I. Porter’s Five Forces Analysis of the Steel Industry & Firm Level capabilities analysis 1.
Competition from substitutes
Increasing substitutes in the form of plastics, aluminum and advanced composites.
Threat of Entry
High barriers to entry in the integrated mill segment. However, with the mini-mills, the barriers are being lowered due to lower costs (a tenth of those in the integrated mills per ton of steel produced).
Competition from rivals
Highly competitive since products are not differentiated and have high fixed costs as well as exit barriers. There is also competition from the cheaper imports as well as the cyclicity of demand.
Bargaining power of buyers
Price sensitive market due to no product differentiation.
Bargaining power of suppliers
Unionised labour leading to high bargaining power of labour supply. Cost competition among steel manufacturers also leads to high bargaining power of suppliers.
Therefore, the steel industry is NOT attractive.
Sources of competitive advantage in the steel industry
Length of production time, i.e., technology used in production process. 2.
The cost of production, especially since the steel market is highly price-sensitive. Low-cost, high-quality imports pose a significant threat to the domestic industry and hence, competitive pricing is essential to be ahead. 3.
“Dependable delivery”, i.e., lower delivery time to consumers. 4.
Quality of steel produced and distributed.
Nucor’s competitive advantage
High productivity of labour at its plants/production facilities. •
High performance orientation through performance linked compensation plans for employees. •
Dedicated workforce indicated by lower turnover (only 5%) than the industry average (10%-12%). This could be attributed to the equality of treatment among workers at the production facilities (same colour jackets). 2.
Firm level capabilities
Simple and flat organization structure with only about 5 layers of...
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