NUCOR

In 2009

Introduction

Evolution of Nucors competitive environment

recession consumption drops domestic dd drops opening of mini mills industry going into cyclical dump increase in worldwide competition unfair US trade regulations

Into the 21st century

1989 1990
1986 -Economy slackens -Shipment drops -Increase labor and energy costs -Conservative mgmt 1995 1997 1998 Many companies building flatroll mini-mills 1999 drop in US shipment countries charged with illegal dumping refusal to shut off cheap imports (US) fragmented industry many marginal competition

Evolution of Nucors competitive environment

most volatile and unprofitable period (9/11) glut of steel drove down steel prices foreign companies must sell in US to stay profitable South Korea developed new steel making technology Demand in China dropped Period of evaluation Economic slump (credit crisis)

2004
2001 >20 steel companies filed for bankruptcy protection Nucor is healthy 2003 2005 2007 Steel price increase by 50% due to Chinas 3 year A period of JV program of import duties and WTO ruled against tariffs acquisitions Global demand > supply, (global consolidation) China-wildcard 2008 2009

Increase in volume and price of steel in the US market

Issues/Challenges
Global Financial meltdown Iron ore & scrap metal prices plummeted Consumers become risk-averse Competitors carrying out acquisitions around the world

Q1 Evaluate the competitive environment in which Nucor operates in.

Situation analysis P.E.S.T.E.L (external analysis)

Political Economic Social Technological Environmental Legal

Political & Legal

Government impose
Kyoto Protocol Environmental laws Tariffs Trade barriers Free Trade Agreements (FTA) Taxation

The Economy
Credit crisis Price changes of resources (raw materials and fuel) Mergers and Acquisitions Recycling
The need to cut down on costs

Cyclical Demand Economic growth in emerging regions

Affects demand for buildings, infrastructure and vehicles

The Society
Public concern about pollution Unemployment after M&A Sub-cultures of different market segments Auto industry VS Fasteners market

Technology
Advancement in steel manufacturing technology and process Extensive energy usage Cost savings and a vast improvement in efficiency Prone to unprecedented failures

Environmental
Pollution Availability of resources Disaster prone areas
Overseas acquisitions and JVs Construction businesses

Industry analysis Porters 5 forces (external analysis)

Threats of new entrants Bargaining power of buyers Bargaining power of suppliers Threat substitute Industry rivalry

Threats of New Entrants LOW High capital requirement Little brand loyalty, compete on cost Government policies /environmental laws Bargaining power of suppliers HIGH High demand for raw materials Scarcity of raw materials Industry Rivals HIGH Cyclical demand with many local and foreign players Government Bargaining power of buyers HIGH Low product differentiation Low switching cost Cyclical demand Many players leading to oversupply

Threat of Substitute MEDIUM End-users demand Lighter but costlier materials as substitute

Threats of new entrants

Low High capital requirement Little brand loyalty, compete on cost Government policies/environmental laws

Bargaining power of buyers

High Low product differentiation Low switching cost Many players Cyclical demand leading to oversupply

Bargaining power of suppliers

High High demand for raw materials Scarcity of raw materials

Threats of substitute
Medium End-users demand Lighter but costlier materials as substitute

Industry rivalry
High Cyclical demand with many local and foreign players Government

P.E.S.T.E.L governs Porters 5 forces

Q2 How would you characterize Nucors business strategy?

Determining Business Strategy

Opportunities & Threats Attractiveness of Current Market Segment Value Drivers of Customers Strengths & Weaknesses Feasibility Sustainable CA

Business Strategy
Choose an attractive market segment (s) in which you have the core competencies to compete in

Position your product/service that meet the value drivers of that market segment

Value Drivers
Low Cost High quality steel (Strong, long-lasting, durable)

SWOT Analysis
Strengths Lean organization structure + strong leadership Low production cost Increased production capacity Employment benefits & welfare Close relationship with major customers Strong market position-historically based Strong technological focus Economies of scope

Highly Motivated, Innovative Workforce

SWOT Analysis
Weaknesses Little internal R&D on processes Mature US Steel Industry Heavy concentration on the US Market

SWOT Analysis
Opportunities Expansion through mergers & acquisitions
Economies of scale Economies of scope

Joint Ventures R&D - manufacturing processes & technology - new steel products

SWOT Analysis
Threats Global consolidation of big players Raw materials scarcity Rising energy, raw materials and labour costs Tougher environmental laws and free trade agreements Cyclical demand for steel products

SWOT Analysis
Internal Strengths Highest priority: Aggressive Growth Should consider: Diversification

Environmental Opportunities

Environmental Threats

Internal Weaknesses

SO Strategies
Capitalize on close relationship with customers Use financial strength to acquire market share (geographically) Use financial strength to acquire latest R&D technology and processes

Nucors Business Strategy

Cost leadership, supported by:
Acquisitions Integration into steel products markets and into raw materials Achieving: Cost reduction Economies of scale The key to making a profit when selling a Economies of scope product with no aesthetic value, or a product
that you really cant differentiate from your competitors, is cost. - Dave Aycock

Actions
Acquisitions of Companies
Mini-mill from Sumitomo Corp. ITEC Steel Harris Stel Group South Pacific Steel Corp., Consolidated Rebar Inc., Barker Steel Company Inc 75% interest in Novosteel SA Magnatrax Corp.-- customengineering metal buildings David J. Joseph Company

Acquisitions of Assets
Auburn Steel (Merchant bar presence in NE) Trico-Steel Co. Birmingham Steel Corp Direct-reduced iron plant

Rights and Joint Ventures

US and Brazillian Rights to Castrip process Brazillian Mining Company, Japan & China to make iron Nextframe LP-provide

Rio Tinto Group, Mitsubishi Corp., Shougang Corp. New Products Nucon -2 low-cost automated fabrication for residential construction

End Results
Finished products market -Load-bearing light gauge steel framing -Steel sheets -Iron-based products -Light gauge steel framing for residential construction -Rebar fabrication -Reinforced steel bars, platform grating, wire mesh for construction products Processing Activities -Strip casting -Make iron without the usual raw materials -Automated fabrication systems for residential construction -Scrap-processing Raw Materials Market -Pig Iron -Direct-reduced Iron Downstream processes -Logistics support -Materials handling

Metal Building Producer Raw materials supplier and producer

End Results
Acquisitions have been a key component of the growth Nucor has achieved over the past 10 years and they will continue to provide sustainable growth in the future.
- Daniel R. DiMicco Chairman, President and Chief Executive Officer - James D. Frias Chief Financial Officer, Treasurer and Executive Vice President

Ansoff Growth Matrix

EXPANSION

Porters Generic Strategies

LOW-COST

Moving Forward
in 2009, our family of approximately 200 operating facilities, including our wholly owned subsidiaries of Harris Steel and The David J. Joseph Company produced more than 14 million tons of steel that went into thousands of applications making us the largest manufacturer of steel products in North America.

Q3: What are Nucors sources of competitive advantage?.

Sources of competitive advantage

Resources -> Capabilities -> Core competencies -> Competitive advantage -> Strategic competitiveness

Resources
Technological (e.g mini-mill, Twin shell furnace, computer inventory management system) Organizational (eg. dencentralized, stripped down, no nonsense organizational mentality ) Financial (Huge financial strength and capital, constantly low cost, highest ROE as compared to competitors: 33% almost double the industry (2009) ) Location of factory Human (Eg. Productive and motivated work force, talented individuals in various functions) Innovation (Eg. New product innovations, process innovations) Reputation (Eg. Low cost in the industry, growing and profitable company)

Capabilities
Distribution
Lower cost due to customers locating near Nucor factories (Location of Factory) Acquired factories in other regions are closer to customers (Financial) Acquired Novol Steel a logistics and support company (Financial)

Human Resources Management Information System

Motivate employees by bonuses and empowerment (Organizational) Ability to not lay off employees during economic downturns so as to retain competency (Human) Computerized inventory system (Technological)

Capabilities
Manufacturing Research & Development Marketing Management
Ability to build low cost and efficient factories (Technological) Strong alliance to attract investors to bring new technical application (Reputation) Acquisition of factories with new technologies for manufacturing (Financial)

Acquisition of factories with new technologies for manufacturing (Financial)

Individualized customer service and producing competitive prices (Human, Organizational & Location of factory) Quick decision making (Organizational)

Core Competencies
Financial Strength Highly motivated and innovative workforce Lean organizational structure/Good leadership Effective distribution network Effective marketing policies Efficient and low cost manufacturing capabilities

Competitive Consequences Core competencies

Value Products performance Rare Not processed by many others Costly to imitate Hard for others to develop capabilities Non-substitutable Strategic equivalents

Outcomes for sustainable competitive advantage

Is the resource or capability valuable? Is the resource or capability Rare? Is the resource or capability Costly to imitate Is the resource or capability Nonsubstitutable?

Competitive Performance consequences implications Competitive disadvantage Competitive parity Temporary competitive advantage Below average returns Average returns Average returns to above average returns Above average returns

No

No

No

No

Yes Yes

No Yes

No No

Yes/No Yes/No

Yes

Yes

Yes

Yes/No

Sustainable competitive advantage

Competitive advantages

Nucor position In VRIN

Financial strength Yes Yes Yes Yes/No Sustainable competitive advantage Competitive parity Sustainable competitive advantage Temporary competitive advantage Temporary competitive advantage Sustainable competitive advantage Motivated /Productive workforce Good leadership/ Lean Org. Structure Effective distribution Yes Yes/No Yes/No Yes

Is the resource or capability valuable?

Is the resource or capability Rare?

Is the resource or capability Costly to imitate

Is the resource or capability Nonsubstitutable?

Competitive consequences

Yes

Yes

Yes

Yes

Yes

Yes/No

Yes

Yes

Effective marketing

Yes

Yes/No

Yes

Yes/No

Low cost manufacturing

Yes

Yes

Yes

Yes

Feasibility Test
Does the firm have the available resources/capabilities to execute the aggressive growth strategy? Financial strength Highly motivated and innovative workforce Lean organizational structure/Good leadership Effective distribution network Effective marketing policies Efficient and low cost manufacturing capabilities

Conclusion/ Strategic competiveness

Value Creating strategy Implementation and Competitors Above Average returns Commitments -> Decision -> Action
Strategic competiveness Sustained Competitive advantage Above average returns