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Pursuing Growth in a Troubled Steel Industry

Join together with US producers of steel and lobby hard for the Bush Administration to impose tariffs on foreign steel imports: The steel industry’s high cost structure is further complicated by the impact of unfair trade practices and dumping by foreign steel makers. These unfair trade practices have been especially aggressive over the past several years. The steel industry has been negatively impacted for years by foreign dumping of steel. The lowering of tariff and non-tariff barriers between countries will increase the competitiveness.

Nucor needs to take a leadership role in the trade issue and continue to fight for a level playing field for the fair and free trade of steel. Lobbying will allow Nucor to fight for the enforcement of existing regulations, trade laws, antitrust issues; the development of an warning system for illegally traded imports and hold those accountable for over capacity and illegal dumping of steel in the market by foreign competitors. Nucor needs to aggressively pursue federal government intervention.

Continue to acquire bankrupted companies that will enhance value and provide Nucor with the following advantages: Geographic, product, technological, trade restrictions, no need to catch up capital expenditures and the promise of fast payback. Nucor’s growth strategy is through

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acquisitions and expanding capacity while broadening its geographic presence. Nucor has the financial ability to borrow significant additional funds and still maintain reasonable leverage in order to finance major acquisitions.

Acquire or consolidate with distressed rivals and companies with threat of substitute products: Consolidation is necessary to restore the long-term health of the steel industry but some domestic producers do not have the resources. The steel industry is plagued by excess capacity. Nucor needs to continue to maximize production in order to minimize average cost. These problems can be remedied by consolidation and restructuring which will reduce excess capacity. Consolidation will make Nucor greater in terms of profitability.

The bargaining power vis–vis suppliers will likely to increase as a result of consolidation. Nucor has lost significant market share to alternative materials, such as aluminum, plastics and other composite materials. This is well illustrated in the automobile industry where the average mass of steel per vehicle has been reduced. Pressure to increase fuel efficiency for environmental and price concerns has caused the automobile industry to substitute plastic and aluminum for steel. The environmental concerns are part of Nucor’s strategic business consideration for securing its market share.

In response to threats of substitutes and the automobile industry, Nucor should acquire or consolidate with other companies to design an ultra light steel auto body. Continue to invest in state-of-the art equipment. Computerization for monitoring and control functions throughout the mini-mill will continue to reduce labor costs and improve information flow: Technological innovation is the key driver for sustainability for Nucor. Nucor has a commitment to reduce toxic and transfers, to increase environmentally efficiencies by reducing energy use per ton of steel and improve material efficiency.

Beyond these improvements, Nucor remains tied to capital production structure and inherent environmental burdens linked to the chemical nature of the steel making processes. Nucor aggressively pursues the latest advancements and innovation in steel making around the world to determine what technology it can adapt in its facilities. Nucor is very diligent in monitoring R & D activities in steel production processes worldwide and then aggressively implements those innovations that are proved worthy. Continue to make use of R & D capabilities efficiently in order to remain competitive.

Collaborative research is desirable. Nucor must continue its technological revolution and be a leader. Nucor needs to continue to seek technological breakthroughs that will make them more competitive. * Continue in the Development of the Strip Cast Process: The strip cast process has a much lower consumption of energy with the reduction of the greenhouse gas emission. The energy efficiency of the process will result in material so thin that less energy is required and no additional heating is required after casting.

The strip cast process has many advantages such as lower capital and operating cost, reduced energy consumption and greenhouse gas emission, thinner high-value products and smaller flexible operating plants. Nucor is financially strong in the successful application of this new technology. This is allow Nucor to take away more of the market share from the integrated products. * Implement Forward and Backward Integration: Steel is not a single products. It is a whole range of products where each product has input-out linkages with a variety of other products.

Forward integration is where firms join forces with firms which product upstream products. Nucor could benefit from joining forces with firms with upstream products. Backward integration shows that Nucor is interested in acquiring back-end support products in order to cut their cost of production. Nucor is more willing to increase its own market share by cutting their cost and offering products at lower prices. Forward integration is a step towards acquiring a larger share of the steel market.  Continue to focus on integrated low cost strategy and low cost leadership. Strategic Vision- “Keep on Keeping On and Improve On Cost!!! ”

References:

Muriel Sibert & Company (2002, November). “Nucor Corporation-NUE Fundamentals. ” Retrieved November 4, 2002 from the World Wide Web: http://www. quicken. com/investments/stats/? symbol=NUE “Prospects for Trade in the North American Steel Industry (2001, December). ” Retrieved November 4, 2002 from the World Wide Web: http://raider. muc. edu/~botzmatj/steelmex. html Steel Technology (2002, September). “The Castrip and The Steel Industry. ” Retrieved November 3, 2002 from the World Wide Web: http://www. steeltechnology. org

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