Strategic Management Assignment

TATA STEEL

Jithin J Kumar
RBS PGDM-B Batch

P13185

Tata Steel, formerly known as TISCO and Tata Iron and

Steel Company Limited, is the world's sixth largest steel
company, with an annual crude steel capacity of 31
million tons. It is the second largest private sector steel
company in India in terms of domestic production.
Ranked 315th on Fortune Global 500, it is based in
Jamshedpur, Jharkhand, India. It is part of Tata Group of companies. Tata Steel is also India's
second-largest and second-most profitable company in private sector with consolidated
revenues of Rs 1,32,110 crore and net profit of over Rs 12,350 crore during the year ended
March 31, 2008.

ENVIRONMENTAL ANALYSIS
SWOT ANALYSIS

Strength
Captive Mines
Advanced R&D
Retail Distribution
Brown Field Projects
Internal Control System
Strong Brand Value
Access to Corus talent pool
Good Corporate Governance

Weakness
Poor Quality of Raw Material
Deficency of raw Materials
Non Renewable Source
Power shortages
Poor Infrastructure
Labour Issues
Less product innovations
High debt loads
Low demand for existing products

Oppurtunity
High Rate of Consumption
Unexplored Rural market
Estimated high future demand
Strategic Accusition
Entry into foriegn market
Growth of Infra Sector in India
Higher pricing opportunities in
foreign markets

Threat
Gloabal Warming
High cost of Raw Materials
Increasing use of Plastics and other
Polymers.
Scarcity of Raw Materials.
International Competition
Regulatory requirements

STRENGTHS
Tata Steels has an array of Captive mines across central India hence Indian
operations are self-sufficient in the case of its major raw material iron ore .
Tata Steel has advanced Research and Development wing which carries out
researches and experiments to increase the productivity of its Steel plants like in the
areas of

raw materials, blast furnace productivity, steel making, product

development, process improvement etc

Tata Steel has a strong retail and distribution network in India and SE Asia. Tata Steel

is a major supplier to the Indian auto industry and the demand for value added steel
products is growing in India.
The Company has internal control systems and procedures in accordance with the size
and nature of its business. The effectiveness of the internal controls is continuously
monitored by the Corporate Audit Division of the Company.
Tata Steel India is undertaking an array of expansion project
Tata is 41st most valuable brand in world. & Tata steel is one among the oldest
strategic Business of Tata.

WEAKNESS
Inherent Deficiency in the quality and availability of some of the essential raw
materials available in India,
India is deficient in raw materials required by the steel industry.
Raw materials for steel production are rapidly depleting and are nonrenewable;
company has to come up with sustainable methods in steel production.
Steel production in India is also hampered by power shortages.
Poor Logistics and high cost of Transportation
Low labor productivity in India

OPPORTUNITIES
Enormous scope for increasing consumption of steel in almost all sectors in India.
Unexplored Rural Market: 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.
Excellent potential exist for enhancing steel consumption in other sectors such as
automobiles, packaging, engineering industries, irrigation and water supply in India.
World steel consumption is to 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.
The Tata Steel Group is leveraging the Groups collective Research and Development
experience in the Groups various geographies to further enhance the Groups
performance and also the integration process.
Corus acquisition brings in a tremendous technological advantage by access to best
practices in global steel industry.
Global M&A brought in following synergies
o Greater productivity leading to increased output and market size.
o

Greater economies of scale leading to cost reduction through combined

buying

o Cross fertilization of Research and Development capabilities and operational

best practices, leading to greater innovation and operational efficiencies.
Booming infrastructure has opened up high demand for steel worldwide

THREATS
High environmental costs due to the increased concerns on Global Warming. High
raw material input cost and scarcity of nonrenewable raw materials are a threat to the
industry.(eg: Coal, limestone etc)
Threat of Substitutes: Plastics and composites pose a threat to Indian steel in one of its

biggest markets automotive manufacture.

International Competition from other major steel players is an area of concern for

Tata Steel.
Government Regulations and Environmental clearances that are hampering expansion
projects of Tata Steel

PORTERS FIVE FORCES MODEL

Threats Of New
Entrants - Low

Bargaining Power Of
Suppliers- High

Rivalry Among
Competitors
Threat Of Substitute
Products - Low

Bargaining Power Of
Buyers - Mixed

THREAT OF NEW ENTRANTS : LOW

ENTRY BARRIERS: HIGH

Capital Requirement: Steel industry is a capital intensive business.

Tata Steel has a lineup of Greenfield projects which it plans to establish not only in
domestic markets( Jharkhand, Orissa &Chhattisgarh but also internationally(
Bangladesh , Iran & Vietnam).
ECONOMIES OF SCALE

Benefits of economies of scale are derived in the form of lower costs, R& D expenses
and better bargaining power while sourcing raw materials.
Tata Steel being an integrated steel company has its own mines for key raw materials
such as iron ore and coal and this protects them for the potential threat for new
entrants to a significant extent.
Tata Steel owns raw material assets such as coal and limestone mines through joint
ventures or completely, with the assets spread across countries such as Australia,
Oman and Mozambique.
GOVERNMENT POLICY

The government has a favorable policy for steel manufacturers

The regulatory clearances and other issues are some of the major problems for the
new entrants.
PRODUCT DIFFERENTIATION

 Steel has very low barriers in terms of product differentiation as it doesnt fall into
the luxury or specialty goods and thus does not have any substantial price difference.
Tata Steel has introduced brands like Tata Steelium (the world's first branded Cold
Rolled Steel), Tata Shaktee (Galvanized Corrugated Sheets), Tata Tiscon (re-bars),
Tata Bearings, Tata Agrico (hand tools and implements), Tata Wiron (galvanized
wire products), Tata Pipes (pipes for construction) and Tata Structura (contemporary
construction material).Apart from these product brands, the company also has in its
folds a service brand called steeljunction.
Currently two Global Steel majors namely Arcelor- Mittal, which is the worlds
largest I and POSCO, are posed to be the biggest threat as they plan to enter the
Indian Steel Industry very soon.
COMPETITION: HIGH

The steel industry is truly global in terms of competition with large producing
countries like China significantly influencing global prices through aggressive
exports.
Steel, being a commodity it is, branding is not common and there is little
differentiation between competing products.
The 4 major domestic rivals are SAIL, JSW, ISPAT & ESSAR STEEL. Rest are all
smallish mills which together accounts for 30 % of the total market share. The market
shares of the 5 major players in the Indian Steel Industry are :
BARGAINING POWER OF SUPPLIERS: HIGH
The bargaining power of suppliers is low for the fully integrated steel plants as they
have their own mines of key raw material like iron ore coal for example Tata Steel.
However, those who are non-integrated or semi integrated has to depend on suppliers.
An example could be SAIL, which imports coking coal.
In order to safeguard itself from the high bargaining power of the buyers, Tata Steel
has forayed much earlier into the strategy of Backward Integration.
o To achieve coal security by way of imports, the company has formed a joint
venture with an Australian company for producing coal in Mozambique,
acquired strategic interest of five per cent with 20 per cent off take-rights in
the coal mining project in Australia in partnership with several other foreign

companies and formed a 50:50 joint venture with Steel Authority of India Ltd
(SAIL).
o For limestone, Tata Steel has entered into a joint venture with the Al Bahja
Group of Oman for a 70 per cent stake. The joint venture will undertake
mining of limestone in the Uyun region in Salalah province of Oman.
By undertaking such long term strategies to increase its raw material security, Tata
Steel is making it difficult for the suppliers of raw material to bargain exorbitant
prices .
THREAT OF SUBSTITUTES: LOW
Plastics and composites pose a threat to Indian steel in one of its biggest markets
automotive manufacture.
In India the high cost of electricity for extraction and purification of aluminum weighs
against viable use of aluminium for the automobile industry. The substitution is more
prevalent in the manufacture of automobiles and consumer durables.
BARGAINING POWER OF CONSUMERS: MIXED
Some of the major steel consumption sectors like automobiles, oil & gas, shipping,
consumer durables and power generation enjoy high bargaining power and get
favorable deals.
However, small and retail consumers who are scattered and consume a significant part
do not enjoy these benefits.

COMPANY STRATEGY
In February 2008, the Tata Steel Group launched a new Vision with the aim of setting a
world benchmark in Value Creation and Corporate Citizenship. With regard to Value
Creation, the Tata Steel Group set itself a target of increasing the return on invested capital of
its existing assets to 30% by 2012-13 and to generate selective growth. In order to meet this
target, the Group has developed a two-fold strategy:
In order to increase the quality of earnings of its existing assets, the Group will pursue
the optimisation of its European assets, restructure low profitability assets and

continue to derive benefits through continuous improvement and synergies across the
Group.
In order to generate selective growth, the Group will pursue capacity expansions and
securing access to raw materials. The Group is increasing its capacity in India,
through expansion of its current operations in Jamshedpur and through the
construction of a greenfield site in Orissa, and assessment of raw material investment
opportunities as and when they arise.
Corporate citizenship involves providing a safe working place, respecting the
environment, caring for its communities and demonstrating high ethical standards.
The Group wants to be a part of the climate change solution and has set a target to
reduce its CO2 emission from the current 2.07 tonnes of CO2 per tonne of liquid steel
to 1.5 tonnes of CO2 per tonne of liquid steel by 2012 through process improvements,
breakthrough technologies and development of new products and services. More
specifically, the emission target is planned to be achieved through:
o Large investments including BOS gas recovery and back pressure valves at
Port Talbot and a new ladle furnace at IJmuiden.
o Burden optimisation, e.g. through switching to pellet feed, increased scrap
ratio, reduced slag volume and increased coal injection.
o Smaller investments and housekeeping actions e.g. yield improvements,
lighting efficiency and variable speed drives across all entities.
During the year, the Group has continued to execute its long-term strategy and the
tactical planning for development of new markets is well underway. South East Asia
is one of the key growth regions and the Group is focused on developing a greenfield
expansion in Vietnam and optimising operations in both NatSteel and Tata Steel
Thailand.
In the construction sector, the Group is exploring options to develop strong positions
in India and in South East Asia through leveraging its European expertise.
The Group also continued to explore raw material opportunities to improve the cost
competitiveness of its European and South East Asian operations.

GROWTH STRATEGY
Companys long term strategy is to continue to pursue capacity expansion in India through
Greenfield projects as well including Orissa, Jharkhand and Chhattisgarh projects. Therefore

the India growth strategy remains a fundamental part of the long term strategy of the Tata
Steel Group.
The strategic levers of the Group have remained the same over the last few years. The current
global economic scenario has only rephased some of these strategies in terms of timing and
speed. The four levers are
Making the European operations competitive by hastening the speed of the
Weathering the Stormand Fit for the Future program.
Quick completion of the expansion plans in India. The 3 mtpa project will be
commissioned by 2011 and will add significant value to the Group.
Further expansion in India through the Greenfield project in Orissa and Chhattisgarh
are ongoing and their commencing will depend on ground realities and iron ore
allocation.
Investment in raw material assets to provide better raw material security especially to
our European operations.

RAW MATERIAL STRATEGY

One of the major problems faced in the steel sector is the availability of raw material. Tata
Steel in India is an integrated player, for the majority of its raw material requirements.
However, raw material self-sufficiency for the consolidated entity is at 25% post the Corus
acquisition. It has been the stated objective of the company to increase self-sufficiency of raw
materials to 50% in the medium to long term. Therefore company is acquiring new virgin
sites with significant resource potential & stocks or in terms of smaller existing ventures
which can be quickly aligned to the requirements in Europe. Riversdale Energy Mining
Limited, holds an inferred reserve of around 4 billion tons in one tenement, in Mozambique.

FINANCING & LIQUIDITY STRATEGY

Focus is given on improvement in the productivity levels and reduction in overheads. On
capital expenditure, company has re-prioritised on the most value creating and critical
projects and reworked the capital planning strategy. On the external front, long term capital
are raised which acts as a liquidity buffer in the current circumstance. The above actions
ensured that the Tata Steel Group had adequate liquidity and also financial flexibility for
growth and exigencies.

COST LEADERSHIP & DIFFERENTIATION STRATEGY

JOINT VENTURES, MERGERS & ACQUISITIONS

Corus: Europes second largest steel maker with operations in the UK and mainland
Europe and over 40,000 employees worldwide. Its long and strip products cater to
the construction, automotive, packaging, and engineering and other markets
worldwide. Coruss takeover was the one of the biggest merger in steel industry for
which TATA was paying 608 pence per share which is seven times of is original
value.
Tinplate Company of India Limited (TCIL): With a market share of over 35%, it

is

the industry leader in India.

Jamshedpur Injection Powder Limited (Jamipol): JAMIPOL manufactures carbide desulphurising compounds which are used for de-sulphurising hot metal for the
production of low-sulphur, high-quality steel.

TECHNOLOGY STRATEGY
A technology strategy is concerned with a firm`s approach towards the development
and use of the technology. This strategy plays a key role in developing an overall competitive
strategy.
TATA Steel also made a technological strategy by making use of E portal with the
collaboration of SAIL. So TATA Steel forged new business strategies using the Web

i.e. metaljunction.com, a 50:50 joint venture of Tata Steel and Steel Authority of India
Ltd.

FUTURE OUTLOOK
Currently, the global steel industry is going through unprecedented times. The steel demand
is strong with over 6% growth year on year over the last seven years unseen in the last
several decades, primarily driven by robust growth in China, India, South East Asia, Middle
East, Russia and Brazil. The iron ore and coking coal prices are at a record high both due to
insufficient capacity creation for these and the heavy consolidation of minerals companies.
Oil prices and ocean freight rates are at an all-time high. The combined effect of all these
have driven steel prices to a level higher than ever before though there is increasing
pressure on margins of steel companies due to very high input costs.
The new scenario both external, due to high raw material and freight costs and internal,
called for a new Vision, strategies and action plans. The Company has co-created a shared
Vision with its employees of becoming a global benchmark in Value Creation and Corporate
Citizenship. Company has set goals for 2012 in terms of Returns on Invested Capital, Safety,
Carbon dioxide emissions and of becoming the employer of choice in the industry. The
integration with Corus is proceeding smoothly and is yielding better than the predicted
results. Continuous improvement projects are being given focus in all companies sites and
businesses. Greenfield projects in India are progressing, though somewhat slower than
planned.
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