Ezz Steel Growth Limitation

Case 3: EZZSTEEL

1. EZZ Group is one of the best Egyptian companies. How it can develop itself to enter the “Fortune 500” list as the first Egyptian company? Is this possible in the current environment? What strategy it can follow to achieve this goal?

Ezz Group cannot enter “Fortune 500” due to environmental issue. The Global Steel Industry now are facing recession.

First the economic environment, the economic environment in Egypt is so dynamic especially when we talk about US dollar currency rate. Due to the hyper increase in US dollar rate, the total cost of production increase by high amount as the company imports of factors of production like scrap, refractories and other raw materials and parts used to produce steel.

On the other hand, when we talk about the natural environment the lack of resources like natural gas although affects the company production as it reduce the total production capacity.

At the same time the competitive environment has a negative effect as some countries like china – which use the coal as power source – offer a lower price product at the Egyptian market. Ezzsteel is not the only steel company affected by the global competition but all other steel producers are affected worse.

So the Ezzsteel now face a situation in which the total cost of production increase and it should offer a lower price to compete with the foreign market rather the increase prices to cover that increase in total cost.

The best strategy the company can follow is to use the “Cost reduction” strategy. This strategy is best to follow in this situation as it will cut extra cost which will make the company able to decrease prices to compete in market or at least avoid any price increase.

1. Develop “Action Plan” that can address all the main issues including internal & external factors.

1. The right regulatory framework

2. Boosting demand for steel

3. A level playing field in terms of access to raw materials and trade

4. Energy, climate, resource and energy efficiency policies to boost competitiveness

5. Boosting Innovation

6. Easing restructuring and addressing skill needs

1. What are the main issues to turn this business from “Family Business” to “Corporate Business” including selection of board?

• Even if family businesses are recognized as a valuable asset, the risks associated with concentration can drive away additional sources of finance, thereby reducing the company’s value or restricting available credit terms.
  
• Relations between the family as shareholders and non-family investors also present challenges. Non-family external investors often have significant influence over the shaping of the family business’ governance. Their views on corporate governance are converging due to economic globalization and emergence of global investors
  
• In addition, family-controlled firms often face a difficult choice as they confront the need to fund growth by attracting equity: do they cede partial control to external shareholders and change their old habits and ways of running the business, promoting tangible improvements in corporate governance in exchange for capital for growth.

There are additional challenges as well:

• Quite often, especially during the early, start-up stages of the family business, the company and family relationships are not clearly distinguished. This is particularly true with respect to financial relations and accounts—the company’s and family’s assets are not legally separated. This causes problems in distinguishing company-owned assets, and how company owned assets can be used by the family as a shareholder.
•  Existing governance-related policies are informal, as a general rule. This can lead to reliance on key people rather than on structures and processes. Such “common” understandings may not be as universally-held or understood when situations change. As a result, there could be some uncertainty on the part of external investors and non-family employees.
• Weaknesses in governance systems of family businesses are most evident in internal controls, internal audit and risk management. Since many family businesses are managed by the founders or their children, the control environment is largely tailored to their needs. The problem: the controls do not grow along with the company, as the business becomes more complex. This gap is a primary area of concern for external investors.
• Governance challenges only increase as the family and business grow more complex with each succeeding generation.

To address the challenges detailed in the previous section, family businesses have come up with many governance solutions that are specific to their ownership structures.

• To institutionalize and perpetuate the business model f
• To provide the means to implement the defined strategic plan
• To add value for shareholders
• To enhance the potential for attracting debt financing, resources and shareholders
• To improve the company’s image abroad, facilitating globalization and reaching a base of foreign investors