Business Synoptic- 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

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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.

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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.

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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.

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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

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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.

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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

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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).

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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

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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

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(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.

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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.

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Ratio analysis

2009 2008 2007 2006 2005

Nucor Industry Nucor Industry Nucor Industry Nucor Industry Nucor Industry
Profitability
Net 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%

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

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

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

(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.

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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

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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.

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