Nucor Corporation Case Analysis

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To: Dan DiMicco

From: McKensie Booth

Subject: Strategic Management

Date: 11/9/2010

Nucor Corporation Memo Response:

Per your request I have analyzed Nucor Corporation and the steel industry. After performing both strategic and financial analysis I offer my recommendations.

Executive Summary:

Nucor Corporation was the most profitable steel producer in North America in both 2005 and 2006. It is regarded as a low-cost steel producer in the United States, and one of the most efficient and technologically innovative steel producers in the world. Nucor is known for its aggressive pursuit of innovation and technical excellence, rigorous quality systems, strong emphasis on employee relations and workforce productivity, cost conscious corporate culture, and ability to achieve low costs per ton produced (C-194). Offering a streamlined organizational structure, Nucor uses its ability to achieve incentive-based compensation systems that rewards goal-orientated individuals for their performance.

Over the years Nucor has expanded progressively into the manufacturer of a wider and wider range of steel products, which has gotten it to be able to offer steel users one of the broadest product lineups in the industry. In this industry steel products are considered commodities, and most steel plants turn out products with comparable quality to other companies. This makes one producer’s reinforcing bar essentially the same as another producer’s reinforcing bar, which in turn makes a particular grade of sheet steel made at one plant almost identical to the same grade of sheet steel made from another plant (C-195). Because of this, steel producers are forced to be price-competitive with the market price of each individual steel product being driven by demand-supply conditions for that product.

After considering all of these aspects of Nucor, and the steel industry I will be discussing the strength of the competitive forces, the key success factors for this industry, and the pros and cons of Nucor’s competitive strategy. A SWOT analysis will further help me analyze the situation so then I can look at how attractive Nucor’s value chain is compared to the value chains of the other integrated steel mills. I’ll conclude with strategic issues I believe that Nucor’s management needs to address, and recommend the actions I think will be necessary to enhance Nucor’s position and future performance to compete effectively against low-cost foreign steel imports into the U.S.

Competitive Analysis: 5 Forces Model

Intensity of Rivalry among Competitors: Fierce
Global competition in the steel industry faces Nucor and the wide range of competitors that make up the industry. Just in the domestic market alone there are more than twenty competitors that range on a larger to smaller scale. This intense competition amongst the competitors causes a recurring effect within the industry. Each competitor is trying to out bid the others for a contract, which allows for price wars among the market. This goes to prove that the industry is not based on differentiated products, but rather price competition. In the end, the company with the lowest fixed costs will survive and be the most profitable. Nucor’s use of both base pay and incentive pay makes it more guaranteed that output is relative to pay, which therefore decreases the fixed costs. The use of different business models is also a good indicator of the competition. Nucor uses a decentralized structure with control at the local factory level. This allows for focused decision making, and a more efficient use of profits.

Threat of new entrants: Weak
The entry into any industry depends directly on the associated costs. Because of globalization growing at a rapid pace, the merging of many competitors to form larger companies have made the barriers to entry increase. Economies of scale and capital requirements seem to be the greatest barriers in the steel industry....
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