Nucor Corporation in 2001: Pursuing Growth in a Troubled Steel Industry

Nucor Corporation in 2001: Pursuing Growth in a Troubled Steel Industry

Table of Contents

Introduction 3

Nucor's History 3

Current Strategy and Future Expectation 4

Analysis and evaluation 4

Dominant Economic Characteristics of the Steel Industry Environment 4

Competition analysis in the Steel Industry 5

SWOT Analysis 6

Recommendations 9

Introduction

Nucor's History

Nucor Corporation is the second-largest steel producer in the United States and has had net sales of $4.6 billion in 2000. Nucor recycles approximately 10 million tons of scrap steel. It operates in 9 states and produces carbon and alloy steel in bars, beams, sheet, and plate; steel joists and joist girders; steel deck; cold finished steel; steel fasteners; metal building systems; and light gauge steel framing. The company emerged from near Bankruptcy in 1966 to become one of the fastest-growing steel. Despite the recession in 1991, Nucor grew into one of the biggest and best-known global producers of steel.

Nucor's origins are with auto manufacturer Ransom E. Olds, who founded Oldsmobile and then Reo Motor Cars. Through a series of transactions, the company Olds founded eventually became the Nuclear Corporation of America. Nuclear Corporation was involved in the nuclear instrument and electronics business in the 1950's and early 1960's.

The company suffered through several money-losing years, and when facing bankruptcy in 1964, installed F. Kenneth Iverson as President and Samuel Siegel as Vice President of Finance. This change in management led to a restructuring and a decision to rebuild the company around the major profitable operations; the steel joist businesses in Florence, South Carolina and Norfolk, Nebraska called Vulcraft.

The company moved its headquarters from Phoenix, Arizona to Charlotte, North Carolina in 1966, and expanded the joist business with new operations in Texas and Alabama. Management then decided to integrate backwards into steel making by building its first steel bar mill in Darlington, South Carolina in 1968. In 1972 the company adopted the name Nucor Corporation. Since that time, Nucor has built three more Vulcraft facilities, eight steel mills, and expanded into other steel products.

Current Strategy and Future Expectation

Nucor is pursuing long-term growth and wants to improve its position from the second-largest U.S. steelmaker by overtaking U.S. steel, who is the industry leader. Its current strategy is to be the lowest cost provider of steel by finding opportunities to reduce cost. It emphasizes on technological leadership by aggressive pursuit of innovation and technical excellence. It puts strong emphasis on employee relations and provides fair compensation and egalitarian benefits. Nucor has a simple, streamlined organizational structure to allow employees to innovate and make quick decisions. The company is highly decentralized, with most day-to-day operating decisions made by the division general managers and their staff. Nucor is committed to uncompromising quality, responsive service, and competitive pricing through dedication to the customer, and concentration on productivity from a highly motivated work force.

Analysis and evaluation

Dominant Economic Characteristics of the Steel Industry Environment

The steel industry worldwide has a huge excess capacity, forcing many companies to operate in red. An unprecedented number of steel producers have filed for bankruptcy. Among them are Bethlehem Steel Corporation and LTV, who were the country's third- and fourth-largest steel producers respectively. With a lot of world's economies in recession in late nineties, there was a surge in the import of steel. With unfair subsidies from their governments, foreign steel producers were dumping steel in the U.S. market at cut-rate prices. In 1999, the United States had decided not to impose any import restrictions.

With 75% capacity utilization, a level too low for many companies, three European companies decided to merge to form the world's largest steel producer. Two Japanese companies did the same to form the second-largest steel producer. These new mega-steelmakers could easily outmuscle their U.S. competitors. The largest steel producer in the US, USX-U.S. Steel group was already at number 11, with a threat of falling even below with consolidation in the industry. The terrorist attacks on September 11, 2001, reduced the demand for steel even further. Efforts were underway to negotiate a worldwide reduction in steel production.

In addition to cheap imports the U.S. steel producers were facing higher energy prices, increasingly tough environmental rules and a changing cost structure among producers. The steelmakers around the world were watching the development of continuous "strip casting" technology, which was believed to be the next leap forward for the industry. This would eliminate the slab-casting stage and all of the rolling in the hot mills. Strip casting was facing some technological challenges but was already being adopted around the world outside the U.S.

Competition analysis in the Steel Industry

The pressures form substitutes, suppliers and new entrants are low, as shown in figure 1 below. Since buyers are less in number and buy in huge quantities, the competitive pressure is high. The intensity of the rivalry is very high especially after the consolidation of international steel makers. The number of players is less and there is huge excess capacity. The product is standard and not much can be done to create differentiation, so the basis of competition is cost. There is a huge pressure to keep up with the emerging technology.

Figure 1: Porter's Five-Forces Model of Competition

SWOT Analysis

Strengths

* Nucor is the second-largest producer of steel in the U.S. It enjoys the brand name advantages, and has well established relations with the suppliers and the buyers.

* Nucor is very good