Introduction
NUCOR Corporation is an American-based steel company that was incorporated in 1955 (Thompson 330). By then, the company was referred to as the Nuclear Corporation of America, and the incorporation resulted from merger. This merger was prompted by the bankruptcy that the company had experienced in 1950. The Company has its headquarters in Charlotte, North Carolina, and it was America’s second largest steel manufacturing firm by the year 2012. One of the company’s greatest reputations was the success in profitability by 2012. In 2012, NUCOR had a continuous profitability trend for decades (Thompson 330-331).
However, like any other business, NUCOR has been faced by some hard times that include foreign competition, decline in the demand for steel, and insolvency (Thompson 330-331). These are some of the strategic issues that the Company faces, and the issues will be discussed in this paper. Another thing that the paper will focus on is the description of the Company’s low cost strategy, and the factors that have contributed to NUCOR achieving a low cost position. The paper will also discuss Porter’s Five Forces model to the steel industry before making a conclusion on whether the steel industry is an attractive business. The paper will then describe that Company’s resources and capabilities. Finally, the paper will elaborate the key lessons that can be learnt from the case analysis.
Strategic Issues Facing NUCOR
Foreign competition is the first strategic issue and NUCOR experienced it in the 1980’s when the imports of steel from overseas begun to rise. In this period, 20% of the steel consumption in the US was attributed to import. This percentage was an increase from 12% in the 1970s. The foreign competition can be attributed to the slacking auto sales. By then, NUCOR had six joist production plants, and steel mills. These mills used a new technology that was referred to as the “mini mill,” to process steel. NUCOR continued to face foreign competition in in the year 1990, as the foreign imports continued to increase as the result of the ongoing economic slump in the steel industry (Thompson 330-331).
The other hard time that has mentioned was the decline in the demand for steel. NUCOR experienced this problem in the year 1997. By this time, the steel capacity in the US had risen by 40%. However, still with the increase in the steel capacity, its demand dropped. This forced NUCOR and its competitors in the steel industry to make price cuts. However, NUCOR overcame this problem and by the end of the 1990s, NUCOR was ranked as the America’s second largest steel manufacturer (Thompson 331).
The third hard time that was mentioned is the insolvency. NUCOR experienced insolvency when it went bankrupt. The first time that NUCOR became bankrupt was in 1950. However, the resulting merger in 1955 lifted up the company again. The company almost became bankrupt again in the year 1966. It was the works of a new manager called Ken Iverson that prevented the company from sinking into the bankruptcy. Iverson prevented bankruptcy by restructuring business in NUCOR He first eliminated NUCOR’s unprofitable branches. He also focuses on two line of business namely joist production and use of recycled scrapped metals to produce steel (Thompson 331).
Elements of NUCOR’s Low Cost strategy
The first element of NUCOR’s low cost strategy is strategic acquisition. NUCOR began strategic acquisition in the 1990s. Instead of building new capacity plants, NUCOR finds it cost-effective to purchase existing plant capacity. This is because existing plants could be bought at a bargained price. Existing capacity plants can also retrofitted with new equipment, and also the cost of operation is also economically viable (Thompson 339-340).
The next element of NUCOR’s low cost strategy is a continuous adoption of the emerging technology, and being opportunistic when constructing a new plant capacity. Opportunistic when constructing a new plant capacity is aimed at expanding NUCOR’s presence in new and attractive existing market segment. NUCOR made two steel making breakthroughs namely disruptive technological innovations, and leapfrog technological innovations. Disruptive technological innovations were aimed at giving NUCOR a competitive advantage in the market through disrupting the competitors’ activities. On the other hand, the leapfrog technological innovations were aimed at overtaking the competitors in the following areas: cost per ton, product quality, and in the market share.
NUCOR technological pioneering is evident in Crawfordsville where a direct strip casting that is made carbon sheet steel was installed. The technology is referred to as Castrip®. It was the first installation of its kind in the world. Castrip® reduced capital outlays for the Crawfordsville plant which eventually saved the operating costs. Castrip® also enabled the plant to start using low-quality scrap metal, and also saving 90% of energy when processing liquid metal. Castrip® was commercialized in 2005 and it reduces greenhouse gas emission by around 80% (Thompson 343).
The third element is engaging in global ventures to ensure growth. The process began in 2007 using two elements. The two are: Establishing sales offices in foreign countries and exporting of steel and joint ventures with partners that are outside North America. Some of the countries where NUCOR opened offices included: Mexico, Colombia, Brazil, Middle East, and Asia (Thompson 345-346). The forth low cost strategy that NUCOR embraced is in the raw materials. NUCOR began using scrap metals and substitutes as that source of raw materials in its industries. The use of these alternative raw materials was aimed at reducing the cost that could be used to buy raw materials (Thompson 346-348).
The final low cost strategy used by NUCOR is shifting production. This is the newest of the NUCOR’s strategy and it shifts production to value-added products from lower-end products. The initiative began in 2010, and it is aimed at producing tonnage steel and steel products that can command higher prices in the market leading to huge profit margin (Thompson 348-349).
Porter’s Five Forces of Steel Industry in the US
The Porter’s five model has five competitive forces that include: threat of new entrants, threat of substitute products, and intense rivalry among competitors, suppliers’ bargaining power, and buyers’ bargaining power (Grimm, Hun and Ken 52-54).
Threat of new entrants: The threats of new entrants in the steel industry include such things as low access to low materials, problems when it comes to attaining the economies of scale, shortage in product differentiation, and huge capital requirements. From the threats, it can be said that the effects on profitability is low.
Threats of Substitute Products: The steel manufacturing industry’s substitutes are aluminum, plastic, and wood. Substitutes’ threats have low effects on profitability because some uses of steel cannot be substituted with other materials
Intense Rivalry from Competitor: Competitors’ rivalry causes price wars among the steel industry players, difficulty in achieving differentiation, and difficulty in achieving the economies of scale. Competitors’ threat has a high impact on the profitability of in the industry.
Supplier’s Bargaining Power: Supplier’s bargaining power has caused scarcity in raw materials causing importation of raw materials. Suppliers’ bargaining power has a high impact on the steel industry profitability. Steel industry must depend on supplier for raw materials in order to operate.
Buyer’s Bargaining Power: Buyer’s bargaining power resulted from the rise in domestic competition. Buyer’s bargaining power results to low product differentiation, and low switching cost. Buyers’ bargaining power has a very high impact on profitability especially where there are many players in the industry.
Concluding on the Porter’s five forces of steel industry in the US, it can be said that the steel industry is an unattractive industry. This is because of the five forces in the Porter’s model, three have a huge impact on the profitability of the industry. The three are buyers’ bargaining power, suppliers’ bargaining power, and the competitor’s rivalry. The two forces that have low impact on profitability are the substitute’s threats and the threat from the new entrants(Grimm, Hun and Ken 52-54).
NUCOR’s Resources and Capabilities
NUCOR’s resources include: strong financial capital, decentralized management with a corporate culture, high-standard manufacturing facilities with the use of technology such as the electric arc furnaces, employee loyalty and high quality customer services, acquisitions, and low cost of production. On the other hand, the capabilities include things such as optimizing the current affairs, development of the “Green Field Projects,” going global through acquisition and joint ventures, and diversification.
In the terms of heterogeneity, NUCOR’s resources include: structure and competitive pricing. The structure is in the form of employee autonomy and decentralization, while competitive pricing is in the form of offering low prices as compared to the competitors. In the terms of mobility, NUCOR has only one resource; the mini-mill technology.
Lessons from the Case Analysis
One of the lessons that can be learnt from the cases analysis is that HR managers should adopt a strategy of maintaining a strong leadership while they motivate the workforce. HR should also foster innovation. HR should invest on research and development (R&D). Investing in R&D lowers the cost of production. As the case has indicated, NUCOR emerged as the America’s second-largest steel manufacturer as a result of merger and acquisitions. Imagining that the company will not find a merger, or an acquisition anymore, the company might probably reduce in size. However, if the company has invested in R&D, then the cost of production would decrease because there would be advancement of technology in the company. The company can also be able to achieve product differentiation if it invested on R&D.
Another lesson that HR should learn is the good relation with the employees through offering various fringe benefits. NUCOR was a successful company because its employees had the following fringe benefits: medical and dental plans, tuition reimbursement, service awards, scholarships and educational disbursements, and other insurance benefits (Thompson 352). Firms should also embrace performance-based bonus system. These systems increase productivity. There are four bonus structures in the NUCOR’s bonus system. The four structures are: senior management, staff, department heads, and production worker. Each of the bonus structure is performance-based, and with different incentive from the other. Such a system acts as a motivation force to the employees. This increases productivity in the workforce and eventually profitability in a company.
HR should also ensure that there is sustainability in production. As the case has indicated, recycling is one way of ensuring that sustainability is achieved because a steel manufacturing company does not have to go mining. NUCOR has also illustrated environmental responsibility through the Castrip® technology in Crawfordsville. Castrip® technology reduces greenhouse gas emission by around 80% (Thompson 343).
Work Cited
Grimm, Curtis M, Hun Lee, and Ken G. Smith.Strategy As Action: Competitive Dynamics and Competitive Advantage. New York: Oxford University Press, 2006. Internet resource.
Thompson, Arthur. A. Nucor Corporation in 2012: Using Economic Downturns as an Opportunity to Grow Stronger, 2015. Print
