Victor Beleña Moreno

Adriana Boixareu Martos

QUESTIONS NUCOR CASE

1. What are the primary competitive forces impacting U.S. steel producers in
general and the producers like Nucor that make new steel products via
recycling scrap steel in particular? Please do a five-forces analysis to support
your answer.

As we saw in prior chapters, the five forces model is composed of industry rivalry,
threat of new entrants, threats of substitutes and bargaining power of both suppliers
and customers. According to the question given, here is our analysis regarding these
five forces:

Starting with substitute products, it is difficult for Nucor to feel the threat of substitute
products because of the type of industry. Barriers are high and the market is well-
defined, needing a huge investment to access it. This is the reason why manufacturers
of substitute products are not numerous, using many of them materials such as plastic
or aluminum; related to these reasons, we can conclude that the threat of new
entrants is quite low since the high barriers and the investment.

The second force would be the industry rivalry. Considering the low degree of
differentiation because of the material this industry works with, there is a high level of
competition both nationally and internationally.

In addition, we could affirm that the bargaining power of suppliers is quite high. We
are facing a big-size company which can bargain with them, but we should consider
that these are indispensable raw materials for the process.

To conclude, the bargaining power of buyers is as high as suppliers’ as well.

Considering that they have facilities in switching from one brand to other and that the
product of this company is not differentiated with respect to others’, the only variable
that customers will consider is price. There are big buyers from construction and
automotive who Nucor should establish strong relationships within order to make sure
of achieving long-term profits.
Victor Beleña Moreno
Adriana Boixareu Martos

2. What driving forces do you see at work in this industry? Are they likely to impact
the industry’s competitive structure favorably or unfavorably?

Analyzing the steel industry, we can see that it is becoming more competitive over
time since acquisitions and mergers are taking place. Inside this market we can find
diverse driving factors.

On the one hand, researching inside the national market, the government is
constantly modifying policies regarding this industry added to technological
innovations as well. The current situation shows a globally expanding sector that is
creating high entry barriers.

On the other hand, we can find an international market where Nucor is totally
benefited from since policies and regulations are not the same as in the national
markets before mentioned. They take advantage of exporting products obstructing
local producers, who cannot compete with international ones that play under
different government policies.

3. How attractive are the prospects for future profitability of U.S. steelmakers?
Should Nucor consider expanding in this type of industry environment? Why or
why not?

Assuming that Nucor is a low-cost player we noticed that its position in the US market
is preferential. They have been market leaders since the creation of the company,
excepting for two years, where they saw how profits were decreasing.

However, Nucor’s leadership could be affected if an international company decided

to come into the US market and compete with a low-cost strategy. Despite that
possible scenario, Nucor’s performance has been since the beginning the perfect
example of how to run a company and as it looks like, they will keep maintaining that
position, which would enable them to keep expanding, constructing new
infrastructures or through small acquisitions.

To conclude, there are also companies whose strategies are focused on higher prices.
They suppose the opposite scenario of Nucor’s and have huge possibilities of not
being as successful as Nucor is because of the high prices that are already in the
market and the shortage of suppliers.
Victor Beleña Moreno
Adriana Boixareu Martos

4. What type of strategy has Nucor followed? Which of the five generic strategies
discussed in Chapter 5 is Nucor employing? Is there any reason to believe that
Nucor has achieved a sustainable competitive advantage over many of its
steel industry rivals? If so, what type of competitive advantage does Nucor
enjoy?

Nucor has based its strategy in offering a low-cost based product, with products that
report value and quality to its customers at the lowest price possible, to have the
strength enough to face international manufacturers in both national and
international markets.

There are many factors that have positioned Nucor in the market position that they
occupy nowadays. But, of course, the business model and the strategy followed all
these years have played the most important role.

5. What are the specific policies and operating practices that Nucor has
employed to implement and execute its chosen strategy?
These specific policies and operating practices are aggressively persecuting and
implementing technology improvements at its plants; Strict quality systems and a
strong emphasis on staff productivity; Job security for workers.
Constant implementation of technology ensures efficiency and money savings in their
production plants, allowing them to maintain lower costs and enter new market
segments.
Nucor has an astonishing compensation system for plant workers and top managers.
The system is highly effective in generating labor productivity gains and motivating
workers to constantly look for costs reduction opportunities.
Finally, workers are kept informed about the performance of the company and the
division. Not only are the division's earnings posted prominently around the plant, but
the company is completely open about bonus payouts.

6. What specific factors account for why Nucor has been so successful over the
past several decades?
The most important factor for Nucor has been their focus on persecute a low-cost
strategy. This means that they are constantly implementing cost-saving efficiencies
Victor Beleña Moreno
Adriana Boixareu Martos

that allow them to produce at the lowest cost. This factor is the result of Nucor having
a combination of great strategy, strategy execution and leadership.

7. What does a SWOT analysis reveal about Nucor’s situation? Does Nucor have
any core or distinctive competencies?
The SWOT profile Nucor's major strengths, weaknesses, opportunities, and threats.
Strengths include technology, which has allowed them to improve their efficiency
levels, continue to implement innovations that allow them not only to lower their cost
of production but also to be more competitive, strategic mergers and acquisitions to
increase size and bargaining power, and their treatment of their employees because
it results in low turnover.
Weaknesses include too much reliance on the US market, with all their plants residing
in the US compared to competitors who have plants around the world.
Some opportunities available to Nucor include continued expansion into domestic
and international markets and vertical integration.
Threats Nucor currently faces include Chinese dumping of steel on the market.
Nucor's core competencies include backward integration, operating efficiencies to
top-reduce costs, and its investment in infrastructure and new plants.

8. What is your assessment of Nucor’s financial performance the past several

years? How strong is the company’s financial condition?
In the periods studied in the case, the most difficult year for Nucor was 2015. Nucor
had a significant decrease in sales and profits. This was the result of the erosion of
market prices for steel products thanks to the dumping of cheap foreign products on
the market by China.
Debt has remained relatively low compared to assets and equity.
Total cash reserves in 2015 were approximately $2,000 million, which will help with its
strategy of acquisitions, mergers, and construction of new plants.
The current ratio improved year over year from 2011 to 2015, and was at least 3 times
the industry standard, meaning that Nucor had more than adequate working capital.
Nucor was able to convert profits in 1966 by focusing its business on profit and
changing its business model.
Victor Beleña Moreno
Adriana Boixareu Martos

9. What issues does Nucor management need to address?

Nucor's focus has been on themselves, and they may need to address competition
from foreign importers. Because China accounted for 50% of world production in 2015
and could offer more competitive prices. This is because many of the Chinese
producers are owned by the government, so it allows them to sell steel at incredibly
low prices, making it difficult for companies like Nucor to compete.
Another issue for management to address is whether further expansion will be through
acquisitions or the construction of their own new mills. With this, Nucor should also look
to expand into international markets.
Finally issue Nucor could address would be finding alternatives in junk steel collection
or substitutes altogether.

10. What recommendations would you make to Dan DiMicco?

Our main recommendations to Nucor would be to keep focusing on the low-cost
strategy they have been carrying out since the very beginning of the company. It
would be amazing if they became aware of increasing its acquisitions domestically
and, if possible, internationally. Making investments in technology would help them as
well to maintain their leader positions and not fall behind any other rival.
The task of recognizing its employees' effort and considering them an important asset
will motivate them and create in every employee a huge sense of belonging, which
will be translated into an even better performance at work and so, into better results.
Finally, developing its long-term raw materials strategy will allow them to integrate
vertically and mitigate some of the pressure from suppliers.