Us Steel And Globalization

Overview: an introduction to U.S. Steel

J.P. Morgan and Elbert H. Gary founded Pittsburgh-based steel company United States Steel Corporation in 1901.1 By combining Gary’s Federal Steel Company with steel operations owned by businessman Andrew Carnegie and several other smaller companies, U.S. Steel effectively became the world’s first billion-dollar corporation.2 With a two-thirds share in the market industry, U.S. Steel emerged as one of the premier companies in the world economy. Perhaps its dominance can be best described by the fact that U.S. Steel was once known as “The Corporation” on Wall Street.

Once the world’s largest steel producer, U.S. Steel has experienced a considerable dip from its hey-days. Its fall in prominence can be attributed to its failure to adjust to an ever-changing global market. While there can little argument of its initial innovative nature, over the decades, U.S. Steel has seen its market share steadily decrease as a result of increased domestic and international competition. In the new millennium however, U.S. Steel has made the necessary strides by outsourcing its production and demanding U.S. government protection from international competition, particularly from the Chinese steel market.

As U.S. Steel enters its second century of business, it has identified several objectives, which need to be met. Firstly, it has placed special priority on the need for establishing a stronger position in the global marketplace in order to remain competitive with other companies. Additionally, U.S. Steel is looking to develop increased value for its stakeholders while continuing to expand and bolster steel and other subsidiary production.3

The Importance of Outsourcing in Today’s Global Market

Globalization, defined as a “trend away from distinct national economic units and toward one huge global market” by Hill and McKaig in Global Business Today, has provided companies around the world with the opportunity to effectively reduce the cost of production.4 With the advent of the global product, more and more companies find themselves geographically relocating, in order to gain market access to the most profit susceptible areas. Since the recession of the late 1980’s, U.S. Steel has found it increasingly difficult to transform its operating structures to one that is more appropriate to a society with constant growth in international trade and increased movement of production.

The reason for U.S. Steel’s regressive development over the past few decades can be traced back to a fundamental flaw in its business approach. Throughout its history, U.S. Steel has been known to pride itself on being the biggest steel producers. As a result of this way of thinking, it has always distinguished itself from other competitors by virtue of its size instead of efficiency. While it was possible to get away with this attitude at first, globalization has quickly changed the business climate so that efficiency is now on the forefront of every business owner.

Following the late 1980’s recession, several dozens of steel companies have declared bankruptcy, leaving the rest of the industry in financially driven crises.5 However, a number of companies have successfully emerged from the recession. Companies like Rotterdam-based Mittal Steel and Luxembourg-based Arcelor realized the importance of mergers and acquisitions. For example, Mittal Steel’s flight to dominance stems from a series of acquisitions made in the late 1980’s and consistently throughout the 1990’s, starting with the acquisition of the Iron and Steel Company of Trinidad and Tobago.6 Arcelor has also made its business objectives clear through its continuous attempts at buying Dofasco.7 Most recently, Mittal Steel merged with Arcelor to form Arcelor Mittal, which has successfully become the world’s largest steel producer.8

Essentially, companies like Mittal and Arcelor are taking advantage of the openness and interconnectedness of global economies, resulting from the globalization process. While U.S. Steel may be slightly off its leading competitor’s pace, it too has begun to make a push for a regional-specific presence. Through green-field investments, U.S. Steel has acquired East Slovakian Steelworks (2000), Sartid (2003), and Stelco (2007).9 The importance they have placed on foreign direct investment in the new millennium appears to be shared by Hill and McKaig who explain, “The desire to create FDI has also been reflected in a dramatic increase in the number of bilateral investment treaties designed to protect and promote investment between two countries.” 10 Certainly, this trend is evident as; in 2002, there were 248 regulatory changes, 236 of which were favourable to FDI. 11

U.S. Steel has benefited in a number of ways by investing in Eastern Europe and Canada. Firstly, the outsourcing of production has broadened U.S. Steel’s geographical scope allowing it to take advantage of potentially lower costs of production. Generally, the cost of labour, equipment, and other such operational expenses are cheaper in developing nations. Secondly, through acquisitions of other companies, U.S. Steel has been able to increase production capacities and add to its growing line of products. For example, with the recent purchase of Lone Star Technologies,12 U.S. Steel now offers welded steel tubes for use in oilfields.13 Finally, with business operations in Central and Western Europe (U.S. Steel Balkan and U.S. Steel Kosice Steel), U.S. Steel has entered a new market. Essentially, it intends to be the major supplier of flat-rolled steel to the Central European market.14

U.S. Government Protection for the Steel Industry

In addition to its ambitious plan of geographically expanding, U.S. Steel hopes to consolidate its market niche by appealing for protection from the U.S. government. Historically, the American steel industry has always been a focus for the U.S. government, leading back as far as Truman’s presidential term. Although Truman failed to nationalize the steel industry in 1952, President Kennedy was much more successful in the imposition of de facto price controls.15 He did this on the theoretical basis of, “as steel goes, so does inflation.” 16

Today, however, attitudes have drastically changed. Instead of stifling large companies with repressive measures, such as antitrust laws, the U.S. government is attempting to out-manoeuvre leading competitors by protecting its