Severstal: Growth and Consolidation Strategies in Global Steel Industry

This report analyzes the growth and consolidation strategies of Severstal in the global steel industry. It includes an industrial analysis, identification of internationalization drivers, and recommendations for enhancing global competitiveness.

Running Head: MANAGEMENT 0
Serverstal
Report
Case Study- Severstal: Growth and consolidation strategies in a turbulent global steel industry
Student Details

MANAGEMENT 1
Executive Summary
In this report, there is the industrial analysis, which helps in evaluating the global steel
industry’s macro environment. This analysis helps in the identification of the forces faced by
the Serverstal Company. For industrial analysis, “PESTLE Analysis” is used in this report. In
addition, with the help of “Uppsala Model”, identification of world steel industry’s
internationalisation driver is also mentioned in this report, which leads to the extension of
global business. At the end of the report the recommendations is given which helps in
enhancing the global competitiveness.

MANAGEMENT 2
Introduction
Overview of the Global Steel Industry
Since 1970, there was the drastic change in the global steel industry. In this industry, China is
the major producer and consumer as compare to the other countries and the Europe has a
consolidate market of this industry. After 20th century, it had been observed that at the
beginning of the century the global steel production was approx. 28 million tonnes, which
had been increased and became 781 million tonnes at the end of the century (Stroud &
Fairbrother, 2008).
Recently, World Steel Association released its SRO (Short Range Outlook) which estimated
that the demand of global steel production would reach up to 1,657.9 Million Tonnes in 2018,
an increment of 3.9 percentage of production over 2017 (Price, 2010). In addition, they also
estimate that in the succeeding years the demand for the production of global steel will
increased by 1.4% and would reach up to 1,681.2 Million Tonnes.
Severstal Russian Steel
Severstal Russian Steel is the Russian company, was found in 1993, which majorly operates
the steel and mining industry. This company’s headquarter is in Cherepovets city in Russia.
The company is the producer of the steel in Russia and listed on the London Stock Exchange
and the Moscow Exchange (Serverstal , 2019). This company has a broad market, which
includes product mix, covering the larger area of distribution network and it has self-
sufficient raw material. The company focus is on the high value added products such as flat
steel. In addition, the focus of the company is also in sales and construction of longer
durability product.

MANAGEMENT 3
The assets of the company involve the production of various products related to pipes with
larger diameter and machinery metal ware. In addition, they provide the facility of service
centres and stamping for automotive parts, which are exposed (Fortescue, 2009). This
company is the vertically integrated company, which deals in the sector of steel and mining.
The aim of this company is to be the leader in the value creation in the international market,
through focus on people, excellence and unity.
In this report, there is the detail explanation on the industrial analysis of macro environment
in global steel industry. In addition, this report also identifies the drivers of
internationalisation in the world steel industry.
Task a: Macro Level Analysis of Global Steel Industry
In the following paragraphs, there is the industrial analysis of the global steel industry’s
strategic macro environment and the identification of the primary forced faced by the
Severstal. This industrial analysis is done with the help of PESTEL Analysis.
PESTEL Analysis
a. Political Analysis
This analysis is related to the local and national government intervention in the economic and
business environment (Suliman & Heloise , 2018). The government system and policies plays
an important role in the business as the new interventions and changes done by the
government affects the business environment. These affects can be positive or negative for
the company. Political stability, regulatory practices, global pressure, change in the
government policies, armed conflicts and other stakeholders such as NGOs are some of the
aspects of political factors, which affect the company.

MANAGEMENT 4
Here, for global steel industry the government enacted a new policy named as “National Steel
Policy”. This policy is introduced because its aim is to make a balance between demand and
supply and to fill the gap between them. In addition this policy helps in maximising the
production of the steel at global level. The objective of establishment of this policy is to get
increment up to million ton in the production. This policy greatly gives impact on the steel
industry as the special incentives taken in the favour of policy and designed special program
for the improvement in the steel sector (Erkkilä, 2014). The incentives such as zero duty
imports, land provisions and facilities of infrastructure for this industry help in following the
policy in the international market. All these steps were taken after the 2008 recession period
in the global market for the steel industry. This policy generated many opportunities in the
public and private partnership. In addition, this policy helps the countries in getting subsidies
in custom duties generated on foreign direct invest. In the recent period there is a rise in the
infrastructural facilities but in steel industry there is lack of these facilities, this is the reason
steel sector is facing many problems
Political force: The political forces are one of the forces that are faced primarily by
Severstal steel. The officials, who are elected, give shapes to the marketing environment.
This change in marketing environment influences the business organisational decisions
(Serverstal, 2019). For example, at the time of Great Recession in 2008, the financial market
of Russia had a major fall down. This creates a political fear in the Serverstal steel, as after
this recession, there was the huge capital loss in the market. This capital loss had a great
impact on government spending’s.
b. Economic Analysis
This analysis involves the economic factors influence the business environment such as
interest rate, market capitalisation, tax rates, economic business performance, and exchange

MANAGEMENT 5
rates. It is the study of the economic system, having the objective of the analysis is to
evaluate the economic condition of the market (Taracena , 2009). This analysis helps in
determining the monetary measures and the benefits of the projects in the economy.
In the past decades, the global steel industry is at its booming period. For the extension of this
industry globally, opening up of different countries’ economies is must. Hence, the FDI
happened through which various foreign players have the open ground to invest in the other
country. For enhancing the global era of steel industry, there are enactments of various
economics schemes, which leads to the increment in the exports as these schemes allows the
duty free raw material imports. At the time of recession in 2008, there was the fall down in
the prices, production and demand of steel in the international market. This leads to the
decrement in the demand of raw materials.
Economic Force: This includes the factors help in determining the sustainability of the
business in which the firm operates. Inflations rate, fiscal policies, government change, and
level of unemployment are the factors that help in evaluating the volume of demand for the
firm’s product (Severstal , 2013). This leads to the change in the marketing strategies and
planning. At the time of global recession the market capitalisation of Serverstal had been
fallen down, this due to the poor economic condition of the global steel market.
c. Social Analysis
This analysis involves the social factors such as cultural, demographical, societal, gender
issues, health and safety, traditional values and leisure interests, which influences the
business environment (Search Business Anaytics , 2019). These factors not only help the
building up the reputation of the firms but also help the firm in understanding the preference
of the society.

MANAGEMENT 6
The social aspect one of the significant analysis of the industry as it defines the impact of
industry on society. In global steel industry social analysis, it has been determine that it is
necessary for the company to boost the level of employment in the society. However, at the
same time this industry is divided into two sector names as urban and rural sector, which
means the development will be held only at the place in which the sector is located, there I no
overall development of the society. In addition, this industry worker faces many health issues
at the time of production as the company is not paying attention towards the employees’
health and any kind of remedy is also not given to the workers. Hence, this industry is
responsible for the development of the sectors, which help in increasing the living standard of
the people.
Social Force: The social force includes the general agreement with the society to puts the
societal actions in the favour of the firm. Due to the influence of social forces Serverstal is
working on the 2018-2025 health and safety objectives such as before 2025 company will
reduce 50% of the LTIFR in the comparison of the preceding years and ensure the business
with the ISO Certification (Serverstal, 2018).
d. Technological Analysis
This analysis incudes various technological factors such as technologies charges, techno
savvy crowd, technological innovations, technological supply chain distribution and technical
empowerment (Nielsen, 2018). These factors help the firm to have a growth in business with
faster rates and in this global era, customer preference is technology advancement.
In global steel industry previously, there was more usage of traditional technologies and there
were no innovations in the production activities at that time. However, in this techno savvy
era now the steel industry also starts using the updated technology as per the requirement of
the customers. These days the steel companies introduced the online trading facilities, which

MANAGEMENT 7
help in increasing the sales of companies globally. Tata steel, Sail, Serverstal and many more
steel firms have started dealing with the customer with the help of technologies. However,
every concept has both negative and positive sides. If at the time of production with
innovative technology, fluctuation occurs it will leads to the wastage of raw material and this
will cause huge loss for the company.
Technological Force: These force influences the technological development for the society
and business (Klar & Frishammar, 2016). This force includes positive and negative factors.
The positive factors includes in this forces are improvement in communication, better
information system and increment in the leisure time. However, the negative factor includes
the generation of unemployment and information abuse. After the 2008 recession, to boost up
the production, Serverstal Company adapts the latest technologies that time and later on these
technologies helps the company for further extension.
e. Environmental Analysis
This analysis involves the environmental factors such as hazardous material should be safely
disposed , policies of insurance, carbon footprints should have limitations, water treatment
should be done safely, increasing focus on sustainability, laws and regulations for pollution
and climate change (Alriksson & Grip, 2013). These factors help in the sustainability of the
company in the international market.
The global steel industry had a greater impact on the nature of environment as this industry
might create huge environmental issues at the time of production. All the leading industries
of the steel sector have a bad influence on the environment. In addition, to reduce the
environmental issues the industries starts’ using the equipment’s, this equipment’s include the
feature of pollution control in it. Therefore, it becomes the responsibility of the firm to
encourage the eco-friendly systems.

MANAGEMENT 8
Environmental force: These force influences the environmental factors, which affects the
business environment. These environmental forces include the political, social, technological,
demographical and cultural environment (Serverstal, 2019). In the case of Severstal, the
company enacted the objective named as 2018-2025 environmental improvement objectives
such as reduce is the percentage of wastage by 20% before 2025 and reduction in the water
discharge pollutants by 12% before 2025.
f. Legal Analysis
This analysis includes all the legal factors such as justice, laws for data protection, laws of
discrimination, rights to protection for intellectual property and copyrights. These factors
help in the development of the industry in the international market legally (Pue, 2008).
In global steel industry, government enacted various rules and regulations. These enactments
by the government helps the industry in following the policies related to heath as if the
company follows the heath policies, the employees of company have a great benefit, which
seeks to the increment in the productivity. In addition, the steel industry also introduced
some special health incentives, as it is legally helps the firm to acquire a good reputation in
the international market.
Legal Force: This force influences the legal factors of the business environment. Legal
forces involve the limitation and power in legislation of laws and applied restrictions on the
company. Serverstal is the public joint stock company, legally taken resolutions, which helps
the company to have its individual identity in the international market legally (Servestal,
2018).

MANAGEMENT 9
Task b: Internationalisation Model & Extension of Globalisation
Internationalisation is defined as the process of increment firm’s involvement in the global
market (Yemini & Sagie, 2016). The entrepreneur who wants to be the internationalised firm
need to think globally and should understands the international culture in global market. In
addition to increase the internationalisation, many firms applied the internationalisation
models.
Internationalisation model describes how to have a responsive behaviour. This model is
originated form the theory named as self-determination theory, which states that every task is
based on specific type of motivation (Pandit, 2009). There are various types of
Internationalisation model and here to identify the internationalisation drivers, The Uppsala
model is used. In addition, also help in understanding the extension of globalisation.
The Uppsala Model
This model is defined as the process of internationalisation of the firms. It includes the
international involvement, which gradually increases the trades in the international market.
The Uppsala Model evolves the development of the knowledge for the global market and
operations, and increases the commitment of resources to the global market (Ljunghall,
2009). This model is applied to the firm to make them learn the investment behaviour in the
global market. In addition, the firms use it describes the firm internationalisation.
In the following paragraphs, there is the explanation of the internationalisation model to
identify the internationalisation drivers in the world steel industry and the discussion of
globalisation extension with the help of internationalisation model named as “Upsala Model”
which is also known as “Progressive Internationalisation Model”

MANAGEMENT 10
Identification of internationalisation drives in World Steel Industry
In internationalisation of the steel industry, the operations of the international business in
between the countries have been researched critically. In the perspective of Progressive
Internationalisation Model, the internationalisation of the world steel helps in establishing the
experimental learning and commitment process, which helps in gaining market experience
and knowledge overt the time (Laukkanen & Ritala, 2012).
In The Uppsala Model, the internationalisation of world steel has several successive stages,
as it is the progressive process. This model helps in removing the obstacle of lack of
knowledge about the internationalisation in this sector and helps in finding the
internationalisation drives of this sector as these drivers help in expanding the business across
the border and supports globalisation. In addition, this model states four stages to determine
the internationalisation drivers of the world steel industry, which are as follows:
a. Sporadic export
In this, the exports done by the company is not on the regular bases and has limits on its
operations. Earlier there was the restriction on the company to trade globally and they use to
focus on the domestic market, domestic suppliers, domestic customers and domestic
opportunity (Samiee & Walters, 2010). However, after the establishment of this stage, the
company starts exporting there goods and services across the borders, as in this global era if
the company needs to grow its business, so it is important to remove gradually the restrictions
of dealing in global market.
Therefore, Sporadic exporters are the internationalisation drivers in steel industry as they
exports there goods and services to the global market. They do not fully support the concept

MANAGEMENT 11
of internationalisation as the exports but there focus is on domestic marketing not on
international marketing.
In the case of Serverstal Company, initially there was the lack of the markets knowledge
among the managers at the time of “The Great Recession in Russia”. In addition, under the
leadership of the Alexey Mardashov, this stage initially helps him to expand and recover his
loses after the period of recession.
Hence, Sporadic Exporter is one of the internationalisation drivers of the world steel
industry helps the company initially to expand the business globally by doing exports.
b. Export via independent representatives
Independent Representatives are those individuals, who sales the products and services of the
company in the market and they are not directly associates with the company. They are part
time company employees (MBA Skool, 2019). To achieve growth in the organisation the
company hires the independent representatives that globally sales their product in the
international market. The companies who wants to have growth beyond the domestic market
and become the international company, they appoints the in independent representatives and
expand their companies business globally.
In the case of Serverstal Company, the Alexey Mardashov appoints some the people who
indirectly sales their product in the international market after the period of recession (Forbes ,
2019). In this aspect the representatives helps the company to expand in the international
market after the period of recession.
Therefore, independent representatives are the internationalisation drivers in steel industry as
they exports there goods and services to the global market on the behalf of the companies.

MANAGEMENT 12
They are not the full time employees of the company and they promote the concept of
internationalisation as they exports on the behalf of the company.
Hence, independent representatives are one of the internationalisation drivers of the world
steel industry helps the company initially to expand the business globally by doing exports.
c. Foreign sales subsidiaries
The foreign sales subsidiaries are that types of companies, which are fully incorporated, with
the laws of the respective countries. The company involved with the foreign companies under
this local laws. This helps in enhancing the internationalisation. For this, the company has to
avail the licence from the foreign countries to trade with them. After the stage of independent
representatives, the company needs to extend its business in the foreign market so they are
incorporated with the foreign sales subsidiaries. This extension strategy converts the
international companies into the multinationals. They extend the sale of the product in the
foreign market (Ferdows, 2019).
In the case of Serverstal Company, the Alexey Mardashov wants the company to have a
growth and consolidation, so he adopts the international strategy in which they start
incorporating with the foreign sales subsidiaries.
Therefore, foreign sales subsidiaries are the internationalisation drivers in steel industry, as
they are incorporated with the foreign sales subsidiaries (Sheild Geo, 2019). In this stage, the
company sales the goods and services to the foreign markets by incorporated with them under
the laws aand regulations of that market.
Hence, foreign sales subsidiaries are one of the internationalisation drivers of the world steel
industry helps the company to expand the business in the foreign market.

MANAGEMENT 13
d. Production and Manufacturing unit in foreign market
In this stage, the multinational companies converted into the global companies. The global
companies are the companies which either follows the global marketing strategies or global
strategies to expand their business in the global market (Jucker, 2009). This market sputa the
extension of globalisation as globalisation is the extended version of internationalisation.
These companies can produce and manufacture their products in both home and other
counties location, as they have no restriction on them for the manufacturing and producing
the products in the foreign countries.
Therefore, the global companies are the internationalisation drivers in steel industry as they
manufacture and produce there goods and services in the foreign market (Edvardsson et al.,
2009). They fully support the concept of internationalisation as the there focus is on the
expansion of globalisation in the international market.
In the case of Serverstal Company, Alexey Mardashov had taken major steps to become the
global company as he wants to supports the consolidation and growth of the company. The
international strategy helps the companies to establish their branch in the foreign countries
for the production of their local markets.
Hence, production and manufacturing units in the foreign market are one of the
internationalisation drivers of the world steel industry helps the company extend the
globalisation.
The above-mentioned stages drive the internationalisation drivers for the world steel and the
extension of globalisation.

MANAGEMENT 14
Conclusion & Recommendation
Conclusion
This report is divided into two tasks. In Task a, there is the detail explanation of the global
steel industry and the Serverstal steel company. In addition, there was the detailed industrial
analysis of global steel industry with the help of “PESTEL Analysis” which helps in
understanding the macro level environment and helps in the identification of the primary
forced faced by the Severstal.
In the task b of the report, there is the detailed explanation of the internationalisation and the
extension of globalisation. In addition, there is the detail explanation of the
internationalisation drivers with the help of “Progressive Internationalisation Model”.
Both the tasks help to understand the overall growth and consolidations in the world steel
industry especially in the ‘Serverstal’.
Recommendation:
a. Drive down the cost of the product and services: it will help the companies to
enhance the streamline operations and it will increase the global coordination with the
corporate departments.
b. Expand Internationally: To enhance the global competitiveness it is very important
to deal in the international market by expanding the businesses in overseas, which
helps in determining the taste of the customers of the foreign market.
c. Company should be customer centric: If company is customer centric than
automatically the sale of the company increases in the domestic and foreign market,
as a result automatically it will help in enhancing the global competitiveness.

MANAGEMENT 15
Bibliography
Alriksson , & Grip, C.E., 2013. Steel industry environmental objectives: stakeholder
preference assessment using conjoint analysis. Ironmaking & Steelmaking, 40(8), pp.605-12.
Edvardsson, , Edvinsson , L. & Nystrom, , 2009. Internationalisation in Service Companies.
The Service Industries Journal, 13(1), pp.80-97.
Erkkilä, P., 2014. Trends and challenges in the stainless steel industry. Ironmaking &
Steelmaking, 31(4), pp.277-84.
Ferdows, K., 2019. Making the Most of Foreign Factories. [Online] Available at:
https://hbr.org/1997/03/making-the-most-of-foreign-factories [Accessed 11 May 2019].
Forbes , 2019. Alexey Mordashov. [Online] Available at: Alexey Mordashov [Accessed 11
May 2019].
Fortescue, S., 2009. The Russian Steel Industry, 1990-2009. Eurasian Geography and
Economics, 50(3), pp.252-74.
Jucker, J.V., 2009. The Transfer of Domestic-Market Production to a Foreign Site. A I I E
Transactions, 9(4), pp.321-29.
Klar, D. & Frishammar, J., 2016. A Technology Readiness Level scale for iron and steel
industries. Ironmaking & Steelmaking, 43(7), pp.494-99.
Laukkanen , P.H. & Ritala, , 2012. Appropriability as the driver of internationalization of
service-oriented firms. The Service Industries Journal, 32(7), pp.1039-56.
Ljunghall, S., 2009. An intensive course in clinical skills: The Uppsala model. Medical
Teacher, 18(1), pp.51-56.

MANAGEMENT 16
MBA Skool, 2019. Definition: Independent Representative. [Online] Available at:
https://www.mbaskool.com/business-concepts/marketing-and-strategy-terms/14132-
independent-representative.html [Accessed 11 May 2019].
Nielsen, H., 2018. Technology and scale changes: The steel industry of a planned economy in
a comparative perspective. Economic History of Developing Regions, 33(2), pp.90-122.
Pandit, K., 2009. Leading Internationalization. Annals of the Association of American
Geographers, 99(4), pp.645-56.
Price, D., 2010. Steel World. Ironmaking & Steelmaking, 37(4), p.241.
Pue, W., 2008. Legal education's mission. The Law Teacher, 42(3), pp.270-90.
Samiee, & Walters, P., 2010. Segmenting Corporate Exporting Activities: Sporadic versus
Regular Exporters. Journal of the Academy of Marketing Science, 19(2), pp.93–104.
Search Business Anaytics , 2019. Social Analysis. [Online] Available at:
https://searchbusinessanalytics.techtarget.com/definition/social-analysis [Accessed 11 May
2019].
Serverstal , 2019. About us. [Online] Available at:
https://www.severstal.com/eng/about/businesses/ [Accessed 11 May 2019].
Serverstal, 2018. Invester Relations. [Online] Available at:
https://www.severstal.com/eng/ir/esg/social [Accessed 11 May 2019].
Serverstal, 2019. 2018-2025 Environmental Improvement Objectives. [Online] Available at:
https://www.severstal.com/eng/ir/esg/environment [Accessed 11 May 2018].
Serverstal, 2019. Media. [Online] Available at: https://www.severstal.com/eng/media/
[Accessed 11 May 2019].

MANAGEMENT 17
Servestal, 2018. Disclosure. [Online] Available at:
https://www.severstal.com/eng/ir/disclosure/rus/document23448.phtml [Accessed 11 May
2019].
Severstal , 2013. Severstal partners with Mississippi State University to create Steel Research
Center. [Online] Available at:
https://www.severstal.com/eng/media/news/document6639.phtml [Accessed 11 May 2019].
Sheild Geo, 2019. the Pros and Cons of Setting Up a Foreign Subsidiary. [Online] Available
at: https://shieldgeo.com/the-pros-and-cons-of-setting-up-a-foreign-subsidiary/ [Accessed 11
May 2019].
Stroud , & Fairbrother, P., 2008. The importance of workplace learning for trade unions: a
study of the steel industry. Studies in Continuing Education, 30(3), pp.231-45. [Accessed 11
May 2019].
Suliman, & Heloise , , 2018. Global development and precarity: a critical political analysis.
Globalizations, 1(1).
Taracena , F., 2009. An Economic Analysis for Product and Process Design. Quality
Engineering, 18(1), pp.33-37.
Yemini , & Sagie, N., 2016. Research on internationalisation in higher education –
exploratory analysis. Perspectives: Policy and Practice in Higher Education, 20(2-3), pp.90-
98.

MANAGEMENT 18