Strategic Management: Severstal and Air Asia and the Tune Group

STRATEGIC MANAGEMENT
Student’s Name:
University Affiliation:
Instructor’s Name:
Course Number and Name:
Assignment Due Date:
STRATEGIC MANAGEMENT
The business strategies employed by Air Asia and the Tune Group have made them two of the most successful companies in the ASEAN region. By examining their strategic decisions in detail, we can better understand how they achieved this success. This paper analyses how both companies have employed cost leadership, differentiation, and diversification strategies to gain a competitive edge in their respective industries. By exploring these approaches, we hope to shed light on the strategic decision-making processes that have allowed these companies to thrive.
Question One
Political
Severstal is undoubtedly impacted by the political environment in which it operates. The increasing protectionism of the US and EU poses a significant challenge to the company, as tariffs on steel and aluminium imports threaten Severstal's competitive edge in these markets. Additionally, changes in Chinese policy can have profound implications for the global steel industry, as the country is responsible for a significant proportion of global steel production. The Chinese government's commitment to closing inefficient steel and mining facilities can impact the supply and demand balance, creating further uncertainties for Severstal (Whittington et al., 2020). At the same time, the company's relationship with the Russian government is essential to its business. This relationship gives Severstal access to capital and often favourable policies, which can be critical for the company's continued success.
Economic
The global steel industry is known for its volatility, with the demand for steel products often fluctuating with broader economic cycles. As one of the world's major steel producers, Severstal has had to navigate these challenging conditions, particularly in recent years. One of the company’s most pressing issues has been the global oversupply of steel, mainly driven by Chinese overproduction. This oversupply has pushed prices down and increased competitive rivalry, squeezing profit margins for Severstal and other steel producers (Kal’ko et al., 2022). Additionally, Severstal is sensitive to changes in demand from key sectors such as automotive, construction, packaging, and rail. When these sectors falter, so does the steel demand, exacerbating the company’s challenges.
Social
As the global community becomes increasingly aware of and concerned about environmental and social issues, businesses across various sectors are under pressure to improve their sustainability practices. The steel industry is no exception. In fact, given the energy-intensive nature of steel production, the sector is particularly vulnerable to scrutiny from regulators, activists, and the public at large. Severstal, one of Russia's largest steel producers, has taken a proactive approach to address these concerns (Whittington et al., 2020). By investing in its corporate governance, corporate social responsibility, and sustainability initiatives, the company is positioning itself as a responsible global player in the steel industry. These efforts, which include partnering with international organisations to work towards common sustainability goals, demonstrate Severstal's commitment to making positive changes in response to the growing demand for more sustainable business practices.
Technological
Severstal must stay at the forefront of technological innovation to remain competitive in the global steel industry. The company will increase efficiency, reduce costs, and create higher-quality products by embracing new steel production and manufacturing technologies. Technological advances can improve every stage of the steelmaking process, from the raw material to the finished product. In particular, emerging technologies such as artificial intelligence, robotics, and additive manufacturing offer opportunities for Severstal to automate and streamline production processes, leading to increased productivity and enhanced product quality (Kal’ko et al., 2022). Additionally, as the industry becomes increasingly focused on sustainability, Severstal must invest in energy-efficient and environmentally friendly technologies to reduce its carbon footprint and maintain its reputation as a responsible global player. By staying ahead of the curve in technological innovation, Severstal will be well-positioned to maintain its competitive edge in the worldwide steel industry.
Ecological
As a resource-intensive industry, the steel sector has long been under scrutiny for its environmental impact. The Paris Agreement, which seeks to limit global temperature rise to no more than 2 degrees Celsius by 2100, has put additional pressure on the industry to reduce its greenhouse gas emissions (Kal’ko et al., 2022). To meet these targets, steel producers must improve energy efficiency, reduce harmful emissions, and pursue more sustainable production processes. Severstal has taken a proactive approach to these challenges, participating in initiatives such as the World Steel Association's Steel in a Sustainable World series. This effort brings together the CEOs of seven leading steel producers to create a unified strategy for the industry, enhance the sustainability of steel production, and promote a positive image of the material. By collaborating with other industry leaders, Severstal is well-positioned to develop best practices and implement changes that will benefit the company and the environment.
Legal
Severstal is no stranger to navigating the complex legal landscape of operating in multiple countries worldwide. The company is a global steel producer subject to various legal regulations and trade restrictions. Anti-dumping duties and import tariffs are two of the most common barriers that Severstal must contend with. These measures can be particularly challenging to overcome, as they are often politically motivated and subject to frequent changes. The company has been proactive in defending its interests in the face of such restrictions. For example, when the Trump administration introduced a 25 per cent import tariff on overseas steel products in 2017, Severstal was one of the companies that took legal action against the US government (Whittington et al., 2020). The goal was to reverse the decision and prevent the detrimental impact the tariffs would have on the company's export business to the US. Such actions demonstrate Severstal's commitment to defending its business interests despite hostile trade policies.
Question Two
The threat of new entrants: Low
One of the reasons the steel industry is challenging for new entrants is the significant capital investment required to set up and maintain production facilities. Steel plants need extensive and costly equipment and access to raw materials, such as iron ore and metallurgical coke (Whittington et al., 2020). This means that starting a steel company from scratch requires a substantial initial investment, limiting the number of companies that can enter the industry. As a result, the threat of new entrants in the steel industry is relatively low.
Established steel producers such as Severstal have strong relationships with suppliers and customers and long-standing brand reputations, making it difficult for new entrants to compete. Several factors create high barriers to entry, making it difficult for newcomers to compete effectively with recognised players such as Severstal. For one, established steel producers already have long-standing relationships with suppliers and customers, which can take time for new entrants to replicate (Zhuravlev et al., 2021). Additionally, the brand reputations of these established players have been built over many years, which means that potential new entrants would need to invest significantly in marketing and branding to be seen as credible alternatives. Given these factors, it is unlikely that new entrants will be able to challenge companies like Severstal shortly successfully.
Regulatory restrictions, such as environmental regulations, can also be barriers to entry. The industry is subject to various environmental regulations, as steel production is an energy-intensive process that produces harmful emissions. This makes it difficult for new companies to break into the market. They must secure the capital and resources necessary to establish a steel production facility and meet stringent environmental regulations. Additionally, many of the major players in the steel industry are vertically integrated, with access to the raw materials needed for production and established relationships with key customers. These advantages make it challenging for new companies to enter and compete effectively.
The threat of substitutes: Moderate
While steel remains a highly versatile and widely-used material, it is not without its potential threats. One such challenge comes from substitute materials that, in specific applications, could supplant steel as the material of choice. Aluminium, for example, has been gaining popularity in the automotive industry due to its lightweight and corrosion resistance. Plastics and composites also offer advantages over steel in specific contexts, such as aerospace and marine industries, where strength and lightness are vital concerns (Whittington et al., 2020). While these materials may not yet pose a significant threat to the steel industry, they could continue to make inroads in specific sectors, eroding some of the steel's market share.
However, steel remains a highly versatile and resilient material, with various unique properties that make it difficult to fully replace it in many sectors, such as construction, automotive, and energy. While steel has long been a critical material across various industries, it is not without its potential threats. One of the most significant challenges the steel industry faces is the threat of substitutes. For example, steel faces competition from alternative materials such as aluminium, concrete, and wood in the construction industry. Additionally, the trend toward light weighting in the automotive industry is driving some manufacturers to explore carbon fibre and other composites in vehicle design (Zhang et al., 2022). Despite these challenges, steel remains a highly versatile and resilient material. It possesses various unique properties that make it difficult to replace in many sectors fully. For example, steel offers superior strength and durability in construction, making it an ideal material for load-bearing structures. Additionally, in the automotive and energy sectors, steel provides a high level of formability and weldability, which allows manufacturers to design and produce a wide range of components. Given these advantages, the threat of substitutes to the steel industry remains moderate.
Bargaining power of suppliers: Moderate
Steel producers rely on suppliers for raw materials such as iron ore and metallurgical coke. Prices for these inputs can fluctuate significantly, impacting steel producers’ profitability. While steel producers can generally pass on the costs of raw material price fluctuations to their customers, there is no denying that suppliers can significantly impact the profitability of steel companies. Steel producers rely on several key inputs, most notably iron ore and metallurgical coke, which can be subject to considerable price volatility. If prices rise unexpectedly, steel producers will see their margins squeezed, which could force them to cut costs elsewhere or reduce their production output (Zhuravlev et al., 2021). Conversely, if prices for these raw materials decline, steel producers may benefit from improved profitability. As such, the bargaining power of suppliers is moderate, as they can wield influence over the financial performance of steel producers but are not in a position to dictate the terms of their business relationships.
Nevertheless, large steel producers such as Severstal have the resources and clout to negotiate favourable terms with suppliers. Given the fragmented nature of the global steel industry, the bargaining power of suppliers is generally moderate. However, the situation is slightly different for larger steel producers such as Severstal. With their ample resources and considerable influence, these companies can often negotiate more favourable terms with suppliers (Whittington et al., 2020). This can translate into more efficient supply chains, lower costs, and increased competitive advantage. Consequently, although the overall bargaining power of suppliers is moderate, larger companies like Severstal can leverage their scale and energy to their benefit.
Bargaining power of buyers: Moderate
Steel is used in many industries, making it difficult for any buyer to exe...