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Nucor Corporation: Competing Against Low-Cost Steel Imports


Primary Competitive Forces Impacting US Steel Producers

Global competition Domestic competition Pricing competition Economies of scale Access to raw material Product differentiation Alternatives-Plastics

5 Forces Analysis
Intensity of Rivalry among Competitors Global competition Domestic market there are more than 20 competitors ranging from large scale operations to the small and regional. Competition amongst these competitors causes a cyclical effect within the industry. The industry is not based on differentiated products, but rather price competition. Ultimately, the business with the lowest fixed costs will survive the longest and, probably, be the most profitable. Nucor s use of both base pay and incentive pay ensure output is relative to pay and, therefore, decreases its fixed costs. Different business models are also prime means of competition. Nucor boasts a decentralized structure with control at the local factory level. Arguable, this allows for focused decision making and more efficient use of profits.

5 Forces Analysis Cont d

Threat of new entrants Economies of scale and capital requirements are the greatest barriers in the steel industry. Larger quantity orders of raw materials are usually discounted. Product differentiation is also a major barrier to entry. Steel is not sold on its overall difference, but more commonly on price. Many manufacturers utilize the same technologies and process. Price wars are seen in minimization of fixed costs as stated earlier. Directly with this, there are few switching costs from one manufacturer to another. Little brand loyalty is recognized in an industry that does not appeal to consumer loyalty or brand image. Access to raw materials is additionally a barrier. Many times raw materials must be bought in large quantities (economies of scale). The cost disadvantages associated with small material purchases can be huge and directly increase overall manufacturing Costs Government policy is not a major threat to entry on the domestic level, but at the international level the barriers are enormous.

5 Forces Analysis Cont d

Bargaining Power of Suppliers Supply of raw materials: steel shreds, iron ore, or recycled steel, can make or break a cost strategy. Most of the steel used in domestic manufacturing in the United States is imported. On a large scale there are relatively few suppliers that can meet the constant demands of companies such as Nucor. It is common for joint ventures to be established between suppliers and manufacturers. The over all goal is to ensure decreased costs of supplies. In some cases the manufacturer even may acquire the supplier. The current trend is for consolidation of the steel industry; therefore, whatever the direction is, supplier purchase manufacturer or manufacturer purchase supplier, there is a major threat of take over.

5 Forces Analysis Cont d

Bargaining Power of Buyers Buyers pose arguably the greatest threat. Price competition stems from buyers having low switching costs and low product differentiation. Buyers have the power to negotiate down a deal to their terms due to these factors. Many buyers purchase in large quantities, thus creating economies of scale. Contract are set in place many month if not years in advance of delivery. The goal of the seller, Nucor for example, is to gain the most financial return for the least cost. The steel industry is commonly a buyers market.

5 Forces Analysis Cont d

Threat of product substitutes There are few substitutes for the use of steel. From auto manufacturing, to structural supports, to fasteners, there are relatively few products availably with the strength, durability, and cost efficiencies of steel. The largest alternative to steel would be use of another material. Plastics are gaining ground, but have not found the same durability as steel. The goal is to maintain low costs and market share during times of economic fluctuation.

Driving forces at work impact on industry s structure

Driving forces at work impact on industry s structure cont d

How attractive are the prospects for future profitability of U.S. steelmakers? Should Nucor consider expanding in this type of industry environment? Why or why not?

Prospects of future profitability in US for steelmakers seems not promising due to following reasons. Globalization. Entrance of foreign competitors. (e.g China, South Korea, Italy and etc) Cost of raw material and energy costs. Economy itself. Government regulations and laws.

Should Nucor consider expanding in this type of industry environment? Why or why not?

To consider whether Nucor should consider expanding in steelmaking industry; we will consider SWOT analysis of Nucor. Strengths: Technology is one of Nucors key strengths because of the amount of resources they can save due to it. Nucor is an industry leader when it comes to innovation. Nucor benefits from having some of its customers locating in proximity to their plants. The Arkansas Nucor plant sends approximately 60% of its sales to near by businesses.

Should Nucor consider expanding in this type of industry environment? Why or why not?

Weaknesses: Nucor faces some very significant weaknesses with its location. Nucor has 14 plants all of which are located with in the US. They cannot effectively serve international markets as good as competitors who have plants worldwide. Nucor is currently in a Market where growth is declining significantly. Nucor has to also be concerned with the failing domestic auto industry.

Should Nucor consider expanding in this type of industry environment? Why or why not?

Opportunities: Nucor has a significant opportunity to continue innovating with the Hismelt Technology or liquid iron project. Nucor could provide discount pricings. Nucor could offer lower logistics fees. (shipping) Nucor could utilize acquisitions of small steelmaking companies to gain international grounds.

Should Nucor consider expanding in this type of industry environment? Why or why not?

Threats: Nucor faces significant threats through the global market and at home. In the global market the Chinese continue to produce and ship steel. At home they are competing with ThyssenKrupp. Nucor is competing with international forces and has yet to leave US.

Recommendations and Conclusion

Continue with decentralised organisation structure Continue with its innovative style to keep an edge over its competitors Positive measures to enter new markets Focus more on competitors Evaluate opportunities to ensure that quality improvement would still help to keep low cost in the long run Keep up with their social responsibility by setting up environment-friendly recycling plant that will be located at a relatively central location from all its plants Form an alliance with the south Asian markets to gain exposure to international markets

Thank You