INBS562_03- International Experience

INTRODUCTION:

Laxmi steel Company is located in Fairfield, New Jersey. The company has recently decided to
expand its operations overseas. After long deliberations, management has decided to conduct
further research of 2 steel productions in India and United States of America.
The worldwide Steel industry has seen a tremendous growth in last 8 years. The industry directly employs
more than two million people worldwide, with a further two million contractors and four million people
in supporting industries.
Considering steels position as the key product supplier to industries such as automotive, construction,
transport, power and machine goods, and using a multiplier of 25:1, the steel industry is at the source of
employment for more than 50 million people.
World crude steel production has increased from 851 megatons (Mt) in 2000 to 1,606 Mt for the year
2013. (It was 28.3 Mt in 1900).World average steel use per capita has steadily increased from 150kg in
2000 to 225 kg in 2013.India; Brazil, South Korea and Turkey have all entered the top ten steel producers
list in the past 40 years.
Considering the growth in the industry and the expansion plans of the U.S. based company,
Laxmi Steel (made up the name of the company); I was tasked with analyzing possible growth strategies
for Laxmi Steel including international expansion.

INDIA:
India is a huge country with an enormous market that significantly underperforms in the context
of its commercial relationship with the United States. With a new government in charge, the
timing may be right to materially improve our bilateral trade relationship, which could translate
into greater opportunities for U.S. businesses. Despite all of the economic and commercial
challenges we face in India, it is an important global partner and key player in the region.

In 2010, President Obama said the United States-India relationship will be one of the defining
partnerships of the 21st century and that the United States seeks[s] prosperity a strong and
growing economy in an open international economic system.
From 2000-2013, United States-India trade in goods and services has grown from $19 billion
annually to $97 billion.
Being a developing country, India is not as economically prosperous as the United States. In this
case study, we will observe factors of economic growth that allow the United States to be more
developed and are being implemented by India in an effort to achieve economic progress.
India is currently the 4th largest producer of crude steel in the world and is expected to become
the 2nd largest producer of crude steel in the world by 2015-16. The Iron and Steel Industry in
India contributes around 2 percent of the Gross Domestic Product (GDP) and its weight in the
Index of Industrial Production (IIP) is 6.2 percent. India is also a leading producer of sponge iron
with a host of coal based units, located in the mineral-rich states of the country. Per capita
consumption of steel in India is at 59kgs as against an average of 216kgs of the world. The
country posted a 2.5 per cent growth in steel production to 39.63 MT in the six month period
January-June 2013 against 38.68 MT in the same period in 2012. During the same period, world
crude steel production was 789.8 MT, an increase of 2 per cent compared to the same period of
2012. The World Steel Association forecasted local steel demand to grow at 5.9 per cent and 7
per cent in 2013 and 2014 respectively.
At a global level, supply would continue to be more than demand, as capacity additions
continues, primarily in emerging economies. The trend is led by India.
Indian steel industry comprises of several interlinked segments for value addition broadly
classified as Integrated Producers and Non-Integrated or Secondary producers which are largely

small scale units and are engaged in re-rolling and accounts for over 50 per cent of the total
indigenous output. The Secondary Producers focus on the production of high grade steels and
specialty products to meet the specific requirements of the industry and the development plans
must include the strengthening of the secondary producers along with the major producers.
The study assesses the current status, the opportunities, challenges and future prospects
associated with the MSMEs operating in the Steel Industry.

India to play the key role in

steel market dynamics

POPULATION AS MACRO VARIABLE:

The total population in India was last recorded at 1233.0 million people in 2013 from 359.0
million in 1950, changing 243 percent during the last 50 years. Population in India averaged
736.65 Million from 1950 until 2013, reaching an all-time high of 1233 Million in 2013 and a
record low of 359 Million in 1950.
Thus, population that signifies the growth of people residing in a particular country. Growth in
population provides information to business and governmental bodies to make determination
whether to invest in a particular region or not.
Based on information it is evident that growth in population is more in India as compared to
USA. Population growth signifies more urbanization which propels companies to invest more on
innovation resulting in increased economies of scale.

GDP AS MACRO VARIABLE:

The commercial importance of India to the United States is growing: it is the worlds third
largest economy (after the United States and China) measured by GDP in terms of purchasing
power parity ($6.78 trillion in 2013), the tenth largest in nominal GDP ($1.88 trillion), and the
eighth largest consumer economy. It has an urban middle class forecasted to reach 400 million
people and a significant "affluent class," both of which translate into high-potential markets for
U.S. exporters.

Household final consumption expenditure (constant 2005 US$) As Macro

variable:

The latest value for Household final consumption expenditure, etc. (current US$) in India was
$1,112,160,000,000 as of 2013. Over the past 51 years, the value for this indicator has fluctuated
between $1,112,160,000,000 in 2013 and $21,244,800,000 in 1962. Household final
consumption expenditure (formerly private consumption) is the market value of all goods and
services, including durable products (such as cars, washing machines, and home computers),
purchased by households. It excludes purchases of dwellings but includes imputed rent for
owner-occupied dwellings. It also includes payments and fees to governments to obtain permits
and licenses. Here, household consumption expenditure includes the expenditures of nonprofit
institutions serving households, even when reported separately by the country. This item also
includes any statistical discrepancy in the use of resources relative to the supply of resources.

Inflation, consumer price (annual %):

The inflation rate in India was recorded at 5 percent in December of 2014. Inflation Rate in India
averaged 8.98 percent from 2012 until 2014, reaching an all-time high of 11.16 percent in
November of 2013 and a record low of 4.38 percent in November of 2014.
Inflation as measured by the consumer price index reflects the annual percentage change in the
cost to the average consumer of acquiring a basket of goods and services that may be fixed or
changed at specified intervals, such as yearly. The Laspeyres formula is generally used.
Below chart shows the total four variables comparison from 2000-2013.

From above chart it clearly shows that in india GDP is increasing fast. It states that starting
International expansion in india is profitable. The decision of starting international expansion in
india is worth.

United States of America:

When founded in 1901, United States Steel Corporation was the largest business enterprise ever
launched, with an authorized capitalization of $1.4 billion. Throughout the years, U. S. Steel
responded to changing economic conditions and new market opportunities through

diversification and periodic restructuring. Today, over a century after its founding, U. S. Steel
remains the largest integrated steel producer headquartered in the United States.

Steel Industry in USA:

The U.S. steel industry is facing its worst import crisis in more than a decade. In the aftermath of
the Great Recession, steelmakers in other countries, backed by aggressive government support,
continued to add production capacity as demand stagnated. The open and large U.S. market
became the prime target for the massive excess supply stemming from this excess capacity, and,
since 2011, U.S. steel imports have surged and import unit values have plummeted.
Excess capacity means that steel production facilities have the capacity to produce much more
steel than the market demands. High fixed costs, capital intensity, and the large scale of
steelmaking encourages state-backed producers with excess capacity to maintain production in
excess of domestic demand, and export the surplus at below-market rates.
The glut of exports from global excess steel supply is targeted in particular at the U.S. market.
U.S. steel imports increased from 28.5 million net tons in 2011 to 32.0 million net tons in 2013,
an increase of 12.3 percent. Imports have increased not only in absolute terms, but also relative
to domestic production and consumption, seizing more of the U.S. market and thwarting the
domestic industrys efforts to recover from the Great Recession.
U.S. steel imports surged even more sharply in the first two months of 2014, hitting 6.4 million
net tons, an increase of 24.5 percent over the same period in 2013. Domestic shipments declined
0.9 percent over the same period. Consequently, the import share of the domestic market
increased 4.5 percentage points in JanuaryFebruary 2014 (an increase of 18.5 percent over the
same period in 2013).

Evidence that imported steel prices are falling, and falling unfairly, can be found in the declining
sales price of imports (now underselling comparable domestic products) and the rapid growth in
the number of unfair trade complaints filed in the past year. The average unit value of imported
steel declined $259 per ton (23.1 percent) between 2011 and JanuaryFebruary 2014. U.S. steel
producers filed 40 antidumping and countervailing duty petitions in 2013 and the first two
months of 2014, the largest volume of trade cases in steel since 2001.
Surging imports of unfairly traded steel are threatening U.S. steel production, which supports
more than a half million U.S. jobs across every state of the nation. The import surge has
depressed domestic steel production and revenues, leading to sharp declines in net income in the
U.S. steel industry over the past two years (20122013), layoffs for thousands of workers, and
reduced wages for many more.

Production of steel concrete reinforcing bars in the U.S. from 2000 to 2013 (in 1,000 metric
tons)
The statistic illustrates the volume of concrete reinforcing bars that were produced in the United
States between 2000 and 2013. In 2000, some 6.3 million metric tons of such products were

produced here.

U.S. direct investment position in India from 2000 to 2013 (in billion U.S. dollars, on a
historical-cost basis)
This graph shows U.S. direct investments in India from 2000 to 2013. In 2000, the U.S.
investment position in India was valued at 2.38 billion U.S. dollars.

To understand better following Micro economic variables were analyzed.

GDP:
GDP of USA has shown even growth over the years on the other hand Indian GDP growth is
uneven for instance GDP slowed in the year 2013 as compared to 2012 and then it shows
increase again in 2014.

Population:
The US population is on track for its slowest decade of growth since the Great Depression .The
Census Bureau estimates there will be 315.1 million people living in the country on New Year's

Day, a 0.73% rise from last year's estimate and 2.05% more than the most recent census count in
April 2010.
At the current pace, the nation's population will grow by 7.3% during the decade, the lowest
level since the 7.25% increase recorded between 1930 and 1940, according to data compiled by
Bloomberg.

Household final consumption expenditure (constant 2005 US$) As Macro

variable:
The United States has one of the worlds largest and most influential financial markets. The New
York Stock Exchange is by far the world's largest stock exchange by market capitalization.
Foreign investments made in the US total almost $2.4 trillion, while American investments in
foreign countries total over $3.3 trillion. Consumer spending comprises 71% of the US economy
in 2013. The United States has the largest consumer market in the world, with household final
consumption expenditure five times larger than Japan's.

Inflation, consumer price (annual %):

The inflation rate is a measure of inflation, the rate of increase of a price index. It is the
percentage rate of change in price level over time. The rate of decrease in the purchasing power
of money is approximately equal. In 2012, prices went up by 2.1 percent compared to the
previous year.

From the above chart it clearly shows that GDP slowed down in the year 2009 because of market
recession. In 2010, Growth is increased steadily and it grows rapidly with Household final
consumption.

Crude steel production, 2000-2013 (In thousand tonnes)

INDIA
2000
2001

26 924
27 291

2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

28 814
31 779
32 626
45 780
49 450
53 468
57 791
63 527
68 976
73 471
77 264
81 299

United States of America:

2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013

101 824
90 102
91 587
93 677
99 681
94 897
98 188
91 101
91 895
59 384
80 495
86 398
88 695
86 878

Role of Government
In the pre reform era, the ministry of steel played the role of key regulator and was involved in
Decision making related to pricing, allocation and distribution. With dismantling of the strict

Regulatory regime, the role of Government in all sectors has changed to that of a facilitator. In
the post-de-regulation period, the role of the Ministry of Steel is now considered that of a
facilitator. This is how the government itself sees its role.
Given the oligopolistic features of the steel industry, the role of Government in promoting
competitive forces in the industry is of some importance. Government intervention may be called
for, especially to protect larger consumer interests. But whether it is done via policy or through
some regulatory/judicial mechanism is the question of interest. However, the government
continues to intervene in ad-hoc ways through its administrative ministry on and off. For instance
government's diktat to the steel producers to hold prices down in the face of rising domestic and
global demand for steel is a clear example of government's undue intrusion in the market.

In 2013 the world crude steel production reached 1606 million tones (met) and showed a
growth of 3% over 2012. (Source: World Steel Association or WSA)

China remained the worlds largest crude steel producer in 2013 (779 met) followed by
Japan (111 mt), the USA (87 mt) and India (81 met) at the 4th position.

WSA has projected Indian steel demand to grow by 3.3% in 2014 as compared to global
steel use growth of 3% and Chinese growth of 3.1%.

INSTITUTIONS:
Institutions have been found to be a critical element in the economic performance of a country or
a region. World Wide governance Indicators play a significant role in economic development. It
provides measures of quality of governance that helps in designing policies.
Worldwide governance indicators rank countries based on six aspects such as

Voice and Accountability

Political Stability and Absence of Violence,
Government Effectiveness
Regulatory Quality

Rule of Law
Control of Corruption.

Thus, WGI shows perceptions of governance.

WGI provides the tool that assists in decision making as it provides a qualitative and quantitative
information to effectively understand the political and freedom of speech prevalent in a particular
country.

Government Effectiveness:
Government effectiveness is a general governance indicator providing a summary assessment of
the quality of public administration in general, depending on its regulatory system, of its
impartiality, and of the quality of the services it provides.

Rule of Law:
In a nutshell, domestic OCTG producers and the Congressional Steel Caucus reminded
Commerce that the antidumping regime was custom designed by the U.S. steel industry for the
U.S. steel industry, and that administration of the law was shifted from the national-economicinterest-minded Treasury Department to the U.S.-industry-captured Commerce Department so
that protection would be granted even in cases where evidence of dumping was weak.
If you doubt how vested the steel industry is in the antidumping regime, consider that there are
245 U.S. antidumping measures in place, and more than half of them (127) restrict imports of
steel products. Thats one industry, and it accounts for slightly more than 1 percent of GDP.
Above two indicators are more important for steel production to start a international expansion.
The Government effectiveness plays a major role in steel production.

In steel industry there are two important indicators that play major role. They are
1. Government effectiveness and
2. Rule of law

Government effectiveness:
The findings help preserve the ability of the United States to address unfair subsidization by
foreign governments" by using anti-subsidy tariffs to level the playing field for U.S.
manufacturers and workers.
U.S. foreign trade and global economic policies have changed direction dramatically during
the more than two centuries that the United States has been a country. In the early days of the
nation's history, government and business mostly concentrated on developing the domestic
economy irrespective of what went on abroad. But since the Great Depression of the 1930s
and World War II, the country generally has sought to reduce trade barriers and coordinate
the world economic system. This commitment to free trade has both economic and political
roots; the United States increasingly has come to see open trade as a means not only of
advancing its own economic interests but also as a key to building peaceful relations among
nations.
The United States dominated many export markets for much of the postwar period -- a
result of its inherent economic strengths, the fact that its industrial machine was untouched
by war, and American advances in technology and manufacturing techniques.

Rule of Law:
As a result, a year ago, U.S. Steel and other domestic OCTG producers filed a trade case
against nine countries based on the enormous 113-percent increase of OCTG products
dumped into this market from 2010 to 2012. South Korean companies are the main offenders,
but companies from India, Vietnam, Turkey and several other countries also dump very
significant volumes.
Rule of law refers to an end state in which all individuals and institutions, public and private,
and the state itself are held accountable to the law, which is supreme. Laws must be
consistent with international human rights norms and standards, legally certain, legally
transparent, drafted with procedural transparency, and publicly promulgated.190 This end
state requires equal enforcement and equality before the law, independent adjudication of the
law, fairness in the application of the law, and avoidance of arbitrariness. Access to justice
the ability of people to seek and obtain a remedy through informal or formal institutions of
justiceis a mutually reinforcing component of rule of law. The rule of law requires the
separation of powers and participation in decision-making. Rule of law is the ideal that states
strive for; stabilization requires urgent focus toward this end.

TRADE:
Trade generally reflects exchange of goods between countries. Proper trade policies and practices
prevailing in a country will determine when it is suitable for business investments or not.
India is currently a relatively small market for the United States, in terms of total U.S. exports,
highlighting the potential opportunity for continued growth. Manufactured goods such as
diamonds, gold, and jewelry; aircraft and aircraft parts; and machinery are among the leading
products that the United States exports to India. (See table below.)

Top U.S. Goods Exports to India in 2013

Share of Total U.S. Goods
Product

Value of Exports in $

Diamonds, Gold, and Jewelry

Aircraft and Parts
Machinery
Electrical Machinery
Medical, Analytical and

$5.8 billion
$3.0 billion
$2.2 billion
$1.3 billion

Exports to India
26.4%
13.5%
10.3%
6.0%

Measuring and Checking

$1.3 billion

5.9%

$1.3 billion

5.8%

Instruments
Carbon Black, Coal, Petroleum
Coke, and Petroleum Oils
1.4
India Total

$21.8 billion

(Share of U.S. goods exports to

the world)
World
$1,579.6 billion
-Source: Census Bureau, Global Trade Atlas (accessed June 30, 2014)

Top U.S. Services Exports to India in 2013

Share of Total U.S. Services
Service

Value of Exports in $
Exports to India

Travel (for all purposes

$7.3 billion
including education)
Transport
$2.0 billion
Other business services
$1.1 billion
Telecommunications, computer,
$961 million
and information services
Charges for the use of

54.4%

intellectual property not

6.6%

$890 million

included elsewhere
Financial services
$567 million
Maintenance and repair services
$332 million
not included elsewhere
Government goods and services
$270 million
not included elsewhere
Insurance services
$88 million

India Total

$13.5 billion

14.7%
7.9%
7.1%

4.2%
2.5%

2.0%
0.7%
2.0%
(Share of U.S. services exports

to the world)
World
$687.4 billion
-*Source: U.S. Bureau of Economic Analysis, Table 1.3. U.S. International Transactions,
Expanded Detail by Area and Country; and Table 1.1, U.S. International Transactions (for U.S.
exports to world). Release date June 18, 2014 for both tables.

Export as a Macro variable

Exports depict goods that are produced in one country and it is shipped to another country for
future sale or trade. In economy where export value is more than the imports that economy is
normally stable.
Along with Micro Variables a deep understanding of World Wide Governance Indicators is also
essential to understand the economic environment of a country.
Top 5 Exporting Products from USA
1.
2.
3.
4.
5.

Live horses, asses, mules and hinnies

908291
Other live animals.
2603359
Meat of bovine animals, frozen.
140143
Meat of swine, fresh, chilled or frozen
67934
Fish, fresh or chilled, excluding fish fillets and other fish meat of heading 03.04
20073

Import as a Macro variable

Imports describe a good or a service that is brought into one country from another country. .
Import and exports form backbone of any economy and an environment wherein value of
imports is greater as compared to the value of exports signifies negative balance of trade. Ideal
situation will be wherein exports are more than imports.
India imports more goods and services as compared to USA.
Higher imports states that there is increase in domestic consumption.
Top 5 Importing Products to USA
Product Description
1.
2.
3.
4.
5.

Other live animals

4600
Live fish
30136
Fish, fresh or chilled, excluding fish fillets and other fish meat of heading 03.04
64956
Fish, frozen, excluding fish fillets and other fish meat of heading 03.04
8698571
Fish fillets and other fish meat (whether or not minced), fresh, chilled or frozen 6817401

In recent news American President and Indian Prime Minister it has been decided to increase
trade another fivefold by affirming a long term vision based on resilient and ambitious
partnership. It will be ideal to go ahead and invest in partner country and accordingly build a
strong relationship which will result in good yield of capital.

CONCLUSION:
After analyzing from Macroeconomics, Institutions and Trade prospects our company decided to
start international expansion in India for the following strengths. Research organization
McKinneys forecast that India will become the worlds third largest economy by 2025. As part
of the BRIC (Brazil, Russia, India, and China) community, it is already the second largest
growing economy behind China.
What is fuelling much of this growth is the countrys leadership in IT and Business Process
Outsourcing. Indias manufacturing base an important component of the countrys economy
ensuring cheap labor for exported goods - is growing at 10% per year.
Nowadays, the interest and awareness of Indias potential is on the rise and a second wave of
companies is setting their eyes on the big subcontinent for their business expansion.
It is a known fact that India will be playing a leading role in the coming global economic
scenario. Some of Indias strengths rely on:
Market of immense proportions:
A promising future for a market of immense proportions, which is already profitable in sectors
such as fast moving consumer goods, textile, pharmaceutical, construction, energy, automotive,
information technology enabled services and capital goods.
Gateway to countries in other developing regions:
India is also a gateway to countries in other developing regions such as East Africa and Middle
East, an intermediate platform to access East Asian markets, and a prime searching ground for
suppliers among Global Sourcing Units from Western companies.
Politically stable:

As the world largest democracy, India has remained politically stable since its independence in
1947. In 1991 the country adopted a free market model backed by successive Parties in
Government, which is giving now valuable returns.
Competitive Operations:
In addition to this market potential, consolidating a production unit or a back office in India
grants access to:
A Low-cost manufacturing and/or outsourcing base
A low-cost base to produce or outsource parts and services to compete in current markets.
Talented professionals:
A large pool of talented professionals and skilled/unskilled labor with whom to develop a
sustainable competitive edge.

Biliography:
http://www.worldsteel.org/dms/internetDocumentList/statistics-archive/production-archive/steelarchive/steel-annually/steel-annually-1980-2013/document/steel%20annually%201980-2013.pdf
http://wits.worldbank.org/WITS/WITS/QuickQuery/ComtradeByCountry/ComtradeByCountry.a
spx?Page=COMTRADEByCountryPeriod

http://wits.worldbank.org/WITS/WITS/QuickQuery/ComtradeByCountry/ComtradeByCountry.a
spx?Page=COMTRADEByCountryPeriod