Strategic Management: Severstal Case Study - Global Steel Industry

This case study provides a comprehensive analysis of Severstal, a leading Russian steel manufacturing and mining company, within the global steel industry. It examines the external environmental factors using the PESTLE model to determine Severstal's sustainable position. The report discusses Severstal's strengths and weaknesses in comparison to global industrial factors, highlighting the company's strategies for maintaining a sustainable business position despite challenges like price reduction, demand fluctuations, and competition from Chinese steel exports. Recommendations are provided for sustainable business development, focusing on Severstal's ability to retain profit generation and return on investment through strategic divestment and acquisition strategies. The analysis also considers the impact of technological advancements, legal regulations, and environmental policies on Severstal's operations and its commitment to environmental standards like the Kyoto Protocol and the Paris Agreement. Desklib offers similar case studies and resources for students.

Running Head: STRATEGIC MANAGEMENT AND GOVERNANCE
Strategic management and governance
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Table of Contents
1. Introduction..............................................................................................................................3
2. Discussion................................................................................................................................3
2.1 Background of the company.............................................................................................3
3. Micro analysis of the company and industry............................................................................4
4. Discussion................................................................................................................................7
5. Recommendations and conclusions..........................................................................................9
6. Reference List.........................................................................................................................11

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1. Introduction
This report will look forward to make and evaluation of the environmental conditions of the
Global steel industry. Severstal Steel manufacturing organisation of Russia is one of the leading
organisations of the steel and mining industry. A detailed analysis of external environmental
factors using the pestle model have been done in this report in order to determine the sustainable
position of the organisation in the Global industrial environment. In the following section, a
detailed discussion based on the strengths and weaknesses of Severstal and their comparison
with the Global industrial factors, as identified in the previous section has been conducted. The
emphasis of this industrial analysis is to determine the overall condition of Steel manufacturing
as well as the exporting market. The factors that have been helping Severstal to maintain a
sustainable business position have been highlighted in the discussion section along with
identification of the challenges that they had been facing. The last section provides
recommendations to the organisation for sustainable business development.
2. Discussion
2.1 Background of the company
Severstal is a Russian company dealing in steel manufacturing and mining. The organisation has
been operating since the leader half of the last century and is situated in Cherepovets, Russia. the
organisation has been able to maintain sustainable International growth because of strong
Business Development sense of its owner Alexey Mordashov (Guo & Zhang, 2016). Since the
year 2000 the organisation has been concentrating on international acquisition and currently they
have their Steel plants trade in countries like Russia, Ukraine, France, Italy, Africa as well as
Asia Pacific countries like Kazakhstan and other parts of Middle East. Organisation has become

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a global new instrument by means of their market divestification strategy; they have the mission
of becoming the leading Global brand of Steel and mining industries in the upcoming decade.
3. Micro analysis of the company and industry
Political analysis
About all Industries experiencing high recession after 2008, the Steel manufacturing industry is
the most prominent. In spite of global crisis, China is the only country which has been able to
maintain its Monopoly over Steel export and maximum proportion of international steel is
exported from China. In fact the export volume is excess in comparison to the Global demand,
because of which steel prices in sharply Falling In the international market, making the major
Global supply chain companies vulnerable (Kazakova et al. 2018). The initial decision of
overproduction for facilitating the internal economy, did not yield positive results, because of
which China look on the strategy of massive Steel export at a lower than industry specific price.
However, the Chinese government is not ready to accept this as there aggressive strategy to
maintain market Monopoly over Global Steel. According to them, the manufacturing and output
process of steel production in China makes the final products cheaper in compared to price of
Steel in other companies. Major market influence in the Steel industry is experienced from the
countries of European Union as well as North America, which have the benefit of free trading
with many trading nations of the world (Kozhevnikov, Kozhevnikova & Bolobanova, 2017).
Again, as potential market for consumption of steel and allied products, Middle East has been
emerging as a potential market for the cheap Steel products of China along with other countries
like South America and specific countries of Asia.
Economic influence

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Global demand for production of Steel has also decreased in the last decade. A minor increase in
demand was experienced in 2014 by only 1%, which Slow Down by 0.8% and 0.6% in the
following two financial years (Kumar, 2019). The recent market growth shows a 4% reduction in
demand compared to what had been in 2010. However, economic analysis, argues that the
apparent effect of demand reduction is not true. It is the excess influx of Steel at cheap price
which has disturbed the supply and demand ratio. However, major International companies like
Arcelormittal, Nippon Steel and so on have followed substantial market acquisition strategies in
order to break the market Monopoly of Chinese Steel products. Initiatives like reduction of
product pricing and enhancing cost efficiency through improved Technology has been
implemented in order to provide Steel products at reasonable price to the market have been taken
by the Global leaders of steel production. Nevertheless Litvinenko (2016), reports that in 2016,
Global supply volume of Chinese Steel had still reached the mark of 300 million tonnes. The
change in trend of demand from the major markets of Steel is another reason why the demand of
Steel has been reducing. The consumers of Steel products are demanding involvement of the
Steel manufacturing companies in delivery Logistics, basic structural development and so on.
Search humans have come from construction from Automotive as well as mining and pipeline
industries. This is why, the demand of bulk Steel products has reduced to some extent.
Social cultural influences
Change in demand, from the potential customers of Steel products is going out from the
increasing demand for alterations in the supply chains. Specifically, the automotive
manufacturing companies are demanding that the Steel companies should be involved in basic
structuring of automotive products in the Steel plants only. In this context, one major problem is
that all Steel manufacturing companies do not have the provision for fabricating customer

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fracturing which is completely contrasted to facilities of bulk steel production. Is variation in
demand and supply, is bringing about a significant Gap in the product mix and the asset
concentration. In context to this Global issue, it was expected by the Frontline Steel
manufacturing companies that the Supremacy of Chinese Steel plants will be reduced to some
extent. Nevertheless, Steel distribution and export is a government subsidized business in China
because of which these companies have been able to exhibit maximum market readiness in
context to the current changes in demand (Mancheri, 2015). However, by means of significant
market acquisitions and asset sell-offs, silver still has been able to maintain equity in the market
by stabilization of the return on investment and profit generation.
Technological influences
Many Steel manufacturing factoring companies have shifted to online trading of Steel in order to
enhance their market diversity and put up strong competition against the Chinese tea
manufacturing companies also. This is a major technological inclusion that has taken place in
steel manufacturing industry so far (Mishnev et al. 2018). Other benchmarking software, for
measurement of Energy Efficiency, carbon dioxide emission and work place structures has also
being implemented by the world Steel Association.
Legal influence
Steel manufacturing companies face legal barriers as well as street government regulations in
terms of Health and safety measures which is the reason behind significant cost and reliability.
Despite various risk mitigation efforts by organisations, abstract incidents of accidents can occur.
This is why, Ogoltcov et al. (2016) informs that the local governments where the Steel Plant are
located, keep strict vigilance on the operations. There are active labour Union in most Steel

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plants which ensures that the owners abide by the labour laws and workplace safety and health
standards. There are other legal risks like property risk, bankruptcy proceedings as well as
taxation rates over foreign investment because of which the level of stability and certainty of
foreign direct investment for acquisition of Steel manufacturing plants is a bit of risky affair.
Environmental influence
In most countries environment laws regarding Steel manufacturing and allied mining is very
strict. Most local governments emphasize that Steel manufacturing plants should install technical
facilities for measuring the air pollution standards. In this context, it can be argued that the
progressive environmental policy of Severstal help them to comply by the environment standard
of almost all the countries where they operate. The environmental policy of the organisation
allows them to prevent contamination and actively work towards reduction of greenhouse gas
emission along with optimisation of energy usage and implementation of efficient policies for
waste management. Nevertheless, the efficient organisation management of the company always
ensure that the environmental laws of the country are abided by (Ogoltcov et al. 2017). In fact,
still has been one of the initial companies Russian Steel manufacturing and metallurgy sector
who has implemented environmental management policy and instrumentation for ensuring their
compliance with the ISO 14001 standards. The environmental policies of organisation also
ensure that they follow the Kyoto Protocol as well as the changed requirements after assigning
the Paris agreement. In this context, it can be highlighted that although Severstal has not been
able to reduce their carbon dioxide output up to the permissible limit, there are constantly
working towards technological disruption so they can achieve the target specified by the Paris
agreement.
4. Discussion

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Severstal is probably the one big Global organisation of the Steel manufacturing industry who
has been able to retain their profit generation and return on investment in the face of global
challenges like price reduction, reduction in demand as well as oversupply and excess influx of
cheap Steel products from China (Popescu et al. 2016). Analysing the case study, it can be
revealed that when major Steel manufacturing companies like Nippon Steel, Arcelormittalor Tata
Steel have been reporting significant Global losses, still has been able to maintain positive
revenue growth by their consideration and divestment strategy. The company has been
constantly selling their non-performing business assets like major proportion of Steel
manufacturing units in UK and USA and apparently they have been making merger and
acquisitions of Steel plants in potential locations. Thereby, the vertically integrated business
model of organisation has been providing annual profit dividend to the company. In the year
2015, when maximum losses were reported by most Global Steel manufacturing companies,
Severstal has been able to record for earn a profit of 1.7 billion US dollars. Analysing the
progress made by the organisation in the last decade, it can be reflected that since there Global
Business loss in the years of recession of 2008 and 2009 the organisation has been able to
achieve steady growth in profit since then.
In spite of the merger and acquisition aspects of the company like the acquisition of
Carringtonwire, UK, Severstal has been still facing high market fragmentation compared to other
organisations like Arcelormittal. They have achieved Rapid market growth by acquisition of
beneficial business units, whether they are non-performing stagnant or profitable. However, in
the scope of this Rapid business growth, they have faced several business challenges in the
international market in terms of organic development. As informed by Gyaneshwar et al. (2016),
the organisational expansion in the international market has been slower and expensive because

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of the environmental policies which hindered the growth of the number of Steel plants in in the
international markets. Severstal found it very difficult to get licence for development of Steel
plants in the most rejected locations. In various Asian countries, the organisation faced the
government challenges in manufacturing Steel plants where several projects have been stopped
by the government thereby increasing the debt and non performing asset of the organisation.
Organic growth has been smoother for the Chinese Steel manufacturing plants which enjoys the
guidance from the government along with financial subsidy and open licensing facility for
setting up Steel plants anywhere in the country as well as the free trade area where China
operates.
Comparing the strategic benefits enjoyed by the organisation, with that of the other major Steel
manufacturing organisations it can be reflected that the significant turnaround strategy
implemented by the company after the economic downfall of the recession in 2008, that is the
last time when they recorded significant loss in their business operations. After that, in the
financial year 2013-14, the organisation recorded for approximately 40% higher profit doubled
in the year 2017 (Andersson, 2018).
In spite of market mobility, Severstal has been facing issues from poor strategic management and
knowledge management. The concentric management system with excessive dependency on a
significant small group of managers with authority for negotiation and international trade
management is one of the biggest limitations of the organisation.
5. Recommendations and conclusions
Most significantly, in the future organisations like Severstal will face challenges in the form of
substitute products which will replace Steel as a material substitute for Major product

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development. This will be facing towards managing the environmental change and price
reduction or quality improvement will not have any impact on the organisational performances.
That is why it is recommended that in order to gain access to new Steel markets, the organisation
should implement CSR program with sustainability motive and also implements methodology
for global Awareness of brand value. They can do so by entering a new market with significant
investment capital which will create market scope and opportunity for local area development
also.
In terms of computing with the challenge of substitute product development, the organisation can
change the production policy from bulk steel output and move onto other business domains like
construction, automotive, pipeline manufacturing and so on. This will help in resolving the
market stability in the Middle East and Asia. Based on the Mining industry, can also set up
power grid. The market and product diversification strategy will always help to keep the stock
value stable by means of which they can keep on acquiring new businesses and new markets.

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6. Reference List
Andersson, F. N. (2018). International trade and carbon emissions: The role of Chinese
institutional and policy reforms. Journal of environmental management, 205, 29-39.
Guo, H., & Zhang, T. (2016). Sinks of steel in China–addition to in-use stock, export and
loss. Frontiers of Environmental Science & Engineering, 10(1), 141-149.
Gyaneshwar, T., Nitesh, R., Sagar, T., Pranav, K., & Rustagi, N. (2016). Treatment of pediatric
femoral shaft fractures by stainless steel and titanium elastic nail system: A randomized
comparative trial. Chinese Journal of Traumatology, 19(4), 213-216.
Kazakova, N. A., Gendon, A. L., Sedova, N. V., & Khlevnaya, E. A. (2018). Estimation of
factors and projected growth of the metallurgical branch of Russia under unstable market
conditions. Metalurgija, 57(4), 360-362.
Kozhevnikov, A. V., Kozhevnikova, I. A., & Bolobanova, N. L. (2017). Simulation of cold-
rolling process in dynamic conditions. Metallurgist, 61(7-8), 519-522.
Kumar, B. R. (2019). Arcelor–Mittal Merger. In Wealth Creation in the World’s Largest
Mergers and Acquisitions (pp. 355-359). Springer, Cham.
Litvinenko, V. (Ed.). (2016). XVIII International Coal Preparation Congress: 28 June—01 July
2016 Saint-Petersburg, Russia. Springer.
Mancheri, N. A. (2015). World trade in rare earths, Chinese export restrictions, and
implications. Resources Policy, 46, 262-271.

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Mishnev, P. A., Uglov, V. A., Zhilenko, S. V., & Chudakov, I. B. (2018). Analysis of Specific
Properties and Features of Application of New Industrial High-Damping Steel.
In Materials Science Forum (Vol. 931, pp. 608-613). Trans Tech Publications.
Ogoltcov, A., Sokolov, D., Sokolov, S., & Vasilyev, A. (2016). Computer Model STAN 2000
and its Use in Practice of Steels Hot Rolling on Mill 2000 of Severstal. In Materials
Science Forum (Vol. 854, pp. 183-189). Trans Tech Publications.
Ogoltcov, A., Sokolov, D., Sokolov, S., & Vasilyev, A. (2017). Practical Use of Computer
Model STAN 2000 for Improvement and Creation of Regimes for Hot Rolling of Steels
on SEVERSTAL Mill 2000. In Materials Science Forum (Vol. 879, pp. 2543-2548).
Trans Tech Publications.
Popescu, G. H., Nica, E., Nicolăescu, E., & Lăzăroiu, G. (2016). China’s steel industry as a
driving force for economic growth and international competitiveness. Metalurgija, 55(1),
123-126.