Nucor In 2001
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Problem:
How to stay competitive and pursue growth in a troubled steel industry?
Competition:
Nucor Corporation is the second-largest steel producer in the United States and has had net sales of $4.58 billion in 2000. Nucor recycles approximately 10 million tons of scrap steel. Nucor is pursuing long-term growth and wants to improve its position from the second-largest U.S. steelmaker by overtaking U.S. steel, who is the industry leader.
Competition analysis in the Steel Industry
The pressures form substitutes, suppliers and new entrants are low, as shown in figure 1 below. Since buyers are less in number and buy in huge quantities, the competitive pressure is high. The intensity of the rivalry is very high especially after the consolidation of international steel makers. The number of players is less and there is huge excess capacity. The product is standard and not much can be done to create differentiation, so the basis of competition is cost. There is a huge pressure to keep up with the emerging technology.
SWOT Analysis
Strengths
Nucor is the second-largest producer of steel in the U.S. It enjoys the brand name advantages, and has well established relations with the suppliers and the buyers.
Nucor is very good at identifying cost cutting opportunity. It has always kept the cost low, maintaining a very high quality. It integrated backwards and started producing steel to reduce the material cost for joists. Nucor plants have always been situated near the markets they serve.
Nucor had always been aggressive pursuit of Innovation and technical excellence in technology. It has monitored the R&D activities around the world and has reviewed it for possible adoption. In the U.S., it has been the first to adopt the electric arc furnace and continuous strip casting technologies.
Nucor is known for constructing state-of-the-art facilities at the lowest costs. When Nucor introduced the minimills the average cost of capital was $135 per ton of capacity, almost one-tenth of the cost of the competitors. It has the most modern mills in the U.S. equipped with the latest technology.
Nucor has a stripped down, no non-sense thrifty organization under a very strong corporate leadership. It has a very lean corporate staff and simple corporate facilities. There are no corporate perquisites. The organization is decentralized and each division is autonomous.
It has a very strong employee relationship. It has empowered the employees to make the decisions and allows them to fail, which brings out their innovative ideas. Its compensation and incentives programs has boosted the productivity to levels nearly double the industry average. There is no union and the annual compensation package is higher than their union counterparts.
Weaknesses
Nucors divisions operated as decentralized profit centers with all the functions, including marketing and sales being performed at the division level. As a result, the divisions were often competing with each other. Furthermore, there were some duplicate efforts occurring at all the divisions.
For a long period of time there was no strategic vision or plan for Nucor, each division worked as an independent and unrelated entity. Nucor has very recently started having strategic planning sessions. It is a very big challenge for the new general manager of strategic planning to communicate the vision and maintain the focus on the strategy and protect Nucors overall market share.
Nucor is facing environmental issues. Its mill in Crawfordsville had been cited by Environmental Protection Agency for alleged violations of Federal and State clean air rules.
Nucor spends a huge amount of money on R&D and sometimes the efforts were futile. The company spent $2 million in an unsuccessful effort to utilize resistance heating and even more on induction melting.
Opportunities
The steel industry is undergoing consolidation and there are companies filing for bankruptcy. Nucor has the opportunity to grow its size by identifying and acquiring some of these companies which fit in strategically.
There are researches going around the world, to come up with a better technology in all production areas. Nucor could quickly recognize and utilize them to maintain its role as a technology leader in the U.S. Strip casting is one such technology.
Bush administration was under a mounting pressure to impose 40 percent import tariffs and quotas to provide relief to the domestic steel producers. Nucor could increase the pressure by using its influence.
There is an opportunity for Nucor to expand its business by joining with other steel producers outside the United States and have the advantages of low energy and labor cost.
Threats
Weakening demand for steel in the U.S. and worldwide, following the recession is a big threat. There is huge excess capacity in the steel industry worldwide. Even if all the steel producers in the U.S. stopped producing, some excess capacity would remain.
The weakened Asian economy has caused the international steel producers to dump the steel in the United States. This, followed by the terrorist attacks on September 11, has reduced the domestic demand for steel.
Strengthening International competition is a threat. The consolidation in the industry is resulting into very big steel producers who can outmuscle Nucor.
Increasing energy price in the United States is increasing the cost of production.
Increasing prices of scrap steel is going to increase the cost of production, wherever it is used as the raw material.
Increase in environmental regulations would lead to additional cost for compliance. It could lead to costly modifications or closing of old plants.
Alternatives:
Recommendations:
Its current strategy is to be the lowest cost provider of steel by finding opportunities