synopsis on nucor corporation's corporate and business environment

- Nucor Corporation Business Analysis

1- Provide one example extracted from Nucor case study with a paragraph (of not more than

four lines), which clearly illustrates a link between topics or concepts drawn from at least two

modules learned.

‘The close link with Nucor’s products nature and low-cost competitive strategy with its

decentralized organizational structure linked with compensation system and effective value chain

management enables them to face the external environments threats and gain benefit from it by

attaining different technologies through the growth strategy to sustain in the competitive market.’

The concept of demand and supply learned from the module U-52004 Business Economics

under the topic of Markets in action- changes in supply and demand (Begg and Ward, 2007)

implies that changes in the supply and demand are determined by the changes in the market

price. In the case of substitute products if the price of one product goes up demand for the other

product increases. Steel products sold in China and steel products from United States (US) can

be substitute products for each other; as there is not much difference in the steel products

standard and quality due to the commodity nature of the product. According to the case study,

US steel market had a negative result in the demand and production, due to foreign competitors

selling steel in the US market below the market price. As a result US companies were forced to

reduce their prices in order to compete with the foreign competitors. Hence, the market price of

the product is being driven by demand and supply condition.

The topic cost leadership strategy learned from the module U-51083 Perspective of Corporate

Strategy indicates that firms having a standardized product with low level of competitive quality

tend to use this strategy (Ireland et al., 2009). According to the case study, Nucor was forced to

use cost leadership strategy due to the price competitiveness among the competitors and the

standardized nature of the product. Concept of Value Chain Analysis linked with the mentioned

topic identifies the importance of primary activities (inbound logistics, operations, outbound

logistics etc.) support activities (procurement, human resource management etc.)in a firms

operation in the effective implementation of their strategies. Cost leaders, concentrate on

identifying ways to lower their costs with regard to its primary and support activities in the value

chain (Ireland et al., 2009).Firms use inventory management systems to reduce operation and

inbound logistic costs. While having efficient channels of distribution reduces the outbound

logistic cost (Ireland et al., 2009). In the case of Nucor plants were linked electronically to each

other’s production schedules, has far fewer production steps, far less capital investment where

each plant operates in just-in-time inventory mode resulting in reducing the operation costs and

AIshath Sheneen Ibrahim of 15


inbound logistic costs of the company. Furthermore, in order to ensure and control on-time

delivery Nucor’s Vulcraft facility manages a fleet of trucks for efficient outbound logistic

operations.

Support activities such as human resource management system learned in-depth from the

moduleU-51030 Managing Human Resources is closely linked with their strategy. Extrinsic

and intrinsic rewards highlighted in the topic Compensation of Human Resource is a form of

motivational incentive. Performance based bonus is a form of extrinsic reward which is given to

improve either individual or team members’ productivity. Autonomy given to employees is an

intrinsic reward that motivates them to increase performance (Noe et al., 2008). Nucor has a pay

for performance’ incentive compensation system where incentive is based on the number of tons

produced per week. The outcome of this system is to increase production level beyond the

standard number of tons that is to be produced weekly. This encourages healthy competition and

team spirit among the business units in resolving problems and exceeding the production

standards while reducing per cost of the production through efficiency. Nucor’s decentralized

organizational structure gives autonomy to its employees creating a highly productive

empowered workforce.

Identifying opportunities and threats in the general environment (PESTLE) helps companies to

achieve strategic competitiveness. This was learned under the topic Exploring the External

Environment: Competition and Opportunities which is linked with the topic Acquisition and

Restructuring Strategies, where acquisition and mergers are used to respond to the general

environment. These topics were learned under the above mentioned moduleU-51083.With the

change in political regime comes changes in regulation and rules. As such new regulation on

tariffs was imposed on selected steel products to reduce dumping of steel into US after the

change in the government. The use of growth strategy through acquisitions in Nucor which arose

due to the external environment, allows value creating diversification that enables economies of

scope. Adopting the growth strategy increased Nucor’s production capacity, enabling broader

product segment and increased market share which helps in surviving from threats

encountered. .Benefiting from the technological environment was also one of the reasons for

adopting growth strategy. Nucor’s aim was to be a technology leader by grabbing the

opportunity of being the first to market with new steel making technologies that could give an

upper hand in cost competitiveness and product quality. Hence, we can see that every aspect of

Nucor business is driven by their business level strategy in gaining competitive advantage to

sustain in the competitive market environment.



2-Discuss the key operating practices, policies, and approaches that Nucor has employed in

pursuit of low-cost leadership status.

The commodity nature of steel products has forced steel producers to be price-competitive.

Hence, Nucor Corporation has adopted a low-cost leadership strategy to succeed in the highly

volatile industry. The company’s key to executing the strategy remains in optimizing existing

operation, pursuing strategic acquisitions, and growth globally through joint ventures that

leverage new technology (Kinetic Wisdom Inc, 2006; Nucor Annual Report, 2005).

The work force of an organization is one key resource (Luna-Arocas and Camps, 2008) where

enthusiastically committed individuals are needed to achieve performance targets and execute

the strategies of an organization (Thompson et al., 2009). Nucor’s effective long-term practices

and policies such as their decentralized organizational structure, unique egalitarian culture,

performance-based culture and their no lay-off policy have created a committed and enthusiastic

workforce; working towards achieving performance targets to successfully execute the

company’s strategies.

Nucor’s decentralized organizational structure that enables empowerment has created a unique

egalitarian culture that promotes employee participation and innovation. This enables day-to-day

decisions to be made on site with minimal interruption from the headquarters, resulting in quick

problem solving in the sites. This creates greater operating efficiency in the company (Belt,

2009) as employees feel responsible for their outcome and work together in solving problems

which results in minimizing cost in the production line.

The performance-based practice that ties employee well-being to company performance has been

imprinted in Nucor for years. This tends to enhance job security and also encourage productivity

of the plants (Gordin, 2007) and increase worker productivity (Belt, 2009) as they tend to

perform better when given incentives (Byrnes and Arndt, 2006). Nucor has the same

performance-based philosophy and principles for top management and the other employees.

Incentives were paid in terms of base salary for the exceeded amount of ton produced by the

production team. The fact that there is an equalitarian culture in the compensation practice

encourages high performance in the organization where all employees are highly involved in

maximizing production; resulting in economies of scale that further reduces cost of production.

Hence, Nucor is still achieving higher worker productivity per ton than its competitors.



Nucor’s Human Resource (HR) policies that involves no lay off practices (Achtmeyer, 2000)

created a specialized workforce of steel making knowledge that can be transferred amongst steel

making operation that enable Nucor to gain economies of scope (Hirschey, 2009). Each plant in

Nucor had a “consul” which assists the new employees in transferring the ways of Nucor in

terms of navigating the division and company and resolving problems that arise. As such,

Nucor’s flexibility to transfer expertise of its employees across different product lines and across

divisions lowers Nucor startup cost as a whole.

To achieve low-cost production investment has to be made efficiently whereby, the solution

relies on the use of cost-efficient technology (Oltra and Flor, 2010) and achieve higher

performance by aligning the firm’s operations strategy and business strategy. Nucor’s approach

by growth through acquisitions and joint venture brings in new technology and enable them to

achieve economies of scale. Although the process of incorporation of new technology is a

complex activity which requires high employee cooperation (Karlsson et al., 2010) Nucor is able

to manage the acquisition quite well due to their well established employee relations mentioned

above.

Nucor has increased product capacity and reduced cost through economies of scale using new

technologies, by acquiring bankrupt companies that has the advantage of increasing the

production capacity by expanding geographically and increasing market share. Companies

adopting a low-cost strategy requires increased market share to remain competitive in the

industry.

Nucor’s acquisition of Trico Steel gave Nucor a competitive advantage as the mill has the

capability to make thin sheet steel that has superior surface quality that creates opportunity to

gain sales and market share in the flat-rolled sheet segment.

Nucor was the first company to use electric arc furnace (EAF) technology that reduce the labor

and capital requirements to melt steel scrap and produce crude steel. EAF gave them the upper

hand in reducing cost as opposed to companies having conventional integrated steel mills that

has more processes to turn raw material into crude steel, which require more labor for operating

the additional machineries and equipments needed for this process. Nucor has expanded the use

of this technology and increased its operation capacity to 7.7 million tons in 2006 which lowers

production cost due to economies of scale.



Another technology that Nucor pioneered that contributed towards cost reduction was the thin-

slab casting process. Thin slab casting machine reduced capital expenditure as it was much

cheaper to build and operate facilities than the traditional sheet steel plants that used

conventional casters; which was said to be $50 to $75 per ton below the cost of traditional steel

plants. Acquisition of plant that used this technology further increased their production to 10.8

million in 2006 resulting in higher operation efficiency gaining economies of scale.

Furthermore, the strip casting technology which is one of the pioneering technologies introduced

by Nucor have cost cutting advantages. The Castrip process drastically reduced capital outlays

for equipment which can be used in smaller scale plants that can be economically built with

current technology that requires only 10 percent of capital investment of a new integrated mill

(Gordin, 2007). It also produced savings on operating expenses which included the ability to use

lower quality scrap steel as well as reduction of energy consumption by 90 percent to process

liquid metal into hot-rolled steel sheets 20 times faster. Nucor has exclusive right to this

technology which gives them a competitive advantage in maintaining their low cost strategy.

Nucor’s acquisitions have a greater impact on the operation of their value chain as their

backward integration through acquisitions creates more value. Nucor’s value chain system plays

an important role in reducing cost at each stage of its operation process. Their just-in-time

inventory mode reduces stock holding costs. Plants were linked electronically to each other’s

production schedule and they had the capability to ship out to customers which reduced the

finished goods inventories in Nucor plants.

Nucor has been using backward integration to reduce the supply costs. They used backward

integration into minimill technology to produce cost competitive molten steel from scrap,

reducing capital expenditures by one tenth of that required of an integrated steel mills and

reduced operation costs by 15 percent of an integrated steel manufacturers. Hence they were able

to pursue an extremely low-cost strategy with respect to the construction, production and

operation of these facilities (Gordin, 2007, pg. 37) hence, Nucor’s value chain involved far fewer

production steps, far less capital investment, considerable less labor than the value chain of

companies with integrated steel mills.

In 2004 they have acquired an idled direct reduced iron plan in Louisiana, integrating backward

in order to have low-cost substitute for scrap steel that supplied 25 to 30 percent of its own iron

requirements that held promise of raw material savings. Hence, increased capacity through new



technology and acquisitions has created learning experiences and economies of scale; which has

strengthened firm’s operational efficiency and lower production costs by way of effective value

chain management.

3- You are required to conduct research, and identify at least the three main challenges that

Nucor has faced from 2007 until today. Analyze the approaches that Nucor has taken to these

challenges, and evaluate were its responses effective. Discuss the main differences between

strategies adopted by Nucor in accordance with the case study, and strategies adopted from

2007 until today.

The volatile nature of the steel industry brings major challenges to the players in the industry.

Constant increased want for steel in the construction sector, infra structure and automobile sector

is of advantage for demand of steel (Economy Watch, 2010)

The financial crisis in 2008 (Enderwick, 2009) caused by the collapse of the USA financial

markets (Gennard, 2009) resulted in a global economic recession. The weak economy resulted in

the restriction of credit and mortgage loan (Enderwick, 2009; McDaniels, 2008). This weakened

the US steel market due to decline in growth rate of residential and non-residential construction

(Zacks Equity Research, 2010; McDaniels, 2008) which is the most challenging market for

Nucor products.

The motor car industry was affected as a result of spike in oil prices and reduction in consumer

spending. Consumers moved away from sports utility vehicles (SUVs) that utilized more gas.

This reduced the demand for big three car producers (GM, Ford and Chrysler) in the US

(Enderwick, 2009). Automotive industry is the second largest consumer for Nucor. This was a

major challenge to Nucor as reduction in demand from their major consumers will result in

negative affect in their overall product line.

According to the case study Nucor has increased their product line to reduce dependency on the

construction industry. As such, they have cold finished steel products for automotive, firm

machinery, hydraulic, appliance and electric motor industries. This has resulted in increase of

their customer base and market share. In this case where the recession affected the main two

markets of Nucor, the effectiveness of this approach will be minimized.



As per the effect of recession Nucor face challenges of increase in transportation cost due to the

increase in the oil prices, where consumers have to bare this increase in price. According to the

case study Nucor’s value chain system uses just-in-time operation for delivering goods. The

ability to deliver on time and fast delivery result in satisfied customers (Oltra and Flor, 2010)

giving a competitive advantage to other competitors. As such Nucor takes less than 1.5 days to

deliver its shipments anywhere in the US (Johnson, 2008). According to the case study the

approach of Nucor developing its plant sites in hopes of having several customer companies co-

locate nearby paid off. Several businesses located around their plants, which allowed Nucor to

shorten the distance of its supply chain, as it effectively enabled the local companies to use just-

in-time inventory practices more effectively (McDaniels, 2008).Nucor saved it transportation

cost up to $20 per ton due to close proximity of its customers to their micro-mills (Gordin, 2007)

and approximately 60 percent of Arkansas Nucor plant sales are sent to nearby businesses

allowing consistent sales due to the ability to take advantage in distribution channel by lowering

their costs of transportation (McDaniels, 2008).

Nucor has faced challenges in the rise in energy prices. Gas and electricity rates have been

increasing substantially over the past decade (McDaniels, 2008) and this will affect the

production of Nucor as its one of the primary inputs of the company. According to the case study

as per their strategy Nucor have been developing and commercializing new technology to

maintain low cost production. As such, Mini-mill and Castrip technologies plays and important

role in the successful management of energy costs in Nucor. The process allows 91 percent

reduction in electricity (McDaniels, 2008) this has enabled the company to reduce its operating

costs (Johnson, 2008). Furthermore, according to the case study Nucor also contracted with

natural gas suppliers to provide them the required amount for the operation direct reduced iron

facility in Trinidad from 2006-2028. This will enable the benefit of continuing their operation

without any disruption and saves cost as it allows them to use just-in-time approach of getting

gas.

Nucor faces challenges in the hike in raw material prices (Stover, 2008) due to scrap steel been

the major input for their electric arc furnace mini mills (Cooney, 2007).. Ferrous scrap prices

more than doubled in 2008 (Steel Manufacturers Association, 2010) this result in severe

consequences for Nucor the largest scrap recycler in North America, as they rely highly on

external suppliers (Datamonitor, 2008) making them vulnerable to rising prices of scrap steel.

Although the current global recession has contributed to decline in raw material, the increased



involvement in the governments of China, Russia, Ukraine and India in subsidizing raw

materials and establishment of series of trade restrictive measures severely distorted the trade in

raw materials. This resulted in low supply of raw materials in the US in turn higher prices for

essential raw materials (Steel Manufacturers Association, 2010)

Another approach Nucor has been using a raw material strategy through joint ventures and

acquisitions to control directly and indirectly the cost of raw materials by having vertical

integration, recently focusing in acquiring downstream activity firms. Nucor processes a 150

truck fleet to deliver their product (Johnson, 2008) which can be profitable move as mentioned

above having its own transportation reduces cost by ensuring quick and on-time-delivery of raw

materials. Nucor’s recent agreement to acquire half of Japan based steel product manufacturer

Mitsui & Co. Ltd. (Staff, 2010) jointly expand in the global market for the metal used in

appliances, autos and construction (Lococo and Kumakura, 2010). This gives them added

advantage in maintaining supply chain relationship as it gives them economies of scope of

joining their suppliers.

Nucor acquired its primary supplier in Canda, David J. Joseph Company (DJJ). They have

numerous brokers for ferrous and non ferrous metals, pig irons and processes ferrous and non

ferrous scrap (Charlotte, 2010) and continuously develop new supplies of scrap and scrap

substitutes for largest steel producers (David J. Joseph Company, 2010). This gives Nucor’s an

added advantage as it enables them to control the price of ferrous scrap and enhances reliability

in getting scrap steel to their recycle plants and minimills. As DJJ will also be supplying to other

large steel producers Nucor still might have to purchase scrap from other suppliers (Datamonitor,

2008) in order to keep up with the demand of the company.

The consolidation of steel industry (Cooney, 2007) and the global competition in the steel

industry brings much greater pricing power. Export has increased tremendously in the US and

China world’s largest steel maker has become a large net exporter (Cooney, 2007). This brings in

many challenges to the US steel market.

However, according to DiMicco Nucor’s CEO the main challenge is not the competitor itself but

the biggest challenge Nucor faces is the impact of rules and laws that govern international

commerce (Nucor Corporation, 2010).

There are many unfair trade advantages enjoyed by China and other countries, however the

major concern includes government subsidies and currency manipulation (Fleischauer, 2009).



Raw material firms are subsidized by the governments of the above mentioned countries. This

will allow unfair trade practices in the global market resulting in dumping of steel to other

countries, which reduces the prices of steel products in those countries in turn affecting the

global market price of steel. Major threat comes form the Chinese government as they provide

extensive benefit primarily as tax credit as subsidies to steel producers involved in exports

(Price, 2006) and their currency manipulation where Yuan’s value remain flat to the increase of

their exports. Hence, the undervalued Yuan, provides a 30 to 40 percent subsidy when selling to

US companies as their currency is pegged to the US dollar (Fleischaucer, 2009).

Management of Nucor is involved highly in the awareness of this issue to the US government in

order to bring a significant change to the situation faced by US steel producers. Nucor with other

steel industry producers submitted a report to the government of US where the US government

brought a case in the World Trade Organization (WTO) against China on subsidizing their steel

industry. In turn Chinese government some measures that encourage steel exports were reduced

(Cooney, 2007). However, a permanent solution can be attained to dumping when strong

regulations are created in non-market based economies (McDaniels, 2008).

US uses their anti dumping duty laws to level the international field in steel due to unfair

subsidies (Stove, 2008) and recently US Commerce Department has imposed countervailing

duties at 62.46 percent and anti dumping duties of 136.76- 145.18 percent against imports from

China (Wu, 2010) which will be of benefit to Nucor as they will be able to operate in their own

market price without having to constantly changing the prices of steel due to low quality imports.

Furthermore, Nucor’s intangible human resources played and important role in keeping the costs

down in the plants. The operational efficiency (Gordin, 2007) and reduction in their fixed costs

(Tweh, 2009) which was achieved through decentralized management approach (Boyd and

Gove, 2000) that empowers employees and also their performance based pay approach enabled

them to be stronger in the market. Nucor has a competitive advantage in their intangible assets

that keeps them competitive in the market despite of all the challenges that they face.

The main difference in the Nucor’s strategy also seen from above, is their growth through scrap

processing, rebar fabrication and international operations (Nucor Annual Report, 2008) which

will further enhance the optimization and integration of supply chain on a global basis, reduction

of cost of moving raw material, semi-finished goods and finished goods, lessening the cost of

raw



materials (Claessens and Henderson, 2009). Their expansion into the value chain downstream

can be seen from the acquisition of DJJ. In July 2008 Nucor also established international growth

platform by opening a European office and executing joint venture investment with Duferco S.A.

(Nucor Annual Report, 2008) which will increase their international market share.

4- Conduct the research regarding Nucor’s financial reports, and identify appropriate key

performance indicators. Once you have gathered relevant data on these, undertake a

performance analysis of the company over the last five years. Develop your findings and

present what does the analysis tell you about the success or otherwise of the strategy adopted

by the company.

From the financial performance of Nucor (Refer to Appendix One) the main performance

indicators are evaluated below.

Earnings and Profit

Due to strong economic cycle in the global economy until mid 2008, major industries like

construction, housing, finance and automobile were growing at a speedy rate. This has led to

increase in the demand for steel and steel products consistently (Organization for Economic

Cooperation and Development, 2009)

Steel consumption in US Domestic steel prices by selected regions

(Source: Organization for Economic Cooperation and Development, 2009).



With this global effect, Nucor has increased its earnings from $12.7billion to $23.66 billion

during 2004 to 2008. In the mid of 2008 there was also a price increase in the global steel market

with the increase in the prices of raw materials has led to increase in revenue throughout the

industry. The net effect of this was to increase in Nucor’s net profit from $1.31 billion in 2004

to $1.83 billion in 2008 giving an increase to earning per diluted share (EPS) of $5.98 which was

an increase of 2.48 compare to 2004 figure of $3.5. This also helped the company to gain the

investors’ confidence through increasing the dividend payout ratio. The figures shows that

company declared $1.91 per share in 2008, this was a 22% decrease compare to 2007 ($2.44 per

share) but an increase of 105% when compare $0.93 per share declared in 2005.

Nucor made highest profit, $1.8 billion, in its history in 2008 not only because of increasing in

price of the steel in the global market but also increase in the production capacity due to the

vertical integration (see below).

In 2009, when global crisis hit so badly, $500 billion steel industry cut demand by 6.7% (World

Steel Association, 2010). The revenue of Nucor felt by 55% as a result; the company made a loss

of $0.29 billion.

The profit of Nucor was also affected by the inventory valuation method used in Nucor. Nucor

use Last in First out (LIFO) method to value its inventories (Zacks Equity Research, 2010).

Hence, due to the increased prices of raw material during 2008 (World Steel Association, 2008)

and this lead to increase in the company’s cost of production resulting in reduction of its profit.

Acquisitions, source of finance and balance sheet effect

During the year ended 2008, as per its vertical integration strategy, Harris Steel Inc a wholly

owned subsidiary of Nucor, has made a very important move in acquiring Ambassador Steel

Corporation with a cash price of $185 million (Nucor Corporation, 2008). This also includes

repayment of Ambassador's bank debt of approximately $136 million. The primary source of

finance came from the working capital of Harris Steel. Since this is a vertical integration this

would help to increase the productivity and the revenue of the company in the future.

Furthermore, Nucor acquired David J. Joseph Company (DJJ) for a purchase price of

approximately $1.4 billion (Ackerman, 2008). With these takeovers Nucor has increase its total



assets in 2008 to $13.8 billion (a 41% increase to 2007 figures). Goodwill of the company went

up to 104% compare to the 2007 figure of $0.8 billion.

There are many things to be considered about these fast moves.

Firstly, Nucor has maintained a positive cash flow during the period from 2004 to 2009 (Refer to

Appendix One). Secondly, many significant events had been occurred before and after the

acquisitions.

In May 2008, following the largest acquisition, Nucor went a public offering of 27,700,000

shares of its common stock at the rate of $75.00 per share and raised net proceeds of $1.99

billion even though the global economy was teetering on the brink of recession. With this

improbability the company had also issued $1 billion debt in three tranches in June 2008. This

has increased the total debt of Nucor from $2.2 billion in 2007 to $3.1 billion in the end of 2008.

Due to increase in debt of Nucor in 2008, finance cost of long term debt increased in 2009. When

downturn hit in late 2008 and cut revenue by 53% (Lococo, 2009) Nucor was unable to reduce

its cost of sales as much as the sales dropped in 2009. Sales were dropped by 55% but cost of

sales was only reduced by 44% giving a net loss of $0.29 billion in 2009. Nucor was unable to

meet its finance cost because of increasing its debt in 2008 resulting to change its profit in 2008

into a big loss in 2009.

Investors’ point of view

Nucor has a successful history in increasing its profit, EPS and Dividend per share throughout

the period from 2004 to 2008. During the year ended 2008 Nucor has made very significant

decisions in raising fund for its acquisitions. Instead of going for a Right issue the company has

decided to go for Public issue of shares, this will reduce the power of the current shareholders

and leads to spread its voting rights into wide range of shareholders.

Increasing in prior-charge capital will lead to increase the gearing of the company resulting to

reduce shareholders wealth. This will also have a negative impact on the future profits and

dividends of the company. Losing confidence of potential investors would be the biggest

challenge that the company would face in the future.



Ratio analysis

Nucor Industry Nucor Industry Nucor Industry Nucor Industry Nucor IndustryProfitabilityNet profit margin -2.49% -6.43% 12.17% 8.49% 13.61% 9.92% 18.00% 10.24% 15.91% 9.46%ROCE -2.46% -5.76% 23.96% 15.92% 27.39% 17.28% 41.27% 21.90% 34.34% 19.13%Return on Assets -0.82% -3.30% 13.85% 9.29% 15.03% 9.85% 21.80% 12.46% 18.41% 10.30%

LiquidityCurrent ratio 4.22 2.82 3.45 2.75 3.21 2.45 3.22 2.63 3.24 2.50Acid test ratio 3.15 2.05 2.15 1.76 2.19 1.64 2.44 1.86 2.49 1.77

Activity ratioStock turover 5.93 6.37 9.78 9.58 9.82 8.41 10.82 8.60 9.24 8.11

Gearing ratioDebt over equity 41.76% 60.71% 41.19% 56.38% 44.01% 58.51% 19.11% 102.72% 21.57% 189.40%

20082009 20052007 2006

(Source: Nucor Annual Reports 2005-2009; AKS Annual Reports 2005-2009; USS Annual

Report, 2005-2009)

Industry average is taken using the two main competitors in the US steel industry which is AK

Steel and US Steel (Refer to Appendix One). As the figures shown above, Nucor is always above

the industry average except the Stock turnover in 2009, which was lower than industry figure.

Due to increase in raw material prices in 2008 and 2009 during global recession, Nucor’s

inventories has increased up to $0.5 billion (Refer to Appendix One) which was the highest when

compare its 5 year data, resulting to increase its cost of sales. This has led to decrease in stock

turnover in 2009.

Moreover, Nucor earned a profit in second quarter (Q2) of 2010 (Lin, 2010; Zacks Equity

Research, 2010) while US Steel incurred losses (Smart Money, 2010). Reported on Nucor’s Q2

performance in Zacks Equity Research (2010), “Sales jumped 69% to $4.2 billion due to a 25%

increase in average sales price per ton during the quarter. Total tons shipped to outside customers

rose 35% to 5.55 million tons while steel mill shipments grew 53% to 4.6 million tons. The

downstream steel products shipments to outside customers increased 19%.” This shows that the

adopted strategy of Nucor worked well.

Hence, it can be concluded that, the strategies used by Nucor in terms of vertical integration,

using acquisitions have been successful throughout the years.



5-Conduct research and evaluate how attractive the prospect of future profitability of U.S.

steel makers. Recommend and justify your answer that should Nucor consider expanding in

present industry environment for markets in U.S. and overseas.

US economy is to see improvement in their housing and capital market due to rising in consumer

spending by 1.8 percent and oil prices are expected to fall in the first quarters of 2010

(Bahravesh, 2010). This will increase the demand for automobile and housing market resulting in

improvement in the steel industry. Prior to recession Nucor was operating in profit and they can

still continue their strategy to gain success in the future.

Bills that is been drafted after United States climate change conference in Copenhagen in 2009

by the US Congress to restrict imports from countries that do not impose necessary

environmental controls targeted mainly to China and India (Steel Manufacturing Association,

2010) will result in less exports from countries that do not agree to share comparable burden as

they will be imposed to import controls. This creates a greater opportunity to US steel market

due to lessening competition from China’s imports. Compared to March 2009, China’s export

reduced by 0.07 million metric tons in March 2010 (U.S. Department of Commerce, 2010).

However, the Chinese government is already taking measures to meet environmental concerns

by the recent change in the policy to consolidate Chinese steel industry (Claessens and

Henderson, 2009). They aim to have two major steel companies in 2010 where its top ten plants

will account for 75 percent of all domestic production by 2020 (Cleassen and Henderson, 2009).

This could further increase competition among the steel industry. Nucor’s productivity is high

and labor relations are good (Boyd and Gove, 2000) and they have already survived with the

global competition. They have also established international strategy to further strengthen their

position in the global market. Due to the extensive experience in the US market they can still

operate in profit overcoming external threats.

US will face a decrease in labor force (Lococo, 2010; James, 2010) due to nation wide decrease

in blue collar workers (McDaniels, 2008) as a result of increase in baby boomers. This imposes a

greater threat to Nucor if they are only operating in the US market. And at some point of time the

growth strategy will come to a point where Nucor could start facing losses if they are only

expanding in the US market; due to market saturation. Eventually they will have to consider

operating in multinational markets. Emerging markets such as China, India and Brazil, offers



favorable market opportunities (Enderwick, 2009) such as more blue-collar work force.

However, Nucor has to see to the government regulation and policies when establishing the

company.

The recent duties on imports established by US on China imports (Wu, 2010) could hinder the

relationship between these two countries making it difficult for US companies to establish in

China. However, Nucor still has good relationship with India and Brazil, where in Brazil they

already have created joint ventures; thus, can consider the option of expanding into these

markets.


synopsis on nucor corporation's corporate and business environment

Documents