jyoti project
TRANSCRIPT
A
PROJECT REPORT
ON
“Analysis of Foreign Market Entry Strategies in
Steel Industry with special reference to
Tata Steel & SAIL”
for the
Partial fulfillment for the Degree of
Masters in Business Administration
(Session 2009-2011) - MBA (General), 4th Sem.
DCRUST, Murthal.
Under the Supervision of: - Submitted By: -
Dr. Aarti Jyoti
(Faculty of Management deptt.) MBA (Gen), 4th Sem
DCRUST, MURTHAL 09092816
1
DECLARATION
I, Jyoti, student of MBA 4th Semester, studying at Deenbandhu Chhotu Ram University
of Science and Technology, Murthal, hereby declare that the project report on topic
“Analysis of Foreign Market Entry Strategies in Steel Industry with special
reference to Tata Steel & SAIL” submitted to DCRUST, Murthal in partial fulfillment
of Degree of Master’s of Business Administration is the original work conducted by
me. The information and data given in the report is authentic to the best of my
knowledge. This project report is not being submitted to any other University for award
of any other Degree, Diploma and Fellowship.
JYOTI
MBA 4th SEM.
09092816
2
ACKNOWLEDGEMENT
A successful project can never be prepared by the single person to whom the project is
assigned, but it also demands the help and guardianship of some conversant person who
helped the undersigned actively or passively in the completion of successful project.
It is my pleasure to be indebted to various people, who directly or indirectly contributed
in the development of this work and who influenced my thinking, behavior, and acts
during the course of study. I express my sincere gratitude to Prof. Rajbir Singh worthy
Principal for providing me an opportunity to undergo project report at Foreign Market
Entry Strategies. I am thankful to Dr Aarti (Guide) for his support, cooperation, and
motivation provided to me during the project for constant inspiration, presence and
blessings.
Lastly, I would like to thank the almighty and my parents for their moral support and my
friends with whom I shared my day-to-day experience and received lots of suggestions
that improved my quality of work.
JYOTI
MBA (GENERAL)
Roll no -09092816
3
To Whom It May Concern
This is to certify that Ms. Jyoti has completed her Project in partial fulfillment of the
requirement for the award of degree of Master of Business Administration (MBA) for
session 2009-2011 under the supervision of Dr. Aarti, Faculty of Department of
Management Studies, Deenbandhu Chhotu Ram University of Science and Technology,
Murthal. The project was “Analysis of foreign market entry strategy in steel industry
with special reference to Tata Steel & SAIL”. She has performed excellently on the
project assigned to her and on account of that I, Dr. Satpal Singh, hereby issuing her the
project completion certificate.
Authorized Signatory
( )
Dr.Aarti
Date of approval: April 28, 2011. Faculty of Management Deptt.
DCRUST, Murthal
4
Table Of Content
Chapter Particulars Page No.
Chapter 1 Introduction to Study 1-2
Chapter 2 Review of Literature 3-7
Chapter 3 Research Methodology
Objective of study
8-9
Chapter 4 Industry Profile:
World Steel Industry
Indian Steel Industry
Challenges and Opportunity
10-26
Chapter 5 Modes of Entry 27-36
Chapter 6 Company Profile
Tata steel Ltd.
SAIL
37-51
Chapter 7 Findings Suggestions and
conclusion
52-54
Chapter 8 Limitation 55
5
Chapter 9 Bibliography
CHAPTER-1
INTRODUCTION OF THE TOPIC
The world steel industry recorded a high growth rate in production as well as in
consumption over the past few years. The main reason is the increasing steel demand in
automobile and in construction sector before the recession and in recovery. The Asia-
Pacific Region- especially China and India is witnessing higher production and
consumption of steel.
India’s economic growth is contingent upon the growth of steel industry of India.
Consumption of steel is taken as the indicator of economic development. Steel industry
has been moving from strength to strength. India has emerged the third largest producer
of steel in the world and likely to become second largest producer of steel by 2014-15. In
2009-10, steel production was 60 million tones that is expected to double to 124 million
tones by 2012. The ministry of steel projected for the next five year the demand of steel
will grow at annual growth rate of 10%.
There are many opportunities in world steel industry for the growth of economy. To
exploit these opportunity there are many market entry strategies which a firm adopt to
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enter in to world steel industry. It includes- a) what market to enter? b) what is the mode
of entry?
While entering in foreign market we considering a particular foreign market, its
economic, political-legal and cultural characteristics, Whether to do business in few or
many countries, To decide in which particular market to enter, How to enter the market
that is through direct exports, joint venture or direct investment, The extent to which their
product, price, promotion, distribution should be adapted to individual foreign markets.
Expansion into foreign markets can be achieved via the following mechanisms
Exporting
Licensing
Joint venture
Franchising
Turnkey Operations
Wholly Owned Subsidiary
Mergers & Acquisitions
Strategic Alliances
There are many Public and Private Steel Companies in India like Tata Steel Ltd., SAIL,
Jindal Steel and Power Ltd., Bhushan Steel Ltd. All have different foreign market entry
strategies. The purpose of my study is to analyze the market entry strategies of Tata Steel
Ltd. And SAIL and to find out which strategy is best to enter in foreign market.
7
CHAPTER-2REVIEW OF LITERATURE:-
How to find appropriate mode and what will be the critical factors considering
choose of entry mode into foreign market? It has been an interesting topic for the
researchers in area of international business study. From the result of our literature
search, we have found many good academic articles and researches, and have adapted
them to be more specific and suitable for investigate the select topic as following.
Pan & Tse, (2000)
He argued that although entry modes have been modeled into two ways: 1) model as
continue increasing level from export to wholly owned subsidiaries (Chu and Anderson,
1992); 2) the comparison between one baseline mode and other modes (Agarwal and
Ramaswami, 1992). The choice of entry modes also can be revealed from a hierarchical
perspective: at first managers can found a multi-level entry modes hierarchy from equity
to non-equity modes, then consider critical factors for each level and reach the
appropriate one. This article provided us an opportunity insight the process entry mode
choice.
Doole and Lowe (2001)
8
They suggest that a firm’s attitude and commitment to international expansion is crucial
to the success of the operation. The size of a firm can also hinder or enhance international
development as firms rely on the capability of staff for planning. When firms endeavour
to commit to international expansion, the lack of consistent information, adaptation of the
marketing mix variables and market segmentation are factors which need to be
considered in detail. The host country’s government can have a proactive role to play in
setting legislation and creating barriers to entry for international firms which may either
support or impede a firm’s market entry strategy.
Eicher & Kang (2005)
He examined MNCs’ optimal entry modes into foreign markets, they found that factors
of market size, FDI fixed costs, tariffs and transport costs forms important criteria during
the process of mode choice. The result highlight SMEs prefer JVs but large countries are
more likely to attract acquisition. Choice of entry mode depends on many factors, here
we summarize a general model for choosing entry mode from previous studies, and this
model contains three parts: company variables, target market and target country
environment variables. This research contributed the study emphasis for our research.
Anderson and Gatignon 1986; Domke-Damonte 2000
Firms entering new foreign markets choose from a variety of different forms of entry,
ranging from licensing and franchising, through exporting (directly or through
independent channels), to foreign direct investment (FDI) (joint ventures, acquisitions,
mergers, and wholly owned new ventures). Entry modes vary in the degree of control the
firm has over invested tangible and intangible resources and the transactions costs
associated with that resource commitment. From another perspective, entry involves two
interdependent decisions--location and mode of control. Exporting is located
domestically and is controlled administratively; foreign licensing is foreign located and is
controlled contractually; and FDI is foreign located and is controlled administratively.
Transaction costs theory views each choice of entry mode as an individual transaction
that involves a trade-off between control and resource commitment
9
Daniels and Bracker 1989
In terms of the performance implications of internationalization, evidence supports the
idea that foreign market entry, regardless of mode, significantly increases returns on sales
and assets Other research has compared relative financial performance between and
within modes. For example, Tang and Yu's (1990) revenue maximization model
concluded that a wholly owned subsidiary is the optimal strategy because it generates the
highes economic profit and maximizes control of critical knowledge indefinitely. This
conclusion was based on a mathematical model that determined transfer prices in other
entry strategies are higher than marginal costs, making subsequent operations inefficient.
Driscoll (1920)
He proposed that the key characteristics of the entry modes methods are level of control,
dissemination risk, resource commitment, flexibility and ownership. These characteristics
are also supported by many authors such as Agarwal and Ramaswami 1992; Anderson
and Gatignon 1986; Douglas and Craig 1989; and etc.As Driscoll argues that control is
the key functionality for a firm to maximize its economic efficiency and return of
investment in international markets. This was also supported by Hill et al. (1990) where
control allows firm to directly manage its operation and decision making which would
ensures desired level of achievement in its whole operation and target market
International Determinents Of Foreign Market Entry Strategy, Jody Evans
Past studies of the determinants of entry strategy choice have produced conflicting
results. In particular, the relationship between cultural or psychic distance and entry
strategy has been quite contentious. Some research has found that psychic distance is
associated with high cost/high control entry strategies, while other research has found
that psychic distance is related to the use of low cost/low control entry strategies. The
results of this study indicate that psychic distance is a key determinant of entry strategy
choice and that it is, in fact, associated with low cost/low control strategies. The study
also investigates a number of other internal determinants, such as centralisation of
decision-making, organisational culture, firm size and international experience. Of these
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organisational factors, international experience was found to be the most important
predictor of entry strategy and centralisation of decision-making was also found to have a
significant affect on entry strategy selection.
The Tata Group: Challenges in Managing a Large Portfolio, Srinivasan and
Mishra,(2007)
According to this an M&A might be undertaken for horizontal acquisition to retain/gain
market leadership or to get a foothold onto international markets (market entry) or to
leverage on synergies. A market entry strategy can be used to tap the more advanced
markets that help the company move up the value chain thereby deriving higher margins.
This was the major reason why Tata Steel decided to acquire Corus as it helped Tata
Steel enter the value added steel market in Europe. In a merger / acquisition, the Tata
Group brings along with it accumulated production experience, cost effectiveness of
production processes and ability to differentiate products. Going forward, the Tata Group
is expected to pursue vigorously the M&A route to growth. Some of the markets which
the group is looking at for inorganic growth include South East Asia, South Africa,
United States and Europe.
Market Entry Strategy and Trend, S. K. Verma
When starting a new venture, it is very important to evaluate the risk involved and to plan
out a strategy. It is therefore very important to plan a market entry strategy that can help
you to take the right decisions related to your business and increase the growth prospects.
Good planning can help you to survive in the long run and can also help your business to
grow. Hiring a market consultant for this can be quite efficient as it helps you to learn
about the market trend and other things that can help your business.
Trends And Patterns Of Overseas Acquisitions By Indian Multinationals, Jaya
Prakash Pradhan, October 2007,
This study deals with the recent phenomena of rising overseas acquisitions undertaken by
Indian multinationals. It studies the trends, patterns and locational determinants of Indian
overseas acquisitions. This study shows that Indian multinationals have increasingly
11
started adopting acquisition as a global growth strategy to serve a variety of their firm‐specific objectives like accessing new markets, foreign strategic assets, and trade‐supporting infrastructure. As part of the locational analysis, a set of factors such as host
country market, skill endowment and import intensity from India, came out to be
important cross‐country pull factors for Indian overseas acquisitions.
Entry Modes For International Markets International Review of Business, Donglin
Wu* and Fang Zhao
This paper identified three modes to enter a foreign market: Export entry
modes,Contractual entry modes, Investments modes. To achieve the objective of
internationalization, a company should take three factors into account and then choose
appropriate entry modes. These three factors are firm factors, environmental factors and
moderators. The desired entry mode was actually decided by host market environment
condition and firm factors, while the industry characteristics play an important role in
foreign market entry mode choice.
Foreign market entry: a theoretical analysis, By Arijit Mukherjee and Soma
Mukherjee
This paper considers investment strategies of a foreign firm in a host country. The foreign
firm apprehends that knowledge spillover will encourage entry in the host country.
Weshow that foreign firm delays its investment for sufficiently lower threat of entry. If
threat of entry is sufficiently strong, it invests at the beginning with its superior
technology. For intermediate threat of entry, we find that foreign firm brings its relatively
inferior technology initially and superior technology in future when threat of entry has
been eliminated. If inferior technology of foreign firm too creates threat of entry, it
reduces effectiveness of introducing technologies sequentially. Further, we show that
there may be a conflict between foreign firm’s optimal decision and welfare of the host
country.
Horstmann and Markusen (1987)
12
They have argued that a foreign firm may prefer to invest in a host-country quickly if
foreign investment pre-empts entry of domestic firm. In contrast, we show that foreign
firm may prefer to delay its investment to eliminate threat of domestic-entry. Delayed
investment by foreign firm reduces profit of the domestic firm and pre-empts domestic-
entry when discounted total profit of the domestic firm does not cover its cost of entry.
Further, possibility of multiple foreign technologies might induce foreign firm to
introduce technologies sequentially in the host-country.
Earlier, Buckley and Casson (1981) have argued how market size of the host country
can influences timing of foreign investment. In this paper we have included a new
element, viz., knowledge spillover, which affects either timing of foreign investment or
choice of technology to be used in the host-country
CHAPTER-3RESEARCH METHODOLOGY
“Research Methodology comprises of defining & redefining problems, collecting,
organizing & evaluating data, making deductions & researching to conclusions.”
Research Design:-
There are different types of researches:
Exploratory research
Descriptive research
From the above researches I have selected descriptive research, as it is concerned with
finding out the general nature of the problem and variables that relate to it.
SAMPLING UNIVERSE:
Sampling Universe of this study is Public and Private Companies in Steel Industry-
a) Tata Steel b) SAIL
SAMLING TECHNIQUES:
The type of sampling being used for this research work is convenience sampling, which
13
is one of the types of non-probability sampling because it help in collecting the study
material easily.
SAMPLING SIZE
Sample size is 2 Companies.
SOURCES OF DATA
There are two sources of data collection:-
Primary Data
Secondary data
Secondary data is used in this research. The data is collected from internet, Books, Articles,
Journals & Magazines, Research Paper.
II. OBJECTIVES OF THE PROJECT
The main objective of this study is to know the different foreign market entry
strategies in steel industry with special reference to Tata Steel Ltd. and SAIL.
To know the challenges and opportunity in steel industry.
To explain the differences between direct and indirect export strategies.
14
CHAPTER-4INDUSTRY PROFILE
WORLD STEEL INDUSTRY:
The current global steel industry is in its best position in comparison to last decades. The
price has been rising continuously. The demand expectations for steel products are
rapidly growing for coming years. The shares of steel industries are also in a high pace.
The steel industry is enjoying its 6th consecutive years of growth in supply and demand.
And there is many more merger and acquisitions which overall buoyed the industry and
showed some good results. The subprime crisis has lead to the recession in economy of
different countries, which may lead to have a negative effect on whole steel industry in
coming years. However steel production and consumption will be supported by
continuous economic growth.
The countries like China, Japan, India and South Korea are in the top of the above in steel
production in Asian countries. China accounts for one third of total production i.e. 419m
ton, Japan accounts for 9% i.e. 118m ton, India accounts for 53m ton and South Korea is
15
accounted for 49m ton, which all totally becomes more than 50% of global production.
Apart from this USA, BRAZIL, UK accounts for the major chunk of the whole growth.
Figure 3: Share of world crude steel production 2009, 2010
16
The annual production for Asia was 897.9 mmt of crude steel in 2010, an increase of
11.6% compared to 2009. Its share of world steel production decreased to 63.5% in 2010
from 65.5% in 2009. China's crude steel production in 2010 reached 626.7 mmt, an
increase of 9.3% on 2009. China's share of world crude steel production declined from
46.7% in 2009 to 44.3% in 2010. Japan produced 109.6 mmt in 2010, 25.2% higher than
2009. In 2010, South Korea's crude steel production was 58.5 mmt, a 20.3% growth
compared to 2009.
The EU recorded an increase of 24.5% compared to 2009, producing 172.9 mmt of crude
steel in 2010. However, crude steel production in the UK and Greece continued to decline
in 2010.
In 2010, crude steel production in North America was 111.8 mmt, an increase of 35.7%
on 2009. The US produced 80.6 mmt of crude steel, 38.5% higher than 2009.
Out of a total annual global steel production of over 1.4 billion metric tons, the
contribution of China has almost been 45% in 2010, whereas India, sadly, is around one
tenth only of China. Major steel producing nations' output has somewhat recovered post
global meltdown in 2010 and has been as follows:
Top 5 steel producing countries as on Saturday, 22 Jan 2011
Rank Country 2010 2009Change
1 China 626.7 573.69.3
2 Japan 109.6 87.525.2
3 United States 80.6 58.238.5
4 Russia 67.0 60.011.7
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5 India 66.8 62.8 6.4
(Source: Crude steel statistics 2010- World Steel Association)
Out of a total of annual production of around 56 million metric tonnes in 2010, India
produces more than one third ( 20.6 mtpa ).
If India has to maintain its rate of economic growth, huge investments in infrastructure
including Power Generation are inescapable. All this is possible and would need
commensurate growth in steel capacity. While China has already peaked in its steel
production, becoming a net exporter recently, India has a long way to go. Even if 500
mtpa would appear to be beyond comprehension at this stage, a modest target of 100-150
mtpa in the next 10-15 years (National Steel Policy envisages 180 mtpa by 2020 ) would
need an addition of almost 5 mtpa each year on a continuing basis.
In addition to these two major factors, a cost-push is coming from raw material suppliers.
Hence, steel manufacturers have to contend with strong demand on one hand, and cost-
push on the other. The outlook for the domestic industry looks bright, since India has
good iron ore deposits, skilled manpower and growing demand for steel. There is an
apprehension that if China slows down, it may dump its surplus steel into India. An
analysis of global data shows that even if an economy slows down, steel consumption
does not fall dramatically. In the case of China, a slowdown can mean that the growth
rate may fall from 19-20% to a lower level. But that doesn‘t means growth will not take
place. China produced around 470 million tonnes (mt) of steel last year, out of which, 66
mt was exported and the rest was consumed within the country. The measures undertaken
by the Chinese government recently will reduce exports significantly in the current year.
There is also a change in the consumption pattern. For instance, if construction activity
slows down, the consumption of white goods will pick up and demand for flat steel
products will go up. The new capacities coming up in China are on the flat products side
and not on the long products side. Overall, the impact on the supply side will be less.
Similarly, the cost of production is very high — it costs around $500 per ton to produce
18
more than 100 mt of steel in China. Since the cost of production is very high and exports
are not allowed, many of these plants will be closed down by ‘09-10.This will reduce the
supply of steel.
There‘s a feeling that India doesn‘t have much iron ore, considering the recent capacity
expansion plans of domestic and foreign steel companies in India. There is a possibility
that if we continue exporting iron ore, we may run out of reserves. Currently, we export
90- 100 mt every year and this is steadily increasing. Ideally, we should increase our steel
production capacity — we are a net importer of steel — so that rather than exporting iron
ore, we can add value to it. India should also look at investing in exploring new mines.
INDIAN STEEL INDUSTRY
India has traditionally been one of the major producers of steel in the world. The Indian
Steel Industry is almost 100 years old now. Till 1990, the Indian Steel Industry operated
under a regulated environment, insulated markets & large scale capacities reserved for
public sector.. After the economic reforms of the early 1990s, the Indian steel industry
has evolved significantly to conform to global standards.
In 2009-10, steel production was 60 million tones that is expected to double to 124
million tones by 2012. The ministry of steel projected for the next five year the demand
19
of steel will grow at annual growth rate of 10%. The steel consumption rose 8% in the
year ended at March 2010. The steel consumption increase to 56.3 million tones in 2009-
10 compared to 52.3 to previous year. India has emerged the third largest producer of
steel in the world and likely to become second largest producer of steel by 2015-16. In
2009-10, steel production was 60 million tones that is expected to double to 124 million
tones by 2012. The ministry of steel projected for the next five year the demand of steel
will grow at annual growth rate of 10%. India has set a vision to be an economically
developed nation by 2020.
Major developments that occurred at the time of liberalization were:
1. Large plant capacities that were reserved for public sector were removed;
2. Export restrictions were eliminated;
3. Import tariffs were reduced from 100 percent to 5 percent;
4. Decontrol of domestic steel prices;
5. Foreign investment was encouraged, and the steel industry was part of the high
priority industries for foreign investments and implying automatic approval for foreign
equity participation up to 100 percent; and
6. System of freight ceiling was introduced in place of freight equalization scheme.
The two major aspects that are expected to play a significant role in the growth of the
steel industry in India are -
Abundant availability of iron ore in the country
The country as well established facilities for steel production. Steel production
in India has grown from 17 MT in 1990 to 36 MT in 2003. It is expected that by
2011, the steel production in India will grow to 66 MT.
The major sectors where consumption of steel is expected to grow in the coming years
are -
Construction
20
Housing
Ground transportation
Hi-tech engineering industries such as power generation, petrochemicals,
fertilizers
Figure 2.3: Major consumer of steel in 2005-06 (in %)
The current scenario of the Indian steel industry indicates that there is huge growth
potential in this industry. The per capita-consumption of steel in India, according to latest
available estimates, is only 29 kg. This is much less compared to the global average of
140kg. The per capita consumption level of developed nations like the United States of
America is 400kg. In this respect, one of the major initiatives that need to be taken is to
focus on increasing the consumption of steel in the rural areas of India. The potential for
the growth of consumption of steel in the rural areas of India for purposes like rural
housing, rural infrastructure, etc is high which needs to be tapped efficiently.
Most developed countries have regulations that are aimed to protect the domestic steel
industry. The Indian steel industry has comparatively much lesser protection through
regulations. Proper regulatory measures should be adopted by the government to protect
the domestic steel industry.
21
The industry recorded the highest growth rate in the period from 2004-2005, when the
growth rate of the steel sector was 4%. The increased consumption of the finished steel
products in the domestic market acted as a positive catalyst in the growth process of the
Indian steel industry. The favorable market condition has helped the companies operating
in Indian steel industry to expand their operations and earn huge profit.
Figure 2.4. Steel Production in India
Production of steel:
India continually posts phenomenal growth records in steel production. In 1992, India
produced 14.33 million tones of finished carbon steels and 1.59 million tones of pig
iron. Furthermore the steel production capacity of the country has increased rapidly since
1991 – in 2008, India produced nearly 46.575 million tones of finished steels and 4.393
million tones of pig iron.
Consumption of steel:
In 1992, the total consumption of finished steel was 14.84 million tones. In 2008, the
total amount of domestic steel consumption was 43.925 million tones. With the increased
demand in the national market, a huge part of the international market is also served by
this industry.
Industry Structure:-
22
Indian Iron and steel Industry can be divided into two main sectors Public sector and
Private sector. Further on the basis of routes of production, the Indian steel industry can
be divided into two types of producers:-
a) Integrated producers
Those that convert iron ore into steel. There are three major integrated steel players in
India, namely Steel Authority of India Limited (SAIL), Tata Iron and Steel Company
Limited (TISCO) and Rashtriya Ispat Nigam Limited (RINL).
b) Secondary producers
These are the mini steel plants (MSPs), which make steel by melting scrap or sponge iron
or a mixture of the two. Essar Steel, Ispat Industries and Lloyd’s steel are the largest
producers of steel through the secondary route.
Types of Steel
Steel is an iron based mixture containing two or more metallic and/or non metallic
elements usually dissolving into each other when molten. Since it is an iron based alloy—
as per its end use requirements—other than iron it may contain one or more other
elements such as carbon, manganese, silicon, nickel, lead, copper, chromium, etc.
23
The following chart depicts various types of steel products according to different
categories-
\
24
Non-Alloy Steel
Non-Alloy Steel
Alloy SteelAlloy Steel
Form/size/ Shape
Form/size/ Shape
End UserEnd UserCompositionComposition
SteelSteel
Medium carbonsteel
Medium carbonsteel
Silicon-electricalsteel
Silicon-electricalsteel
Low carbon orMild steel
Low carbon orMild steel
Stainless SteelStainless Steel
High speedsteel
High speedsteel
High carbonsteel
High carbonsteel
Liquid SteelLiquid Steel
Crude SteelCrude Steel
IgnotsIgnots
SemisSemis
Finished SteelFinished Steel
Non-Flat ProductsNon-Flat Products
Structural steel
Structural steel
Construction steel
Construction steel
Deep drawingsteel
Deep drawingsteel
Rail steelRail steel
Foreign qualitysteel
Foreign qualitysteel
Flat ProductFlat Product
Export And Import
In last five years (2003-04 to 2007-08) imports are growing at much faster rate than
exports. As a result net trade in steel is getting narrower (see Table 2.1). While imports
have grown by CAGR of 24.49 percent, exports have grown just by a CAGR of 2.16
percent in last five years. Overall net trade in steel has managed to be in surplus till 2006-
07.
(in million tones)
Year Import Export Net
2003-04 1.77 5.28 3.51
2004-05 1.83 5.89 4.06
2005-06 2.60 4.97 2.36
2006-07 4.81 5.19 0.38
2007-08 5.30 5.91 0.61
Source: Joint Plat committee, Annual Report 2007-08.
Export Policy:
Duty on coking coal fully exempted.
The customs duty on primary steel and ferro-alloys stainless steel has been
reduced from 7.5% to 5 %
The duty on seconds and defectives of steel reduced from 20% to 10%.
25
Export duty has been imposed on iron ores and concentrates at Rs 300 per tonne
and on chrome ore and concentrates at Rs 2,000 per tonne.
The present EXIM policy permits export of iron ore from Goa and Redi sector to
all destinations by the iron ore producers; irrespective of the iron content.
Some types of high-grade iron ore (Fe content above 64%) from specific areas
like Bailadila in Chhattisgarh are allowed to be exported with restrictions on
quantity imposed primarily, with a view to meet domestic demand on priority..
The Government has setup these agencies for the better development of trade.
Export of Iron of Goa origin to China, Europe, Japan, South Korea and Taiwan
(irrespective of Fe content) and Export of ore from Redi region to all markets
(irrespective of Fe content) is not canalized.
Import Policy:
Advance Licensing Scheme allows duty free import of raw materials for exports.
Imports of seconds and defectives of steel are allowed only through three
designated ports of Mumbai, Calcutta and Chennai.
Mandatory pre inspection certificate by a reputed international agency for every
import consignment of seconds and defectives.
In the union Budget 2007-08 the import duty on seconds and defective has been
further reduced from 20% to 10%
The trade policy has been liberalized and import and export of iron and steel is
freely allowed.
There are no quantitative restrictions on import of iron and steel items. The only
mechanism regulating the imports is the tariff mechanism. Tariffs on various
items of iron and steel have drastically come down since 1991-92 levels and the
government is committed to bring them down to the international levels.
Reduction in customs duty of melting scrap of iron or steel and Metallurgical
coke from current level of 5% to 2%
Customs duty on stainless steel raw materials like ferro-nickel and Stainless steel
scrap should be reduced from 5% to 2%.
Custom duty on iron or steel melting scrap cut from 5% to Nil.
26
Reduction in customs duty of aluminum scrap has been reduced from 5% to Nil.
Customs duty on steel melting and aluminum melting scrap reduced from 5% to
0%.
CHALLENGES AND OPPORTUNITIES IN STEEL INDUSTRY
Challenges:-
As compared to the global average per capita consumption of 150 kgs. India’s per capita
consumption of steel is still a mere 39 kgs. per head. Even by Asian standards India have
a long way to go in the consumption of steel . Technologically, the main hurdles before
Indian steel industry are the cost of power and non availibility of metallurgical coke.
A) Unremunerative Prices:
Stagnating demand, domestic oversupply and falling prices in the last four years have hit
Indian steel makers. Barring the sporadic rise in demand in the recent months, it has
suffered from unremunerative prices to the extent that companies have been finding it
difficult to maintain capital costs.
B) Endemic Deficiencies:
These are inherent in the quality and availability of some of the essential raw materials
available in India, eg, high ash content of indigenous coking coal adversely affecting the
productive efficiency of iron-making and is generally imported. Advantages of high Fe
content of indigenous ore are often neutralized by high basicity index. Besides, certain
key ingredients of steel making, eg, nickel, ferro-molybdenum are also unavailable
indigenously.
C) Systemic Deficiencies:
However, most of the weaknesses of the Indian steel industry can be classified as
systemic deficiencies. Some of these are described here.
High Cost of Capital
Steel is a capital intensive industry; steel companies in India are charged an interest rate
of around 14% on capital as compared to 2.4% in Japan and 6.4% in USA.
Low Labour Productivity
27
In India the advantages of cheap labour gets offset by low labour productivity; eg, at
comparable capacities labour productivity of SAIL and TISCO is 75 t/man year and 100
t/man years, for POSCO, Korea and NIPPON, Japan the values are 1345 t/man year and
980 t/man year.
High Cost of Basic Inputs and Services
High administered price of essential inputs like electricity puts Indian steel industry at a
disadvantage; about 45% of the input costs can be attributed to the administered costs of
coal, fuel and electricity, eg, cost of electricity is 3 cents in the USA as compared to 10
cents in India; and freight cost from Jamshedpur to Mumbai is $50/tonne compared to
only $34 from Rotterdam to Mumbai. Added to this are poor quality and ever increasing
prices of coking and non-coking coal.
Other systemic deficiencies include:
• Poor quality of basic infrastructure like road, port etc
• Lack of expenditure in research and development.
• Delay in absorption in technology by existing units.
• Low quality of steel and steel products.
• Lack of facilities to produce various shapes and qualities of finished steel on-demand
such as steel for automobile sector, parallel flange light weight beams, coated sheets etc.
• Limited access of domestic producers to good quality iron ores which are normally
earmarked for exports, and
• High level taxation.
Besides these Indian steel makers also lacked in international competitiveness on
determinants like product quality, product design, on-time delivery, post sales service,
distribution network, managerial initiatives, research and development, information
technology and labour productivity etc. As is evident in Table 4, the weaknesses gets
reflected in India’s poor standing in the global competitiveness as measured in terms of
indicated parameters.
Opportunities:-
The biggest opportunity before Indian steel sector is that there is enormous scope for
28
increasing consumption of steel in almost all sectors in India. The following graph gives
a glimpse of untapped potential of increasing steel consumption in India; eg, even to
reach the comparable developing and lately developed economies like China and other
Europe, a quantum jump in steel consumption will be required. India has rich mineral
resources. It has abundance of iron ore, coal and many other raw materials required for
iron and steel making. It has the fourth largest iron ore reserves (10.3 billion tonnes) after
Russia, Brazil, and Australia. Therefore, many raw materials
are available at comparatively lower costs. It has the third largest pool of technical
manpower, next to United States and the erstwhile USSR, capable of understanding and
assimilating new technologies. Considering quality of workforce, Indian steel industry
has low unit labour cost, commensurate with skill. This gets reflected in the lower
production cost of steel in India compared to many advanced countries.
Unexplored Rural Market
The Indian rural sector remains fairly unexposed to their multi-faceted use of steel. The
rural market was identified as a potential area of significant steel consumption way back
in the year 1976 itself. However, forceful steps were not taken to penetrate this segment.
Enhancing applications in rural areas assumes a much greater significance now for
increasing per capital consumption of steel. The usage of steel in cost effective manner is
possible in the area of housing, fencing, structures and other possible applications where
steel can substitute other materials which not only could bring about advantages to users
but is also desirable for conservation of forest resources.
Other Sectors
Excellent potential exist for enhancing steel consumption in other sectors such as
automobiles, packaging, engineering industries, irrigation and water supply in India. New
steel products developed to improve performance simplify manufacturing/ installation
and reliability is needed to enhance steel consumption in these sectors. Main objective
here have to be improvement of quality for value addition in use, requirement of less
material by reducing the weight and thickness and finally reduction in overall cost for the
end user.
29
Latest technology must be adopted by Indian steel manufacturers for production of
superior quality of steel for these applications. For example, pre-coated sheets can be
used in manufacture of appliances, furnishings, electric goods and public transport
vehicles. Production and supply of superior grades of steel in desired shapes and sizes
will definitely increase the steel consumption as this will reduce fabrication need, thereby
reduce cost of using steel.
Export Market Penetration
It is estimated that world steel consumption will double in next 25 years. Quality
improvement of Indian steel combined with its low cost advantages will definitely help in
substantial gain in export market.
Booming infrastructure has opened up high demand for steel worldwide.
Indian steel industry in the 21st century
While China is the leader of the world steel industry in the 21st century, India occupies
the fifth place in terms of production volume in 2010. Projections are that India should
move towards 100 mtpa and beyond in the next decade. The projected steel capacity
creation in India before the onset of global meltdown was as follows:
Co 2011-12 2015-16 2019-20
SAIL 20.7 24.1 27.1
Tata 12.7 21.7 32.7
JSW 13.0 22.0 31.0
Essar 9.6 15.6 21.6
JSPL 5.0 10.0 12.0
POSCO 2.0 6.0 12.0
Ispat 3.6 8.6 8.6
Bhushan 1.2 2.5 3.0
If India has to occupy its rightful place as a developed nation towards 2020, its business
model and international trade pattern must change from raw material exporter to finished
30
goods exporter- from a commodity producing nation to a value creating nation. In the
context of the steel and mining industry, it would mean that the iron ore export from
India to China, Japan and other countries must stop and in stead, all of the iron ore
produced must get converted into steel and steel products. To begin with, even
commodity type steel production and export would be preferable to exporting iron ore but
eventually, the steel ought to be custom and tailor made and better still, automobiles and
appliance/gadgets export rather than steel per-se.
As far as the Indian steel industry is concerned, the government has to plan its mining
lease and other policies in a manner that motivates entrepreneurs towards converting the
iron ore into steel rather than exporting it as unfinished material. In stead of knee-jerk
reactions of tinkering with the export duty on iron ore one way or the other, the
government might consider fundamental changes in its approach like dividing the ore
bodies into well demarcated blocks and putting them for auction by a transparent process
of bidding by the steel co's.
INDIAN ECONOMY IS EXPECTED TO SURPASS JAPAN BY 2032
31
There are a number of companies in Indian steel industry which expend their business all
over the world. They use different modes of entry to enter in foreign market.
MODES OF ENTRY
When a company decides to enter foreign markets, it must choose an entry strategy.
Many strategies exist with differing levels of company involvement. The level of
involvement is positively related to the level of risk and control a company wishes to
undertake. The company objectives and expectations, size and financial resources,
existing foreign market involvement, skills, abilities and attitudes of management, the
nature and power of the competition, the nature of the product or service itself and the
timing of the move relative to competitors should be considered. There are many factors
which must considered when enter in foreign market.
32
Figure: A Schematic Representation of Entry Choice Factors
33
Figure: Modes Of Entry, extracted from Doole and Lowe (2001, p.249)
A) INDIRECT EXPORTING
Indirect exporting involves foreign market entry that is less complicated and less
expensive than direct exporting methods. Firms that are unwilling to outlay much capital
expenditure, but desire to take advantage of foreign market opportunities would be well
advised to select a method of exporting indirectly
Export merchants buy the goods off the
manufacturer and then export them. Indirect export modes include domestic purchasing,
piggyback operations, an Export Management Company (EMC) or Export House (EH)
and trading companies.
34
Domestic Purchasing
Domestic purchasing is a method of market entry which involves least company
involvement. This export method often involves an unsolicited purchase request from a
foreign commercial buyer. The company may not even have considered the export
potential of their products until approached from the foreign buyer. As this method is
involves the least amount of risk and control (involved the least financial investment,
management planning, risk and control), the company often does not place strategic
importance on exporting.
Although this is the easiest method of exporting, it generates a relatively low level of
revenue and the company is completely dependant on the foreign buyer.
Export Management Companies (EMCs) or Export Houses
Export Management Companies are specialist companies that act as the export
department for a number of companies. They do not manufacture goods themselves but
purchase finished products from a range of other companies. They can provide small or
medium companies with access to foreign buyers, take orders from those foreign buyers
and handle the transporting and distribution of the goods in the foreign market.
The EMCs export strategy may not be in-line with the preferred strategy of the
manufacturers. The EMC has complete control over all foreign market decisions
Trading Companies
One of the major advantages of exporting trough a trading company is that they normally
have extensive contacts, experience and operations in many different trading regions in
the world. One element of trading company’s success is that they have often built up
many long-term commercial relationships all over the world. Trading companies may
accept goods as payment for other goods and then find a buyer for the goods they
received in the countertrade.
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Piggybacking
An established international distribution network of one manufacturer may be used to
carry the products of a second company without such a network. The second
manufacturer is said to be piggybacking on the first in these cases. The first company has
an established reputation and contacts in an international environment. It handles the
logistics and administration costs of exporting for the second manufacturer. Pigybacking
can offer many advantages to firms; such as cheaper access to new markets, an
established knowledge base of the foreign markets and economies of scale with regards
to administration, shipping, marketing and distribution.
This method of exporting is not ideal for building a long-term foreign market presence. If
exporting is a significant long-term goal of the manufacturer, then indirect exporting
methods may not prove to be the wisest strategic choice.
B) DIRECT EXPORTING
Companies wishing to pursue a long-term position in a foreign market need to be more
proactive in their approach to market entry by becoming directly involved. Direct
exporting allows firms more control over activities such as market selection, marketing
mix variables, adaptation to local markets and monitoring competitor activity. However,
a long term investment and commitment is needed from the firm to sustain foreign
market activity.Due to the high cost and risk involved in direct exporting.
Agents
Agents are usually individuals or firms operating in a foreign market, contracted by the
firm and paid a commission to obtain orders for the product. Sales targets are usually
agreed when entering into a contractual agreement with agents. Agents are usually
contracted to carry non-direct competing products therefore providing a lower exposure
to risk. Although agents are the cheapest and quickest form of market entry, the long-
term profitability is moderate to low with a short payback period.
There are a number of key criteria for the selection of a suitable agent:
Analyse the financial strength of the agent
36
Determine their contracts and relationships with current and potential customers
Clarify the nature and extent of their relationships with competing organisations
Ascertain the premises, equipment and resources available including the
personality and capability of sales representatives
Agents work on commission and therefore do not take ownership of the goods. This can
therefore limit their ability to influence a market and their motivation to improve
performance. .
Distributors
Distributors differ to agents in that they take ownership and responsibility for the goods.
distributors refers as “merchant middlemen” whereby the profitability and risk of unsold
products is borne directly by them. Distributors usually seek exclusive rights for the
sales and servicing of a particular territory where they represent the manufacturer in all
respects. Cateora and Graham (2002) outline distributors can take the form of dealers,
import jobbers and wholesaler or retailer.
Management Contracts
Management contracts usually involve selling the skills, expertise and knowledge of
firms in an international context. The contracts undertaken are usually those for
installing management operating and control systems and the training of local staff to
take over when the contractors are finished. With government intervention initiating the
deregulation of several industries, privatisation and outsourcing has become particularly
evident in an international setting
Franchising
“Franchising is a means of marketing goods and services in which the franchiser grants
the legal right to use branding, trademarks and products, and the method of operation is
transferred to a third party – the franchisee – in return for a franchise fee.”
Franchising is less risky and less costly due to the nature of the
agreement.The opportunity to extend market coverage and transfer skills, competencies,
systems and services exists for the franchiser. The franchisee provides the local market
37
knowledge, capital, time and resources needed to develop the franchise. . Cateora and
Graham (2002) state franchising is an important form of vertical integration and the
fastest-growing method of market entry for a firm wishing to expand geographically
Foreign laws are generally more favourable toward franchising as it
supports local ownership, employment and development while educating and training
local staff. Franchising can help create a strong local presence in a market. Chan (1994)
as cited in Doole and Lowe (2001) argues two forms of franchise agreement exists. The
product/trade franchise grants franchisees the right to distribute the firm’s product in a
specific market territory. The single-unit/multi-unit franchising on the other hand allows
franchisees the responsibility to develop a territory and open a number of outlets.
C) MANUFACTURING STRATEGIES
Many firms become involved in foreign manufacturing strategies which involve direct
involvement as they come under pressure to demonstrate commitment to a certain market
or region.
Doole and Lowe (2001) outline a number of reasons for investment in local operations:
Firstly, in order to gain new business, local production demonstrates strong commitment
and can often persuade customers to change suppliers. Secondly, local investment can
defend existing business, for example, in certain countries importing companies are
subject to restrictions as sales increase. By locating manufacturing abroad, firms may
avoid this drawback
Assembly
Assembly involves establishing plants in foreign markets simply to assemble components
manufactured in the domestic market by the firm. This method of market entry is
attractive for certain companies as the importation of components is usually subject to
lower tariff barriers than assembled goods, therefore, decreasing costs for the firm. It can
also be an advantageous strategy for the firm if the finished product is large and
transportation costs are high. The assembly plant can also carry out a relatively simple
activity, which involves local management, engineering skills and development support.
38
Whereas, the domestic plant can focus on development and production skills and
investment, hence, profiting from economies of scale.
Many companies usually build manufacturing plants with a long-term view in mind and
supplement them with low cost assembly plants which are easier to move from market to
market, therefore taking advantage of lower wage costs and government incentives.
Wholly Owned Subsidiary
it requires the greatest commitment in terms of management and resources and offers the
fullest means of participating in a market. Doole and Lowe (2001) advise it should only
be undertaken if demand for the market appears to be assured. When undertaking such an
approach the firm must hold a long-term view, as the cost of withdrawing from the
market will be substantial. Although sole ownership will provide the level of control
necessary to fully meet the firm’s strategic objectives, the firm may not only incur the
costs if withdrawal is eminent but also the company’s reputation can be damaged both in
the foreign and domestic market. Nevertheless, a wholly owned subsidiary can posses the
additional advantage of avoiding communication and conflict of interest problems which
may occur through acquisitions and joint ventures.
Acquisition
Johnson and Scholes (2002, p. 375) define acquisitions as “where an organisation
develops its resources and competences by taking over another organization ”. Keegan
and Schlegelmilch (2001) maintains that an acquisition can be an instantaneous and
sometimes less expensive approach to market entry. However, acquisitions can still
present the demanding and challenging task of integrating the acquired company into the
worldwide organisation and coordinating activities.
Firstly, acquisition often allows the acquiring company to enter new product or market
areas with more speed in comparison to internal development of the desired. Secondly, if
a firm wish to enter a foreign market where the market has matured and share of that
market must be taken from competitors, resistance to the company will be high.
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D) CO-OPERATION STRATEGIES
A cooperative arrangement is a partnership/a collaboration based on a contractual
agreement which is shaped by a mutual balance of interests. Cooperative arrangements
have recently emerged as a fact of economic life.
Joint Ventures
Cateora and Graham (2002) define a joint venture as “a partnership between of two or
more participating companies that have joined forces to create a separate legal entity.”
Therefore, joint ventures have two defining attributes; cooperation and autonomy. There
are a number of reasons for setting up a joint venture, which include; the addition of
complementary technology or management skills provided by the partner, which may
lead to new opportunities, partners located in the host country often make the market
entry process quicker and due to the restriction of foreign ownership in some countries
such as China, these can be overcome by joint ventures.
According to Raffee and Eisele (1994) the failure of joint ventures occurs when the
following factors are neglected:
1. Equal participation structures.
2. Careful choice of partner.
3. Cultural compatibility between partners.
4. Proper approach to operational and strategic leadership.
Strategic alliances
Webster’s dictionary (2004) defines strategic as ‘important’ and alliance as ‘association
of interests’. Strategic alliances are well known tools to global mangers. Strategic
alliances are described as a wide range of cooperative partnerships and joint ventures.
strategic alliances are formed in three areas - technology, manufacturing and
marketing .They have three defining characteristics:
1. Two or more entities unite to pursue a set of important, agreed goals while in
some way remaining independent subsequent to the formation of an alliance.
40
2. The partners share both the benefits of the alliance and control over the
performance of assigned tasks during the life of the alliance. This is the most
distinctive characteristic of alliances and the one that makes them so difficult.
3. The partners contribute on a continuing basis in one or more key strategic areas,
for example, technology or products..
Comparison of Foreign Market Entry Modes
ModeConditions Favoring this
ModeAdvantages Disadvantages
Exporting
Limited sales potential in
target country; little
product adaptation
required
Distribution channels close
to plants
High target country
production costs
Liberal import policies
High political risk
Minimizes risk and
investment.
Speed of entry
Maximizes scale;
uses existing
facilities.
Trade barriers & tariffs
add to costs.
Transport costs
Limits access to local
information
Company viewed as an
outsider
Licensing Import and investment
barriers
Legal protection possible
in target environment.
Low sales potential in
target country.
Minimizes risk and
investment.
Speed of entry
Able to circumvent
trade barriers
High ROI
Lack of control over use
of assets.
Licensee may become
competitor.
Knowledge spillovers
License period is limited
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Large cultural distance
Licensee lacks ability to
become a competitor.
Joint
Ventures
Import barriers
Large cultural distance
Assets cannot be fairly
priced
High sales potential
Some political risk
Government restrictions on
foreign ownership
Local company can
provide skills, resources,
distribution network, brand
name, etc.
Overcomes
ownership
restrictions and
cultural distance
Combines resources
of 2 companies.
Potential for learning
Viewed as insider
Less investment
required
Difficult to manage
Dilution of control
Greater risk than
exporting a & licensing
Knowledge spillovers
Partner may become a
competitor.
Direct
Investment
Import barriers
Small cultural distance
Assets cannot be fairly
priced
High sales potential
Low political risk
Greater knowledge
of local market
Can better apply
specialized skills
Minimizes
knowledge spillover
Can be viewed as an
insider
Higher risk than other
modes
Requires more resources
and commitment
May be difficult to
manage the local
resources.
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CHAPTER-6
Company Profile - TATA STEEL
Tata Steel is the symbol of India’s industrial growth founded by Late Jamsetji
Nusserwanji Tata in 1907 who ranks among the greatest visionaries of industrial
enterprises all of time. Tata Group of Companies is renowned all over the world for its
ethical values and work culture. On 26th August, 2007 Tata Steel completed 100 glorious
years of its presence in the global business arena. Tata Steel is the world's 5th largest
steel company with an existing annual crude steel capacity of 30 million tonnes. The Tata
Steel Group, with a turnover of US$ 22.8 billion in FY '10, has over 80,000 employees
across five continents and is a Fortune 500 company.
Asia's first integrated steel plant and India's largest integrated private sector steel
company is now the world's 2nd most geographically diversified steel producer, with
operations in 26 countries and commercial presence in over 50 countries. The registered
office of Tata Steel is in Mumbai. The company was also recognized as the world‘s best
steel producer by the World Steel Dynamics in 2005. The company is listed on Bombay
Stock Exchange (BSE) and National Stock Exchange (NSE), and employs about 36000
people (as of 2007).
43
Tata Steel's strategy is based on breaking up this value chain and putting each part where
it is the most cost-effective. So primary steel will be produced in India, where there are
large deposits of iron ore. Thailand, Vietnam, Shanghai, etc., are now a key focus for
Tata Steel and will be better addressed by taking the semi-finished steel to these countries
for finishing and then selling there. For the last few years, Tata Steel has been doing
some thinking on the central strategy of growth. A long value chain is there in any
business and each part of this value chain has a cost incidence.
Vision
We aspire to be the global steel industry benchmark for Value Creation and Corporate
Citizenship.Mission statement
Achieve sustainable, profitable growth in steel and related businesses.
Create differential value for our customers through innovative offerings.
Continuous improvement of business processes and technologies.
Enhance employees' competencies to create a high performing and innovative
organization. Be a responsible corporate citizen and enhance the quality of life of
employees and key community
Competitive edge over others:
One of the lowest cost producers in the world
Self sufficiency in iron ore extraction
Regarded as ethically sound company with healthy work culture
Products:
Hot and cold rolled coils sheets
Wire and rods
Construction bars
44
Pipes
Structural forging quality steel
Tata Steel’s larger production facilities include those in India, the UK, the Netherlands,
Thailand, Singapore, China and Australia. Operating companies within the Group
include Tata Steel Limited (India), Tata Steel Europe Limited (formerly Corus), NatSteel,
and Tata Steel Thailand (formerly Millennium Steel).
The Tata Steel Group’s growth and globalisation strategy is driven by its business
expansion while maintaining profitability and mitigating risks. The Tata Steel Group over
the years has focused on enhancing raw material security and announced major joint
ventures in various parts of the globe.
Acquisition of the Singapore-based NatSteel in August 2004:-
Tata Steel’s (Tisco) acquire the Singapore-based NatSteel in August 2004 In August
2004, Tata Steel entered into definitive agreements with Singapore based NatSteel Ltd to
acquire its steel business for Singapore $486.4 million (approximately Rs 1,313 crore) in
an all cash transaction. The acquisition also included 26% owned by the
Singapore government-owned company in Southern Steel Berhad, a 1.3 million tonne
steel-manufacturer based in Malaysia.
NatSteel Holdings (NSH) : NatSteel, a 100% subsidiary of the Tata Steel Group, is
headquartered in Singapore and has presence in Vietnam, Thailand, Australia, China,
Malaysia, Philippines and Singapore.A leading supplier of premium steel products for the
construction industry. NatSteel Holdings became a 100% subsidiary of Tata Steel in
45
February 2004. NSH produces about 2 MT of steel products annually across its regional
operations in seven countries.
Vietnam Operations NatSteel in Vietnam is a 55% equity partner in a Joint Venture
with VN Steel and a capacity of 1,30,000 tonnes per year.
Tata Steel, through its wholly owned Singapore subsidiary, NatSteel Asia Pte Ltd, has
entered into separate agreements to acquire controlling stake in two rolling mills
located in Haiphong, Vietnam.
NatSteel will be acquiring 100 per cent equity holding in a 2.5 lakh tonne per annum
(TPA) rolling mill in SSE Steel Ltd and 70 per cent holding in Vinausteel Ltd, which
produces 1.8 lakh TPA reinforcing bar. The remaining 30 per cent equity in Vinausteel is
held by Vietnam Steel Corporation. The two acquisitions involve an aggregate of 4.3 lakh
TPA of finished products.
In 2004, Tata Steel also acquired a small steel wire-manufacturing unit in Sri Lanka,
details of which were not provided, citing it was a small buy.
Tata Steel Thailand:-
In 2005, Tata Steel acquired 40% Stake in Millennium Steel based in Thailand for $130
million (approx. Rs 600 crore).Tata Steel Group’s equity in Tata Steel Thailand is 67.1%.
Headquartered in Bangkok, its three main subsidiaries are SISCO, NTS and SCSC. In the
year 2008, Tata Steel Thailand registered sales of 1.4 million tonnes. The Company’s
predominant market is in Thailand and its market share in 2008 was 31% in the long
products business. The Company also has been improving continuously in the past few
years with its various initiatives focused on reducing cost, improving productivity and
quality. Production during FY 09 was at 1.07 million tonnes while sales at 1.1 million
tonnes.
Tata Corus Acquisition, 31 January 2007
46
The Corus was created by the merger of British Steel and Dutch steel company,
Hoogovens. Corus was Europe’s second largest steel producer with a production of 18.2
million tonnes and revenue of GDP 9.2 billion (in 2005). On 31 January 2007 Tata Steel
won their bid for Corus after offering 608 pence per share, valuing Corus at £6.7 billion;
as a result and pending acceptance and completion of the takeover, the joining of the two
will create the fifth largest steel company in the world.
Corus decides to sell Reasons for decision:
Total debt of Corus is 1.6bn GBP
Corus needs supply of raw material at lower cost
Though Corus has revenues of $18.06bn, its profit was just $626mn (Tata’s
revenue was $4.84 bn & profit $ 824mn)Corus facilities were relatively old with
high cost of production
Employee cost is 15 %( Tata steel- 9%)
Tata Decides to bid: Reasons for decision:
Tata is looking to manufacture finished products in mature markets of Europe.
At present manufactures low value long and flat steel products while Corus
produces high value stripped products
A diversified product mix will reduce risks while higher end products will add to
bottom line.
Corus holds a number of patents and R & D facility.
Cost of acquisition is lower than setting up a green field plant and marketing and
distribution channels
Tata is known for efficient handling of labour and it aims at reducing employee
cost and improving productivity at Corus
It had already expanded its capacities in India.
It will move from 55th in world to 5th in production of steel globally.
Australia
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Joint venture with Vale in Australia for a Coking Coal Mine:
Tata Steel on December 14, 2005 signed agreements to buy a 5% interest in the
Carborough Downs Coal Project located in Queensland, Australia.
Tata Steel and Vale, along with other joint venture partners (Nippon steel, JFE
and Posco) have undertaken a large scale expansion of the Carborough Downs
Coal Mine near Moranbah in Central Queensland in Australia.
The project life is currently estimated to be 14 years and approximately 58 million
tonnes of raw coal is expected to be mined during this period. There is a further
potential resource of 100 million tonnes of raw coal in the unexplored areas and
deeper seams.
The first raw coal production started in August 2006 and the mine is currently
producing around 1 MTPA.
JV between Tata Steel & Nippon Steel Corporation:
Tata Steel and Nippon Steel Corporation (NSC), Japan will set up a Continuous
Annealing and Processing Line at Jamshedpur, India with 0.6 mtpa capacity. The line
will produce automotive cold rolled flat products and address the local needs of Indian
automotive customers for high-grade cold rolled steel sheets.
Tata Steel will hold 51% and NSC will hold 49% stake in the joint venture company.
The proposed joint venture aims to capture the growing demand for high-grade
automotive cold-rolled flat products in India. NSC will transfer its technology for
producing high-grade cold-rolled steel sheets for automotive application including skin
panel and high tensile steel.
Tata Steel and Riversdale Mining Ltd. Australia, joint venture November 30, 2007.
48
Under the terms of agreement, Tata Steel will pay AUD100 million (approximately 88.2
million USD) to acquire 35% of Riversdale's Benga and Tete licences. The JV comprises
two licences (the Benga and Tete licenses) and covers an area of 24,960 hectares
(approximately 96.7 square miles). The coking coal derived from this project will be
supplied to the Tata Steel Group's facilities in Europe, Asia and elsewhere. Potential to
extract 720 million tonnes by open-cut methods from a major coal resource in the Benga
Licence.
Oman
Tata Steel Limited and the members of the Al Bahja Group, a leading business house of
Oman signed a Joint Venture Agreement on January 16, 2008 – Tata Steel has a 70%
stake in the joint venture.
The project envisages mining of limestone in the Uyun region (limestone is the key raw
material for producing good quality steel), which lies in the Salalah province of Oman
and has large deposits of limestone.
Singapore :
Tata NYK Shipping Pvt. Ltd., Joint venture between Tata Steel and Nippon Yusen
Kabushiki Kaisha (NYK line)
Tata NYK Shipping Pte Limited is a Singapore based 50:50 joint venture between Tata
Steel and Nippon Yusen Kabushiki Kaisha (NYK line), a Japanese shipping major.
The JV was set up to cater to ship bulk cargo such as coal, iron ore and steel.
The shipping firm would handle the Tata Steel Group’s requirements for moving
raw materials and steel.
The Company would ensure a strategic control over logistics in the future.
Tata NYK has entered into a long term charter for 8 Supramax / Panamax vessels.
Orders have been placed for building two new Supramax vessels.
The Company handled a total of 4.48 million tonnes of cargo in FY 09.
49
Tata Steel, Nippon to ink Rs 2,400-cr JV by the end of this month January 2, 2011
Tata Steel plans to ink an agreement with Japan-based Nippon Steel Corporation ( NSC )
by end-this month to set up a Rs 2,400-crore steel plant for producing auto grade steel.
The proposed JV facility is expected to commence operation in the next two years at the
Tata Steel’s existing unit in Jamshedpur.
“The JV with Nippon will be signed by January this year and we expect to start
production from this facility by early 2013,” Tata Steel Managing Director H M Nerurkar
told media here.
The JV with 50:50 holdings would come up at an investment of Rs 2,400-crore. The
facility’s initial capacity would be 0.6 million tonne(MT) per year, Nerurkar said.
The JV aims to capture the growing demand for high-tensile auto-grade steel in India.
Nippon, the world’s second largest steelmaker will transfer its technology for producing
auto-grade steel.
Company Profile: Steel Authority of India Limited
Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It
is a fully integrated iron and steel maker, producing both basic and special steels for
domestic construction, engineering, power, railway, automotive and defence industries
and for sale in export markets.
SAIL's wide ranges of long and flat steel products are much in demand in the domestic
as well as the international market. This vital responsibility is carried out by SAIL's own
Central Marketing Organisation (CMO) that transacts business through its network of 37
Branch Sales Offices spread across the four regions, 25 Departmental Warehouses, 42
Consignment Agents and 27 Customer Contact Offices. CMO’s domestic marketing
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effort is supplemented by its ever widening network of rural dealers who meet the
demands of the smallest customers in the remotest corners of the country. With the total
number of dealers over 2000 , SAIL's wide marketing spread ensures availability of
quality steel in virtually all the districts of the country. SAIL a competitive edge in
terms of captive availability of iron ore, limestone, and dolomite which are inputs for
steel making.
SAIL's International Trade Division ( ITD), in New Delhi- an ISO 9001:2000 accredited
unit of CMO, undertakes exports of Mild Steel products and Pig Iron from SAIL’s five
integrated steel plants.
SAIL has a well-equipped Research and Development Centre for Iron and Steel
(RDCIS) at Ranchi which helps to produce quality steel and develop new technologies
for the steel industry. Besides, SAIL has its own in-house Centre for Engineering and
Technology (CET), Management Training Institute (MTI) and Safety Organisation at
Ranchi. Our captive mines are under the control of the Raw Materials Division in
Kolkata. The Environment Management Division and Growth Division of SAIL operate
from their headquarters in Kolkata. Almost all our plants and major units are ISO
Certified.
Products of SAIL :
Hot and cold rolled sheets and coils
Galvanised sheets
Electrical sheets
Structurals
Railway Products.
Plates
Bars & rods
Stainless steel
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Other alloy steels
Major Units:
Integrated Steel Plants
Bhilai Steel Plant (BSP) in Chhattisgarh
Durgapur Steel Plant (DSP) in West Bengal
Rourkela Steel Plant (RSP) in Orissa
Bokaro Steel Plant (BSL) in Jharkhand
IISCO Steel Plant (ISP) in West Bengal
Special Steel Plants
Alloy Steels Plants (ASP) in West Bengal
Salem Steel Plant (SSP) in Tamil Nadu
Visvesvaraya Iron and Steel Plant (VISL) in Karnataka
Subsidiary
Maharashtra Elektrosmelt Limited (MEL) in Maharashtra
Joint Ventures:
NTPC SAIL Power Company Pvt. Limited (NSPCL) in March, 2001 :
A 50:50 joint venture between Steel Authority of India Ltd (SAIL) and National Thermal
Power Corporation Ltd (NTPC Ltd); manages SAIL’s captive power plants at Rourkela,
Durgapur and Bhilai with a combined capacity of 814 megawatts (MW).
NTPC Ltd formed a joint venture with SAIL on 50:50 basis in March, 2001 in the name
NTPC-SAIL Power Company Private Limited (NSPCL). NSPCL took over captive
power plant-II located at Durgapur Steel Plant (2X60 MW) and Rourkela Steel Plant
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(2X60 MW) from SAIL.
NTPC Ltd formed another joint venture company with SAIL on 50:50 basis in
March, 2002 in the name of Bhilai Electric Supply Company (P) Ltd. (BESCL). BESCL
took over captive power plant-II located at Bhilai Steel Plant (2X30 MW + 1X14 MW
BPTG) from SAIL. With effect from 11th September, 2006, BESCL was amalgamated
with NSPCL and all properties, licenses, permissions, debt, liabilities etc. with respect to
BESCL now rests in NSPCL.
Bokaro Power Supply Company Pvt. Limited (BPSCL) J oint venture between SAIL
and the Damodar Valley Corporation (DVC) 2001 :
Bokaro Power Supply Company Pvt. Ltd. (BPSCL) established in 2001 a Joint Venture
Company of Steel Authority of India Ltd.(SAIL) and Damodar Valley Corporation
(DVC) and is engaged in power and steam generation and supplies power and steam (at
various pressures) to SAIL’s Bokaro Steel Plant (BSL) located at Bokaro for meeting
the process requirement of BSL. This joint venture is managing the 302-MW power
generating station and 660 tonnes per hour steam generation facilities at Bokaro Steel
Plant.
Company'Objective.
i) To acquire, operate and maintain the existing captive power and steam generating
station of SAIL at Bokaro Steel Plant in the state of Hharkhand along with switchyard
connected therewith and such other facilities and activivties incidental thereto.
ii) To supply power and steam to BSL from the existing captive power and steam
generating station at Bokaro and associated units / facilities of SAIL so as to maintain its
captive status for the Bokaro Steel Plant.
Mjunction Services Limited: joint venture between SAIL and Tata Steel;
A 50:50 joint venture between SAIL and Tata Steel; promotes e-commerce activities in
steel and related areas. Its newly added services include e-assets sales, events &
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conferences, coal sales & logistics, publications, etc.
SAIL-Bansal Service Centre Limited: A joint venture with BMW Industries Ltd.
This is a joint venture with BMW Industries Ltd. on 40:60 basis for a service centre at
Bokaro with the objective of adding value to steel.
Bhilai JP Cement Limited: A joint venture company with Jaiprakash Associates Ltd on
26:74 basis to set up a 2.2 million tonne (MT) slag-based cement plant at Bhilai.
Bokaro JP Cement Limited: Another joint venture company with Jaiprakash
Associates Ltd on 26:74 basis to set up a 2.1 MT slag-based cement plant at Bokaro.
SAIL & MOIL Ferro Alloys (Pvt.) Limited :
A joint venture company with Manganese Ore (India) Ltd on 50:50 basis to produce
ferro-manganese and silico-manganese required in production of steel.
S & T Mining Company Pvt. Limited: joint venture company with Tata Steel :
A 50:50 joint venture company with Tata Steel for joint acquisition & development of
mineral deposits; carrying out mining of minerals including exploration, development,
mining and beneficiation of identified coking coal blocks.
International Coal Ventures Private Limited: A joint venture company/SPV
promoted by five central PSUs, viz. SAIL, CIL, RINL, NMDC and NTPC (with
respectively 28.7%, 28.7%, 14.3%, 14.3% and 14.3% shareholding) aiming to acquire
stake in coal mines/blocks/companies overseas for securing coking and thermal coal
supplies.
Objectives:
To ensure supply of imported met coal, of at least 10% of the 2019-20
requirements of SAIL and RINL, i.e. say five million tonnes per annum, from
assets overseas as medium term target to be achieved by 2011-12, being a step
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towards security of supply.
To be an owner of about 500 million tonnes of met coal reserves by 2019-20.
To meet the requirements and to serve the organizational aspirations of other
participating companies like CIL, NTPC and NMDC by providing a facility for
enhancing and leveraging their domain knowledge and human capital for
international mining business development and also for procuring high quality
thermal coal for companies like NTPC.
SAIL SCI Shipping Pvt. Limited:
A 50:50 joint venture with Shipping Corporation of India for provision of various
shipping and related services to SAIL for importing of coking coal and other bulk
materials and other shipping-related business.
SAIL RITES Bengal Wagon Industry Pvt. Limited:
A 50:50 joint venture with RITES to manufacture, sell, market, distribute and export
railway wagons, including high-end specialised wagons, wagon prototypes, fabricated
components/parts of railway vehicles, rehabilitation of industrial locomotives, etc., for
the domestic market.
SAIL SCL Limited: A 50:50 JV with Government of Kerala where SAIL has
management control to revive the existing facilities at Steel Complex Ltd, Calicut and
also to set up, develop and manage a TMT rolling mill of 65,000 MT capacity along with
balancing facilities and auxiliaries
SAIL has signed MoUs with several Indian and foreign companies to pursue its strategic
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interests:
POSCO, Korea: Strategic alliance for cooperation in a wide range of business & commercial
interest areas. Pursuant to this, another MoU has been signed for joint venture initiative in the area of (a)
manufacture & commercialisation of CRNO; & (b) Exploration of upstream & downstream opportunities in
utilising FINEX technology by both the companies
Kobe Steel Limited (KSL), Japan: To explore by joint feasibility study, the technical &
economic feasibility of ITmk3 technology for producing premium grade iron nuggets
using iron ore fines and non coking coal.
Another MoU for collaborating and cooperating for studying the possibility of producing
high value products such as (i) products for automobiles, (ii) products for nuclear and
ordinary power plants, such as forged material and tubing material, (iii) special alloy
steels and bars, and stainless steel tube and/or any other products mutually agreed to
between the parties.
Larsen & Toubro Ltd (L&T): To jointly set up, develop, manage and own
captive/independent power plant(s) at suitable location/s to meet future power
requirements of SAIL including opportunities to own captive thermal coal blocks to cater
to the power plants’ requirements.
SAIL plans $10 billion overseas expansion
Authority of India Ltd (SAIL) plans to set up small plants in Oman, Indonesia and
Mongolia that will use locally available raw materials to manufacture the alloy and help
the state-owned firm tap the local markets, in a plan that calls for almost $10 billion (Rs.
45,000 crore) of investment.
SAIL will form joint ventures to set up the three plants, which will produce 3 million
tonnes (mt) of steel each, chairman C.S. Verma said.
“A 1 mt capacity requires an investment of Rs. 5,000 crore,” he said. “We have got the
invitation from the government of Oman. We plan to put up a blast furnace there. There
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is enough demand in Oman. Our precondition is that we should get the land and the
desired inputs.”
While the Indonesian and Mongolian facilities will use coal as fuel, the plant in Oman
will use gas. Energy accounts for about one-fifth of the total cost of producing steel,
according to the American Iron and Steel Institute.
While the Indian government has allocated gas to priority sectors such as fertilizer,
liquefied petroleum gas, steel, petrochemical plants and city gas distribution companies
and refineries, there is not enough being produced in the country to meet the demands of
a growing economy.
FINDING
i) In the developed world, industries have been facing rising environmental costs due to
the increased concerns on Global Warming. It is, therefore, a challenge and responsibility
for the Steel industry to be the trustee in conservation of nature for future generations.
ii) It is estimated that world steel consumption will double in next 25 years. Quality
improvement of Indian steel combined with its low cost advantages will definitely help in
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substantial gain in export market.
iii) High raw material input cost and scarcity of non renewable raw materials are a threat
to the industry.( eg: Coal, limestone etc)
iv) Steel production in India is also hampered by power shortages.
v) Insufficient freight capacity and transport infrastructure impediments too hamper the
growth of Indian steel industry.
vi) There is Low Labour Productivity in India as compare to other countries.
vii) Tata Corus acquisition brings in a tremendous technological advantage by access to
best practices in global steel industry.
viii) SAIL have more mining ores as compare to the Tata Steel, which leads to
competitive advantages over other.
ix) Tata Steel believes globalization is a method by which you put the right part of the
value chain in its right place in the world and link it up properly - finishing facilities in
places where customers exist, and primary manufacturing facilities in places where
manufacturing is competitive.
x) Tata Steel and SAIL expands their network overseas through joint venture.
SUGGESTION
1. The export policy must be formulated so as to improve the export from India If the
overseas price of exports is favourable, exports are a natural choice.
2. Set up an R&D Mission in order to provide accelerated thrust on R&D and thereby
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improve the competitiveness of the industry.
3. Spread awareness about hedging mechanisms available in exchanges like MCX and
NCDX and develop appropriate regulatory mechanism to avoid any manipulative
practices.
4. Develop an appropriate Institutional Framework for collection of data and
dissemination of Information.
5. Consider setting up of a multi-disciplinary organization along the lines of the
International Iron & Steel Institute (IISI).
6. A Technology Up gradation Fund Scheme (TUFS) for the Small and Medium
Enterprises (SME) sector in steel industry to upgrade the technological profile of the
plants in the SME sector.
7.Interacting with State Governments to provide power at reduced/ concessional tariffs
especially to mini steel plants all over the country.
CONCLUSION
Steel demand has started increasing after recession. As the recession hit the world the
demand also decreased. The main reason was decline in the growth of automobile and
infrastructure sector, Because steel demand strongly depends upon these two sectors.
The ministry of steel projected for the 2014- 2015 the demand of steel will grow at
annual growth rate of 10%.
In today time there are many opportunities as well as competition in steel industry. The
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high cost of electricity in India may hamper the steel industry’s production level.
Recent increase in production capacity and foreign investment in India is pushing the
Indian steel production. Demand is expected to rise in future with economic and
industrial growth. Another aspect where we need to pay attention in the Indian steel
industry in the 21st century is Research & Development. India has not been able to
develop a technology to avoid usage of coking coal for iron making in an integrated steel
plant.
The public sector may be gaining from government provision of low cost inputs of
various kinds – whether it is finance or raw material. SAIL is a public company it get
advantage of gthis but it suffers from high cost of production which decreases it’s profit.
SAIL expand its business all around the world through joint ventures and acquisition eg
Bokaro Power Supply Company Pvt. Limited (BPSCL). SAIL sign MoU with POSCO,
Korea and Kobe Steel Limited (KSL), Japan etc.
Tata Steel a private company which also have global presence through acquisition and
joint ventures. eg Tata Steel acquires Corus; the joining of the two will create the fifth
largest steel company in the world. In August 2004, Tata Steel also acquire a Singapore
based NatSteel Ltd and Millennium Steel etc.Through acquisition of Corus and with new
Greenfield ventures, Tata Steel has ensured that it has diversified the concentration risk
in single technology of Iron & Steel making.
From this study we conclude in steel industry that joint ventures and acquisition are the
best mode of entry in foreign market.
LIMITATIONS OF THE STUDY
However I have tried my best in collecting the relevant information’s yet there are
always present some limitations under which researcher has to work. Here following are
some limitations under which I had to work as shown below:
Sample Size
The sample size analyzed was narrow as there is only two companies has
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been analyzed.
Time Constraint
We had a limited time for conducting this analysis report. So some shortfalls
may be present.
Lack of Experience
The lack of experience may have caused some errors in administration of
the research.
Non-Coverage of Certain Aspect
Difficulty occurs in involving certain aspect of the study due to wide area of
study, that information was not available for study.
REFRENCES
Research Papers and Journals:
Journal of Case Research in Business and Economics, Achieving Global Growth through Acquisition: Tata’s Takeover of Corus,
International Determinents Of Foreign Market Entry Strategy, Jody Evans
The Tata Group: Challenges in Managing a Large Portfolio, Srinivasan and Mishra(2007)
Trends And Patterns Of Overseas Acquisitions By Indian Multinationals, Jaya
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Prakash Pradhan, October 2007,
Entry Modes For International Markets International Review of Business,
Donglin Wu* and Fang Zhao
Foreign market entry: a theoretical analysis, By Arijit Mukherjee and Soma
Mukherjee
Choice of foreign market entry modes: Impact of Ownership, Location and
Internationalization factors, Sanjeev Aggarwal
Books:
P.Subba Rao, International Business
Websites:
www.worldsteel.org
www.indianindustry.com
www.wikipedia.org
www.steel.nic.in
www.tatasteel.com
www.indiansteel.com
www.google.com
http://leeuniversal.blogspot.com/2011/01/top-10-steel-producing-countries-in.html
http://www.researchandmarkets.com/reports/2388/Indian_iron_and_steel_industry.pdf
http://www.worldsteel.org/?action=newsdetail&id=319
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