking to exploit all the available opportunities while maintaining focus on their key strengths. Consolidation of coal mining and steel industry. this project will enhance the capacity of the Indian operations to 10 mtpa. Conclusion The opportunities that came up from the SWOT analysis are: y y y y y y Untapped foreign markets. In addition.improve their processes through continuous R & D . Unexplored rural markets within India. Low per capita steel consumption within the country.33 TATA Steel: Strategy Analysis by Group 3 10. One thing that Tata Steel Group as a whole needs to take care of is the high debt on their balance sheet post the Corus acquisition . including in Orissa. When completed in the third quarter of the financial year 2011-12. Current Strategy of TATA Steel The current strategy directly quoted from the annual report of 2009-2010: Right now the Company¶s key priority is to execute the 3 million tonne expansion project at Jamshedpur. the Company is focusing on several downstream facilities that are being set up in coated and packaging products. Low cost of export market penetration. It is notable that their strategic intent has always been in line with the vision and mission statement of the company .Although it is understandable that just after the acquisition there was a global recession which resulted in a dip in the demand for Tata-steel and hence lower profits.They have always looked to expand . If we look at the above points and their current strategy in parallel. 11. which are consistent with the Company¶s long-term strategy to increase the ratio of value-added products in its output.Added new products . The Company continues to pursue its long-term strategy to build Greenfield capacity in India. Growing Domestic demand of steel.

co.net/pestanalysis.pdf http://www.asp?report_id=245787&t=t&cat_id= http://www.in/files/Domestic%20climate%20policy%20for% 20the%20Indian%20steel%20sector.-porter/ http://www.com.indiaenvironmentportal.nic.csc.wikipedia.tradechakra.htm http://www.renewal.php http://en.34 TATA Steel: Strategy Analysis by Group 3 12.com/resources/Renewal_Pestle_Analysis.com/26/value-chain-analysis/michael-e.com/population-of-india/literacy-rate.org.eu.iloveindia.com/25/distribution_population_urban_rural_india.capitaline.researchandmarkets.in/ http://www.htm http://www.provenmodels.htm http://www.learnmarketing.com/reportinfo.uk/theory/theory--slept-analysis--235.thetimes100.html http://www. References http://steel.org/wiki/PEST_analysis http://www.indianetzone.html http://www.com/indian-economy/industries/steel-industry.tw/csc_e/pd/prs.pdf http://www.com y y y y y y y y y y y y y .

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