EBB6133 - CASE STUDY 2

LEVVENIA A/P RATANAM (19030076)

1. Using the information contained in the case, conduct a five-forces analysis of the US
Steel Industry. What conclusion can you draw from this?

Porter five forces analysis is a structure to analyze level of rivalry within an industry and
strategy development. It draws upon industrial organization (IO) economics to develop five
forces that define the competitive intensity and hence overall industry profitability. The five
force analysis of US steel industry is done and the conclusion drawn is explained as below:

One factor for each of the Porter’s five forces of an environment analysis that apply to the US
steel industry case discussed as follows:

The threat of entry: It depicts that it can be either easy or difficult for the new entrance to
start their work and to start competing. One of the factors is the cost advantage. Threats of
new entrants are quite high as the service includes low level of specialization and high cost of
processed goods. (Must say high or low)

The buyer’s power: The power of buyers to bargain. One of the factors is price sensitivity.
The bargain power of customer is not very high in steel industry since there is a low
availability of substitute products in comparison with steel. (Must say high or low)

The supplier’s power: The power of supplier to bargain. One of the factor is the high
quality. (Must say high or low)

The threat of substitutes: The service or the product which is offered how easily this can be
substituted. One of the factors is substitute performance. There are various substitutes
available in market which are of low cost and does not require a high cost in comparison to
steel such as aluminium product and product of alloys. (Must say high or low)

The competitive rivalry: The competition between the new and the existing. There are so
many giants entering the market and giving a threat. (Must say high or low)

2. Do you think there are any strategic groups in the US Steel industry? What might
they be? How might the nature of competition vary from group to group?

The existed market conditions leads to form some groups in US steel industry. and the nature
of competition is acceptable and because of the competition only the quality and efficiency
EBB6133 - CASE STUDY 2
LEVVENIA A/P RATANAM (19030076)

came out. healthy competition is acceptable up to some extent, there will be many benefits
because of this. Individually US is the largest utilize of steel and producing many goods and
heavy machinery than any other nation. it means US is the largest consumer for steel, and the
production levels also according to the demand conditions only. US is producing around 37%
of the worlds steel. There are 12 steel producers in US and every one is having their strategies
to promote their brand in market. here the competition is healthy and it is not created any
group-ism in steel market. every player is doing business based on his abilities and operating
in a healthy competitive environment.

3. Demand for steel is very cyclical. Why do you think this is the case? What might the
steel makers do to better cope with the cyclical nature of demand?

Steel industry in Us faces a cyclical demand because the products in which it is being used
have fewer probabilities of getting damaged. The products are mainly used in the making of
kitchen appliances, houses and railway tracks which have lesser chances of destruction and
repurchase. Also, this is a product which does not require constant replacements which makes
the demand for the product to be even lower.

The steel makers need to take several measures to cope better with the cyclical nature of
demand. The companies should focus more on the effective production strategies which
would involve in decreasing the operational costs. Strategies such as hiring cyclical
employees, part time employees, considering layoff when demand is low or even paying
bonuses at the time of peak production could be implemented. Steel makers should also try to
turn waste and byproducts into usable products for other industries. By entering into strategic
alliances, the expansion of the markets to other nations would be a little easier and would also
be another method used to reduce the impact of cyclical demand.

4. Given the nature of competition in the US steel industry, what must a steel maker
focus on in order to be profitable?

From the case study, it is clear that initially the companies working in US steel industry faced
deep economic crisis. The prime reason behind it included intense competition from
international firms and mini-mills. Later in 2000s, the companies experienced significantly
steep growth due to high steel requirements from developing countries. However, during late
2008 and 2009 the demand again demolished due to recession.

In the above scenario, the steel industry cannot rely on price competition to acquire customers
EBB6133 - CASE STUDY 2
LEVVENIA A/P RATANAM (19030076)

and market share. Instead of getting involved in price wars, the steel makers should focus on
improving their quality and customer service. At present, customers are more concerned
regarding the quality of products rather than its price. Therefore, companies should try to
increase the customer satisfaction and loyalty in order to get a competitive advantage over its
rivals.
EBB6133 - CASE STUDY 2
LEVVENIA A/P RATANAM (19030076)

Lecturer’s answers
EBB6133 - CASE STUDY 2
LEVVENIA A/P RATANAM (19030076)