Future Business Strategy of Nucor's Business

Introduction

Purpose of this report is to clearly define the future business strategy of Nucor's business. And determine the commitment of adopting CSP as future technology. Nucor's decision on CSP will depend on Porters 5 Force analysis. Nucor's strength and business model will help in determining the decision.

Porter's 5 Forces

Entry Barrier: as per data given in case, there are three types of steel entrepreneurs: Integrated plants, Minimills and Special steel producers. All three have different ways of steel production and segment. Intregrated Steel makers have always enjoyed price leadership. They required raw material of ore as their main input coast. They have always faced lot of competition from high imports and labour issues. As far as Minimills are concerned, to make entry into the segment was no so difficult but considering the facts produced in the case, growth in the product segment produced by Minimills were getting saturated. Nucor is low end product producers with input material as scrap. This scrap is recycled to make finished goods. This edge of Nucor, make them price controllers and thus don't have to worry for any new entrants coming in the same market.

Buyer Power: In steel market product classification, brand identity and marketing are not treated as important factors. But factor which states the health of any steel company are:

a. Price

b. Quality

c. Dependability

Nucor takes the advantage of these factors, produce high quality steel with low prices.

Market for flat products was rising in US, approx. 52% as per exhibit 2. Thus considering the requirement and demand gap Nucor can benefit itself by entering the new segment by introducing CSP technology.

Supplier Power: Nucor uses scrap as main input material for producing their low end products. While they recycle this scrap and uses specific resources to making timely supply of these input material thus making them leader in utilization of plant capacity. Against the integrated steel producers who were not running at their maximum plant capacity.

In case of adopting the CSP and scrap prices rising above minimum margin, would make the use of this technology less effective.

However Nucor in order to avoid any price fluntuations has tied up with independent purchasing agent. Thus hedging the risk of purchasing the scrap at high prices.

SMS, the original supplier for CSP technology was very eager to develop this technology and have tried to convince Nucor for the adoption already twice. They have located one second hand plant for a very less amount; with little renovation it could become operational. Nucor was confident of doing so based on their previous experience of renovating plants. If this technology is successful, then may be SMS would try to sell the same to other Minimills operators, but as this was customized technology as per Nucor's specifications. This would not hamper Nucor business of flat products. Also SMS would require atleast 4-5 years to develop and install the same technology for any other producer.

Competitive Rivalry: Nucor was very strong in operational activities with respect to other producers present in their field. Nucor's flat hierarchy against the traditional hierarchal system was very useful while taking important and critical decisions at all levels. However the decision on CSP if taken in hurry could have made tough time for Nucor.

Nucor is in steel business from last 14-15 years and thus have better technical knowledge. As CSP technology is new for them and is quite different from their existing, but their prior core competency will become base for developing CSP at Nucor.

Nucor always has believed in keeping average level of employees. They have adopted equality between all levels of employee. They have taken several measure to ensure this like similar insurance policy for all. They have used the monetary incentive policy as major motivating factor for all employees. They used Low base pay with high incentives on target production. While they have adopted this incentive policy they also shared the loss if occurred with their "Share the Pain" policy. With this they were able to achieve a low attrition rate as compared to integrated industry.

Nucor has always invested in new technologies for renovation of existing facilities. And are able to keep high ROA. Nucor has never taken high loans thus maintain their debt to equity ratio below 30%. Thus financial requirements can be meet at any point of time.

Nucor used their own construction group for taking capital projects. This team has edge in installing steel plants economically, thus CSP project completion and schedule would never be critical. Even they have policy for giving incentives to suppliers.

Nucor selected plant locations which were near to railroad network with cheaper power and plenty of water. Nucor was able to tie-up with scrap supplier, who has taken care of their orders and timely availability of input material at all units. Nucor's training program can become strong base for training new employees working on CSP technology.

These factors make Nucor on competitive edge with respect to other producers in the field.

Threat of Substitution: Adoption of continuous casting technology can save up-to 25% on price factor. As Nucor is using scrap as input material CSP will result in high quality flat product with same low prices. Thus Nucor will have edge over integrated steel manufacturers on price. As demand for these products is very high and shortage is fulfilled through imports, Nucor can sell their product on premium in US market.

Continuous increase in labor cost can become serious issue for Nucor, CSP is utilizing less manpower as compared to other industry norms but still high technical/skilled manpower rates can reflect the prices of finished product.

Saturation on low end structural products has also tempted Nucor to search new horizons.

Conclusion:

Nucor's high cash reserve and utilization of funds in phases for CSP project will help in proceeding for the implementation of the project. Investment on equipment's with longer pay backs will be accepted if capacity increases than for those that reduced cost.

Apart from parameters mentioned, a detailed financial report stating their ROI, ROA will confirm the decision in going for adopting CSP technology.

2. What factors can explain