Thriving in a Competitive Global Environment: Steel Industry Analysis

This report provides a comprehensive analysis of the global steel industry, focusing on the competitive environment and the strategic responses of Severstal, a major player in the steel and mining sector. The report begins with an introduction to the competitive landscape and the importance of industry analysis in a global context. It then delves into a detailed examination of the macro environment of the global steel industry, including the impact of the 2008 recession, oversupply from China, and the challenges posed by fluctuating prices and reduced profit margins. The report also highlights the importance of the Paris Accord and other government policies that affect the industry. The analysis utilizes Porter's Five Forces model to assess the competitive position of Severstal, evaluating the bargaining power of suppliers and buyers, the threat of new entrants and substitute products, and the rivalry among existing players. The report concludes by emphasizing the need for companies to adapt to market conditions, consider demand, and develop effective strategies for long-term sustainability and profitability in the face of global competition. The report also identifies the internationalization drivers in the world steel industry.

Thriving in a
Competitive Global
Environment

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK ..............................................................................................................................................1
A Undertake a suitable industry analysis to critically evaluate the strategic macro environment
of the global steel industry and identify the primary forces........................................................1
B. Identification of internationalisation drivers within world steel industry...............................5
CONCLUSION ...............................................................................................................................9
REFERENCES .............................................................................................................................11

INTRODUCTION
Competitive environment is the dynamic external system in which a business competes &
functions. As the global competitive environment requires corporations not only to compete in
its ability to enter new markets & achieve economies of scale but also in their ability to
effectively administrative knowledge flows in an information based economy. In global
environment competition is increasing so it is important to analyse the all factors which are
related to it. To better understand this concept Severstal has been chosen which operates in steel
& mining industry and it belongs to Russia. The main aim of this report is to analyse thriving in
a competitive global environment. In this report, there are various topics are covered such as: to
undertake a suitable industry analysis to critically evaluate the strategic macro environment of
the global steel industry and identify the primary forces. Apart from this it also discuss about to
use suitable model and identify the internationalisation drivers in the world steel industry.
TASK
A Undertake a suitable industry analysis to critically evaluate the strategic macro environment of
the global steel industry and identify the primary forces
Industry analysis is a business function completed by business owners & corporations to
analyse current business environment. With the help of this analysis it is easy to understand
distinct economics pieces of market place. To gain competitive advantage it is require to make
analysis of industry so that performance of specific sector can be understood. The great recession
of 2008 has impact the steel industry. Even Alexey Mordashov has expressed it views in context
to the future of global steel industry. As Severstal was earning profits although United States &
European rivals were suffering from financial losses. There is high volatility can be been in the
global steel market and after the recession there is imbalance can be seen in supply and demand
with redundant capacity (Yeung, 2014). Chain was making excess supply of steel in the global
market and it creates cut-throat competition for steel producers across the globe. There is 26%
incremental has seen in the export of China in the year 2015. As because they minimise
inventory within the country in order to expand the export in international market. Due to excess
supply the prices of steel goes down, aggravating already healthy competition in this sector. In
this regard, the profit margins has reduced so that steel producers minimize the investment.
World Steel Association was expecting challenging market well into 2016 with inactive growth
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from the year 2017 & beyond. In developed & developing both economies, there was a dragging
growth in the market. Chairman of World Steel's Economic Committee has damned current
uncertainty on Eurozone's financial incertitude but it does not assume that slowdown can be seen
in Chinese market as well as demand of customers. These things make influence on business
confidence & production activities across the globe so it effect both economies which are
developed and developing. As economic crisis 2008, volatility & uncertainty became norm for
steel industry therefore this worth nothing that world steel demand was retained positive growth.
As China was producing surplus steel in order to maximize exports where as the prices of crude
steel products has reduced in the year 2016 (Yigitcanlar, 2014).
There are various producers took decision that they will close their business and sell the plants.
Tate Steel was not reacting much towards economic challenges but in the year 2016 it
sold those plants which are not profitable in United Kingdom. Where as some steel manufactures
was thinking that how they will survive in these market conditions and for that purpose they
were making strategy to sustain in the market. On the other hand Severstal has earned $ 1.7
billion on revenue of $ 6.3 billion. The financial performance of company has been improved
after 2013 & 2014. In the year 2009 & 2010 it has suffered from huge losses but the the thinking
of chairman was bullish and optimistic strategy of it, provides the new direction to the growth of
company (Vinodh and Subramanian, 2013).
The demand of steel is increasing because it has multiple uses such as: in construction
projects, shipping, automotive & energy market. From 1980, this sector become more global
with reference to the competition. As because investors was making investment in steel industry
due to more profit margin. FDI was raising in the countries like South America, China, Russia
and Eastern Europe. In the year 2015 steel production has reached 1.54 mt and China has
produced 711 million and it is the biggest manufacturer and producer of steel around the world.
From the 1990s demand of steel was raising in the global market until 2008. In Indian market
Lakshmi Mittal is the known for steel production and it led the market whereas Nippon Steel &
Sumitomo Metal Corporation is on second place. Merger takes place among ArcelorMittal and
Luxembourg and it was like a milestone in this industry. The size of corporation is twice as
compare to Nippon Steel & Sumitomo Metal Corporation in the terms of manufacturing
capacity. For the growth and market penetration steel manufacturers are making merger with
other producers. As organic development is more costly and it is the main reason of slow growth.
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For operate in global environment it is require to follow various laws and legislations which
restrict the individuals to establish in new steel plants.
Severstal Group was incorporated in the year 1955 and in the year 1933 it lead by Alexey
Mordashow. As the main business of company is steel & mining products. As the organisation is
listed in Russian and London Stock Exchange. It owns production facilities in Africa, Italy, USA
& CIS nations. While the time of recession 2008, organisation has manufactured 19.2 million mt
of steel and it was the 3rd biggest manufacturer in the terms of volume in the country and overall
14 place across the globe and revenue has reached $22.4 billion. As from the impact of primary
forces the market position has goes down and corporation had dropped at 27 place in the terms of
volume and its output has reached 14.2 million mt (Zhao and Ferran, 2016).
Since, 2002 corporation has emphasis towards high value added steel & in specific
lucrative and highly demanding automotive steel market. As Severstal make acquisition of
Rouge in United States of America but by then not a profitable supplier to automotive giant
Ford. In the year 2004 company makes merger with other organisations. Under the leadership of
Mordashov's, corporation had sharply chased high risk offshore merger in United States of
America & Europe, taking over non profitable steel mills because they want to make it convert
into profitable businesses for the purpose to expand the business. As company make invest in
CSR and corporate governance for the purpose of global awareness. As because of Uncertain
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outlook, there are the chances of lower investment in terms of innovation through to 2020. Apart
from this urbanising is increasing and it has assumed that seventy percent of people will move
towards cities by 2050 and due to demand of steel will rise.
To analysis the forces porter's five force model can be used by Severstal. As this model is
helpful to analyse competitive position of an organization and it has five elements which are as
mention below (Porter's five force. 2019).
Illustration 1: (Source: Porter's five force model, 2019)
Suppliers power: To make steel it is require iron in huge quantity and Severstal is one of
the leading steel manufacturer in Russia in the terms of volume. So it is important for the
organisation to identify this force otherwise the business get influenced. The suppliers have high
bargaining power because other are other buyers in the market which purchase the products. So
suppliers sell raw material at high prices and they also provide quality products as a result
company can not make bargaining with them (Serafeim, 2013).
New entrants: In steel industry there is huge investment is require because it needs more
funds which is not possible for everybody. Due to this factor Severstal does not have threat in
context to new entrants and the market is versatile and fluctuations can happens at any time in
the global market. So it has a opportunity for the organisation to capture more market share by
making effective plans and policies which is beneficial for the growth of company.
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Rivalry among existing players: In steel industry there is require huge investment so it
is not easy for new player to enter in the market. As there are many big players in the steel
industry and they have large market share in steel industry. So it can a threat for the organisation
if this specific force does not get analysed. As the main competitors in existing market are:
Arcelor Mittal, Nippon Steel & Sumitomo Metal Corporation, Hebei Steel group etc. They
capture high market share so it is important for the organisation to make better business policies
which support the company to grow business. Otherwise this force can make a negative impact
on the corporation business (Namada, 2018).
Threat of substitute products: This force can be a threat for the organisation of it does
not analyse properly and for that purpose Severstal can produce quality products so that clients
will not search any substitute in the market. As threat of substitute is high then organisation has
to either continuously invest into research & development and if it increase the prices of products
than clients will not purchase the products from the corporation.
Bargaining power of buyers: For an organisation it is require to analyse the market
condition so that it can produce the products as per the requirement. As there are various buyers
in the market which purchase steel products and it required for construction and infrastructure
projects. The demand of steel products are increasing in the global market. This force can impact
the business when buyers have strong bargaining power then they purchase the steel products are
lower price which can reduce the profits for the organisation as it can affect the business
performance.
So industry analysis is important so that organisation can know what is market condition
and what is the market demand and for that purpose it is require to evaluate the factors which are
related to it. To gain competitive advantage it is require to make analysis of industry so that
performance of specific sector can be understood. To survive in the competitive environment it is
require to evaluate the factors which are related to macro environment and there are distinct
factors if they are not consider than business of organisation will not grow. There are various
primary forces if they are not identified than performance of Severstal can be effected. As there
are various competitors in the market which are involve in steel business and performing well
but after the recession 2008 the performance of some steel industries can be affected because
they are not able to sustain in the market due to lack of competitive business strategies as a result
their profits has been reduced. To sustain in the market for long time it is require the consider the
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demand so that supply can be made according to it so that demand of consumers can satisfy and
company can earn more profits (Friedman and Lewis, 2014).
Post Kyoto & Paris accords and governments trade policies: As Paris accord can go on to
succeed even without the U.S. Reason being climate treaty's differences with its predecessor &
growing concerns in context to treat of climate. As Paris accord has introduced to address flaws
of the Kyoto protocol.
All regional market has its own importance and it depend upon the demand, supply and
availability of raw material which is used to make steel. As market of China is known for steel
industry because it is one of the biggest steel producer. Apart from that Indian market is also
famous for steel production so all regions have its own importance.
Economic trends: As the economy trends shows the overall directions in which a nation's
economy is moving. In recession of 2008 the economy trends in context to the steel industry has
goes down and for that purpose there are various producers have to shut down its business.
As from the industry analysis, it has been found that the steel industry has tremendous
growth after the 1990's but at the time of recession 2008, it affect the steel and for that purpose
the production of steel has been reduced because of less demand. After that period sales is also
reduced so that there are various companies have to close their business. Severstal company has
also been affected from it and its production has been reduced after 2013 its revenue has been
increased. So overall steel industry has been affected from the recession of 2008.
B. Identification of internationalisation drivers within world steel industry
Driver effectively contributes towards change. This term is mainly use to evaluate
different types of factors that are connected with a specified kind of growth. Major globalization
drivers are international investment, technological advancement and international trade.
Technological advancement drivers:
With the help of globalization free movements of ideas, goods and peoples are done
across the borders. For an instance, advancements in transportation aid in fast movement of
products and people in a stipulated period of time. Technological advancement effectively allows
individuals to send informations and messages within seconds. In addition with this,
advancements within automation aid in increasing the production along with flow of goods and
services (Levin, 2014).
International trade drivers:
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Globalization helps in encouraging and strengthening interdependence among countries.
It is hard for a nation to become self sufficient for this, they are require to import products,
services and capital in order to increase living standards of their citizens. For this, many different
countries have adopted economic policies in order to fuel globalization. For an example,
eradication of trade barriers and decrease in the rate of foreign investment restrictions effectively
helps in creating global marketplace (Letangule and Nicholas, 2012).
International investment drivers:
Globalization unstick rise in international investment that mainly include, foreign
portfolio investment ( FPI), commercial loans and foreign direct investment (FDI). Many
countries effectively increase creation of new source of income, jobs and productive enterprises.
In order to gain more advancements it is essential for Severstel to effectively evaluate
factors related to, free cash flow, return on sales and experience. In addition with this, it is also
important for them to evaluate existing marketing demand in a particular target market. There
are different types of drivers for successful internationalisation.
Consideration of local situation
In order to gain success in best effective manner it is important for Severstel to effectively
evaluate different form of market conditions as every market have separate price structure along
with different socio-economic characterises. For this it is required to adopt own structure.
Active-management of risk
One of the major factor that create obstacles to comply legal compliance along with
protection of intellectual property. Thus, for this it is important for all the Severstel to draw
corporate guidelines and have strong detailed analysis of finance plan (Kourtit and Nijkamp,
2013).
Macro level: Analysis of national competitiveness
There are certain models which can be used to analyse the national competitiveness. In
present context, in order to analyse the competitiveness of Severstel at national level Diamond
model has been utilised. It has been provided below:
Porters Diamond: This is a proactive model which quantifies pleasing vantages which a
region or country possess with respect to other nations and ways in which they provide
competitive edge. For this they (countries) build up new advantages like superior techniques or
tools. By this they enhance their economy as more entrepreneurs will look forward to expand
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their business in these countries. This model has been used by Severstel to identify the factors
associated with competitiveness. It's factors are:
Firm's Strategy and rivalry: Organisations are formulated, organised and managed, it
creates impact on exiting firms. Domestic rivalry leads to international competitiveness by which
they can enhance their operation as as well as strengths. When competitiveness of rivalry is high
then it implies that organisation will put their best efforts to innovate new products and gain
competitive edge. Severstel experience a large rivalry from AK Steel holding corporation,
ArcelorMittal and Acerinox, S.A. This enables them to remain competitive within foreign
market also.
Factor Conditions: It refers to the capital, natural and human resources which are
available within country. Severstel can render their services in these countries (China, Japan,
India and there are many others) where they can make use of natural resources. This will save
their cost of exportation.
Demand Conditions: The home demands creates large impact on organisation within
country. When market is large it means that challenges are more but it will provide growth
opportunities for an organisation. Presence of refined demands forces organisation to have more
innovations which leads to their growth as well as improvisation in quality. This will make
Severstel more competitive.
Related and Supporting industries: Severstel can merge with competitors who deal with steal
like ArcelorMittal. By this they can combine their innovative ideas which will lead to
enhancement in their services as well as gain high profits (Hines, 2013).
Government: They are responsible for encouraging as well as pushing organisation to
enhance their competitiveness. Furthermore, they are also responsible for creation of policies and
strategies by which they can restrict organisations to misuse the resources which are natural.
Severstel need to make sure that they adhere to these law so that they can furnish their services
without any legal trouble.
Chance: They comprises of external events like natural disasters, wars, tsunami or any
other negative affect. This will also create a impact on functioning of Severstel if they are
operating in that country.
Meso level: Competition analysis in an industry
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It is a holistic strategy framework which assists Severstel to formulate decisions by
examining present competition. By making use of this model the organisation can investigate
profitable opportunities with respect to basic materials sector. These factors are illustrated below:
Threats of new entrants:New threats bring innovation as well as new methods for doing
things within steel sector. They may render their services at low pricing strategies by reducing
cost as well as new value propositions to their customer's. Severstel needs to manage challenges
by formulation of effectual barriers for safeguarding their competitive edge. They need to bring
new services by which they can attract new customers, formulate the economies of scale to
reduce the cost per unit (Hall and Pfeiffer, 2013).
Bargaining power of suppliers: Severstel buy their raw materials from wide range of
suppliers. Powerful suppliers make use of negotiating power by which they excerpt higher prices
from firms. The overall impact of high bargaining power of suppliers creates negative impact on
profitability of Severstel. For this they need to have efficient supply chain with different
suppliers. They need to do experiments by which they can shift to other suppliers.
Bargaining power of buyers: Buyers demands a lot as they know that they are one of the
major assets of business. They want to acquire the best at minimum prices, this creates pressure
on Severstel in terms of profitability for longer period of time. As they need to have strong
customer base then they need to minimise the bargaining power of buyers by increasing their
offers as well as discounts. Furthermore, by offering more innovative products, bargaining power
of buyers can be reduced (Baruah and Ward, 2015).
Threats of substitute: When new services meets the needs of customer then, profitability
of organisation get hampered. Its impact is high when it provides value proposition which is
uniquely diverse from present offerings of firm. In this case Severstel must not be product
oriented rather they should be service oriented. Apart from this they can increase the switching
cost of their customers.
Rivalry among competitors: If competition among this sector is high then it will lead to
decline in profitability of this sector. Severstel carry out their operations in competitive market
and their major competitors are AK Steel holding corporation, ArcelorMittal and Acerinox, S.A.
To remain competitive and gain high profitability they need to have appropriate strategies like
sustainable differentiation, collaboration with competitors by which they can enhance their
market share.
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Micro level: Value chain analysis
Value Chain Model is a set of activities which is performed by an organisation operating
in a industry as to deliver valuable goods and services within a marketplace. This model was
coined by Michael Porters with the help of this model Severstel can effectively able to gain
more competitive advantages and further can create more value for their customers.
Inbound Logistics: In this process Severstel involves in the process of receiving, storing
and distributing their basic ingredients and raw material relating to a product and a service. It is
important for company to build strong relationship with their suppliers in order to gain more
advancements (Arnaudov and Koseska, 2012).
Production: In this sector, activities included are related to production floor and
production line of Severstel. In this they effectively converts their inputs of services and raw
materials into semi-furnished and furnished products. By taking effective guidance from
operational systems Severstel can efficiently able to create more value.
Outbound logistics: In this factor, there are different types of activities are included that
are related to Severstel delivering of services and products. In this, outbound logistics company
include, distribution, storage and transportation (Levin, 2014).
Marketing and Sales: In this factor, company include those factors that are related to
products and services putting in a marketplace. Further it also include effective management of
consumer relationship in order to provide advantages to customer's in best effective way.
Service: In this factor, formative relationship are made with customers just after the
procurement of products and service. Along with this, Severstel can also take the advantage of
The Service Profit Chain Model with the help of which they can effectively able to design
service management in order to gain more organisational growth (Agyapong and Boamah,
2013).
As the international drivers are require to be analysed in context to globalisation. As the
global economy has been affected from the recession of 2008 so it is required for the Severstal to
make better strategies so that it can survive in global environment. For expand the business it is
require to develops proper plans and strategies which support the growth of company. As the
porter's five force model is helpful in context to the global drivers. As a conclusion it can be said
that steel industry has been affected through the recession of 2008 but it is important for the
corporations to make better strategies in order to capture more market share.
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CONCLUSION
As from the above report, it has been concluded that it is require to analyse the
competitive global environment and it is growing so that it necessary for the corporation to
consider the specific industry so that better strategies can prepare. It is require to evaluate the
strategies of macro environment so that effective decisions can be taken which are helpful in
context to business growth. For the organisation it is essential to identify the primary forces so
that business does not face any problems which hamper the performance of business. As
international drivers are require to be identify and for that purpose portal five force model is
beneficial. To survive in global environment it is require to make proper strategy which help the
organisation to sustain in competitive market and get the advantage of higher profits. There are
various macro factors which can influence the industry and can hamper the business so it is
important for corporation to analyse it so that business of firm can grow and success.
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Online
Porter's five force. 2019. [Online]. Available Through:
<https://www.mindtools.com/pages/article/newTMC_08.htm>
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