Nucor Corporation
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For the purposes of this case analysis of Nucor Corporation, the steel industry is composed of all steel making companies in the United States (US). Although the case study did not give much information on global steel competition, this group would also include foreign-owned steel companies operating in the US. It is apparent from the case study that larger steel corporations and global consolidation are the issues of concern. Therefore, this industry includes the giant, fully- integrated steel mills of U.S. Steel and Bethlehem Steel and the smaller mini-mills that produce an increasingly significant niche product. Information on the global steel industry will be included in the recommendations portion of this case study.
The analysis supports the conclusion that the US steel industry reached maturity in the 1990s but new technology allowed the industry to begin an era of new growth. The global steel industry was much younger. As lesser developed nations began to enter the global market, they were better equipped with newer manufacturing facilities. US steel companies were still using technology that was designed in the early 1900s. The technological disadvantage almost forced US steel makers out of business. Steel producers in other countries were using new technology that allowed unit prices to be significantly reduced. There is also evidence of foreign governments subsidizing their steel companies. This allowed foreign companies to sell steel in the US at below production costs.
The industrialized world will always have a need for steel (Pun, 2004). Steel is used in bridges, skyscrapers, automobiles, eyeglasses, spacecraft and medical instruments, just to name a few products. In the foreseeable future it is very unlikely that steel will be replaced by another material. However, the steel industry depends on operations at near max capacity to be cost efficient. The technological advances in steel production throughout the world have caused capacity to far outreach demand. This excess supply has forced steel producers to cut back production and has consequently increased costs. The increased costs are not compatible with current supply and demand prices, and have forced most steel companies to take losses in the last decade and even file for bankruptcy. Although production is not declining, as might be expected; it is only a matter of time. Production must decrease in order to match the demand.
The growth curve will reflect small increases in the past twenty to thirty years as new technological advances have seen higher capacity at lower costs (Barney, 1991). The demand for steel products is also closely tied to both the domestic and international economy. As stated by (Taylor-Bianco, 2006) When financial times are good in the US there has been a parallel increase in the need for new construction and other consumer products. This demand has translated into increased use of steel products. There is room for further investigation in product life-cycle areas that would be applicable to niche products. Although the industry appears to be at its apex, there are certain products that, if given a deeper look, would show a profitable potential.
Large mergers and acquisitions in the global steel industry show a high competition for market share (Homburg, 2006). With global consolidations taking place the economies of scale created by these mega-companies combined with new technology will see a significant shakeout in the market leaving only a few low-cost producers.
The next issue to investigate is the importance of technology in this industry. Technology is a major factor. Technology changes dynamically. Some changes are revolutionary (or radical), while others are evolutionary (or incremental). A revolutionary technological change/innovation causes significant disruption between successive technology life cycles (Kim, 2006).
It is a myth that steel making is a blue collar industry that has not changed since the industrial revolution. On the contrary, that mindset is the reason many US steelmakers face bankruptcy today. As supply has increased and demand has stabilized, or even decreased, it is imperative that steelmakers reduce the unit cost for their products. Technology in the form of the mini-mill, metallurgical processes and continued innovation is forcing companies out of business if they do not follow suit.
The process technology is a major change in the steel industry. Mini-mills are driving costs down in every arena of production (Larkin, 2000). It takes less labor costs to produce the same product using a mini-mill when compared to the fully-integrated steel company. This reduced labor costs can also be interpreted as fewer employees, which in itself, reduces a myriad of long-term and short-term cost. There are a host of inefficiencies that are being eliminated to reduce energy and equipment costs. Metallurgical processes are changing to simplify production and further reduce costs (Bentley, 2002). The availability of raw materials is also an issue. Fully-integrated mills use iron ore and coke to make their steel, where the mini-mills depend on scrap. As the production requirements change, the types and availability of raw materials may also change.
The process technology is also driven by the amount of environmental pollution it produces. Companies must be willing to develop and finance cleaner manufacturing facilities or face significant potentially lethal government regulation in the future.
Product technology is another issue that is changing at significant rate. The use of composite materials and the demand for a strong, low-cost, light-weight building material will force steel companies to continue research and development efforts which are a significant cost factor, especially when budgets are already tight. There is also evidence of new design for older products that enhance the characteristics mentioned above. Such things as corrosion resistance that extend product life will also be a consumer attractive product trait. The new application of steel products in areas that may be currently dependent on concrete or wood could also be a factor. Steel products must continue to evolve into products that are desirable and practical for other uses beyond the typical ones we know today.
Economies of scale are becoming a very important factor in this industry. In market where competitors make a similar product with very little differences in quality and design, it is the low-cost producer that will survive. As noted earlier, the steel industry is a very mature industry and appears to be entering the decline stage. The fundamental question in the field of strategic management is how firms achieve and sustain competitive advantage (Teece, 1997). The key to preserving profit margins and gaining market share seems to lie in