1BUSINESS STRATEGY AND POLICY Memorandum To:John Ferriola From:Nick Aurther Subj:Nucor Case Analysis Date:05/16/2018 There are number of issues and shortcomings being identified in the competitive strategy of Nucor. These negative factors should be effectively determined and overcome in order to have positive and favorable future potentialities. Thus, in order to have effective measures for overcoming the shortcomings, it is also important to have effective strategies. Five forces analysis Threat of new entrantsThreat of new entrants is low due to the reason that hugeinvestmentisrequiredinoperatinginthis sector. Moreover, it is also difficult for the new entrants in the market to match the economies of scale of the existing firms. Threat of substitutesThreat of substitute is high for Nucor due to the reasontherearenumberofsteelmillscurrently operating in the American market. The core offerings of all the steel mills are same and
2BUSINESS STRATEGY AND POLICY similar. Bargainingpowerofthe suppliers Barragingpowerof suppliersishighduetothe reason that steel industries are heavily dependent on the supply of iron ore and scrap steels. Thus, the pricing of the suppliers determinesthe profitability of the steel mills. Bargainingpowerofthe buyers Bargaining power of the buyers is also high due to the reason that buyers are having number of options in the industry. Majority of the buyers uses steels as raw materials and thus they are having basic requirements that are being offered by every player in the market. Competitive rivalryPresence of number of similar firms in the industry increases the intensity of competitive rivalry. There are number of instances where steel mills are opting for mergers and acquisitions in order to gain competitiveness in the market. Key success factors for the industry The major key success factor for the America steel industry is the return of the major steel based companies in the America soil. In the recent time, there are number of strict legislations and regulations being initiated by the government of the United States in order to reduce the rate of off shoring and outsourcing. This can help the American steel industry in gaining momentum from the increase in demand (Collard-Wexler & De Loecker, 2015).
3BUSINESS STRATEGY AND POLICY Another key success factor for the American steel industry is having the presence of both iron ore and scrap steel based mills. This is helping the entire industry in having lower dependency on only one type of resources. Overdependence on the iron ore only will restrict the growth of the industry (Melouk et al., 2013). Pros of Nucor competitive strategy One of the major advantages of Nucor’s competitive strategy is their strategic partnership with Encana Oil and Gas Inc. This helps them to regulate and control the volatility in the price of the natural gas. This also enables Nucor to ensure the seamless flow of the supply of natural gas along with having the control over their price. Another major advantage of Nucor’s competitive strategy is the best in the industry productivity level in the steel industry. Nucor is having non- unionized labors across all their facilities. It also helps them to gain competitive advantages in the industry. Cons of Nucor competitive strategy The major issues identified for Nucor Corporation in terms of their competitive strategy is that they are having only electric arc type steelmaking process over the more conventional blast furnace type of steelmaking. Though this process can also be act as competitive advantages for them, but it is also limiting their productivity. This is due to the reason that productivity of the electric arc type of steelmaking is less compared to the conventional blast furnace type of steelmaking. Thus this is causing them to trail in the competition. Moreover, another challenge being identified is their sole dependence on the scrap steel that is having less constant flow compared to the iron ore.
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4BUSINESS STRATEGY AND POLICY SWOT analysis StrengthsPositive image in the market and industry. Investment in the DRI facilities can help them to get more immune against future uncertainties. WeaknessNot having iron ore based facilities. Nucor is having fewer resources as compared to the global steel giants. OpportunitiesSteel market of the United States is regaining momentum. Severaldevelopingcountriesarecomingup withhugemarket opportunities for the steel mills. ThreatsMore import of cheaper steels from the foreign market will pose threat for Nucor. Emergence of global economic recession will also pose threat due to reduction of the demand. Effectiveness of the value chain for Nucor In comparison to the integrated steel mills, the value chain for Nucor is different. They consist of both inbound and outbound logistics. However, the major difference between their supply chains is sourcing of the materials. While the integrated steel mills are having internal inbound facilities, Nucor source their scarp materials from the outside supplies (Hudson & Sadler, 2017). Another competing factor of them is sourcing of the natural gas with having strategic partnership, while majority of the integrated mills source from external mediums.
5BUSINESS STRATEGY AND POLICY Identificationof strategic issues Enhancing the foreign market operations beyond the domestic market. Ensuring the seamless flow of the scarp materials in order to compete with the iron ore based mills. Regulate the cost of production due to the fact that cost of production in the United States is more compared to other countries. Overcoming the fluctuation and volatility of the fuel price and sourcing trend of the materials. Recommended steps It is recommended that Nucor should have the access to some strategic resources such as iron ore. This will help them to gain more control over their backward integration. It is also recommended to initiate the concept of lean manufacturing process. This will enable them to reduce the cost of manufacturing and compete with the cheaper imported steels. It is also recommended that Nucor can enter the foreign markets in order to reduce the dependence on the American market.
6BUSINESS STRATEGY AND POLICY Reference Collard-Wexler, A., & De Loecker, J. (2015). Reallocation and technology: Evidence from the US steel industry.American Economic Review,105(1), 131-71. Melouk, S. H., Freeman, N. K., Miller, D., & Dunning, M. (2013). Simulation optimization- based decision support tool for steel manufacturing.International Journal of Production Economics,141(1), 269-276. Sadler, D. (2017).The international steel industry: restructuring, state policies and localities. Routledge.