Strategy project

Industry analysis of TATA steel

4/14/2012 [Type the company name] Anchal Khare Amit Mukherjee Roll No 3 Roll No 10

Anuragdeep Badyal Roll No 12 Ashok Rawat Roll No 13

Index
A glance at the Indian steel industry.3 Tata steel-a global power..3 External analysis of the steel industry..3 Internal analysis of the steel industry..9 Business level strategies.12 Tetra threat framework..17 Recommendations..18 References.18

A glance at the Indian steel industry

India is the fifth largest producer of steel in the world as per September 2010. A major supporting factor to this growth in production has come about by the economic reforms of 1991. The benefits that steel got from these reforms are increased participation of the private sector ad removal of restrictions from the creation of capacity and exports. The market grew to an estimated US$ 55.1 billion in 2011 from US$ 22.8 billion in 2006 with compound annual growth rate (CAGR) of the market over the period was 19.3 per cent

Tata steel-a global power

Tata steel is the 10 largest producer of steel in the world. Incorporated in 1907 Tata steel has a century of successful steel production behind it. It is a global player with India constituting only about 26% of the total revenue generation. It is well established in other parts of Asia excluding India and Europe. It has set a benchmark globally for value creation and corporate citizenship. Considering the global reach of Tata steel a global analysis of Tata steel has been done in this report.

External analysis of the steel industry

Porters 5 forces analysis of the global steel industry
The steel industry has been successful in registering an amazing rate of growth over the last few years. The domestic industry also had a double digit growth rate in a growing economy. China is the major steel producer in the world producing up to 17% of world steel although employability in the steel industry is led by the European nations like Austria, Denmark and Belgium. The industry on the global front is at a mature stage. The following is an analysis of the global steel industry using porters 5 forces framework.

Threat of product substitutes Medium threat from the aluminium industry

Bargaining power of suppliers High effect of supplier bargaining

Rivalry amongst competitors High rivalry

amongst competitors

Bargaining power of buyers High effect of buyer bargaining

Threat of new entrants High threat of new entrants in the industry

1. Threat of new entrants: The threat of new entrants is high. The major reason for this is the fact that the steel business is a capacity intensive business a large player has a huge benefit. Wherever production factors are supportive and labor costs are low new entrants throng the market for potential profits. However for entrants smaller in magnitude following factors have to be considered :Capital Requirement: The Steel industry requires huge capital investments. Capacity expansion and initial Greenfield expansions are a major consideration for players in the steel industry. Economies of scale: Lower costs, lesser R& D expenses and better bargaining power while sourcing raw materials are the major reasons of economies of scale. The fact that a majority of the steel companies have their own mines and thus supplies of raw materials becomes extremely cheap which is not a feat which can be matched by new entrants in the industry which are of smaller magnitude.
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Government Policy: The government policy of a country plays an important part in the steel business. A supportive host country government is a must for success in the business. Product differentiation: Steel has very low barriers in terms of product differentiation as it doesn't fall into the luxury or specialty goods and thus does not have any substantial price difference. However Tata Steel still enjoys a premium for its products because of its quality and its brand value created more than 100 years back.

2. Bargaining power of buyers: The bargaining power of buyers is high. Buyers buying in bulk quantities have a huge advantage in price negotiations. Also, switching costs for the buyers are low when choosing from a multitude of equivalent steel products. 3. Bargaining power of suppliers: The bargaining power of suppliers is high. Most of the sourcing is done from foreign markets due the unavailability of raw materials in most of the countries. Suppliers command a price premium due to this reason. 4. Rivalry amongst competitors: Rivalry amongst competitors is high in the global steel industry. It is mostly based on price and potential source for differentiation is very low. Arcelor mittal is the major steel producer in the world. Posco, Nucor and Heibei are the other main steel producer s in the world. Tata steel is ranked in the number 10 position. 5. Threat of substitutes: It is low. Aluminum, carbon fiber and plastic are the major substitutes for the steel industry. Although usage of aluminum has been increasing it hardly poses any significant threat to steel as the latter cannot be replaced completely and the cost differential is also very high.

Life cycle analysis of TATA steel

TATA steel has become a large global player through huge projects in a number of countries in South East Asia, UK and other parts of Europe. It has seen growth through acquisition of firms like Corus steel, Millenium steel and Natsteel holdings. It has sufficiently achieved economies of scale, scope and large scale consolidation of the steel industry. Due to its ability to continuously raise the entry barriers of new entrants and forcing them remain competitive or face the risk of acquisition we can say that TATA steel is in the shakeout phase of its life cycle.

Strategic Groups

Indian Iron and steel industry can be divided into two main segments Integrated producers Those that convert iron ore into steel. There are three major integrated steel players in India, namely Steel Authority of India (SAIL), TATA Iron and Steel Company Limited (TISCO) and Rashtritya Ispat Nigam Limited (RINL). Secondary producer These are the mini steel plants (MSPs) which make steel by melting scrap or sponge iron and a mixture of the two, Essar Steel, Ispat Industries and Lloyds are the largest producers of steel through the secondary route. TATA steel is one of the top most Indian companies in the integrated steel producers segment. Investment in innovation and R&D which helps it in achieving low cost and thus get higher margins from the industry. Tata steel is also backward and forward integrated having captive mines; Logistics Company etc. which further helps it in getting higher margins. The company focuses on:The domain of high value added products. a strong customer focus for brand creation. The steel industry has been racing along at a surprisingly high speed during recent years, largely due to the huge buying from China. Tata Steel has also done extraordinarily well as the industry moved upwards, but the next big challenges are already seen on the horizon: global reach with global branding.

Opportunities and threats in the global steel industry

Opportunities: The huge scope for increasing consumption of steel in almost all sectors in the world. Expectation of growth in the U.S. and U.K. markets by double digits in the next 25 years and growth rates of 9.2% increment in overall global markets. Booming infrastructure has opened up high demand for steel worldwide Speedy globalization leading to faster opening up of newer markets.

Threats: Rising environmental costs due to the increased concerns on Global Warming is a potential threat to the steel industry. The generation of CO2 and per fluorocarbons (PFCs) which occur during the manufacture of the steel constitute another type of environmental threat to steel. High raw material input cost and scarcity of non- renewable raw materials are a threat to the industry. Constant threat of foreign players invading the markets. Capacity management measures need to be implemented to prevent constant occurrences of over-capacity.

Key success factors

Improved cost structures Good Top Management Technological expertise Rapid adjustment of capacity to output Global marketing capability

Internal Analysis of the steel industry

How the Resources/Capabilities support its generic strategy??

Resource based view

RBV Test Inimitable? Durable? Appropriable? NonSubstitutable? Competitive superiority? Brand No Raw material No Capacity No R&D No

Brand Based on the performance of all Tata Group companies over many years, the Tata brand has come to stand for quality, trust, business leadership, the highest ethical standards and respect for all its stakeholders. The specific attributes associated with Tata Steel, including product excellence and safe, and sustainable manufacturing, have led the Tata Steel brand to represent reliability and quality to customers; fairness and opportunity to employees; creation of wealth to shareholders; and corporate responsibility to local communities and society at large. Tata Steel has, in turn, created a number of sub-brands for its speciality businesses and products each of which carries the same values and attributes. Capacity Throughout its century-long history, Tata Steel in India has been a pioneer in industrial and employment practices. Today it has a 6.8 mtpa crude steel production plant as well as a significant presence in all the key product segments. Capacity expansion is a key strategy for Tata Steel in India, where it derives much of its competitive advantage as a low-cost producer from the quality and yield of its raw material sources. The mines have provided raw material security and also partially insulated Tata Steel from the volatility within the global markets for these raw materials. Work is currently under way to increase steelmaking capacity at Jamshedpur to 9.7 mtpa of crude steel by 2012. This additional capacity will enable the company to increase its market share in flat products and to use its existing resources more efficiently, including manpower, utilities and its captive mines. Looking further into the future,

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the company plans to continue to increase its capacity significantly through both brownfield and greenfield developments. Raw material A pioneer in prospecting, discovering and extracting iron ore, coal and other minerals required for steelmaking, Tata Steel has almost a century of experience in mining raw materials safely, efficiently and sustainably. The companys long-term strategy is to have as much control as possible over its raw material resources and to ensure security of supply for its operations globally. Company-owned and operated mines and collieries have met most of the raw material needs of the Jamshedpur steel plant since its inception. Tata Steels raw materials division in India produces over 14 million tonnes of ores a year from its captive collieries, iron ore mines and quarries in the states of Jharkhand and Orissa. Other significant investments in raw materials include a recently enhanced holding in the Riversdale Mining Limited coal project, development of an iron ore project with New Millennium Capital Corporation, and Dhamra Port Company Limited a 50:50 joint venture between Tata Steel and Larsen & Toubro to construct a deep water port on the eastern coast of India. Tata Steel also has several joint ventures in Africa, Australia and Canada to further increase its raw material security. Research and Development A collaborative approach, cross-fertilisation of better practices and technology absorption through integration of processes have led to measurable and continuous improvement in many aspects of Tata Steels performance. In addition to its ongoing drive to improve the quality and quantity of the steel it produces, Tata Steel continues to conduct extensive research with the objective of making its steel production operations more energy efficient, cost-effective and environmentally sustainable. The research and development (R&D) centres are located at IJmuiden in the Netherlands, Rotherham and Teesside in the UK, and Jamshedpur in India. A clear focus on development of cutting edge technology has enabled Tata Steel to become one of the lowest cost steel producers worldwide. Current activities in this area include research on agglomerates chemistry, blast furnace burden distribution, integrated through-process modelling, and reduced zinc consumption during tube galvanising, and many others. A number of research groups in India and Europe are actively engaged in developing new products. Research relating specifically to the automotive sector, for example, includes the development of advanced high strength steels, new forming techniques, new and improved joining techniques, innovative coatings, and improved fatigue life of components. Tata Steels R&D centres also conduct many
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programmes to improve the life cycle and sustainability of its products. These include projects to reduce energy consumption, CO and other emissions.

Business Level Strategies

Cost Leadership Strategy
At present, Tata Steel outsource their selling and purchase needs to metaljunction.com which, in turn, leverages on the Internet to facilitate "procurement at smart rates and sales at highest possible rates.'' This is done on a case-to-case basis and in expectation of a commission that is based on the value of the transaction.As an overall integrating tool, the Tata Business Excellence Model (TBEM), a business assessment model based on the Malcolm Baldridge Model of US, which has been adopted by most of the Tata Group Companies, is being rolled out across Tata Steel Europe. The TBEM methodology has been designed to help improve organisational performance practice, capabilities and results. Around 60 per cent of Tata Steels products are sold through contracts quarterly, half-yearly or annually and so these products are naturally protected from price fluctuations. It is, therefore, the remaining 40 per cent that are subject to price fluctuations. This is where branding becomes important. Tata Steel is spending between 1 per cent and 1.3 per cent of brand-related turnover to establish the brands, and it pays off. The company claims that as a product example, Tata Agrico currently commands a premium of 15 per cent over competing brands. Company sources say there are plans to increase Agricos market share even further than 25 per cent. Keeping customers is only one side of the picture. At another level steel companies have come to believe that branding can create a greater level of awareness and interest at the shop floor level. The theory is that if workers know where their products are headed and what they will be used for, it creates a higher level of commitment. A strong Continuous Improvement (CI) culture is embedded in Tata Steels Indian operations. Kar Vijay Har Shikhar (Conquer Every Peak), the fl agship CI initiative, has been implemented across the Company and has resulted in savings of `312 crores. In terms of engineering processes, a cost reduction exercise carried out by the Engineering and Projects division resulted in savings of nearly `1,000 crores in project costs. Competitive Advantage: Metal junction is now the largest e-marketplace for steel industry in the world, having sold over 4 m tonnes of steel for its clients and currently selling at an average rate of 150,000 tonnes per month. No other Steel maker in India could really reach this level of sale.

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First Mover Advantage: It was in the mid-2000 that Tata Steel realized that trading on the Internet will happen and will be there to stay. Company decided to get together, form a task force and put in place a mechanism whereby we could leverage on the Internet not just for mutual benefit but for the benefit of the entire steel industry as well, to begin with. So in this way it was TATA Steel who got the first mover advantage in India.

Value Chain Analysis

With the use of technology Tata Steel is able to enhance value in its value chain. There are two channels E-procurement and E-sales. Metaljunction.com has truly succeeded in leveraging the power of the Internet to re-engineer, simplify and streamline processes across the entire steel value chain. Earlier, strength has been on selling steel and procuring inputs required in the steel industry, it has initiated the process of augmenting its service offerings and adding new products, such as minerals and ferro alloys, to its portfolio. Good fiscal and economic management will therefore be needed to stimulate economic growth while at the same time curbing inflationary forces. There will need to be measures in place to control speculation and exploitation resulting in runaway prices of commodities and mineral resources which cascade through the entire value chain. TSE is continuously working towards higher levels of operational excellence through improving asset performance in regards to quality, reliability and lower costs. An initiative of 100 million of short payback capital projects to improve operational efficiency across Europe was launched this year while the 185 million rebuild of the No. 4 furnace will improve operational efficiency at Port Talbot. Performance Improvement Teams (PITs) contributed in the area of manufacturing during the financial year 2010-11 by implementing improvement projects in multiple locations of the Tata Steel Group. As of April 2011, 21 Performance Improvement Teams (PIT) are operating effectively across the Group as against 17 in the financial year 2009-10. 14 PITs have dedicated work streams for focused problem solving, targeting areas of importance for the group. New PITs in Billet Casting and Tubes have been introduced during the year. With most of Europe gradually coming out of recession, PITs have concentrated on improving manufacturing effectiveness and efficiency of operations. Notable contributions of the PITs have been on: (a) Using higher percent low cost coals with reduced coking times in coke making, (b) Increased usage of reverts thus saving on cost of iron ore, cost of landfill while meeting the environmental regulations;

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(c) Improvements in steelmaking and casting by reducing process variations, improving yield, etc; (d) Improving quality and yield while reducing cost in rolling. In the financial year 2011-12, efforts are being made to extend PITs to other functions like Supply Chain, Commercial, etc. Inbound Logistics At the current production level of four million tonnes of hot metal annually, Tata Steel's Jamshedpur plant handles about 13million tonnes of raw materials.Tata Steel has urged the Railways to take note of the projected requirement and plan for making available the rakes when the demand for additional traffic actually materialises. But, then, making available additional rakes is only one part of the story. Equally, if not more, important is line capacity. On its part, Tata Steel is also taking steps to improve its infrastructure keeping in view the projected increased volume of raw materials it will have handle. It is spending Rs 60-70 crore to upgrade its various facilities. Thus, the company's own railway system will e electrified, signalling system improved and tracks upgraded. More track hoppers are being acquired. The introduction of the engine-on-load system within the plant is to halve the unloading time of an iron ore rake from eight-nine hours.The coal unloading system is being revamped, and with it the tippling capacity, so that the detention of rakes is also halved to 12 hours or so. The facilities are being created to handle a full rake, which is not possible now.Tata Steel wants the Railways not only to enlarge the average size of wagons but also to introduce high capacity wagons so that the average rake capacity increases to 7,000-10,000 tonnes from the 3,500 tonnes now. The company has also mooted a proposal for laying high capacity 30-axle load line. Operations Kar Vijay Har Shikhar (conquer every peak) is a new initiative launched during the year, focused on Tata Steels aspiration to improve its EBITDA. It is a multi-unit, multi-location, cross functional improvement programme that aims to excel across the entire steel value chain all the way from the raw materials mining to marketing and sales of finished steel. Take a look at Tata Steel's integrated value chain, from the mining of different raw materials, through their processing, right up to the final product. You will see that all activities sales and distribution, material management, finance are lean and mean with the use of SAP (ERP). The company operates seven collieries and 14 mines and quarries spread over Jharkhand, Orissa and Karnataka, all of which are comprehensively e-connected. It describes the phasing out of old units and outdated technologies, and the use of the very latest. Through this process, Tata

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Steel keeps up the tradition of getting the best resources in the world involved for the creation of wealth and the continuing development of a basic industry for nation building. Outbound Logistics Tata Steel is also taking steps to improve its infrastructure keeping in view the projected increased volume of production it will have handle.TM International Logistics Limited (TMILL) and its subsidiaries offer logistic services pertaining to port and terminal handling, maritime shipping, ship agency, custom clearance and freight forwarding. The company is involved in the activity of handling port operations at Haldia and Paradip on the east coast of India backed by fully dedicated customs clearance and shipping agency services at both the ports. It runs a clean cargo terminal at berth number 12 at Haldia, which is equipped with modern handling facilities including heavy equipments, shore cranes and vast open storage area as well as covered warehousing facilities. Marketing and Services The company soon realized that a strong customer focus is essential if any branding approach was to be successful. It soon began to introduce internal campaigns in order to bring the customer-centric message to its employees. In the late 1990s, the company launched several internal marketing programs to emphasize customer focus and service. The programs had taglines such as, customer first her haal mein (Customer comes first in any case), customer first her haal mein, her saal (customer comes first in every case, every year), customer ki kasam hain taiyaar hum (We pledge to the customer that we are ready for him). These are the mantras behind Tata Steels success. This transfer from producer logic to customer logic was seen as the path to influence customer behavior for mutual gain. Before jumping on to the crucial brand wagon, Tata Steel set up a branding task force in January 2000 to explore the possibilities of branding Tata Steel products. Only after three months, the task force evolved into a brand management department. Within this department they created the distinct sub functions market development, order generation and order fulfillment which were computerized, enabling Tata Steel to reduce its customer response time significantly. The company also initiated the concept of customer account managers who were authorized and empowered to solve specific customer grievances immediately. The company further sought to increase customer interaction in order to better understand customer needs and to explore new and improved ways and means to meet these needs and expectations.

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Supporting Activities

Human resource
Technology Infrastructure Procurement

Performance Ethic Program (PEP) Total Productive Maintenance (TPM) program completed five phases of the modernization program

Access to capital of Tata group

Access to high quality raw material

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Tetra threat framework

Imitation Brand Image Scale economies

Substitution Aluminum , Rubber, Carbon fiber

Added Value Appropriated value

Hold-up Low bargaining power of suppliers High bargaining power of buyers Slack Less effect of management slack

Threat of imitation Considering Indian scenario of TATA steel it is very difficult for existing competitors to imitate because of resources that TATA steel has. The brand image of TATA steel has created a favourable position for it the market which is an intangible resource and is not easily imitable by the competitors. Threat of substitution Steel faces threats from the aluminum, rubber and the carbon fiber industry. However, due the extreme usage of a variety of steel in different sectors of production and its inexpensive cost compared to other substitutes, steel is not easily replaceable in most of the industries. Threat of Hold-up As TATA steel has its own mines for supplies of raw materials like coke and iron-ore, it is less dependent on suppliers. Also, it has mines in various parts of the world which makes raw material extraction extremely inexpensive for TATA steel. Bulk buyers however have many

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options from leading steel manufacturers all over the world and thus maintain a constant threat over the TATA steel.

Threat of slack The management at TATA steel is extremely competent and has set global standards. However constant threats like labor strikes, over capacity, changes in government regulations, etc. have kept the management on their toes. Overall the management slack is very low for TATA steel.

Recommendations
Continual investment revenue contribution as it is a major supportive growing business in the steel industry. Focusing on innovative steel production techniques and procurement strategies to lessen overall costs. Tapping the rural markets on the domestic front where there is a huge potential for increasing consumption of steel.

References
www.metaljunction.com www.tatasteel.com www.tata.com www.businessweek.com www.tatasteel.com/newsroom/financial-result/11.pdf www.investopedia.com http://www.tatasteelservices.com/en/products_and_services/consulting_services/environmen tal_services/lifecycle

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