Nucor Strategic Analysis

TABLE OF CONTENTS

Industry Analysis 3

Competitive pressures in the industry 3

Industry Segmentation 4

Supply Chain 4

Potential growth 4

PROFIT POTENTIAL and Market Power 5

INDUSTRY overview 5

Competitor Analysis vs Nucors CompetItiveness 5

Company Position Analysis 9

Understanding Nucor VISION AND VALUES 9

Understanding Nucor Core Competencies 10

UNDERSTANDING NUCOR'S COMPETITIVE ADVANTAGE based on resources 11

cURRENT ISSUES FACING THE COMPANY 13

pROPOSSED SOLUTIONS TO STAY ON TOP 14

RECOMMENDATIONS BASED ON CORE COMPETENCIES 16

Relation to practice 16

References 17

Appendices 18

INDUSTRY ANALYSIS

COMPETITIVE PRESSURES IN THE INDUSTRY

Michael Porter provides a framework that models an industry as being influenced by 5 forces. Based on Porters work Annexure 2 details the competitive forces in the industry, but it was adapted to include the economic forces and governmental influences.

COUNTRY: The stable demand in the US steel market combined with the high labour cost creates favourable conditions for foreigners. The continuous increasing production of European and Russian mills in a stagnant world steel market signals serious warning lights.

ECONOMY: The poor market conditions for steel producers are reflected in their deteriorating financial condition, and numerous bankruptcies. Many integrated mills still have unutilised capacity. The market concentration is increasing with new players brining more capacity on line

GOVERNMENT: The lack of protection is a high risk factor and makes the industry even more attractive to foreign producers.

SUPPLIERS: Scarp metal is not always readily available due to exports and this makes the suppliers powerful. The increasing demand lead to price volatility and suppliers increased the price up to 110% in last 4 years due.

BUYERS: Bargaining power is with the buyers due to oversupply and decreased demand in the domestic market. The buyers are Service centres, fabricators and automobile companies Steel products lack differentiation and there are no substantial facts to indicate high switching cost.

SUBSTITUTES: Buyers do not have a propensity to substitute steel, but they can easily switch supplying companies due to a broader and continuously increasing dispersion of steel suppliers.

ENTRY BARRIERS: There are no significant barriers prohibiting new competitors to enter the steel production sector. Exit barriers are high and it keeps the companies competing even with low or negative returns on investment (Porter, 1979).

MARKET: These forces are creating intense rivalry in the market. Mini-mills is continually expanding and can be found in 50% of the states. Steel mills have +/- 10% overcapacity and with additional mini-mills coming on line it will create an additional 10% capacity. This additional capacity is coming on line in the face of expected decline in demand.

The industry can be described as highly competitive market, stagnant demand, with excess capacity and numerous global competitors. These conditions predict possible prices wars and many rivals treading on each other's tows implementing new strategies to stay in business. However Slater and Lovett (1999) argue that firms can still make a profit with a combination of product-market focus, product differentiation and low cost.

Given Nucor's size and the industry maturity the Company can take market share away from the integrated producers or foreign producers. Alternatively find a position were the forces are the weakest.

INDUSTRY SEGMENTATION

The principle markets for steel are classical. Some sectors are declining while others are fairly stable. Currently the construction sector is the highest consumer followed by the automobile sector.

SUPPLY CHAIN

Service Centres acting as a major distributor or wholesaler for finished steel products to steel consumer (construction firms, shipbuilders, machine fabricators) has shown a significant increase in demand. It is only automobile and automobile part manufacturers who contract direct with the producers.

POTENTIAL GROWTH

Current domestic production is 130 million tons with no potential growth expected. Decline is expected, as car manufacturers are requiring less steel for the automotive industry. However with the innovation and an appropriate market-product combination, demand can be stimulated.

PROFIT POTENTIAL AND MARKET POWER

Economists consider financial performance as an indicator of market power. In a competitive market, like the steel industry firms are unable to charge prices extensively higher than cost. Thus the industry as a whole does not make an above-normal return.

INDUSTRY OVERVIEW

Industry conditions indicate that companies should not expect short-term profits.

COMPETITOR ANALYSIS VS NUCORS COMPETITIVENESS

There are a very large number of mini-mill companies in the industry with a few large integrated mills. In 1996 Nucor had the eight highest sales in the industry and the seven highest position on $ return per fixed asset. Nucor has two 2 competitors that has comparable sales figures but with a higher $ return per asset.

Rouge Steel and Allegheny are the most powerful competitor competitors based on the financial information available.

COMPETITORS RATED ON $ SALES GENERATED PER PLANT, PROPERTY AND EQUIPMENT

Extraction from Annexure 1

COMPETITORS RATED ON % OF INDUSTRY SALES

Extraction from Annexure 1