Question
a) Undertake a suitable industry analysis to critically evaluate the strategic macro environment of the global steel industry and identify the primary forces facing Severstal.
b) With use of a suitable model, identify the internationalization drivers in the world steel industry and the extent of globalization.
Therefore, I have attached herewith all the required information to the writer, which can make him to understand the assessment needs, as I would recommend the writer to use the suggested structure as much as he can. As well as I have post the help sheet which is given by the lecturer and concluding most of the assignment explanation.
Solution/Answer
Executive Summary
In this report, the focus has been on carrying out an industry analysis through an evaluation of the strategic macro environment and internationalization strategy in the global steel industry. Also, part of this report has been identifying the primary forces facing the Severstal group. From the industry analysis, it is evident that the global steel industry is highly dynamic, volatile and fragmented. This has nevertheless been the case since the Great Recession of 2008 with their strategy being globalization and venturing in multiple markets globally. This is possible since the group leverages from local support by the Russian government and the increasing opportunities in different countries globally. In regard to the internationalization and globalization strategy adopted by Severstal group, it is largely global despite their efforts and competitive advantage is locally oriented. This study has recommended the need for investing in their company specification and macro-economic factors for successful internationalization. For the company specification, this can include the discovery of market and customer opportunities for steel and adjust accordingly on the basis of specialized assets, levels of productivity, and available market opportunities. Structural adjustments are also essential for successful optimization of their performance both locally and internationally. These strategies would be critical in mitigating the uncertainties that Severstal group face in their strategic direction evidenced by consolidation and divestment.
Table of Contents
2.0 Global Steel Industry Analysis. 4
2.1 Strategic Macro-Environment of Steel Industry. 4
2.1.3 Primary Forces Facing Severstal 8
3.0 Internationalization Drivers. 9
4.0 Conclusion and Recommendations. 12
1.0 Introduction
Severstal is an organisation that is vertically integrated steel and other linked mining business with a majority of their assets being located in Russia and investments globally. As noted in Severstal (2019), the company was founded in 1955 at the Cherepovets Steel Mill in Russia. The rationale of the focus of this company in this report is based on its strategy of survival in the competitive global steel industry. The company strategy is founded on an approach of strengthening its financial performance, maximizing value creation and enhancing the overall shareholder returns while capitalizing on their employee’s interests with minimal impact on the environment. Additionally, the company capitalizes on harnessing their customer’s experience, cost leadership and an embrace on existing new opportunities and the company advanced corporate culture. The aim of this report is identifying and assessing the strengths and weaknesses of the Severstal in line with its global environment and recommending a strategy that they can adopt for enhancing global competitiveness. The aim is achieved by undertaking an industry analysis for evaluating the strategic macro environment of the global steel industry and identifying the primary forces that face Severstal. Also, through the use of Yip’s globalization framework, the internationalization drivers in the world steep industry and the level of globalization is evaluated. This report content includes a summary of the report, introduction, global steel industry analysis, internationalization drivers, conclusion and recommendations and references.
2.0 Global Steel Industry Analysis
2.1 Strategic Macro-Environment of Steel Industry
In the steel industry, the major players include the ArcelorMittal identified as the largest producer of the steel products followed by the Nippon Steel and Sumitomo Metal Corporation in the second place. The consistent growth of these companies has been informed by the existence of growing and emerging economies of South America, Asia and the Middle East which represent the main growth markets for the steel products (Sainidis, 2017).
2.1.1 PESTEL Analysis
The PESTEL analysis is used in the analysis of macro-environment of the steel industry.
Political Factors
Privatization of the government-owned assets in the emerging economies of the BRIC nations and the Middle East present impeccable opportunities for foreign direct investment. This is supported by Hudson and Swanton (2012) study that had pointed out that shifting alliances, mergers and demergers between major steel companies, policies of national states and privatization presents opportunities for the Steel industry growth. Additionally, the trend of different global governments to invest in the construction of infrastructure, ship-construction and automotive manufacturers equally increase the scope of operations in the steel industry.
Economic Factors
The weakening US dollar beginning 2000 has directly influenced the cross-border acquisition with Russia and Chinese steel producers being advantaged. According to Wårell and Olsson (2009), the peak of the steel is at the peak of the curve at a per capita income of approximately 28,000 US dollars. Bearing in mind that China’s GDP has been increasing in a margin of 5,500 China and 2,800 in India, the steel demand will proceed increasing in future. As such, the steel industry is characterized by an increased production output (supply) cycles following the economic cycles of the global economy (GDP). The economic development has directly contributed to the increasing pricing pressures, the gaps in price matrix and the asset concentration directly influencing the industry operations. The great economic recession has contributed to a decline in the capacity utilization ratio of the steel plants for approximately 70% as opposed to the 88% prior to the great recession.
Social Factors
According to Wårell and Olsson (2009), developed and developing countries use steel products for their local development and to enhance increased economic growth. Hence, the steel industry improves the quality of life of communities served through excellence in all their activities with companies such as Tata Steel investing in consistent training to promote safety consciousness among their employees. Also, companies such as SAIL and Tata Steel engage in aligning themselves with a country cultural practice to enhance their consumer’s loyalty and commitment to their Steel products.
Technology Factors
There is increased industry productivity as a consequence of the adoption of new technology. As noted by Collard-Wexler and De Loecker (2015), this is achieved through an increased displace of the older technology identified as a vertically integrated production to increase industrial productivity. This equally contributes to the increased competition leading to substantial reallocation process through vertical integration of producers, harnessing resurgence in productivity leading to successful productivity levels.
Environmental Factors
Steel companies must abide by strict environmental laws, statutes and other regulations. This is also through increased conservation of natural resources and energy through a constant reduction of consumption and wastage. This is part of minimizing the process wastes and promoting a high-level recovery and recycling of materials for pollution control.
Legal Factors
Different countries introduce distinct rules and regulations for governing the steel industry. The set policies dictate on how the companies in the industry operate the customer’s interest and their employees. The Steel companies are supposed to abide by the Kyoto protocol of climatic change. This has led to bringing together all members of the World Steel Association who engage in a proactive launch of steel in a sustainable world.
2.1.2 Economic Trends
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