Course: MGMT 499
Assignment: Nucor Case
November 15, 2014
Nucor Corporation Case Analysis
1. What are the primary competitive forces impacting U.S. steel producers in general and the producers like Nucor that make new steel products via recycling scrap steel in particular? Please do a five-forces analysis Rivalry among Steel Producers
There is a fierce competitive force in this industry. Rivalry revolves heavily around price competition because most steel products are commodities. Producing steel of satisfactory quality is most producers are familiar with. In a commodity market like steel, it is hard to distinguish products of one steel producer from another. I this type of market condition, buyers make a choice among lowest/best price sellers. Moreover, competitively, meeting customers’ delivery schedule requirements is also a relevant consideration for the buyers. This particularly holds true when rival sellers are charging fierce competitive prices. Nucor is figuring out how to use low-cost scrap steel recycling technology to make a wider and wider range of steel products. Nucor is using its newly developed technological capabilities to enter a fierce battle for market share in the new product categories.
Competition from Substitutes
A moderately strong competitive force: there are substitute products that compete with steel. For instance, aluminum, plastics and other materials can be used in place of steel in some products. The Threat of Entry
A moderately strong competitive force: it is less likely that new start-up firms will enter the steel industry. According to this case, existing steel producers are anxious to operate their plant at their full capacity. It is more likely to seek out customers in geographic markets where they do not currently have a presence. Moreover, it is clear that new entry may occur when companies like Nucor and Mittal Steel acquire less successful steel producers and try to turn the operations of the newly acquired companies into strong contenders in the marketplace. Nucor’s recent acquisitions, for example, represent entry of a potent and competitively successful steel company into either product categories or geographic areas where its presence is minimal. Similarly, Mittal Steel’s growth via acquisition strategy has turned it into a major competitive force worldwide. Bargaining Power of Suppliers
There is a moderate competitive force in case of scrap steel suppliers and unionized steel companies but there will be a weak competitive force otherwise. There is an indication that suppliers are major competitive factors. However, the price of scrap steel is a key input for mini-mills and rising scrap prices can put them at a competitive disadvantage. But scrap steel prices appear to be a function of overall market demand-supply conditions rather than a function of the power of individual suppliers of scrap steel.
Bargaining Power of Customers
A moderate to weak competitive force when demand is strong and in short supply but a potent competitive force when demand is weak and steel suppliers are anxious to win a customer’s business. The competitive conditions in steel can be tough when the supply is greater than demand and that price competition tends to dominate the competitive environment because of the commodity-like nature of steel products. 2. What driving forces do you see at work in this industry? Are they likely to impact the industry’s competitive structure favorably or unfavorably? Three factors qualify as driving forces here:
A. Technological innovation in steel-making via electric arc furnace technology, thin-slab casting, and direct casting of carbon steel that has allowed companies like Nucor to enter product segments formerly dominated by the integrated mills of producers using older, more traditional steel-making technology. This driving force is acting to increase the competitive pressures that mini-mills are putting on the...
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