A Manufacturing Unit in Stainless Steel in India

8/4/2019 A Manufacturing Unit in Stainless Steel in India

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A Manufacturing unit in Stainless Steel in India

What strategies in product mix and sales channels have successful plants

adopted in Stainless Steel industry in India?

Submitted by:

Tarun Mehta

Dissertation fulfillment for the M.A. in Entrepreneurial Management

European Business School, Regents College, London

September 14th 2007,

Under the Guidance of:

Chris Coleridge


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Table of Contents

ACKNOWLEDGEMENT...3

1.0 INTRODUCTION..4

2.0 LITERATURE REVIEW..6

A. BACKGROUND OF STAINLESS STEEL..6

B. THE PRODUCT MIX6

C. MANUFACTURING STRATEGY...9

D. SALES CHANNEL..12

E. DIRECT AND INDRECT DISTRIBUTION..14

F. KEY CONSIDERATIONS FOR SUCCESSFUL SALES CHANNEL..15

G. RESOURCE BASED THEORY..16

H. IMPLICATION OF VALUE CHAIN..19

I. CONCLUSION21

3.0 RESEARCH METHODOLGY...22

A. SECONDARY DATA.23

B. LIMITATIONS FOR SECINDARY DATA...24

C. PRIMARY DATA25

D. LIMITATIONS FOR PRIMARY DATA25

4.0 SECONDARY ANALYSIS.26

A. STEEL: GLOBAL PERSPECTIVE.26

B. AN OVERVIEW STEEL INDUSTRY28

C. INDIAN STEEL INDUSTRY: AN APPRISAL..30

D. INDUSTRY SHOWCASE...31

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E. ANALYSIS OF THE INDIAN STEEL INDUSTRY..35

F. TRANSFORMATION STRATEGY...40

5.0 PRIMARY RESEARCH 42

A. Interview with Mr. Jason Katplan, Analyst in Cru Steel, London...42

B. Interview with Mr. Mukesh Chandan, Managing Director, Chandan Steel

Limited, India...45

C. Email sent to Mr. Jitendra Kanungo, Manager, Ramani Steel House, India46

D. Email sent to Mr. Robert Hobson, Senior Analyst, MEPS (International)

Ltd48

6.0 ANALYSIS50

7.0 CONCLUSION.52

8.0 BIBLIOGRAPHY55

APENDIX 1

APENDIX 2

APENDIX 3

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ACKNOWLEDGEMENTS

I would like to express my sincere thanks and gratitude to Mr. Chris Coleridge, for his

invaluable support and information which helped me to complete the project.

To all the people in CRU Steel, London, who allowed and entertained my queries,

especially to Mr. Jason Katplan, who gave me his important time and all the

information that I needed.

To Mr. Mukesh Chandan, Chandan Steel Ltd, India, I would like to express my

gratitude. He did give the information on the Indian steel industry, which was the root

of my research. His knowledge about the industry and operations in the Indian market

was very helpful.

To European business school, which gave me an opportunity to enlighten my

knowledge about the steel industry. To all the people who helped me in gathering

information to achieve the research objective.

Finally I would like to thanks my family without whose support it was difficult to

gather and analyze the information I had. My family had been a great source of

inspiration for me in completing this project.

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1) INTORDUCTION

Up till the early nineties, the manufacturing units in the steel industry in the Indian

economy had been operating under a much protected environment; the need for

competition was felt in the industry as the entire industry had been revolving around a

few big players like SAIL, TATA Steel, and Jindal. This protected environment had

resulted in limited production efficiency, lack of better products and lack of good

professional practices, (Ranganathan and Kannabiran, 2004) but the opening up of the

economy for the foreign investments; globalization, privatization and deregulation

have created some hurdles and opportunities for the Indian manufacturers in the steel

sectors. Following the liberalization, there have been a number new entry in the

Indian steel industry, which led to increase in the production but the demand, was

never stagnant as it went on increasing year by year. Till date the Indian

manufacturers are not capable to produce the amount of steel products which can

meet the demand within the country.

The paper will try determining the need for setting up a manufacturing unit in the

steel sector with analyzing the big players in the Indian steel industry. The work done

in this paper will try to review at how some big players have established themselves

in the steel industry. It will examine the strategies required to increase the sales

nationally and internationally and what will be the optimum product mix for the steel

industry in order to be successful.

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Steel industries in India contribute up to 34.03% of the total export in the years 2002-

03, out of which stainless steel products signifies about 42,931.85(in INR /IN lakhs)

(47.70million) of exports from India and it is expected to grow by 35% every years.

Average annual base paid to Production skilled worker in china is $2300 while in

India it is $1900. this clarify that apart from cost, though India has an advantage of

skilled and cheap labour but still it lags way behind china, which ranks 1st among the

developing countries and 3rd in world market for producing about 349.4 million ton

of stainless steel in 2005, whereas Indian produced about 38.1 MT during the same

year. Indian steel industry need to more efficient in utilizing it recourses to increase it

sale in international market and that can be achieved by selecting a proper product

mix and establishing an efficient sales channels.

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Studies have shown how the traditional costing system, theory of constraint (TOC),

Activity Based Costing (ABC) are compared in making the product mix decision.

(Corbett, 1998; Low, 1992; Holmen, 1995; MacArthur, 1993; Kee and Schmidt,

2000; Goldratt and Cox, 1992). Low, (1992) and Spoede et al (1994) illustrates that

TOC can be more profitable mix than ABC. Kee (1995), using the same examination

shows that an ABC model which integrates the cost of capacity of production

activities can perform better than TOC. In stainless steel industry it is very important

to reduce the raw material cost or to have maximum utilization of the resources. For

both traditional costing and ABC, Low (1992) and Corbett (1998) have used the same

costing system to calculate the margin which is sales minus raw material costs.

Reconciliation suggested by Holmen (1995), MacArthur (1993), Bakke and Hell berg

(1991), reveals that TOC, with its focus on variable costs and ABC, with its focus on

the wide planning activities will be complimentary models in making a decision for

the product mix. These learned men are of the conclusion that for the short run

decisions TOC is appropriate where as ABC is optimum in the long run decisions.

The product mix algorithm reveals that how can a firm have maximization of

resources to maximize its manufacturing performance, Lea and Fredendall, (2002).

However, researchers like Goldratt and Cox, (1992) argue that the TOC product mix

algorithm would perform as good as or better than ABC, Lea and Fredendall, (2002).

While, Fredendall and Lea, (1997), (2002); Plenert and Lea, (1993) said that getting

an optimum solution from TOC is not guaranteed, because it considers only the

constraints while determining the product mix.

Different firms have different operating strategies; these firms have different rankings

for different strategies in terms of importance to the major long term strategies such as

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product differentiation and cost leadership, Shank and Govindarajan, (1992). Majority

of the firms seek cost control meanwhile differentiate the products from competition

through promotion, branding, advertisements, and designs Green, (2002). The cost

leadership and the product differentiation have a huge impact on the performance of

the firm. The performance would differ depending on the assigned weights to the

products to the performance metrics. A single objective will be considered that is of

cash flow and the other objectives will be left aloof by these methods. Hence, Fuzzy

hierarchical technique will be more effective than the methods discussed above.

Zadehs (1965) pioneered the use of fuzzy sets. Bellman and Zadeh (1970), Dubois

and Prade, (1979), Jain, 1976 and Yager, (1978; 1981) proposed a decision making

paradigm using second order fuzzy sets.

Evaluating and assigning the weights and the ranks to the products as per the product

mix. Any firm under the study of this fuzzy hierarchical model will be able to rank

order or assign weights to the number of products it deals in. according to the model

the firm goal of long term growth is fulfilled by the bottom level. Here the first level

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Long term Growth of the firm

Product DifferentiationCost Leadership

Cash Flows Market ShareEarnings Non Financial Objectives

Sheets Flanges BarsPipes


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attributes towards the two important terms that is cost leadership and product

differentiation. The second layer represents the corporate performance: Earnings, cash

flows, market share and objectives that are other than the financial ones. The Layer at

the bottom represents the product mix of the firm and the performance of each one

can be revealed by this model. Seamless pipes are those pipes which are made up

from solid billets, these billets are than heated in a furnace and they are rotated under

extreme pressure. The rotation helps the billets top open up from the centre which is

than shaped and converted into the form of a pipe.

C) Manufacturing Strategy:

Taking manufacturing strategy in to account different author have different

perspectives; Skinner (1969), is the pioneer in giving definition to Manufacturing

Strategy. He believes that Manufacturing Strategy means to exploit some of the

properties of the manufacturing function as a competitive weapon. On the other hand

Hayes and Wheelwright (1985), have a different view point of defining manufacturing

strategy as a consistent pattern of decision making in relation to the manufacturing

function which will be linked to the business strategy. To this Hill (1987), has a

different approach; he states that manufacturing strategy is a coordinated approach in

which consistency is achieved between the functional capabilities and the policies for

the success of the business in the market place. A very different approach has been

given to manufacturing strategy by Swamidass and Newell (1987), as they mentioned

that manufacturing strategy should be effective as a competitive weapon for achieving

the business and the corporate goals.

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The literature on the manufacturing strategy reviewed by Anderson et al (1989) states

that there is a lacking for a solid research in manufacturing strategy, terminology,

frameworks and hypothesis. Minor et al (1994) reviewed only empirical studies and

did not consider other methodologies available in manufacturing strategy research

such as exploratory cross sectional and conceptual. Pannirselvam et al, (1999) and

Prasad et al, (2000) were in general in nature and were not specifically on

manufacturing strategy. A total of 260 articles have been reviewed and they have been

published in five journals International Journal of Operations and Production

Management, (IJOPM), Journal of Operations Management, (JOM), Productions and

Operation Management, (POM), California Management Review (CMR) and Havard

Business School, (HBR). Observations based on the journals on manufacturing

strategy are given as below:

Manufacturing Strategy

Context Process

Manufacturing Strategic Best Trans-national Performance

Capabilities Choices Practices comparison Measurement

Manufacturing Capabilities: the literature reviewed deals with competitive

priorities, these are necessary to stand out in the competition, they are

cost, quality, flexibility, delivery, specification and sustainable.

Strategic Choices: here it deals on some particular organized criteria like

human resource, technology, management and environmental aspects.

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Best Practices: This section deals with advanced manufacturing technologies

and better and efficient management practices like JIT, TQM etc.

Trans-national comparison: the literature dealt in this section is something to

with documentations on cross country wide studies comparing various

manufacturing strategy practices.

Performance Measurement: It includes performance measurement system

design, development and assessment methodologies.

Literature survey: the literature survey reveals that the articles reviewed the

manufacturing strategy.

These research articles clearly portraits that the need for more clear and well defined

literature for the manufacturing strategy are required. To this Skinner (1969, 1974)

was the pioneer to observe that a companys manufacturing ability could perform

more function than to simply produce the finished products and to ship them on time.

He was of the view that there are few important terms the company should emphasize

on viz: cost, quality, flexibility and delivery.

Cost: the production and the distribution cost to be very low.

Quality: competition has become fiercer than ever so there should be no compromise

on the quality.

Delivery: this has become a very distinct feature for a manufacturer as to meet the

schedules.

Feasibility: The unit should well develop to react to any uninvited circumstances as

they should be well equipped with the flexible requirements.

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Another view on this issue is that manufacturing capabilities could be achieved

through the alignment of the resources, and the competitive priorities along with the

market requirement Kerr and Greenlaugh (1991). Whereas the other researchers like

Hill and chambers (1991), Upton (1994; 1995), and Koste and Malhotra (1999), were

of the view that feasibility could be more prominent and its application could be more

useful in corporate and manufacturing strategies to achieve superior business

performance.

D) Sales Channel:

The right mix of the product is very helpful but what if there are no sales or very less

sales? So it is very important to have a right mix of distribution channels or sales

channels to increase the sales in order to achieve the goal of the firm.

Selecting the right mix of distribution channels and having optimum utilization of

these sales channels is very critical for any business in todays competitive

environment. Maximizing the effectiveness of the direct organizations, sales

representatives, distributors and resellers are the most common form of the sales

channels. It is very crucial to have a proper assessment on the various distribution

channels to have the optimum utilization of these channels. The consumers have

become very demanding because of the increasing disposable income, the increasing

number of options to choose from, has made the consumers more and more choosy

and demanding. So the companies have to do their best and have to stand apart from

the crow to be visible and competitive in the market. It is very important to manage

and promote the new products effectively but by minimizing the cost ant at the same

time the visibility of the inventory and sales across the various channel partners like

distributors, retailers is a must for effective and efficient decision making.

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Supply chain management is all about optimum utilization of the over all activities of

the company working together, to manage the activities and co-ordinate the complete

chain, Vollmann and Cordon (1999, p.2). According to Vollmann and Cordon (1992)

supply chain should be treated as one/single entity. Where as Houlihan, (1985,

p.26) suggests that it should have more than one organizations involved with it. Bello

and Williamson (1984) signified the importance of the distribution channels choice

and structure of that channel in building up the marketing strategy; they also showed

the magnitude of the success that a firm will enjoy in exporting was influenced by the

structure between the channel members. Barsch (1981a) introduced a model based on

the resource and the commitment levels for a channel selection for the firms planning

to enter in to the export market. This model depicted 108 possible entry decisions

using different types of export management levels and the commitments level.

Czinkota and Ronkainen (1988) were of the view that a model of the attributes that

influenced the basic customer and the industrial international channel options and also

described that how the channel configurations varied with in the industries or even

with in the same firm, for the similar product because markets in different nations

have often had quite peculiar features. The model was called as Eleven Cs model, it

explained the factors that will determine the channel design any exporter would use.

These eleven factors of the model mentioned were: customer characteristics,

communication, cost, control, capability, competition, coverage, capital, culture,

company objectives and character. According to them, this model was very influential

on both the development of the new marketing channels and to the modification of the

channels that already existed.

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E) Direct and Indirect Distribution Channels:

It may not be appropriate to view the distribution channels in dichotomous terms. In

factual terms there are two extreme ends to both the channels, the integrated and

independent distribution channel. Czinkota and Ronkainen, (1988) model of Eleven

Cs would prove to be of great help to the major exporters who makes use of the

factors in the model to develop their own distribution channel by the combination of

the two extreme channel that is direct and indirect channels. Root (1964), commented

that most basic differentiating feature for the two, direct and indirect channel is by the

place where the second is located. Root (1984) classified that if the second channel

was based in the producers country than it is said to be indirect channel, where as if

the second channel is located in the buyers country than it is said to be indirect

channel. To this Lilien (1979) expressed that if the channel has up to 50% equity than

it is said to be indirect channel and if the channel has more than 50% than it is

integrated channel. Another approach was given by Anderson and Coughlan (1987)

defined as the distribution via company owned distribution channel is called as

integrated or direct channel and if the channel is on the contract basis and an outsider

to the company than it is called as independent or indirect distribution channel. Stern

and El-Ansary (1988) stressed the benefit of the direct channel are more than that of

the independent channel. It will be difficult and costly for a firm to ascertain whether

the indirect channels are performing up to the levels as specified in the contract in

case of a marketing strategy, Jensen and Meckling (1976), here the integrated

channels will be of more useful and helpful in performing the duty, Etgar (1978);

Keegan (1984); Terpstra (1989). Traditionally indirect channels tend to have more

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stages in the process of the distribution than the direct marketing, Root (1964) and it

requires less investment in terms of both the money and in the management time for

the manufacturing units than their counter part, Angelmar and Pras, (1984); Barsch,

(1981a). The independent channel of distribution proved to be beneficial in lowering

the cost of exporting due to the economies of scale, Anderson and Coughlan (1987);

Angelmar and Pras, (1984). By the use of the indirect channels the manufacturers

enjoyed higher margins and profits, it was also noticed that utilizing indirect channels

avoided some of the disabilities of the office politics and achieved action through he

threats, Anderson and Coughlan (1987).

Finally presumably, independent channel of distribution is more beneficial than the

direct as the chances of increasing margins and profits is more, it also helps in

lowering the cost because of the economies of scale, in case of the direct channel the

cost increases because of managing them. Williamson (1979) also supported to this

argument by saying that results in avoidance of the disabilities of the bureaucratic

government structures.

F) Key considerations for the successful sales channel:

It is very necessary for the company to be clear of the goals and objectives of the sales

channel, in order to have a successful sales channel distribution the company has to

take care of the following elements:

Understanding and factoring the needs of the channel partners:

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It is important to define the objective clearly to the channel partners, indicate the roles

that they are playing in the channel, and acknowledge them with their responsibilities

and functional limitations.

Communicating the goals and benefits to the channel partners:

The CEO of the company needs to individually communicate to each of the channel

partner and the companys sales personnel the logic and the purpose behind the sales

distribution channel and the clear business benefits of the same. The channel partners

needs to see the improvements in the Return on Investment because of the

implementation of the same; hence a cost benefit analysis of the company should be

provided to the channel partners before the implementation.

Technological flexibility and simplicity:

It is as important any other factor that the sales portal should be very simple and

easily usable. The data transfer should be also easy and fast. The speed for the portal

will be the key aspects for a successful sales channel.

Companies could benefit greatly if there is a structures approach to implementing

sales channel distribution.

G) Resource Based Theory:

According to Barney (1991, p.102), any firm is said to have a competitive advantage

at the point when there is an implementation of a value creating strategy which is not

being in use by any other existing or new competitor at the same time. Adding to this

Bharadwaj et al, (1993, p.84) commented that this competitive advantage will remain

sustainable only if the advantage is resisting erosion to the behaviour of the

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competitors or the business rivals. To this many literatures and authors viewed that

Resource Based Theory can prove to be very vital when making any firm more

competitive and allowing the firm to be sustain in the ever growing competition.

Originally, the Resource Based Theory was introduced and developed by Wernerfelt

(1984), the attempt to develop the theory was to build a consistent foundation for the

policies of the business. Over the years many literatures have been developed to this

foundation and now there is an existence of many substantial literatures. Fahys

(2000, .99) illustrates the relation ship between the key resources of the firm and the

role of the management in processing these resources into the positions of a

sustainable competitive advantage, leading to a superior performance in the market

place. The model developed by Fahy highlighted some of the important aspects as a

firms unique collection of resources and capabilities, out of which some possess the

particular characteristics, barrier to duplication. It also suggested that the Resource

based theory is different form the other models of the competitive advantage in

figuring out the internal reasons for the superior firms performance. The potential

importance of the firms internal and external resources was in existence way before

the 80s with the economic theory of the impact of the firm heterogeneity on the

increasing business rivalry and to the attainment of the super profits Chamberlin,

(1933). Porter (1980) highlighted that the strategic management literature also focuses

on the firms competitive advantage and the involvement of the firms strength and

the weaknesses. In any steel company the usage of the resources is very important to

determine the success.

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The utilization of the resources s clearly been seen by the number acquisitions done in

the recent past, Mittals acquisition over Arcelor, was a very well know acquisition,

the resources being almost doubled and the company have now been rate as the

worlds number one steel maker. So this clearly demonstrates how resources can be

vital and the proper usage is still more advantageous. Even the Tata- Corus

acquisition which is the biggest acquisition in the Indian history, is also just because

to have better grasp and much more efficiency in the utilization of the resources.

A resource based model of sustainable competitive advantage in any steel industry:

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Key Resources

Tangible Intangible Capabilities

Value

Barriersto duplication

Appropriability

Management Strategic Choices

Resource identificationResource development & protection

Resource Deployment

Sustainable CompetitiveAdvantage

Value to Customer

Superior Performance

Market PerformanceSales PerformanceFinancial Performance


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\

H) The implication of the Value Chain:

Almost every company is operating on the faster evolutionary tracks and at a greater

risk than at any other time in the past. Regardless of the industry, the concept of the

value chain has been predominantly important and has become very crucial than ever.

So the companys core capability is its ability to continually redesign its value chain

and to reshuffle its structural, technological, financial, and human assets to achieve

better and more competitive edge.

What exactly is a Value Chain?

In simple terms Value chain means any individual, product or brand that adds value

whether tangible or intangible, to a product or service that constitutes a value chain.

The value added to a product or service is basically a contribution of many people,

corporate seniors or juniors, creditors, share holders, engineers, employees, marketers,

and channel partners. Some basic products involved in the value chain are capital

goods, technological evolutions, in sourcing, outsourcing, innovations, in bound and

out bound logistics and so on. All the persons, the process and the products that

should generate knowledge and relationship are the assets for the firm; they should

also generate supply and technologies assets for the firm. All these products, process

and person of a firm and the human relationships that binds them al together define

the resource assets of the firm as well as its value chain and which in turn results in to

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firms competitive advantage, Srivastava et al, (1998). In the notion of the value

chain it is very important to cover the concept of the involvement of the customers in

the value chain. The value added to the customers is more useful than a new product

itself, convenient and state of the art. The experience of co-creating a product along

with the company is competitive, Prahalad and Ramaswamy (2003). The added values

to the company are from the insights of the customer interaction and participation,

having continuous feedback from the customers, customer satisfaction, customer

loyalty, retention and this result in the loyalty from the customers.

An example of a Value Chain in a Stainless Steel Company:

INPUT PROCESSING STEEL MAKING PRODUCT SALES

THIRD PARTYSALES

PIGIRON

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IRONORE DRIKILN ELECTRICARCFURNANCE

PIPESSHEETSCOILS

CAPTIVECOAL

IMPORTEDMATERIAL

IRONORE

BLASTFURNANCE

PLATES

RGIONAL

DISTRIBU-TION

LOCALSALES


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I) Conclusion:

In the paper above, an attempt had been made to notify the literature discussed on this

industry. There has been a number of saying on different issues covered in this

research topic, it was worth noting the saying of different people on the issues like

Manufacturing Strategy that how important it is for any industry to have a proper and

well planned manufacturing strategy. It is also very important to have a proper

execution of the strategy. Further to this, the importance of the product mix in order to

achieve the set goals of the firm.

The steel industry exists in an environment in which, over the last 30 years,

competition has intensified, customer demands have increased and high standards of

quality and low costs have become the minimum hurdles for the continued growth of

this industry. From the above literature it has become clearer that how some strategic

moves can be very useful to become a successful company in an industry. The review

has examined, in theoretical details, the importance of few strategic terminologies in

gaining success. Though there was not much literature written or discussed on this

industry, but the critical analysis was not to insight the negative aspect of the industry

but was just to provide a frame work in which the steel industry operates.

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3.0) Research Methodology:

The term research methodology relates to the development of knowledge and the nature

of that knowledge, it contains some important assumption about the way in which you

view the world (Saunders et al., 2007, p.121). The research methodology for this

research would be well illustrated as more qualitative and less quantitative. This means

that mostly non- numerical data or data that have not been quantified (Saunders et al.,

2007, p.608) will be collected to answer my research question. Inductive approach is

based on a principal of developing theory after data that data have been collected

(Saunders et al., 2007pg 38).

The main aim of the research project is to identify a successful strategy for setting up

a steel manufacturing plant in India.

In order to fulfil this main aim the following objectives needs to be achieved:

1. To analyse the steel industry environment in India during last five years.

2. To identify future Indian steel industry opportunity and threats in international

market.

3. To identify the challenges involved in starting a manufacturing unit in India in

term of human resources, land, capital, technology and find a possible out

come.

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4. To identify strategy of companies who are involved in manufacturing of steel

and study their management and marketing strategy in order to be successful.

5. To analyse the problem they had faced for establishing themselves as a

manufacturer and also analyse the current problem they are facing in a current

market.

6. To conduct a survey in order to know the consumers expectation and point of

view when they buy steel product both in national and international market.

7. To analyse the current customers expectation in international market and draw

a strategy with the help of survey data.

8. To study the feasibility of that drawn strategy in order to measure it practical

acceptance in Indian market.

Research methodology focuses on to turn a research question in to a research

objective and aims at getting the research project done more efficiently. It considers

research strategies, choices, options, time scales and the path of getting the

information required to have the optimum research done, Saunders et al, (2007, p.

153). The methodology required for this research project will be greatly in the way of

interviews and sending emails across to the different companies back in India.

A) Primary Data:

Apart from the interviews and the emails, I will try and analyze the manufacturing

companys data and the will also conduct some surveys with people in the related

field, which could be done back in India or in some part of the UK. I consider that this

will be helpful because the information that I pursue is not based on some said facts

but this information will have a strong ground and will be delivered by those who are

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a part of this industry, so it will be very helpful to get the information from the mouth

of the people who are a part of the stainless steel industry. This will help me gather al

the information required to set up a successful manufacturing unit in India, it will also

give me the understanding about the industrial issues and the companies approach to

be tactful and to solve the issues successfully. The main focus will be on clarifying the

importance of implementing a sales channel and alignment theory, understanding applied

strategy, getting better acquaintance over the product mix. This research approach will be

focusing on presenting an information and try to create a theory for relevant framework.

Interviews: This process is very important to me as all relevant information regarding

my research topic will be gathered through one to one semi structured interview. My

research question is based the grounds of fact and not on the assumptions, so having

conducting the formal interviews will be very helpful, the information that will be

collected will be through the companies or people in the same field and thus this will

result in gathering the accurate and perfect information. The questions to be covered

in the interviews will based on the past and the current performance of the companies

and the industry as a whole.

Survey: Surveys would be conducted through email or telephone. The questions

would be related to customers expectation and criteria they use to purchases. The

survey will be designed for the people who frequently steel product in different

sectors. In order to get information close to my research topic the questioners will be

closed bracket question. The information gathered from the survey would help me to

form a questionnaire which I intend to use it while interviewing face to face with

SMEs involved in manufacturing.

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B) Limitation of Primary data:

Interviewing company may not intend to disclose some information which is

important to me and it will be time consuming with some geographical barriers.

Identification of changes and strategy by a manufacture companies will be a limitation

of the study, for the respondents it is sometime difficult to identify change and

strategy from their prospective as it is considered as a part of normal business

development. Conducting survey will also be difficult as many people may not be

willing to do so.

C) Secondary Data:

For having a theoretical framework, the use of the academic and specific books on the

industry, journals, magazines, newspaper paper articles, websites and some company

publications relating to the research topic. The secondary data are both of the public

nature and private nature and the permission to use the information had been sought to

ensure that the confidentiality of the material used will not be revealed. Most of the

data gathered will be quantitative; though the use qualitative data will be there but

wherever applicable in order to give more in-depth analysis to the research. The

researcher will try to analyse the gathered information only where it is applicable and

necessary to validate the arguments for the literature.

D) Limitation of Secondary data:

It is very important to have the right and the accurate information for the research to

be right and more prominent. There is a wide range of information available on the

internet for the industry. On the other hand there had been very few academic books

and professional journals have been written that were precisely relevant to the topic.

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The main problem in gathering this type of information was the accuracy of the data,

as it could have been out dated for the industry. There was a constant flow of

information everyday, which made it even more difficult for the information to be

accurate.

4) SECONDARY ANALYSIS:

A) Steel: A Global Perspective

The years in the recent past have witnessed an unprecedented turmoil in the

international steel market. This situation in the global steel market could have been a

result of the distance between the demand, capacity and the production thus leading to

a fall in the global steel prices. According to IISI, the companies have been selling

their products way below the actual price just to survive and sustain the competition.

These practices have disturbed and distorted the international steel markets dynamics.

On the contrary, it is believed and predicted that this capacity is not fully capable of

delivering the best quality products, e.g. World Steel Dynamics has claimed that

only 60% of the global Hot Rolled Coils capacity can satisfy the high end demand.

The demand for the quality products will continue to grow over the time and the

excess capacity which is seen in the current markets.

Real GDPgrowth(Percentage)

2003 2004 2005 2006 2007

World 2.5 3.8 3.1 3.1 3.2High IncomeCountries

1.9 3.2 2.4 2.6 2.6

OECDCountries

1.8 3.1 2.3 2.5 2.6

Euro Area 0.5 1.8 1.2 2.2 2.6

Japan 1.4 2.6 0.8 1.9 1.9

USA 3 6.2 4.4 3.9 2.6

Non OCEDCountries

3.2 6.2 4.4 4.5 4.1

DevelopingCountries

5.3 6.6 5.7 5.2 5.4

East Asia andPacific 8.0 8.3 7.4 6.9 7.2

Europe and 5.9 6.8 5.5 4.9 5.0

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CentralAmerica

Latin Americaand Caribbean

1.7 5.7 4.3 3.7 3.7

Middle East 5.8 5.1 4.9 4.3 4.3

South Asia 7.8 6.6 6.6 6.2 6.7

Sub-SaharanAfrica

3.4 3.8 4.1 4 4.1

Source: World BankThe last two decade has been witnessing an economic activity as a whole shifting

dramatically towards the developing world; most of them are now growing even faster

than the developed nations. This growth momentum has been carried forward in the

current decade also; in fact the growth in the developing nations has by far outplayed

the growth in the developed nations. One of the most obvious interpretations for the

rising economic development of the developing nations is because of the rising

incomes in this economy. A corollary to the rising income in these regions has been

the growth in the population which has provided a plentiful supply of cheap labour.

This in turn has made these nations more attractive to the overseas manufacturers and

thus has led to an increase in the production activity. The increasing global demand

for the commodities in general and steel in particular has been a significant out come

of such a rapid economic changes, mostly in these developing nations.

It is worth while to notice that a report by WSD claimed that since 2001, the growth

in the steel market has been declining in most of the mature markets but the Asian

markets maintained the stability and continued to grow at a steady rate. The main

reason behind the growth of the Asian markets was driven by the production and

consumption demand in the Chinese market.

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Steel Production and Consumption in China

0

50

100

150

200

250

300

1995 1997 1999 2000 2001 2002

MetricTo

nn

Produ

Consu

B) An Overview: Indian Steel Industry

The Indian steel industry is almost a century old now, until the nineties, the Indian

steel industry operated in a regulated environment with insulated markets and large

scale capacities reserved for the public sector. The government regulated markets

determined the production and the prices for the Indian steel industry. SAIL and

TATA Steel were the major producers and the only players during this period in the

country, TATA steel being the only private player in the sector. The industry took its

first major step in 1907 with the setup of first integrated steel plant in Jamshedpur by

TISCO, since than the Indian steel industry has been one of the core sectors in the

Indian economy and has been playing a significant role in the economic development

of the country. The nineties was the turning point for the Indian economy and the

Indian steel industry as India takes the first step towards liberalization. Along with the

opening up of the economy the steel industry also saw the development of the number

of domestic players. Local investment started pouring into the steel industry along

with the foreign capital adding to the fresh capacities. The steel production and the

consumption which earlier were controlled and governed by the government were no

longer under the control of the government. Liberalization encouraged the growth of

the private enterprises that further played a vital role in the growth of this industry.

During the 90s the production capacities of the Indian steel plants was about 23

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metric tones, the last decade saw the Indian steel industry integrating with the global

markets bringing the adoption of the world class technology to produce high quality

steel for the international standards, this integration has resulted a total investment of

about 25 billion in the Indian steel industry mostly in the plant equipments. The

current production has also gone up to 43 MT by 2005.

1844

63

107

314

0

50

100

150

200

250

300

350

Metric Tonnes

1951-

1960

1961-

1970

1971-

1980

1981-

1990

1991-

2005

Steel Consumption over the last 5 decades

The ending horizon of the twentieth century will go down as one the most turbulent

phases for the Indian Steel industry. This phase witnessed many changes in the steel

arena, transformation of the self contained national markets in to a linked global

markets and making the competition more fiercer, the supply went on increasing

resulting in no real appreciation of the steel prices in the international markets and

simultaneously increasing the cost of the inputs and the raw materials, because of the

competition and making the companys product to speak for themselves. All these

resulted in a shock for the Indian steel industry as it had been operating in the

protective environment. There was a downturn in the Indian steel industry during the

mid nineties and the early 2000s. The main reasons for this downturn were Demand-

Supply mismatch and unremunerative prices. But the industry only to recover in 2002

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and was the beginning to get back on its feet given the strong domestic economic

growth and the increasing demand in the global markets. Consequently, the Indian

steel manufacturers were in need of an effective forward looking strategy that would

ensure their survival, sustainability and the growth. Formulation of the strategy that

would successfully take on to the market forces and would help in providing

sustainable competitive advantage that requires an effective understanding of the steel

scenario in the international global markets. But today, India produces international

standard steel in almost all the grades and varieties and does a net export resulting in

the economic development.

C) The Indian Steel Industry: An Appraisal

The Indian steel industry is derived of the mainly three groups; primarily of the

wholly integrated steel producers which comprises of Steel Authority of India (SAIL),

Tata Steel and Rashtriya Ispat Nigam Limited (RINL). The capacities of these group

ranges between 4Mt to 5Mt. At the secondary level the group consists of Jindal

Group, Essar and Ispat Steel. These companies fall in to the secondary level because

their capacity range is between 1Mt to 2Mt. These two groups together hold a total of

about 70% of the steel capacity in the Indian steel industry. Finally, the third (tertiary)

group which comprises of the mini steel producers, using electric arc or induction

furnaces and which are very small in size. These three sectors together contribute only

about 2% share in the global or international trade, making India the 10th largest steel

producer in the world. After the passage of the initial stage of stabilization following

the economic reforms and the liberalization of the 1991, the industry observed an

increase in the growth of about 22% and 14% during 1994-1995 and 1995-1996

respectively. The following year however witnessed a slow down in the economic

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activity affecting almost all the industrial segments, leading to a steep drop in the

growth of the steel consumption, just about 4% in total. During the same period the

availability of the steel products in the market was growing rapidly which in turn

resulted in the price drop for the steel products. The import in the steel industry

started to grow and slowly the volume of imports went up very fast which pulled

down the domestic prices. After the liberalization the Indian steel industry had by far

seen improvements in the operating parameters but still they were not enough to

overcome the problems of low productivity both in terms of labour and equipment.

Finished steel Production and Consumption

0

5

10

15

20

25

30

35

40

2000 2001 2002 2003 2004 2005

MetricTo

nnes

consprod

The report above highlights that the production and consumption trends in the

domestic industry, it shows that the performance of the steel industry is constantly

improving. The consumption is growing along with the growth in the production,

though the later is low comparatively.

D) Industry Showcase:

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Source: JPC/Internal


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The investment in the industry went up to about 25 billion because of the projected

demand for the steel in the economy by the terminal year of the planned Ninth Five

year plan. The demand projected for this period was about 38mt. Result of this five

year plan the installed capacity of the industry went up to about 35mt but the steel

consumption during the same period was stagnant. The consumption for the finished

steel did go up but was only marginal over the last five years. The following chart will

pay attention to the level of the output laid down by the big players in the Indian Steel

industry:

crude steel production

0

5

10

15

20

25

30

35

40

others sail Essar Ispat JVSL RINL TISC

percentage

SOURCE: JPC/ Internal

The graph above gives a clear picture of the production and consumption of the Steel

products in the Indian Steel Industry.

The performance of any industry can be measured by some of the important indices

such as Debt Equity Ratio (D/E), Return on Net worth, Net Sales/Total Assets and

Net Profit/ Net Sales, which depicts the clear picture of how the industry is

performing. The Debt Equity ratio for the steel industry is seen in the rising trend

from 2.13 to 2.30 in the last four years. This reveals that the industry is performing a

balancing act an increasing debt burden and becoming more leveraged. The industry

Company 04-05(MT)

SAIL 12.46

TISCO 4.10

RINL 3.45

ESSAR 2.36

ISPAT 1.99

JVSL 1.85

OTHERS 8.61

TOTAL 34.82

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does reveal an improvement in the Asset Turnover ratio (Net Assets/ Total Assets)

from 0.42 to 0.52, which shows that the industry is performing in upward trends and

is utilizing its assets more efficiently. The financial performance of the Indian steel

industry just cannot be explained with the liberalization and the globalization of the

economy. The improving performance of the Indian steel industry can be observed by

the rising share prices of the Indian steel companies. (See Appendix 2)

The impressive performance of the Indian steel companies started in the early 21st

century which continued to show the ability in the following years as well (See

Appendix 3). Following the bad times in the year 2002-03, the industry recovered and

is now extremely strong and has a very good financial position because of the

increasing global prices and continued demand for the steel. From many years in the

past the steel industry in the world did not receive much attention from the investment

community which adversely affected in the global steel prices, but now in the recent

past the industry has been given much attention and investment community increased

the inflow of the investment resulting in a complete makeover of the world steel

industry. The Indian steel industry has also benefited from the investment community

as the industry could see the amount of investment made in the steel sector did

increase rapidly, which is reflected in the rapid increase in the market capitalization of

all the major steel producers in the country, which can be noticed in the following

information in the form of a chart:

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Renewed Investment in Indain Steel

0

100

200

300

400

500

600

Sep-98

Mar-99

Sep-99

Mar-00

Sep-00

Mar-01

Sep-01

Mar-02

Sep-02

Mar-03

Sep-03

Mar-04

Sep-04

Mar-05

Sep-05

Year

RupeesInBillion

Source: CRIS INFAC Combined market capitalization of all the steel producers

The improvement in the Indian steel industrys performance is seen mainly after

2003-04, which was mainly due to the increase in the investment in the world steel

industry resulting in the increase in the steel prices and also in the increase in the

amount of exports and the increasing demand in the domestic market.

The Export and Import in the Indian Steel Industry:

The prime reason for a better performance in the Indian steel industry is because of

the increase in the exports and decrease in the imports:

Export of Steel:

Year Finished Steel (Qty in MT)

2001-02 2.704

2002-03 4.506

2003-04 4.835

2004-05 4.381

2005-06 4.225

Source: JPC

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The Indian economy allows frees export of steel. Advance Licensing Scheme allows

free imports of the raw materials if the raw materials are used for the purpose of

exports; this encourages export for Indian manufacturers.

Import of Steel:

The amount of steel imported in the Indian market is about 1.5 Million Tonnes

annually. The last four year import of the finished steel is as follows:

Year Qty in MT

2001-02 1.271

2002-03 1.5102003-04 1.540

2004-05 2.109

2005-06 2.700

Source: JPC

E) Analysis of Indian Steel Industry:

The Indian steel industry has been in to practice since a very long time; there have

been a number of changes in this industry in order to make it more effective and better

in all the terms. From the ancient ages the steel industry has been the back bone of the

Indian economy and has always played a very important in contributing towards the

growth of the economy. Now let us try to analyze the industry with the help of SWOT

analysis:

1) Strengths:

The nation is very rich in the mineral resources; there is an abundance of iron ore,

coal and many other resources in the country. The country is the fourth largest nation

in terms of the reserves for Iron ore in the world. It reserves for Iron ore amounts to

about 10.3 billion. The availability of these raw materials helps the prices for the raw

material to be cheap or comparatively cheaper. The country is very vast and has big

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pool of human resource; this helps the country to get the best technical manpower for

the manufacturing set up. The gathered information states that the country is the third

largest in terms technical manpower in the world, which is followed by United Stated

and Russia. The Indian steel industry has comparatively low labour cost considered

the amount of skills. This labour is low per unit considered the quality of these

workmen. All these suffix ads up to enormous amount of savings which helps in

reducing the production cost as compared to many of the advanced countries. Having

a very vast geographical dynamics, India is very rich in resources and has a vast

domestic market to be covered; Indian steel industry can overcome the challenges

successfully.

2) Weakness:

On one side the Indian steel industry seems to be very strong but on the other side of

same coin there are some weaknesses which if not taken proper care can ruin or

damage the whole industry. There are some deficiencies in the quality and the

availability of some of the important raw material for the steel production which are

not easily available in the country, e.g. high ash content of the indigenous coking coal

adversely affecting the production. Besides these there is a major problem of getting

some of the essential raw material like Nickel and Fero molybdenum which are the

base for some of the steel products. Indian steel industry does not only suffer these

problems but there are some more weaknesses related to the system in the country.

This is a capital intensive industry where a high amount of initial investment is

required and the returns are expected after a few years only. The Indian companies are

charged an interest rate of about 14% on capital which makes it even more badly

where as on the other hand in the countries like U.S and Japan has 6.4% and 2.4%

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respectively. Every coin has two sides, so it is same with the Indian steel industry. On

one side it has an advantage of having a very good work force but on the other hand

the industry a problem of having low labour productivity. The average productivity of

an Indian labour is about 75 t/man/per year for SAIL and TISCO has an average of

about 100 t/man/per year, where as the production for POSCO a Korean company is

about 1345 t/man/per year and a Japanese company NIPPON has about 980 t/man/per

year. This gives an idea of the problem of low labour productivity. The Indian steel

industry also faces the disadvantage of having a high administration cost, it has a high

cost for the essential inputs like electricity which accounts for about just over 45% of

the total cost. In USA, the average cost for a unit of electricity is about 3 cents where

as in India it is about 10 cents for the same amount of electricity. There are a few

more challenges for India like the competition for providing a better quality and the

increasing prices for coking and non-coking coal, which adds to the list of challenges

in front of Indian steel industry. The problem for better infrastructure like road, bigger

and better ports etc. lack of investment in Research and Development. Low quality of

steel and steel products because of the non availability of better raw material.

Increasing taxation has now become major burden for the manufacturer in this

industry.

3) Opportunities:

India is known as the land of villages, in India about 70% of the population lives in

rural areas. There are plenty of areas which need attention, these areas in need of

development like improvement in the transportation system of the country, which will

require a huge amount of consumption of steel products. The opportunity for the

Indian steel sector lies here as in India almost all the sectors have enormous potential

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for the consumption of the steel products. In order to reach or race up with developing

countries India has to increase the steel consumption level, which can be

demonstrated in the following table:

Region 1999 2000 2001 2002 2003 2004

China 103 111 136 163 178 194

OtherAsia

93 99 98 103 104 104

Europe 368 383 371 364 370 379

NAFTA 349 361 311 306 308 308

Others 72 77 79 77 78 80

World 133 142 143 150 155 160Source: IISI, Brussels

Even to reach the developing economies or to compare with the lately developed

economies like China, India will require increasing the consumption level by a

quantum.

Booming Sectors:

Indian economy is the second fastest economy growing in the world, which is next to

the Chinese economy. Almost all the sectors in the Indian economy are booming but

these sectors still have not been re designed or re developed. The sectors like

Automobile, Engineering, Packaging, and few others have a huge potential for the

consumption of the steel products. New and better steel products will be useful in

improving the performance, simplifying the manufacturing process and increasing the

reliability with in these sectors. There is an immense amount of potential for the steel

consumption in the different sectors of the country only if the manufacturer of steel

products improves the quality, durability and performance of the steel products, with

bearing in mind the cost for the end user of these products. In an era of the ever

changing technology the Indian steel manufacturer should keep the updates of the

latest technology in order to enhance the quality of the steel products which will be

useful in these applications. Producing and supplying the high quality of steel in the

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required specification by the Indian steel manufacturers at the lowest possible cost

will ensure an increase in the steel consumption in the country, hence this will reduce

the need for the fabrication of the steel products which will help in reducing the cost

for the steel products. For instance, some precoated sheets can be used for the

manufacturing of the food processing machineries, electrical equipments and

transportation.

Export Market:

It is believed that the future for the world steel industry is improving. There is a

forecast which states that the world steel consumption will double in the next 25

years. The improvement in the quality of the Indian steel makers along with the

competitive advantage of the low cast will surely be helpful in establishing and

controlling the export market.

Threats:

Stagnant growth:

The linkage between the growth of the economy and the growth in any of its sector is

very strongly related. The Indian steel industry is no exception to it. During the period

between the 1970s and the 1990s was same as the economy which was very slow.

The slow growth in the economy and the steel industry enhanced the existing firms to

be envy of each other. Result of this, the Indian steel industry was suffering from the

price wars, which did not do any good to the industry and the economy of the country.

Substitutes:

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One of the most attractive sectors for the Indian steel industry is the automotative

industry; the entry of the plastic components will result in decrease in consumption of

the steel products. In the automobile industry the only material that can take over the

steel usage is aluminum. The only thing that allows steel to sustain in the automobile

industry is because of the cost of electricity for the extraction and purification of

aluminum in India weighs higher than of the steel. There are some areas where the

usage of steel has already been replaced like railways sleepers, large diameter water

pipes and domestic water tanks.

Many times the changes in the technology force the industry to change, India is a

developing country and it has an expensive capital. If the technology changes than the

technology becomes obsolescence and this becomes a major threat for the steel

industry. The purchase quantity for the steel products depends on the requirements for

the end-user. The price is sensitive and buyers tend to buy when there are discounts.

The integrated steel manufacturers are often affected by the volatility in demand

because they are unable to tune their production line with respect to the market

demand fluctuations. The few other threats for the Indian steel industry could be, the

high quality of products from the developed nations which could affect the domestic

manufacturers and would decrease their market. On the other side there would be a

threat from these developed nations as they would dump their products in to the

country and would affect the countrys market. The problems of getting much

financial help from the institution as in the past there was no investment in this

industry, taking the fact in to consideration that the investment in this industry in too

high.

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F) Transformation strategy:

The SWOT analysis for the Indian steel industry helps in understanding the current

position of the industry, it also helps in knowing what is required by the industry.

After analyzing the Indian steel industrys strength, weakness, opportunity and threats

and also the experiences of the other manufacturers of steel of the world would be

helpful in making a turnaround strategy for the success and the growth of the Indian

steel industry. The aim of the strategies would be to gain maximum benefits from the

strengths, also to reduce or decrease the adverse effects of the weaknesses and also to

turn these weakness into the strengths. To convert the opportunities in to a real time

situation and make the most out of it, finally knowing the threats and be prepared in

advance to face them and combat these threats. Thyssen Krupp Materials (UK) Ltd,

gave their view for stainless steel product mix, it has higher resistance to corrosion in

any environment whether man made or natural, to have proper material it is important

to select proper type and grade of stainless steel for a particular use. The presence of

Chromium forms a layer of Chromium oxide (Cr2O3) mixed with oxygen. This layer

is very thin and this helps for the metal to be shiny, but the layer caused is impervious

to water and air, protecting the metal from beneath. Stainless Steels resistance to

corrosion and staining, very low maintenance and this makes the metal host for many

commercial applications. The product is available in many forms like Sheets, Bars,

Pipes, Tubes, and Flanges useful in many different applications.

Stainless Steel metal is 100% recyclable, actually over 50% of new stainless steel

materials are made from the recyclable scrap, which makes the metal in some way an

eco friendly material.

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5)PRIMARY RESEARCH

The research conducted in this section tends to be actual and factual in nature, which

proves to be the support for the information gathered from the journals, books,

internet and other forms of secondary sources. The interviews conducted and e-mails

sent across within this framework were largely centered to the strategy and their

experiences in the segregate fields:

A) Interview with Mr. Jason Katplan, Senior Analyst, CRU, London.

In the year 2002-03 the price for the nickel on the commodity market was trading

between 8000 to 10000 points, these prices reflect a lot about the positioning and the

trading conducted on the Nickel, on the commodities market.

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The following year showed an improvement in the prices for the Nickel on the

commodity market, the demand for this commodity went on increasing, it was seen

that there was a huge amount of investments coming in to the commodity.

As the demand was seen increasing for the stainless products, there was seen a

shortage for the supply of the Nickel. There is an indirect co-relation between the

demand and supply, because of the increasing demand for the stainless steel products

the prices for Nickel were increasing enormously.

Further more during the early years the investors were not interested in investing in

the commodity traded in the market and did not show any interest in them. Due to the

lack of institutional investors, hedge funds and equities in the industry and in the

commodity, the trading prices for the Nickel did not see any transformation in their

prices.

During the years 2004-05 the demand for the stainless steel products went on

increasing through out the world, mostly developing economies and which was lead

by the Chinese economy.

The Chinese economy increased their consumption for the stainless steel products,

which resulted in the shortage of supply of these products in the world, resulting in an

increase in the prices for the Nickel on the commodity market.

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Nickel Prices

0

10000

20000

30000

40000

50000

60000

Jan-02

May-02

Sep-02

Jan-03

May-03

Sep-03

Jan-04

May-04

Sep-04

Jan-05

May-05

Sep-05

Jan-06

May-06

Sep-06

Jan-07

May-07

Source: LME

Stainless steel contains a high percentage of Nickel, Molybdem and Chromium. But

steel prices are mostly affected by the prices of Nickel only and this is because nickel

is the only material traded on the commodity market. The other raw materials does

not have any market demands.

At the start of the financial year 2007 nickel has been trading at the historic high of

over 50000 points on the LME index

The impact of this big investment in a very short period was huge and steel prices

became more volatile, to an extent it was a speculation created by some institutional

investors, to avoid all these practices LME came in to the picture and changed the

guidelines for the new investment in this industry.

These investors started moving their investment to a different industry and thus there

was an enormous amount of withdrawal of money from the industry, which resulted

in the felling of the prices on the commodities market.

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The growth of the steel industry will increase and will sustain the competition in the

long run, because of the nature of the steel products there is a benefit to the steel

industry as in there is no alternative or substitute to the steel products. Also the

industry is diversifying, there are better products offering, different forms and

specification of products are offered. Technology intervention has made it possible to

have better product mix, having galvanized sheets, coils, flanges etc which enables

todays manufacturer to increase their sales nationally and internationally.

The steel industry is more of cyclic in nature, the demand for the steel products is

growing at a faster rate; for example the demand for the steel products grew to about

15% compared with the demand last year, in 2007 it has already crossed 5% demand

over the demand for the year 2006. This clearly states that the industry is in the

growing phase and will continue to grow in the long run.

B) Interview with Mr. Mukesh Chandan, managing director for Chandan Steel

Limited, India.

To be successful as a manufacturer in the steel industry, it is very essential to have the

best quality products with the optimum performance.

Indian market is a very price sensitive market, where a small movement in the prices

for the commodity can have drastic changes on the whole industry and the products.

Stainless steel does get affected with the volatility and the movements in the prices of

Nickel on the commodity market. But these movements in Nickel prices have no or

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less direct relation with Steel products. The manufacturers in the developed markets

do not get affected with the movements in the Nickel price as they are based on the

long term contracts. On the other hand, the immature markets do not even stand the

volatility of these changes in the prices.

The cost involved in this project is very high. The setting up of the steel

manufacturing unit is a long gestation project. The project involves a high input costs

along with high variable cost.

In India the steel industry used to be operated in a controlled market, but after the

liberalization and the opening up the economy the regulators for the industry have

minimized.

The need for diversification is very much seen in this industry. Manufacturers now

should not only see the quality as one of the major asset but also the cost and the

margin in terms of increasing their sales nationally and internationally.

Different products offering is also the way to be successful, as the demand for the

steel products has been increasing in the Auto industry in the recent past,

manufacturers should now concentrate on making more improvised products for the

construction, railway, processing and fabricating industry which could be the way to

become successful in this industry.

C) An e-mail sent to Mr. Jitendra Kanungo, purchase manager of Ramani Steel

House, India.

The email sent to Mr. Jitendra Kanungo did help in establishing some very crucial

facts about how the Indian steel market is been operating, what factors will be

required in or order to be successful. The information also gave light to the underline

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factors of how manufacturers can increase their national and international sales by

making a better and efficient product mix.

The most successful ways of increasing your national and international sales is to

maintain the highest quality standards. There should be some very important links

between you and your sales channels. In todays competitive environment it is very

difficult to survive not only on the quality standards but also on the cost effectiveness

of the companys offerings,

Further it is essential to have good stock distribution facility through out the country,

the delivery standards to be more feasible in terms of changes and specifications

required by the customers.

In the stainless steel industry, the final products have a very high impact on the

customers. The need for the better product mix is seen in the market, as the steel

products are further used for fabrication, processing and ascertaining. This shows the

need for diversification still prevails in the industry, as different it will be helpful for

development of new long products for construction, heavy plates for Ship building,

different alloys and Nickel mix which will be helpful in managing the company in

good or bad times.

Taking in to consideration the raw material for the production of the steel products,

the manufacturers have now become more cautious of the volatility with the prices of

the Nickel in the market.

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The relation between Nickel and Stainless steel in direct because stainless steel

products have the content of nickel in high amount, and Nickel is the only material,

compared with the other ingredients of Steel, which is traded on the commodity

market.

Till the early nineties, the steel market was operating in the regulated market but with

the opening up of the economy the regulated market was eroded and there was no

monopoly left in the market. Many private manufacturers did enter in to the market

and established new competition in the market, thus giving better products, quality

and prices.

LME has always played a vital role in regulating the Nickel prices on the commodity

market. But there has never been a direct impact on the steel manufacturers as the

LME guidelines restrict themselves to Nickel and other related commodities. Only the

changes in Nickel affect to some steel products and that is what major steel

manufacturers were worried about. The growth in the steel industry is enormous;

almost every nation requires stainless steel products in order to make their economy

more developed and sustainable.

D) An e-mail sent to Mr. Robert Howson, Senior Analyst, MEPS (International)

Ltd. UK.

According to Mr. Robert Hobson, to become a successful manufacturer in the global

steel industry it is very important to maintain good customer relationships in the local

market, maintain the quality levels to the highest standards. This will enable the

manufacturer to establish a distribution network with the Trading companies in the

international market, thus it will help in increasing the sales.

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The fall in the price of the Nickel on the commodity market will have a dramatic

effect in the stainless steel market as the Nickel content in the stainless steel product

is high, so the impact of the change in the price of Nickel is directly related to the

stainless steel prices. The steel market does not operate in a controlled environment,

though there are direct implications of the LME (London Metal Exchange) on Nickel

which is very important material in the stainless steel.

There are various stainless steel products which are performing better, for instance, in

2005, the demand for steel flanges was almost doubled the demand in the previous

year. In the coming years, Steel flanges, Sheets, Coils, will tend to have more demand

because of the resistance quality and the multiple usages in different sectors like

automotive, appliances, agricultural equipment, etc.

In every industry the need for diversification and expansion is always there, the steel

industry is also running through the same phase and it needs product diversification.

In the near future the industry will be leaning towards the flat rolled products as the

usage for these products is there almost in every sector in the economy.

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6) ANALYSIS:

The primary information gathered provides an insight to the secondary information

and reveals the fact about the world and the Indian steel industry dynamics. The

research conducted in this paper explains, how the Indian steel industry developed

since the liberalization policy of 1991. The research does give light to the growth for

the steel industries in the world but still the need for the steel manufacturer is strongly

felt in the Indian economy and there are many challenges in front of the Indian steel

manufacturer which needs to be taken care:

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The country has a shortage of the supply of the important inputs which tends to be the

biggest challenge for the steel manufacturers. The government policies on the import

of raw material levy heavy taxes, which becomes a big burden on the manufacturers

in the country.

The steel production in the country is way behind the other developing nations, for

example: china produced about 349 million tons of steel in 2005, where as India could

produce only 34.9 million tons during the same period. This clearly portraits that

though the Indian steel sector has been developing but still it is way behind in the

international competition.

In all the interviews and the mails one thing is very clear that Indian steel industry

needs to manufacture more diverse products, different ranges of products like flat

rolled bars, sheets, galvanized coils, high percentage alloys and so on to compete in

the international markets. But again, Indian steel manufacturers face the problem of

making better products because of not having upgraded technology. So the Indian

steel manufacturer has to import the technology which results in the price increase,

because of this price hike the Indian manufacturer loses its competitive advantage of

low cost and hence the Indian manufacturer loses on its sales. Thus, this is leading to

become more vicious circle for the Indian steel manufacturer.

Mr. Robert Hobson did mention that in order to increase your national and

international sales it is very essential for the steel manufacturer to have strong

customer relationships with the local customers, and also establishing strong links

with the Trading companies in the international markets.

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7) CONCLUSION:

It is rather difficult to set a particular frame work for the success of any manufacturer

in the Steel industry, as any industry has a political and economical influence on its

operations. Before liberalization, there was a huge political influence over the

working of the Indian steel industry as it was operating in a controlled and protected

environment. However, to an extent the success and the failure of a company depends

on the strategies executed by the management team.

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The Indian steel industry is one of the oldest industries in the history of the Indian

economy. Since the inception, there has been enormous development in the industry.

The growth in the industry was clearly visible but the Indian steel industry was not

only behind the developed economies but was behind the lately developing economy

and its competitor, China. During the year 2004, China had enormous demand for

steel products and the imports were way too high. But, by the end of the following

year, China became one of the top steel producers in the world. Still India cannot

compete with the amount of steel produced in china. The steel industry from the

ancient times has predominantly remained technically and production driven, India

sadly lacks in both of these segments. There are many reasons for this poor

performance, there are very few big manufacturers in the Indian steel industry, the

product offering from these manufacturers have been limited, no diversification is

seen in their offerings and finally the weak link between the manufacturer and the

customers i.e. weak sales channel.

Low Profile on Product Range:

Today the Indian steel industry is operating at high level of business complexity, there

is the need to eliminate all these complexity and focus on some selected product and

markets to achieve success as in any other industries.

There are hardly any different products offered by the Indian steel industry than the

products that were offered during the inception of this industry. Todays manufacturer

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makes the same sheets, HR (hot rolled) coils, CR (cold rolled) coils, and so on. There

has been no diversification in the range of the products offered by them. From the

research it is known that the demand for the flat rolled products has been increasing

over the last few decades, India still does not produce them in huge quantity because

of very few manufacturers in this stream. India is known as best place for

manufacturing from the in the eyes foreign companies, because of the advantage of

cheap labour in the world. Though India has an advantage of labour, still it remains

ineffective in terms of producing different, better and quality goods. The main reason

behind this is lack of technology and manufacturing support given to the Indian

companies. The cost of raw material is increasing sharply, over the next few years this

sharp price rise will continue. Not having different ranges of products for the

customer, which does not allow the manufacturer to remain in stable conditions in

times of ups and downs.

Other thing that keeps the steel manufacturing worried is the hike in the prices for the

raw material. In the recent past there has been a tremendous rise in the raw material

prices for the steel products. Nickel is one of the major ingredients for the stainless

steel products, the research conducted shows that during the recent years it has

increased about 200%. Meps (international) revealed their view on the stainless steel

products as the Nickel content in them is very high, as this material is more volatile;

manufacturers are tending towards the products whish has less Nickel content.

Hence, this is the time for the manufacturers to start diversifying their product mix

before it is too late.

Establishing Proper Sales Channel:

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After the production activity comes distribution, producing finished goods in the best

possible manner and having no sales is of no good. A manufacturing company cannot

increase their sales unless they have a proper and well established distribution

channel. Of late, the Indian companies have realized the importance of the sales

channel, which can be seen by the recent Mergers and Acquisitions between

international companies, for example; TATA Steel with Corus Steel, UK is one of the

biggest acquisitions in the history of Indian companies. Mr. Robert, Meps, mentioned

that to become successful it is very essential to have well established network with

trading companies in the international market. A manufacturing unit, in order to be

competitive and successful should not only have a proper strategy but should also

execute it in the best possible way.

Since the introduction of the first steel company in India, it has come a long way but

yet this is not the end of the route and has to travel a lot more. To travel the rest of the

journey successfully the government has to encourage more entries in to the steel

market.

8) RECOMMENDATIONS:

India is rich in mineral resources. The government of India should help in developing

the raw material resources in order to make sure maximum supply of good quality raw

materials. It should make certain that the resources are

Documents

A Manufacturing Unit in Stainless Steel in India