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To begin with, there is competition for the inputs that are required in the production of steel. The industry core input is from recycling of scrap metal. The many firms in the industry thus compete for these metals used in production. There is also competition for market share between the players. Market share determines the level and volume of sales that a firm makes and therefore influence e the profits to a firm (Porter, 1998). The foreign suppliers further tighten competition for market share in the steel industry. Firms in this industry as well are faced by the threat of entry by new firms as this may influence negatively on the performance of the already existing firms. Michael Porter five forces model can be applied to explain the competitive forces in this market. According to porter, the five factors that influence the performance of firms are the threat of entry of new firms, threat of substitute products, bargaining power of suppliers, bargaining power of customers, and the rivalry among firms (Porter, 1998). These five forces will affect operations and determine the policies to be adopted by firms to ensure that the competitive edge against competitors is attained. In this market for instance, there is high bargaining power of customers. Customers in the steel industry are very sensitive to price changes and are concerned about the quality of the products. This therefore makes the firms in this industry to produce at the lowest cost possible without compromising on the quality.
The second element of the porter's model is the threat of new entrants. New entrants will compete for the same customers and will fight for a control on the market share (Nilsson & Rapp, 2005). The fight for market share is a zero sum game where if one firm increases its market share then the others will lose their share. In the US industry, there is threat of entry of very new firms or formation of partnership, alliances, or mergers that will make the competition stiffer. Nucor Corporation has therefore increased its acquisition of new firms and reduced the bureaucracy to ensure flexibility and better performance. The industry is thus highly competitive.
The bargaining power of suppliers also exists in the industry because of the many firms in the industry. In this industry, firms have to look for scrap metals that are molted and used in producing steel products. The companies must therefore offer good prices for input for them to have continued supply of raw materials and reliable suppliers. The third force is the threat of substitute products. Substitute products have similar uses and satisfy the same need, therefore becoming important for competition. Industries that are characterized by the existence of closer substitutes are highly competitive and must ensure quality production and good pricing. Continuous restructuring and strategies are also important for the success of the firms. Presence of substitute products in the steel industry, together with the imports from china, turkey and other foreign countries have made competition stiff in this industry (Thompson, 2010). The four forces together with the rivalry among firms are the component of the five forces model. The rivalry among firms is determined by the ease of exit, branding, product identity, product difference and switching cost. The low cost of switching and the ease of exit makes the steel industry in US and globally be highly competitive.
Future profitability of steelmakers the increase in the demand for steel products for the development projects makes the industry to be profitable. The competitive forces will also be on the rise given the entry of new firms and the attractiveness of the industry. A trend analysis into the company's financial performance shows an increase in the earnings posted by the firms in the industry. For example, the profit of Nucor increased from $ 310.9 million in 2000 to $1757.7 in 2006 (Thompson, 2010). This increase in the net earnings has been propelled by the high demand for steel and the strategies formulated to achieve market growth.
Nucor must therefore expand in the market if it has to realize better performance. Through acquiring more firms and expanding in new markets, the company will increase the sales turnover and enjoy economy of scale production. It will also compete favorably with other firms in the steel industry from within and outside the US economy. Expansion will also assist in the increase of their market share and help in reducing the variations in the returns to the firm. Nucor is also likely to increase their supply base and enjoy better technology that will enhance efficiency in production. Expanding their operations is therefore called for if the company has to benefit from the better result. Nucor strategy
Nucor has adopted the growth orientation strategy where the company aims at increasing their market share through acquisition of new firms and the expansion of the existing ones. A growth strategy increases the share in the market and result into the increase in sales and profits (Nilsson & Rapp, 2005). The strategy is evident from the company's increased acquisition, upgrading of the existing plants and the formation of joint ventures. Joint ventures enable the company to enter into new markets quickly and to reduce the cost of entrance. New plant construction and the use of better methods of production are all elements that Nucor has adopted a growth strategy. The strategy has made the company realize increase in profits and a corresponding increase in the number of their customers.
The generic strategy that has been adopted by Nucor is the cost leadership strategy. This strategy targets a broader market and promotes low cost of production (Porter, 1998). To gain a competitive advantage in an industry, the firm must show to its customers that they will get value for their money. The cost leadership strategy is adopted in cases where there are many competitor and the customers are very sensitive to prices. Nucor has achieved this strategy by keeping their cost of production low and at the same time producing a wide range of products. Through this, the company has become one of the largest steel companies and was at one time the biggest in US steel market.
The strategy has also seen the company compete favorably with the foreign firms that imports steel at a lower cost in the US market. The company need to expand their operation should be carried out while taking into account the economic factors and the demand of steel in the targeted countries. Foreign operations should only be made in areas where there are prospects for having good returns. The operations be in countries where the regulations support the growth of industries and are not discriminatory. To ensure that the acquisitions and the mergers are beneficial to the company, they should be evaluated and only viable mergers should be pursued. The management should also strive to improve the relation with the employees and their grievances should be addressed in ways that result into amicable solutions. Employees whose interest and plight are satisfied will work towards achieving the overall organizational objectives. The organizational structure of the company should remain simpler and one that promotes innovation and quick decision-making
