Report on Macro Environmental Factors in the Global Steel Industry

This report provides a critical evaluation of the macro factors influencing the global steel industry, focusing on a case study analysis. It examines the strategic macro environment, including demand forecasts and the impact of governmental stimuli, particularly in China and the US. The report employs PESTEL analysis to assess the political, economic, social, technological, legal, and environmental factors affecting the industry. It also explores the drivers of internationalization, including transportation costs and overcapacity, along with Yip's theory of internationalization. Furthermore, the report applies Porter's Five Forces model to analyze the competitive landscape, including the threat of new entrants and the bargaining power of suppliers and buyers. The analysis includes a discussion of Severstal's acquisition strategy and its implications in the competitive global context. The report concludes with a summary of key findings and recommendations for the steel industry.

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THRIVING IN A COMPETITIVE GLOBAL CONTEXT
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8/17/2019
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THRIVING IN A COMPETITIVE GLOBAL CONTEXT 1
Contents
Introduction......................................................................................................................................2
Strategic macro environment of global steel industry.....................................................................3
PESTEL factors...............................................................................................................................4
The internationalisation drivers in the world steel industry............................................................6
Yip's theory of internationalisation..................................................................................................7
Porter’s five forces model................................................................................................................9
Severstal acquisition strategy........................................................................................................11
Conclusion.....................................................................................................................................13
References......................................................................................................................................14

THRIVING IN A COMPETITIVE GLOBAL CONTEXT 2
Introduction
Globalization has reduced the boundaries in business between two nations across the globe and it
provides an opportunity for the companies to offer goods and services across the domestic
boundaries, which also comes with major challenges and competition. Environment is one of the
major factors that influence the business in any industry. The competition has been observed in
every industry, which also influences the company’s conduct of business and phase of the
industry (Baker & Bowen, 2015). The report’s purpose is to critically evaluate the macro factors
influencing steel industry as a part of case study analysis.
The case includes steel industry statistics related to supply and demand in the global context.
There are some of the market leaders in the steel industry. One of the company discussion
included Severstal that is one of the largest steel producer across the world. This is a competitive
industry as there are various top steel companies, which had taken over the maximum portion of
the industry. the case also discuss Severstal, that is one of the Russian steel producers who has
developed a unique overseas strategy for instance, which would be discussed in the report further
as well reflecting its objectives and suitability (severstal, 2019).

THRIVING IN A COMPETITIVE GLOBAL CONTEXT 3
Strategic macro environment of global steel industry
The current environment of the global steel industry and the forecast by world steel association
suggests that the demand forecast for the industry will reach up to 1735 million tonnes by the
end of 2019. The demand tends to increase as per the forecast that is expected to increase by 1.0
percent demand is projected by 2020 (Curry, 2018). It has been observed that the demand seems
to grow however, the growth rates would be moderate, as the global economy tends to slow.
Among the global steel industry, china steel owing to the government stimuli found demand to
be robust and continue to decelerate, the reason being integration of trade tension and economic
rebalance that is leading to reflect sluggish manufacturing and slowing of the investment in the
industry. Other than this, governmental stimulus was responsible for 2018’s economic slowdown
as a major macro environment influencing the global steel industry. One of the macro
environmental activities forecasted in china is minor contraction in 2020 as expected to subsidise
by effect of stimulus (Bird & Mendenhall, 2016).
As per the statistics of 2017 to 2018, it was observed that US benefitted in the form of demand
increase due to strong economy growth driven by the national body that result into fiscal
stimulus, and reflect through robust job market and higher confidence. However, the US growth
pattern was expected to slowdown in 2019 with the adverse effect of monetary policy
normalisation. EU economies were also identified to face uncertainty over the Brexit reflecting
deteriorating trade environment. This makes the forecast in steel industry depicting slower
growth considering demand in 2019. Japan also observed the steel demand growth in 2018 that
as the result of continued construction activities and favourable investment environment that also
increased the consumer purchasing power and spending. The macro environments factors across

THRIVING IN A COMPETITIVE GLOBAL CONTEXT 4
the globe reflect that the steel demands tends to be reduced to a small extend due to decrease in
construction activities in 2019 and 2020 (worldsteel, 2019). Considering the developing
economies like in Asia the global steel industry presents mixed picture more inclined towards
positivity (Kaplan, 2015).
PESTEL factors
One of the key strategic tools to assess macro environmental factors that will influence the
business that is of global steel industry is PESTLE analysis. The six factors include
Political aspect
The political environment of a nation is one of the major factor that is impacting company’s
business that is if the company is permitted by the regulatory authority is to conduct the business
in a particular nation. Since it is a steel company that is performing business across the globe like
ArcelorMittal, Severstal, and Tata steel May need to abide by the political rules and norms of the
nation. The key factors that will affect the business of global steel industry are taxation policies,
international trade policies, import export policies, political stability and infrastructural
development. For instance for global steel industry political nations include aunt stability in the
investment which seems to be one of the threat for steel companies across the globe. For
example, initiating business in nations like Bangladesh was delayed due to gas supply questions
or lease issue in iron ore mining in nation like Iran that could be responsible for increasing cost
to the company (Kelsey, 2015).
Economic factor

THRIVING IN A COMPETITIVE GLOBAL CONTEXT 5
The aspects that are part of economy factor that affects the company‘s conduct of business
includes consumption of the consumers, Economist conditions, inflation rate, market rents,
supply and demand and globalisation. For instance, in case of global see the dusty one of the
major cause that has influenced the business is demand and supply nature of the nation. As
discussed in previous section the statistics shows growth in demand which was reduced at the
launch date in year 2019 and expected to be decline in 2020 as well. For example European
market crisis has face the challenges and have created bad impact of recession on steel industries
or major steel company like Tata Steel as Germany, United Kingdom and Netherlands are some
of the major markets for steel industry (Cabral & Mathiason, 2015).
Social factor
This include people in society as it considered the social responsibility of the company, welfare
of the society, demographic factors like population of the nation which will affect the use of the
product for example increase in construction projects with increase in population which will
eventually increase the sale of the steel industry (He, 2017).
Technological factor
This includes infrastructure, technology, and their effect on conduct of business in a particular
nation. For example in the developed nation it has been found that the infrastructure and
technological factors are supportive for the steel companies. Technological factor include
infrastructure, technology, and their effect on conduct of business in a particular nation. For
example in the developed nation, it has been found that the infrastructure and technological
factors are supportive for the steel companies. However, in developing or underdeveloped

THRIVING IN A COMPETITIVE GLOBAL CONTEXT 6
countries one of the major problems while conducting business or while producing iron ore with
the latest technology could be a challenge for the company (Herd et al., 2016).
Legal factors
Legal factors need to be abided by the company in order to sustain in the industry and continue
the business within the nation. Some of the legal rules and regulations that ought to be abided by
steel companies or environmental health and safety act, employment act. The major challenge for
a steel company is with land acquisition in particular nation for example the problems faced by
Tata Steel in West Bengal regarding the acquisition of land. This may affect the business in the
form of goodwill, reputation and conduct of business most importantly.
Environmental factors
These factors include the aspects related to environment and the responsibility of the company to
words the society and environment for which a steel company can consider corporate social
responsibility initiatives in order to abide by these factors and enhance the environmental
sustainability within a nation (severstal, 2019).
The internationalisation drivers in the world steel industry
The key drivers for internationalisation trade in steel industry are transportation cost. Severstal is
part of the dry bulk category weighty transportation cost is usually on the higher side. This
reflects that the difference among the international domestic cost must be substantial for export
for an organisation to be profitable. For instance, the index that is helpful in estimating the cost
of the transporting steel goods is Baltic Dry index. Some of the most popular steel exporting
nations are China who are importing coal and iron ore for making steel which also increases the

THRIVING IN A COMPETITIVE GLOBAL CONTEXT 7
cost of shipping and also eventually increase the cost of steel production. The global trade help
the steel companies to diminish the pricing flexibility of the domestic companies.
Another key factor identified is overcapacity in global industry. In this Stephen dusty
overcapacity is one of the global phenomena identified which is not only limited to United
Nations. For instance in May 2014 the records of bull steel organisation reflect that global
capacity utilisation rate was off 78.5%, which is quite similar to readings in US. The resulting
exports from nations of lower cost and over capacity increases the supply of steel in international
markets and responsible for supply increase that reduces the pressure on prices and steel industry
(marketrealist, 2019).
Yip's theory of internationalisation

THRIVING IN A COMPETITIVE GLOBAL CONTEXT 8
This internationalization framework was developed by George yip in 1992, with the purpose of
knowing the level of globalization among the industry and to analyse four key drivers, which are
cost globalisation drivers, market globalisation drivers, competitive globalisation drivers, and
government globalisation drivers. From the above framework presented above, it can be said
that the potential of the company to go globalization is based on four drivers, which are existing
within the political, economic, social, and technological factors (Gencer, 2017).
First driver is the cost driver, which h include the cost of production for steel industry, which
includes the companies to enter into the global market. For instance the iron ore mining could
not be suitable to be performed in the some of the nation, and may be more profitable to conduct
the production process in another nation, where the supplies, technology n ad labour cost is
lower. Moreover the cost of the import and export in some the nations are another reason that
consider this driver for steel companies to go globalization and increase the potential of the
industry in the global world. Second is the government driver, which includes the political, and
legal factors (Puck & Mudambi, 2016). As already discussed through PESTLE analysis
government play major role when it comes to the steel industry as the licence to consider mining
ore production is necessary to perform those activities in the nation. This may be a threat and a
major cause that the company considered another nation where the government allow the product
and export of the products, which lead to potential in globalization. Third and fourth driver
identified is competitive driver and market driver, which would include the factors like growth
potential. For example, the demand of the steel would increase if the construction projects were
large in number in the market, which would affect the business sin steel industry. Moreover, the
competitive strategy could lead to price cut competition and going globalization due to

THRIVING IN A COMPETITIVE GLOBAL CONTEXT 9
decreasing the threat from domestic prices, which would discuss in detail in further sections
(Roth, 2017).
Porter’s five forces model
1. Threat of new entrants
As per this factor the new companies enter into the market could be the threat for the company as
the competition may increase. However, considering the global steel industry it has been
observed that there are some of the global leaders like Severstal. It could face a threat from the
new entrants due to the new process to accomplish the production of steel and offer to the
customer, this may include reduction in cost, lower pricing strategy of new company, new value
proposition to the customers. However since the investment in the industry would be very huge
due to large business size, which turns out to act as one of the barriers for a new company to
enter into the industry (Schlegelmilch, 2016).
2. Bargaining power of suppliers
Most of the enterprises in in the steel industry are tend to purchase the raw material from various
numbers of suppliers. The suppliers can influence the business by decreasing the profit margin
for the steel companies, which reflect a slight trip from the suppliers. Moreover, some of the
powerful suppliers can increase the price of the role material and you still negotiating power
from the steel into prices to extract higher prices, which will eventually affect profitability of the
steel company. Therefore, it can be said that the bargaining power supplies and steel industry
could be a medium threat therefore it can be said that the bargaining power supplies and steel
industry could be a medium great for the enterprises (severstal, 2019).

THRIVING IN A COMPETITIVE GLOBAL CONTEXT 10
3. Bargaining power of buyers
The demand in steel industrial is usually in a large quantity as the major requirement of the steel
is identified in the construction projects. Customers are major parties that are into construction
business and which reflects that they are looking for in enterprise from where they can purchase
steel products minimum price possible. Moreover, the buyers are small in number, which also
tends to increase the negotiating power of the buyers. Due to large quantity purchases and
smaller number of buyers, the bargaining power of buyers is a major threat in steel industry for
Severstal.
4. Threat of substitute goods
Substitute goods and be similar products or a range of products that are able to satisfy similar
customer needs invidious other ways, which will eventually affect the profitability of the
industry. However, the threat of substitute goods are not very high for steel companies, the
reason being they are so being large quantity and higher quality service and products that we
have substitute goods like other material what is stands wood but it cannot satisfy the same needs
of the customer asked from steel products. Therefore, it can be said that this threat is lower as
compared to the other threats in the industry, as it can also reduce by increasing the switching
cost for consumers (severstal, 2019).
5. Competition in industry
As already discussed, the major competition is among global leaders in steel industry like Tata
steel, and ArcelorMittal. The competition is quite high in the industry, the reason being the
number of buyers is less, which means that the company cannot attract many customers and
needs to retain their customers as the customer relation with one company could sustain for long

THRIVING IN A COMPETITIVE GLOBAL CONTEXT 11
time unless another company is offering lower price to the customer. This may adversely affect
the price cut competition in the market that could eventually affect the steel industry across the
globe (Schlegelmilch, 2016).
Severstal acquisition strategy
One of the major international strategies adopted by Severstal is acquisition strategy while going
global. Major objective of the company while adopting this strategy was to achieve growth in
global size and global presence. One of the major reason was the political factor that has lead the
company to adapt to this strategy as the legal rule and regulations of some nation do not allow
the company to enter into the industry with direct export, which lead the company to adopt this
strategy to enter into the nation. Another objective is to integrate other strategic objective of the
company considering the cost minimization, and profit maximization. Moreover, the objective
that leads to acquisition strategy as using defence mechanism to fight hostile acquisition
(Juergensmeyer, 2017).
The evidence suggests that the strategy of the company was suitable as per the environment and
requirement for the company to enter into the international market. For instance, one of the
benefits for the company due to this strategy was achieving the synergy through acquisition act.
Moreover, it has been found that considering the environmental laws, which can be the barrier
for Severstal foe developing steel plants in international market. The organic development could
be expensive, which was reduced due to the strategy used by the company. Due to acquisition
strategy, the company was able to provide higher quality to the customers and were able to ask
for premium prices, as they were able to increase the negotiating power with customers and
suppliers because of acquisition strategy of the company. Moreover, the company was able to