MITTAL STEEL(ARCELOR MITTAL)

STRATEGIC ANALYSIS OF
MITTAL STEEL(ARCELOR
MITTAL STEEL)
STRATEGIC MANAGEMENT - 2

4/1/2014

SUBMITTED TO: PROF. VIVEK RAINA

SUBMITTED BY: NIRALI MEHTA(M00144)

HARSH DESAI(M00148)
Q1. Understand and explain the company’s major
competitors in the market. Also explain companies
own internal condition with respect to the global
scenario in that field.
Competitors in the market:
 Nippon Steel
 JFE
 POSCO
 Baosteel
 Tata Steel
 Anshan Benxi
 Jiangsu Shagang
 Tangshan
 U.S. Steel

(Manufacture of basic iron and steel and of ferro-alloys (ECSC); manufacture

of tubes; other first processing of iron and steel and production of non-ECSC
ferro-alloys largest global steel producing enterprise (groups) (million tonnes
of crude steel output)
SOURCES OF COMPETITIVE ADVANTAGE IN THE INDUSTRY

1. Length of production time, i.e., technology used in production process.

2. The cost of production, especially since the steel market is highlyprice-
sensitive. Low-cost, high-quality imports pose a significant threatto the
domestic industry and hence, competitive pricing is essential tobe ahead.
3. “Dependable delivery”, i.e., lower delivery time to consumers.
4. Quality of steel produced and distributed.
5. People
 High productivity of labour at its plants/production facilities.
 High performance orientation through performance linked compensation
plans for employees.
 Dedicated workforce indicated by lower turnover (only 5%) than the
industry average (10%-12%).
 This could be attributed to the equality of treatment among workers at the
production facilities (same colour jackets).
6. Firm level capabilities
7. Simple and flat organization structure with only about 5 layers.

Company’s internal analysis

Internal Analysis includes the analysis of factors which are within the industry
such as distinctive competencies, competitive advantage, profitability. Internal
properties of a company can be categorized into two parts strengths and
weaknesses.

1. STRENGTHS

1. Position as the world's largest, most diversified steel group

2. Strong profitability and free cash flow generation through the recycle,
supported by low cost operations and upstream vertical integration.
3. Learning curve benefit due operation experience of long time.
4. Acquisition experience of acquiring industries from different countries.
5. Compared with peers, Mittal has higher exposure to spot markets. Most
of the shipments outside North America are spot sales.
6. The government offers a wide range of concessions to investors in India,
engaged in steel industry. The main concessions include, inter alia:
  Steel in specified backward districts is eligible for a complete tax holiday
for a period of 5 years from commencement of production and a 30
percent tax holiday for 5 years thereafter.
 Environment protection equipment, pollution control equipment, energy
saving equipment and certain other equipment eligible for 100 percent
depreciation.
 One tenth of the expenditure on prospecting or extracting or production
of certain minerals during five years ending with the first year of
commercial production is allowed as a deduction from the total income.
 Export profits from specified minerals and ores are eligible for certain
concessions under the Income tax Act.
 Minerals in their finished form exempt from excise duty.
 Low customs duty on capital equipment used for minerals; on nickel, tin,
pig iron, unwrought aluminium.
 Capital goods imported for steel under EPCG scheme qualify for
concessional customs duty subject to certain export obligation.
7. Labours easily available
8. Low labour and conversion costs.
9. Large quantity of high quality reserves.
10.Exports iron-ore to China and Japan on a large scale

2. WEAKNESSES

1. Ambitious grow the strategy that implies integration challenges and

uncertainties for the company's future financial profile Exposure to
operating in emerging markets.
2. Different acquisition can lead to cultural mismatch among different units.
3. Exposure to those countries weak legal and regulatory systems, as well as
the integration of ne was sets into the group structure (for example,
establishing appropriate control procedures, achieving operational
synergies, and turning around former state-owned and often inefficient
plants)
Q2. Look into various strategic management
applications which company tried out in their survival
of the competition.

Strategic management
application by the
company to survival in
the competition

1) By acquiring large number of Steel Companies Mittal Steel became

behemoth and gained the more control on price.
2) Large numbers of steel industries are in government hands.
Management of these companies find it difficult to compete with
private players such as Mittal Steel.
3) Since Mittal Steel was ready to acquire the sick government units it
gave an easy exit barrier to these industries and weakened the
competition.
4) Other big players were present in the market. But Mittal Steel
concentrated on its low price strategy (mostly in Asia and Africa)
while many of its competitors competed for higher quality (mostly
in Europe) and better distribution channel.
 Evolution of Growth strategy - Mittal Steel
1986 - Mr Lakshmi N Mittal establishes PT Ispat Indo (as greenfield steel project) in Indonesia.

1989 - The company, as Caribbean Ispat, operates Iron and Steel Company of Trinidad and Tobago
(Iscott).

1994 - Caribbean Ispat exercises its option to acquire Iscott.

1995 - Ispat International Ltd and Ispat Shipping are set up in the UK

1997 - Ispat International N.V. goes public and acquires Germany’s Thyssen Duisburg

2002 - Arcelor is created through the merger of Arbed (Luxembourg), Aceralia (Spain) and Usinor
(France) to create a global leader in the steel industry.

2003 - Membership of the United Nations Global Compact, joining more than 1,250 enterprises from
around the world.

2004 - Ispat International N.V. acquires LNM Holdings and merges with International Steel Group
creating Mittal Steel.

2005 - Arcelor becomes the world’s first steel company to sign a Worldwide Agreement on
Principles of Corporate Social Responsibility.
Mittal Steel makes the Fortune 500 list of top companies.

2006 - Arcelor appears in the Global 100 Most Sustainable Corporations in the World list

Jun - Mittal Steel and Arcelor reach an agreement to combine the two companies in a merger of
equals, creating the world’s largest steel company.

ArcelorMittal acquires Sicartsa, the leading Mexican long steel producer. Sicartsa has an
annual production capacity of about 2.7 million tonnes, and has production facilities in
Mexico and Texas.
 2007 - Builds a new steel service centre in Krakow, Poland, with a processing
capacity of around 450,000 tonnes a year
o ArcelorMittal launches its new global brand. Reflecting the company’s aspirations,
the brand’s vision ‘transforming tomorrow’ is supported by three main values:
sustainability, quality and leadership
o ArcelorMittal acquires two steel tube businesses from Vallourec, France.
o ArcelorMittal completes the acquisition of Arcelor Brasil, taking ownership of 100%
of its shares
o Merger process between Mittal Steel and Arcelor is completed, and the company is
renamed ArcelorMittal.
o ArcelorMittal purchases Cinter in Uruguay to strengthen its stainless steel business
in South America
o ArcelorMittal acquires 100% of the shares of steel distribution company Eisen
Wagner. With sales of 60,000 tonnes of steel products in 2007, Eisen Wagner is one
of the leading steel distribution companies in Austria.
o ArcelorMittal acquires MT Majdalani y Cia, the leading stainless steel service centre
and distributor in Argentina.
o ArcelorMittal acquires NSD Ltd, a leading UK steel distribution company

2008 - ArcelorMittal acquires Unicon, the leading manufacturer of welded steel

pipes in Venezuela
 ArcelorMittal acquires three coal mines and associated assets in Russia for
US$720m
 ArcelorMittal acquires Brazilian iron ore company London Mining South America
Ltd
 ArcelorMittal acquires Koppers’ Monessen coke plant near Pittsburgh,
Pennsylvania, US, for US$170m
 ArcelorMittal begins trading in Paris, Amsterdam and Brussels, under the symbol
MT.
2009 - Arcelor Mittal begins trading in Paris, Amsterdam and Brussels, under the symbol MT.

2010 - Arcelor Mittal is confirmed as a sponsor for the London 2012 Olympic and
Par Olympic Games and supports the construction of the Arcelor Mittal Orbit in the
Olympic Park.
 ArcelorMittal secures its entry to the 2010 Dow Jones Sustainability World Index,

2011 - ArcelorMittal officially starts production of commercial iron ore from our mining
operations in Liberia.

2012 - ArcelorMittal sells 25% of its 75% stake of Baffinland Iron Mines
Corporation and becomes equal partners with Nunavut Iron Ore
 Baffinland Iron Mines’ Mary River project is given the green light by the Nunavut
Impact Review Board. The project is the largest mining development in the
Arctic.
 strategy of
mittal steel

Consideration
oerational Financial risk
before an Bid for arcelor
strategy profile
acqusition

CONSIDERATIONS BEFORE AN ACQUISITION

When Mittal Steel considers an acquisition, it seeks not only low-cost inputs and
an expanding market, but also inexpensive labor. But it will bend its criteria if an
opportunity looks promising enough. Its Algerian plant, for example, had no
obvious source of iron ore.

When Mittal staffers discovered that the country had ore deposits, the company
secured a license to open a mine. Similarly, its purchase of International Steel
Group did not seem to fit its requirement for low cost labor; U.S. wages are among
the highest in the world. But ISG had been cobbled together out of such storied
American steel names as Bethlehem and LTV by U.S. turnaround specialist Wilbur
Ross, and Ross had streamlined the companies while reorganizing them. He lay off
employees and jettisoned pension plans, giving ISG a cost edge over U.S.
competitors. Although the company has a blueprint for acquisitions, each of its
deals presents unusual challenges. In the former Eastern Bloc, for example,
financial statements have proven unreliable because plants often did business via
barter. In Romania, they had a central computer which would track all of the barter
transactions. In Kazakhstan, where it opened a warehouse and found 50,000 bottles
of Romanian red wine. They had traded steel for wine. And they had created their
own currency -- IOU notes. You would go to the hospital or the grocery store, and
there were these IOU notes.
OPERATIONAL STRATEGY

Mittal acts as a consolidator in the global steel industry, focusing on growth

through acquisitions, and has a successful acquisition and integration track record.
Operationally, Mittal has a highly diversified asset base, with plants of different
types, including both integrated and mini mills. Mittal's base capital-expenditure
requirements are lower compared with those of peers, because of its lower cost
base in emerging markets (for example, Romania and Kazakhstan), where
comparable types of work can be performed at a lower cost. Mittal may invest in
new projects to strengthen its upstream integration. For example, thegroup is
considering new projects in iron ore mining in Liberia and expansion of its
Ukrainian production.

BID FOR ARCELOR

Mittal Steel & Arcelor complemented each other in terms of geographical coverage
and product mix, as there is no significant overlap. Mittal has strong positions in
the U.S. market; low-cost operations in Central and Eastern Europe, Asia and
Africa; and vertical raw-material integration. Arcelor is the leader in higher value-
added products in Western Europe, low-cost slab manufacturing in Brazil, and has
a successful distribution system. As the largest player in the steel industry--
globally and in the key markets--the combined group enjoys significant bargaining
power. The merger was expected also yield synergies in procurement, marketing,
and optimization of production processes and capital expenditures. The bid
significantly increased Mittal's leverage.

FINANCIAL RISK PROFILE

Acquisitions introduce risks, but the group has a good track record of turning
around underperforming steel acquisitions, particularly in less-developed countries,
through LNM Holdings, which implemented this strategy since 1995.The
advantages of Mittal's strategy of expanding into emerging markets include low
cost bases for steel production and capital construction. In most cases, asets the
group acquired in emerging markets like Romania or Kazakhstan were low priced,
and the plants enjoyed sizable, albeit temporary, tax breaks. The key risks of
Mittal's emerging-market expansion strategy include exposure to those countries
weak legal and regulatory systems, as well as the integration of new assets into the
group structure (for example, establishing appropriate control procedures,
achieving operational synergies, and turning around former state-owned and often
inefficient plants). But Mittal has a track record of successfully integrating and
restructuring previously underperforming state-owned assets. Vast geographical
diversification also mitigates risk in each particular emerging market, as the group
is no longer markedly dependent on any single asset or market. In the medium to
long term, the main issue for the group is its success in integrating recently
acquired assets and maintaining long-term, stable relationships with the
governments of host countries. The Mittal group has a complex structure and has
only majority control, but not full control, over some of its cash-generative and
cash-rich subsidiaries. For example, Mittal owns only 51%of the South African
plant, 70% of the Algerian plants (30% is state-owned), and 76% of theCzech
plant. This constrains cash flow circulation within the group and may lead to
significant spending to buy out minority interests (although no such requirements
are currently effective).
Q3. After looking into the financial statement and
annual report, please identify their growth trajectory
with respect to the competitors.
2008 2009 2010 2011 2012

Health and safety

Lost time injury frequency rate 2.5 1.9 1.8 1.4 1.0
(LTIF) 1
Arcelor Mittal steel operations
(millions of metric tonnes)
Production of steel products 101.1 71.6 90.6 91.9 88.2
Change year/year -11.4% -29.2% 26.5% 1.4% -4.0%
Shipments of steel products2 99.7 69.6 85.0 85.8 83.8
Change year/year -7.5% -30.2% 22.0% 1.0% -2.3%
Arcelor Mittal mining
operations (millions of metric
tonnes)
Mining production
Iron ore:
Own production 43.8 37.7 48.9 54.1 55.9
Long-term contract 20.9 15.1 19.6 11.1 12.3
Total iron ore production 64.7 52.7 68.5 65.2 68.1
Coal:
Own production 5.9 7.1 7.0 8.3 8.2
Long-term contract 0.5 0.5 0.4 0.6 0.7
Total coal production 6.4 7.6 7.4 8.9 8.9
Mining shipments
Iron ore:
External sales - Third party 6.4 5.4 7.0 9.0 10.4
Internal sales - Market-priced 12.4 17.2 18.2 19.0 18.4
Internal sales - Cost-plus basis 21.6 17.1 21.5 23.6 25.6
Strategic contracts 20.9 15.1 19.6 11.1 12.3
Total iron ore shipments 61.4 55.0 66.3 62.7 66.7
Coal:
External sales - Third party 1.4 2.0 2.1 3.5 3.3
Internal sales - Market-priced 1.5 1.8 1.3 1.4 1.8
Internal sales - Cost-plus basis 3.4 3.3 3.2 3.3 3.1
Strategic contracts 0.5 0.4 0.4 0.6 0.7
Total coal shipments 6.9 7.5 7.0 8.9 9.0
Arcelor Mittal financials (US$
millions)
Sales 116,942 61,021 78,025 93,973 84,213
Change year/year 21.4% -47.8% 27.9% 20.4% -10.4%
EBITDA 23,652 5,600 8,525 10,117 7,080
Change year/year 21.9% -76.3% 52.2% 18.7% -30.0%
Operating income (loss) 11,960 (1,470) 3,605 4,898 (3,226)
Change year/year -14.4% -112.3% NA 35.9% NA
Net income (loss) attributable to 9,466 157 2,916 2,263 (3,726)
equity holders of the parent
Change year/year -8.7% -98.3% NA -22.4% NA
Net cash provided by operating 14,652 7,278 4,015 1,777 5,294
activities
Net cash used in investing (12,428) (2,784) (3,438) (3,678) (3,660)
activities
Net cash used in financing (2,132) (6,347) (7) (540) (1,044)
activities
Cash and cash equivalents and 7,587 6,009 6,289 3,905 4,536
restricted cash
Property, plant and equipment 60,251 60,385 54,344 54,251 53,834
Total assets 133,155 127,697 130,904 121,880 114,573
Short-term debt and current 8,409 4,135 6,716 2,784 4,339
portion of long-term debt
Long-term debt, net of current 25,667 20,677 19,292 23,634 21,965
portion
Equity attributable to the equity 55,258 61,084 62,430 56,690 51,723
holders of the parent
Net debt 26,489 18,803 19,719 22,513 21,768
Arcelor Mittal financials per
share (US$)
Arcelor Mittal average share 66.52 31.86 35.79 28.24 16.41
price
Book value per share 39.96 42.27 41.29 36.60 33.39
Basic earnings per share 6.84 0.11 1.93 1.46 (2.41)
Change year/year -7.7% -98.4% NA -24.4% NA
Arcelor Mittal ratios
EBITDA margin 20.2% 9.2% 10.9% 10.8% 8.4%
Operating margin 10.2% -2.4% 4.6% 5.2% -3.8%
EBITDA per tonne 237.2 80.4 100.4 117.9 84.5

No 1 2 3 4 5
Year 2008 2009 2010 2011 2012

Lost time injury frequency rate

(LTIF) 1
2.5
2
Axis Title

1.5
1
0.5
0
1 2 3 4 5
Lost time injury frequency
2.5 1.9 1.8 1.4 1
rate (LTIF) 1

 If we see in above graph than we can see that the LTF is being decrease year
by year. This is good for the company.

Production of steel products

Axis Title

1 2 3 4 5
Production of steel
101.1 71.6 90.6 91.9 88.2
products
 In above graph we can see that the production of the company was decreased
in 2009 as compare to 2008. It was decrease from 101% to 71.6%.
 But after this happen company had started to develop efficiency and trying
to increase the production till 2011. And then again production were
decreased.

Shipments of steel products2

100

80
Axis Title

60

40

20

0
1 2 3 4 5
Shipments of steel products2 99.7 69.6 85 85.8 83.8

 Shipment of steel was decreased in 2009 and it was again decreased in 2012.
If we see in 2008 then we can analysed that the shipment of steel was
highest in 2008 in over five years‟ periods.

MINING PRODUCTION
Own production Long-term contract

54.1 55.9
48.9
43.8
37.7

20.9 19.6
15.1 12.3
11.1

1 2 3 4 5
 In mining production company is more depended on its own production and
it is increasing year by year at good level.
 By this we can also say that long term contract based production is
decreasing.

COAL PRODUCTION
Own production Long-term contract

8.3 8.2
7.1 7
5.9

0.5 0.5 0.4 0.6 0.7

1 2 3 4 5

 In coal production also company don‟t wants to be depended other contract

base production line.

MINING SHIPMENT
Axis Title

1 2 3 4 5
External sales - Third party 6.4 5.4 7 9 10.4
Internal sales - Market-priced 12.4 17.2 18.2 19 18.4
Internal sales - Cost-plus basis 21.6 17.1 21.5 23.6 25.6
Strategic contracts 20.9 15.1 19.6 11.1 12.3

 In mining shipment company is more successful in internal-cost plus basis

sales. Because it is higher than other shipments.
 COAL SHIPMENT
Axis Title

1 2 3 4 5
External sales - Third party 1.4 2 2.1 3.5 3.3
Internal sales - Market-priced 1.5 1.8 1.3 1.4 1.8
Internal sales - Cost-plus basis 3.4 3.3 3.2 3.3 3.1
Strategic contracts 0.5 0.4 0.4 0.6 0.7

 In coal shipment external-third party sales is growing at very fast level.

 In coal shipment internal-cost plus basis sale is stable there is no high
fluctuation in coal shipment in internal sales but strategic contracts base
shipments are not so popular.

FINANCIALS
Axis Title

1 2 3 4 5
Sales 116,942 61,021 78,025 93,973 84,213
EBITDA 23,652 5,600 8,525 10,117 7,080
Operating income (loss) 11,960 -1,470 3,605 4,898 -3,226
Net income (loss) attributable to
9,466 157 2,916 2,263 -3,726
equity holders of the parent
 In this graph we can see there is a high level of fluctuation in sales,
operating income, EBITDA and net income. This shows that company is not
performing at efficient level and it is including more Expences than income.
 Means demand of steel is being decreasing so that sale is decreasing.

cash flow
15,000

10,000

5,000
Axis Title

-5,000

-10,000

-15,000
1 2 3 4 5
Net cash provided by operating
14,652 7,278 4,015 1,777 5,294
activities
Net cash used in investing activities -12,428 -2,784 -3,438 -3,678 -3,660
Net cash used in financing activities -2,132 -6,347 -7 -540 -1,044

FNANCIAL PER SHARE

70
60
50
40
Axis Title

30
20
10
0
-10
1 2 3 4 5
Arcelor Mittal average share price 66.52 31.86 35.79 28.24 16.41
Book value per share 39.96 42.27 41.29 36.6 33.39
Basic earnings per share 6.84 0.11 1.93 1.46 -2.41
 RATIOS OF ARCELOR MITTAL
250.00%

200.00%

150.00%
Axis Title

100.00%

50.00%

0.00%

-50.00%
1 2 3 4 5
EBITDA margin 20.20% 9.20% 10.90% 10.80% 8.40%
Operating margin 10.20% -2.40% 4.60% 5.20% -3.80%
EBITDA per tonne 237.20% 80.40% 100.40% 117.90% 84.50%

2013 Strategic Report Card

2013 Investor Day 2013 Performance Medium Term Target

Targets Update
EBITDA Medium term target Underlying EBITDA up Medium term remains
$150/t 10.7% 2013 EBITDA/t = $150/t
$82
Q4‟13 EBITDA/t = $91
Shipments Increase to 95Mt Shipments increased 0.6% Increase to 95Mt medium
medium term due to term
(5yr CAGR 2.5%) contraction of core markets (5yr CAGR 2.5%)
Net debt Midyear 2013 target Midyear 2013 NFD = Medium term remains
$17bn $16.2bn $15bn
Medium term target Year end NFD = $16.1bn
$15bn
Mgt 2013-15 target $3bn $1.1bn achieved at end 2013-15 target remains
Gains 2013 $3bn
Iron Ore Expand capacity to Capacity expanded 10Mt in Medium term capacity
84Mtpa by end 2013 target now
2015 >84Mt given stretch
potential at
Liberia and AMMC
Global scale, regional leadership
NAFTA BRAZIL EUROPE MINING ACIS
Revenues ($bn) 20.6 10.2 40.1 5.8 8.3
% Group 26% 13% 50% 7% 10%

EBITDA ($bn) 1.4 1.9 1.6 2 0.3

% Group 20% 28% 24% 29% 4%

Shipments (M mt) 23.3 9.8 38.4 59.7 12.3

% Group 28% 12% 45% 15%

Critical strategic “enablers”

•A sustainable “Through-the-cycle” approach required

Strong balance sheet •Ensures balance sheet flexibility for funding organic growth and executing
options at all points of the cycle

Active portfolio •Acquisitions typically more attractive than greenfield investment but the
Company is also willing to dispose of businesses that cannot
management •meet its performance standards or that have more value to others

Decentralized •Global scale and scope is a competitive advantage that also introduces
organizational complexity and the risks of inefficiency
structure •Decentralized structure with BU autonomy drives optimal behaviour

•Success depends on the quality of and our ability to engage, motivate and
The best talent reward our people
•Continuous processes to attract, develop and retain the best talent
Strong balance sheet

Net debt progression ($bn)

 Lowest level of net debt since the merger in 2006

 Medium term net debt target of $15bn remains

Pension/OPEB net liability ($bn) reduced >20% in 2013

  Pension/OPEB liability is sensitive to long term interest rates
 A 1% increase in the discount rate reduces the liability by $1.8bn
Active portfolio management

Including:
MacArthur Coal stake
$3.6bn BNA stake
Erdemir (½ of interest
Cash rose from sold)
Skyline
asset Enovos
sales since Paul Wurth
AMMC stake
3Q 2011
Additionally:

 Reduced ownership of Baffinland to 50% with Nunavut Iron ore increasing

its share of funding
 Annaba: diluted stake to 49% to facilitate expansion of capacity

Comparison of Arcelor Mittal's Performance with Industry

Competitors
However to gauge the true picture of the merged companies, a comparison is done
with its competitors in the same field.
 Mittal's performance if considered in isolation might be is leading so a
comparison of the company's performance with its main competitors Pasco
and United States steel corporation.
 In this comparative analysis the acquiring company, Mittal steel has been
taken for comparison to measure the impact of the merger on the acquirers.
 Posco steel, a well-known Korean steel company was established on April 1,
1968. It has secured the highest competitive level in the global steel
technologies since 2006. It manufactures a wide portfolio of products
amongst which they are the leading manufacturers of automotive steel. In
addition to this, the company deals in high carbon steel; strip casting and tire
cord wire rod .This Company has been supporting the use of various
environment-friendly materials with the development of graphite and tin free
cutting steel components. In the year 2012, they recorded a spectacular 4.36
million tonnes of total sales, making it world-class automotive steelmakers
 in the world. The company holds a massive export market, with Japan being
on the top, followed by China, Thailand, Indonesia and Asia.
 The U.S Steel Corporation was founded in 1901, launched with an
authorized capitalized value of $1.4 billion. Headquartered in Pittsburg in
the United States, it manufactures a wide variety of steel sheet; coke and
taconite pellets; tabular and tin products; and possesses a worldwide annual
raw steel capability of 26.8 million tonnes. It is the sixth largest producer of
steel in the world and second largest integrated steel producer in North
America. The company has significant operations all around the central
Europe as US steel Kosice, established in Slovakia, and US steel Balkan,
located in Serbia.
 Q4. Prepare a detailed analysis of the various tools
and techniques that can be applied in the company’s
case
Layers of business environment  The highest-level layer.
 This consists of broad environmental
factors that impact to a greater or lesser
extent on almost all organisations.
 PESTEL
o Political,
The macro
envirnment o Economic,
o Social,
Industry o Technological,
(Sector) o Environmental(„green‟) and
o Legal environments
Competitors

 Forms the next layer with this broad

The general environment.
organization  This is made up of organisations
producing the same products or services.
Markets  Here the five forces framework is
particularly useful in understanding
theatre activeness of particular industries
or sectors and potential threats from
outside the present set of competitors.
 The most immediate layer surrounding organisations.
 Within most industries or sectors there will be many different
organisations with different characteristics and competing
on different bases, some closer to a particular organisation,
some more remote.
 The concept of strategic groups can help identify close and
more remote competitors.
 Similarly, in the marketplace, customers‟ expectations are
not all the same.
 They have a range of different requirements the importance of which
can be understood through the concepts of market segments
and critical success factors
PESTEL ANALYSIS

Political analysis Political analysis includes the factors which can influence the business. It
is included the political factor which includes the policy offered by the
government to the specific sector. Here for this sector government
introduces the National Steel Policy. The main aim for the introduction of
this policy is to fill the gap between the demand and supply of the steel.
To maximize the production is also main activity is designed under this
policy. To increase the production up to million ton is also the main
objective of the policy.

Under this policy the special incentives are designed for the steel sector.
Incentives like the cut in the duty, zero duty on imports, provision of the
land and other infrastructural facilities are the facilities provided for the
steel sector. Under this policy the government is encourage to the use the
full opportunities available in the PUBLIC AND PRIVATE
PATNERSHIP (PPP). With the growing industry the government is
increased the sales tax from the 15%to 20% where as 75% FDI (foreign
direct investment) is allowed in the industry this scheme also provides the
various concessions in the custom duties. Though there is a rise in the
infrastructure facilities in the country but considering the steel industry
the present condition of the infrastructure is not sufficient in the nature.
because of the lack in infrastructure steel industry is facing many
problems

Economic Analysis STEEL industry is concern to be a very booming industry from past
decades. Opening up with the various economies the foreign direct
investment is the happened in this sector the various foreign players are
interested to invest in the country. Under the various economies schemes
there is permission in advance licensing scheme which allows the duty
free imports of raw material for exports. But, with the boom in the
industry GDP is rising at very slow rate. The steel industry is also facing
the problem of the subprime crisis occurs in the united states before 15
months. Because of the subprime crisis there is ill effect occurs in the
automobile industry, infrastructure and other business which are related
with the steel industry. There is huge gap between the demand and the
supply of the steel in the society.

Sociological The socio culture is one of the important aspect in the analysis of the
Analysis industry it describes the impact of the particular industry on the society.
Likewise the steel industry also give the encouragement to the permanent
employment to the people but on the other hand it divides the area in to
the rural and urban sector because the industry is only in the particular
area only which leads to the particular development of that area only and
not overall the development . because of the working conditions the
people which are employed in the steel industry faced many health
 problems which are incurable in the nature and many industries are not
paying the attention on the health of the employees. Any kind of the
allowances are not given to the employees. Steel industry is also
responsible for the development in the rural sector which leads to the rise
in the standard of the living of the people.

Technological The traditional technologies are being used from many years in the
Analysis industry. There is no innovation in the use of the technique in the
production process. The Tata steel is developing the same technique is by
which the encouragement is given to the trading of the steel. Tata and sail
introduces the online trading of the steel. Only the electric furnace is
being used now days in the production process but because of the
fluctuations in the energy there is wastage in the raw material. The basic
technologies are used in the production process are basic arc, induction
furnace and electric furnace which are outdated in the nature. Sail the one
of the leading steel industry India is planning to set up a plan with
PASCO for using the latest technology named „FINEX‟.

Environmental Though the steel industry is encouraging the many sectors and the
Analysis encouraging the development it is creating the unfavorable environment
in the nature. The all leading industries are following the environmental
acts which are declared by the governments, though it is creating very bad
impact on the environment. Many industries are using the pollution
control equipment and energy saving equipment but that is not sufficient
in the nature. The least importance is given to the environmental aspect.
But the Tata steel is encouraging the ecofriendly system, to reduce the
emission the co2 gas during the production process. Tata is developing
the Ultra-Low Carbon steel making where there will be reduction in the
environmental loss.

Legal Analysis Government is introducing the various rules and regulations of this
particular industry. The government is about to paying the more attention
in the health policies of the employees which are working with the steel
industry. Special health incentives and rules are introduced in the steel
industry.

From above discussion and surveys we come to know about how the pestel
analysis is done in the industry we also come to know about the political,
economic, and technical aspect are important for the development of the
particular industry if these factors are not in the supporting in the favor of the
industry then the industry may face some consequences.
PORTER’S FIVE FORCES

New entrents
1. Huge capital investment - low
2. Economies of scale - very low
3. Absolute cost advantage - Rivalry among established
very low competitors
4. Customer switching cost - low 1. By acquiring large number
5. Government Regulation - low of Steel Companies Mittal
Steel became behemoth and
Supplier Power:- gained the more control on
price. - medium
1. Mittal Steel adopted the
strategy of back ward vertical 2. Large number of steel
integration. Before acquiring industries are in government
any industries, they first hands. Management of these
ensured the iron ore and Threat of Substitute:- companies find it difficult to
coal supply from mines. - low 1)Steel has currently no compete with private players
substitute at its price level. - such as Mittal Steel. - very
2. Mittal Steel buys a low
large chunk of supply from its very low
suppliers and retains the 2)At some places steel can be 3)Since Mittal Steel was ready
bargaining power to itself. - substituted by natural fibers to acquire the
very low and other metals but that is at sick government units it gave
very small scale. - low an easy exit barrier to these
industries and weakened the
competition. - very low
4. Other big players were
present in the market. But
Mittal Steel concentrated on
Buyer Power:-It buyers areappliance, automotive, its low price strategy while
building and construction, fabrication, oil and gas, many of its competitors
packaging, rail ransport and maritime / ship building competed for higher quality
industries and better distribution
channel. - high
1. Building and construction, fabrication, oil and gas and
packaging industries are fragmented so they have less
bargaining power. - low
2. Although, some of the buyers are large players but
in comparison to behemoth steel industries they are
dwarfed in size. Comparatively they have less bargaining
power. - very low
3. Since steel making industries are less in number so
they enjoy more bargaining power than its buyers. - low
 new
entrents substitute competitors buyer supplier
1 2 1 3 2 2
2 1 2 1 1 1
3 1 1 2
4 2 4
5 2
1.6 1.5 2.25 1.666667 1.5

1
2.5
2
1.5
1
5 2
0.5
0 Series1

4 3
Perceptual Maping

 By this perceptual mapping we can see that Nippon steel is highest

volume and highest profit owned company in the industry. In Insustry
no company is there with lower volume.
 If they wants to survive in steel industry than they need to play with
high volume.
 Because there is no differentiation in the products so buyer can easily
switch to another supplier or towards competitor for satisfy their need
SWOT ANALYSIS