Pestle Analysis of TATA Steel

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Analysis of Tata Steel

Tata Steel, established in 1907, is one of the world’s most geographically diversified steel producers, with operations in 26 countries and commercial offices in over 35 countries. Tata Steel, part of the Tata group, based in Mumbai, has exploits in various categories including tea, automobiles, communications, power and salt. It is estimated that the Tata Steel group produces 31million tonnes of Steel per year. Tata steel is the second largest steel producer in Europe, with the level of global steel production currently over 1bn tonnes, which is expected to increase to 1.5bn tonnes by 2015-2020. To expand from India into the global marketplace Tata Steel has made numerous acquisitions including Millennium Steel in 2005, Nat steel in 2004, and Corus Steel in 2007. Tata Steel’s success is down to their understanding of the key drivers of the steel industry, which can be analysed by either ‘PESTEL’ or ‘SWOT’ analysis method.

‘PESTEL’ (Political, Economic, Social and Technological analysis) is a framework used to analyse and review the macro-environmental factors that have an impact on a business or organisation. Using this analysis the key drivers powering TATA Steel’s success can be identified and it becomes apparent that being an Indian based company has proved advantageous, due to its rapidly growing economy, with a GDP of 8.5% in the year beginning 2009 (1 http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG), and its large, low-wage workforce.

India is one of the fastest growing economies in the world, with a growth rate of 6% pa over the past 10 years. Following three decades of stale growth, often blamed on the following of socialist-inspired policies India has progressed towards a free market economy through economic liberaisation. During this boom, India’s crude steel production rose nearly 6% to nearly 38 million tonnes [1]. Being formed in India has proved advantageous to Tata steel due to the close proximity of captive mines of iron ore and coking coal from Jamshedpur. This allows transportation, raw material and other logistical costs to be reduced. Recently India’s steel industry has been modernised, although the majority of India’s steel is still produced using the inefficient open-hearth process [2]. Tata Steel is introducing the more efficient method of continuous casting across its steelworks, seeing production increase from 5million tonnes per year in 2006 to nearly 10 million tonnes in 2010.

However, poor infrastructure in India can have negative impacts on productivity for Tata Steel. For example, power shortages are common across the country, which can stop the production process. Also, the transportation links within the country, for example road and rail connections, are of a low standard which can make the distribution and supply process inefficient. Also, the productivity of the workers in India is much lower than those workers at European based steelworks. Crude steel output at the biggest Indian Steelmaker is roughly 144 tonnes per worker per year, whereas in Western Europe the figure is around 600 tonnes [3]. This lack of worker productivity could be somewhat caused by the country’s poor infrastructure, as the level of education in India is low, and the healthcare service basic, both of which affect worker productivity. However, the labour costs in India are much lower than in other countries, ‘at 1 EUR per hour worker, compared with EUR 26 per hour in Germany, and EUR18 per hour in Japan.’

Whilst there are local mines of iron ore and coking coal at Jamshedpur, the domestic raw material recourses are inefficient to supply the growing Indian steel industry. The hard coal deposits in India are of low quality, and therefore importation of hard coal has increased within the last five years ‘by a total of 40% to nearly 30 million tonnes.’ This makes Tata steel sensitive to fluctuations in the price of raw materials from other countries, and they also...
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