Nucor Corp

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Case Study: Nucor Corp
I Statement of Problem
The strategic issues/problems for Nucor Corp include the following:
1 Increasing costs of raw materials
2 Entrance of foreign players into the United States steel market
3 Dumping of steel, particularly from China, into the United States market
4 Strict regulations of pollutants by EPA.
IIAnalysis
* Industry analysis
* Industry economic characteristics
The steel industry is in the United States is one that is cyclical and mature, in which corporations commonly post losses whenever the demand for steel drops. Increasing competition especially from foreign firms reduces costs of steel for consumers.
* Industry driving forces
There are a number of industry driving forces in the steel industry in the United States. These include the following: government policy changes and regulatory influences; change in efficiency and cost considering that reducing or growing differences in the costs amongst the key competitors may considerably alter the state of competition; and exit or entry of major companies. The other industry driving forces include marketing innovation; technology change and innovation in the manufacturing process; product innovation; changes in the long term growth rate of the industry; as well as increasing globalization. Others are steel technology and processes, as well as advances in materials technology.
* Key success factors of industry
In the steel industry, the key success factors include the following: automation; cost control; carefully chosen joint ventures; technology and processes; low cost locations; production; as well as order fulfillment and distribution.
* Industry competitive analysis
1 Five Forces of competition
* Bargaining power of Buyers: Weak/moderate
There is strong demand internationally particularly in China. The industry is typified by low switching costs and excess capacity. There are many low-volume buyers and a few high-volume customers. Nonetheless, there is increasing feedstock prices partly because of speculation. Due to the increase in domestic competition in the steel sector in the U.S, the choices for customers are increasing. There is low product differentiation and consumers who buy in bulk have strong negotiating power.
* Bargaining power of Suppliers: Moderate
There are few suppliers in this industry and there is scarcity of raw materials including recycled steel, coke, iron ore and steel shred. The supply of iron ore is concentrated and there are high prices of the iron ore raw material, although the prices can be negotiated. The supply of scrap steel, a key raw material, is fragmented and its prices are high. Cost strategy drives acquisitions, mergers and joint ventures between manufacturers and suppliers. Nearly all raw materials are imported.
* Threat of Substitutes: Moderate
In this industry, consumers have increased choice in the selection of material, which basically include ceramics, wood, plastics and aluminum among others. It is of note that new materials technologies might increase substitute pressure.
* Threat of entry: Low
The steel industry has high barriers to entry due to substantial capital requirements needed. The incumbents have the ability to block the entry of new companies. Profitability and growth in this industry are modest, and most of the incumbents are eyeing expansion into new geographic markets. There is no product differentiation, and it is hard to attain economies of scale. There is also low access to raw materials.
* Intensity of competition among existing competitors: High
The U.S. steel industry in is characterized by weak domestic demand, low switching costs and the industry is mature. Beside Nucor, there are several companies which are considerably large including Mittal Steel, U.S Steel and AK Steel. There are also increasing cost conditions and high exit barriers, and all these contribute to cause intensity of competition to be high. This industry has concentration of players, and there is surplus global capacity.There is no differentiated product and joint ventures help to drive economies of scale. The industry is also characterized by price wars, and the domestic market has over 20 players.
2 The strategic groups analysis
* Competitor analysis
The key competitors in the United States include AK Steel, U.S. Steel and Mittal Steel. The foreign competitors basically include imports from Europe, Japan, China and India.The foreign competitors price their products very competitively which allows them to gain a substantial market share in the U.S steel market.
* Company analysis
* Evaluation of current strategy
Nucor’s strategy is being a low-cost provider, and it...