RR1002A01 Term Paper ECO515 Term Paper

8/4/2019 RR1002A01 Term Paper ECO515 Term Paper

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Midterm

paper

Economics

Effect of Globalization on IndianIron and steel industry

Suggestions are good, comparative assessment of several steel companiesmay have added more value. 16/25

Submitted to:

Mr. Chandrasheikhar Dogra

Submitted by:Kanwar inderpreet singh


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Roll. No: R1002A01Regd. No: 110107

CONTENTS:1. Introduction

2. Analysis3. Critical

analysis

4.Conclusion

5.Suggestions


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INTRODUCTION:

DEFINITION OF GLOBALIZATION: Globalisation is defined as the reduction oftransaction cost of transborder movements of capitaland goods thus of factors of production and goods.

OR

The process of globalisation includes opening up ofworld trade, development of advanced means ofcommunication, internationalisation of financialmarkets, growing importance of MNC's, populationmigrations and more generally increased mobility ofpersons, goods, capital, data and ideas.

The iron and steel industry presents one ofthe most energy intensive sectors in the Indianeconomy and are therefore very important for bothlocal and global environmental discussions. Theadoption of more efficient and cleaner technologies


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in the manufacturing sector will be effective for theachievement of economic, environmental, and socialdevelopment objectives.I

Iron and Steel Production in India

Although iron and steel is one of the most importantindustries in the Indian manufacturing sector, India isonly the 15th largest steel producer in the world.Originating from the first set up of a single steelplant in 1911-12, the iron and steel sector included 7integrated iron and steel plants in 1995-96. Due to

the regulatory and political development of thesector only one of these plants is in private handsaccounting for about 15% of total steel production.

The integrated steel units usually use the blastfurnace basic oxygen/open hearth furnace processroute for iron and steel production. In addition, thereare about 180 secondary producers employing theelectric arc furnace process. Another 500 mostly

smaller units rely on other processes such asinduction furnace process, melting by re-rollers, andship breaking units.

The top five producers of steel in India are:

1. Steel Authority of India Ltd

2. Tata Iron and Steel Company Ltd

3. Jindal Iron and Steel Company Ltd

4.Essar steel


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ANALYSIS:

EFFECTS OF GLOBALIZATION ONSTEEL INDUSTRY:

The effects of Globalization on Indian steel industryare not same throughout the country. The effectsdepend on the following factors:

#type of raw material#market condition#technological advancements#Govt. policies#business activities of steel and iron industry

The government played a very important role in thedevelopment of the steel industry in India. The India

steel industry is experiencing a slow but steadygrowth. The steel industry in India has huge scopesin the future with massive scale of infrastructuraldevelopment happening all across the country. Thesteel industry in India caters to many other industrialsectors such as:#construction industry#mining industry#transportation industry#automobile industry#engg. Industry etc. .


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production inventory or stock that is not sold

The improvement in the economics operating in thetechnological aspects of production

The transposition of basic materials of production

Merits and Demerits of Globalization

The Merits of Globalization are as follows:

There is an International market for companies and

for consumers there is a wider range of products tochoose from.

Increase in flow of investments from developed

countries to developing countries, which can be used

for economic reconstruction.

Greater and faster flow of information between

countries and greater cultural interaction has helped

to overcome cultural barriers.

Technological development has resulted in reversebrain drain in developing countries.

The Demerits of Globalization are as follows:

The outsourcing of jobs to developing countries has

resulted in loss of jobs in developed countries.

There is a greater threat of spread of communicable

diseases.

There is an underlying threat of multinational

corporations with immense power ruling the globe.

For smaller developing nations at the receiving end,

it could indirectly lead to a subtle form of

colonization.


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SWOT ANALYSIS:

Strenghts:# availability ofiron ore#availability oflabor at low wages

rate

Weaknesses:# endemicdeficiencies#systemeticdeficiencies

#high cost ofcapital#low laborproductivity

Oppurtunities:#unexplored rural

market#other sector#exportpenetration

Threats:#slow industry

growth# technologychange#price sensitivity


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and demandvolatility

CRITICALANALYSIS:

Current

Investments:

The Indian steel companies invested as follows:

Bhushan Steel plans to invest US$ 5.72 billion for

building 12 million tonne-capacity in the states

of West Bengal, Jharkhand and Orissa.

Vedanta Resources, plans to invest around US$


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4.79 billion in a 5 million tonne steel plant in

Keonjhar district of Orissa and envisages its

commissioning by 201213.

Tata Steel is also planning to build a 5 million

tonne plant in Chhattisgarh with an investment

of around US$ 3.59 billion. The steel major is

setting up greenfield projects in Jharkhand,

Orissa and Chhatisgarh. While in Jharkhand it is

likely to invest about US$ 8.38 billion for a 12

million tonne integrated steel plant, in Orissa it

plans to pour in almost US$ 4.39 billion for a six

million tonne capacity plant.

Mesco Steel plans to invest US$ 2.20 billion for

expansion of two of its steel plants in Orissa.

Reliance Infrastructure plans to build a 12-

million tonne steel plant in Jharkhand, which is

likely to be completed by 2012.

Indian Railways plans to invest around US$

437.25 million per annum to raise its

consumption of stainless steel for adding new

alloy-made wagons and coaches to its portfolio.

Welspun Gujarat Stahl Rohren plans to increase

the capacity of its pipe plant by 75 per cent to


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1.75 million tonnes with an investment of US$

222.52 million.

The JSW group plans an outlay of US$ 40 billion

for steel and power projects. These projects will

be completed by 2020.

Visa Steel has lined up a US$ 1.51 billion US$

2.02 billion integrated steel project in

Chhattisgarh.

Sarralle India, a subsidiary of Sarralle Equipos of

Spain and one of the largest designers of steel

plant equipment, has decided to set up a

manufacturing base in Uluberia in West Bengal.

Interarch Building Products Private, (the largest

player in pre-engineered steel buildings space)

plans to set up its greenfield manufacturing

facility in Gujarat by 200910.

#COST COMPETETIVENESS OF INDIAN

STEEL INDUSTRY:

UNITS IN US$ (AS PER MARCH 1998)

country

Majormaterial

Othermaterial

Labour cost

Totaloperating cost

Financial cost


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CIS 117 138 39 294 37S.KOREA

113 109 51 273 62

AUS 99 142 120 361 42MEXICO

108 180 62 350 57

INDIA 111 170 62 343 70UK 120 148 114 382 38CHINA 179 112 90 381 40BRAZIL 132 122 112 366 75

INTERPRETATION:

The cost of major raw materials like iron ore, coking

coal, and other raw materials is less in India among

the countries mentioned. The labor cost is low, but it

is neutralized by its low level of productivity.

The financial cost and the cost of power, oil and

some other materials are high. Energy accounts for

about 35 - 40% of the cost of steel production in

India, whereas it is about 28% in the developed

countries. Considering the low wage rate and other

economic factors, the labor cost in India makes up


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around 15% of the cost of the steel as compared to

around 30% in developed countries like Japan and

United States. In spite of these advantages, Indian

firms could not become cost-effective.

#CONSUMPTION AND PRODUCTION OFFINISHED STEEL(million tones):Year Productio

nNetimport

Consumption

1994-1995

9.13 1.37 10.5

1995-96

8.50 1.36 9.86

1996-97

8.78 0.77 9.56

1997-98

10.03 0.73 10.76

1998-99

10.54 1.34 11.88

1999-2000

11.95 0.86 12.81


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2000-01

13.36 0.77 14.13

2001-02

13.4 0.28 14.12

2002-03

13.82 0.73 14.55

2003-04

14.63 0.23 14.86

2004-05

15.51 -0.08 15.42

2005-06

15.20 -0.28 14.92

INTERPRETATIONDuring the period of 1994-1995 the totol productionof finished steel was 9.13 million tones whereas theconsumption was around 10.5 million tones. To meetwith the demand steel industry had to import morethan one million tones from different countries. Atthe end of year 2000 the net production of steel

industry was increased by significant level to morethan 13 million tones of finished steel however theywere required to import 0.7 million tones of finishedsteel to meet with their consumptions. With time andthe effect of globalization the production of steel andiron industry has improved and can easily fulfill its


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consumption needs.

CONCLUSION: It is universally accepted that Indian

economy is growing at a very high rate presently and

the demand for steel is also showing an upward

trend. For the sake of country and growth of

economy, growth of iron industry is a must. This is

possible only with the active support of the

Government and effect of global industry.

The global steel industry has been cyclical and

although internal demand is likely to remain high inIndia for the future, overcapacity in the global

market place remains a real threat in the next

decade. Overcapacity would bring about increased

competition and damage or restrict any opportunity.

In addition foreign direct investment is likely to slow

down and production needs be re-evaluated.

The global industry remains highly likely as the

major players aim for a larger global footprint. In

doing so the companies are pursuing two objectives:


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to lower their costs and increasing their market

share. India currently appears comfortable with large

raw material deposits, lower wages and favourable

energy prices

SUGGESTIONS:

The following suggestions are given to rejuvenate

the Indian steel industry:

Technology policy is to be so designed by the

government that it will generate the thrust to update

the technology by the steel producers.

Steel companies must assess their core

competency and rethink about their strategy to

cope with the internal and global competition.

R&D focus is to be increased substantially.

Expenditure on R&D by steel plants should be

increased. With a strong R&D base, organizations will

be able to adopt the technology faster.


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Organizational adjustments must be made

while adopting newer technologies. Effective human

resource policy will help faster technology adoption.

Training with updated inputs should be a

continuous process in steel plants.

Firms must do technological forecasting, which is

not common in Indian steel industry, to take better

decisions on product mix and investment proposals.

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RR1002A01 Term Paper ECO515 Term Paper