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MGMT 661 Final Team Assignments Final Version
MGMT 661 Final Team Assignments Final Version
Krogman Metals
MGMT 661
Students names:
Steven Uy (2104115)
Date of submission:
Contents
Market Research ........................................................................................................................ 3
Analysis and Recommendations ................................................................................................ 4
Strategy ...................................................................................................................................... 4
Financial Perspective in the Canadian Market........................................................................... 5
Startup cost................................................................................................................................. 5
Operational cost (Short- and Long-Term) ................................................................................. 6
Payment structure....................................................................................................................... 6
Customer Insurance ................................................................................................................... 6
Operation.................................................................................................................................... 7
Infrastructure .............................................................................................................................. 7
Equipment .................................................................................................................................. 8
Logistics ..................................................................................................................................... 8
Marketing ................................................................................................................................... 8
SWOT Analysis ......................................................................................................................... 8
PESTEL ANALYSIS................................................................................................................. 9
Five Forces ............................................................................................................................... 10
VRIO ........................................................................................................................................ 11
Business Model Canvas ........................................................................................................... 12
Risk Analysis ........................................................................................................................... 12
Customer Analysis ................................................................................................................... 12
Customs procedure................................................................................................................... 13
Import Restrictions and Quotas ............................................................................................... 13
US – Canada Trade Treaty on Steel ......................................................................................... 14
References:............................................................................................................................... 15
List of Annexes ........................................................................................................................ 19
3
Market Research
Background
The International Trade Administration states that Canada was the world’s eighteenth-
largest steel exporter in 2019. In 2019, Canada exported 5.8 million metric tons of steel, a 12
percent decrease from 6.5 million metric tons in 2018. Canada’s exports represented about 1.5
percent of all steel exported globally in 2019, based on available data. By volume, Canada’s
2019 steel exports represented over one-tenth the volume of the world’s largest exporter, China.
In value terms, steel represented 1.1 percent of the total goods Canada exported in 2019.
Canada exports steel to over 130 countries and territories. The United States and
Mexico represent the top markets for Canada’s steel exports, receiving more than 350 thousand
metric tons each. All of Canada’s top ten export destination countries are labeled in the map
(see Annex I), accounting for 99% of Canada’s steel exports in 2019.
The United States was the top market for semi-finished steel products at 70 percent
(276 thousand metric tons), followed by China at 21 percent (84 thousand metric tons). The
United States was the export destination for 74 percent of all stainless-steel exports (22
thousand metric tons), followed by China at 10 percent (3 thousand metric tons). See Annex II
Russel Metals Inc. (Market Share 9.5%) is one of North America's oldest metal
service centers, established as John Russel & Co. in 1785 by John Russel, a Scottish immigrant.
Like its largest competitor, Samuel, Son & Co. Limited, Russel is headquartered in
Mississauga, ON. The company is estimated to be the largest metals wholesaler in Canada and
has a significant presence in the Southeast and Midwest regions of the United States. Russel
employs about 3,000 people and recorded $2.7 billion in consolidated revenue in 2020,
according to its 2020 annual report.
Founded in 1855 and based in Mississauga, ON, Samuel, Son & Co. Limited (Market
Share 6.7%), family-owned for five generations, is Canada's most prominent metal service
center. Samuel has a significant presence in the United States and Canada and operates in
Mexico, Australia, and China. Samuel employs more than 5,000 people and generated total
revenue of $3.4 billion in 2016, according to its 2016 Corporate Responsibility report. See
Annex III
Capital Intensity
The Metal Wholesaling industry in Canada exhibits a low to moderate level of capital
intensity. For every $1.00 spent on wages, industry operators are estimated to pay $0.15 on
capital in 2021. Still, within the industry, capital intensity varies depending on an operator's
focus. Operators that focus on distribution rather than processing operate with lower capital
intensity, while specialized service centers and operators that offer a range of services are more
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capital-intensive. Purchases of expensive technology such as computer numerical control
(CNC) machines or inventory management systems account for a large share of operators'
capital expenditure.
Outlook
The Metal Wholesaling industry in Canada is forecast to decline over the five years to
2026 in response to stagnant demand and an expected decline in the world price of steel. Over
the five years to 2026, the world price of steel is forecast to decline an annualized 3.2%,
lowering the value of sales and inventory.
Stakeholders:
(a) Shareholders
(b) Customers
(c) Suppliers
(d) Employees
(e) Investors
(f) Government
Strategy
Startup cost
The starting costs would be various based on many factors, such as location, office size,
and business type. Krogman would need a back office and a warehouse to stock material and
inventory. Thus, the report will share the guideline for office and warehouse costs as the main
start-up cost when expanding the business to the Canadian market.
The first main cost for the office is an office space cost that typically ranges from $3/
sq. Foot to $20/ sq. foot. However, The cost of office space in the commercial downtown could
be up to 40 Canadian dollars, such as the rent per square foot was around 39.02 Canadian
dollars in Downtown Toronto in 2020. Then, while equipment and furniture costs range
between $1,500 and $2,500, inventory and supplies can cost approximately $5,000 to $10,000,
but these costs would be considered based on the business type again. The legal cost is another
consideration that would depend on each lawyer's performance and reputation. And the cost
can range from $500 to $10,000. Also, business registration fees could range from around $100
to $250 based on each province. For example, the registered costs in Ontario and Alberta are
$134 and $113, respectively.
In terms of the warehouse construction cost, the report found that using the method of
the average construction costs by square foot could help the company know the approximate
cost for the warehouse construction. However, each region also has a different level. For
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example, while the warehouse cost ranges between $90 and $200 per square foot in the city of
Brandon in Manitoba, the average construction cost per square foot in Toronto is $98.
Payment structure
Based on the Canadian government, the standard payment term in Canada is thirty (30)
days. The report also uses peer analysis to investigate how the leading players in the steel
market provide credit terms to their customers. So, the information looks at Stelco's account
receivable policy. Notice that Stelco is considered the largest steel producer in Canada. Based
on its accountable receivable policy, Stelco provides non-interest bearing and credit terms of
30 to 45 days to its customers. However, practically, the report suggests conducting the
customer's creditworthiness and the business relationship before making the decision.
Customer Insurance
Regarding customer insurance, the report considers that it is the insurance that Krogman
would need to secure its account receivable. Krogman would provide a service of sales on a
credit line to customers. In this case, Krogman would need insurance to secure its account
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receivable, ensuring it can collect money and avoid bad debts. And these are some tools that
Krogman could use to secure its account receivable for the market in Canada :
Trade Credit Insurance is insurance used to protect against the non-payment risk
when a company sells goods to customers on credit terms. Suppose a customer cannot pay for
the product purchased within the due date and other trade credit insurance policy conditions
have been met. In that case, the insured company could seek a claim with its insurer for the
payment it does not receive. These are lists of the organization that provides a credit insurance
policy: AIG, Euler Hermes by Allianze, Atradius, Coface, and Export Development Canada
(EDC). A service fee for this insurance ranges from 1% to 10% based on the amount of risk
exposure and the quality of the accounts receivable portfolio.
Bank's Guarantee and Letter of Credit: a bank guarantee is an obligation that a bank
will compensate the company if the debtor fails to meet the company's contractual obligation.
Many financial institutions in Canada have provided this Bank Guarantee service, which is
suitable for trading and contractual transactions. Meanwhile, a Letter of Credit will work as the
bank's Guarantee but will be issued for the importing and exporting companies.
Operation
Infrastructure
According to Pierre (2021), “Business infrastructure is an operating system that links an
organization's people, processes, and tools or technologies to ensure that growth is sustainable,
repeatable, and profitable.” Every business should have a great operating system to ensure the
work is going smoothly and to make every service offered convenient to every consumer.
Based on figure 1.1. The warehouse market based in Canada is from Russel Metals,
which offers warehouses for metals all over the country. These warehouses have many storage
spaces to cater to the metals and products. The services provided cater to processes and tools
that will make the business of Krogman easier and more convenient if they partner through
Russel Metals Inc. (Refer to Annexure V)
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Equipment
As mentioned in the infrastructure and what technologies are being used in the
Canadian steel market. The types of equipment used in these modern times would be iron-fed
electric arc furnaces (EAF), which would make the electric supply cleaner and would not use
the old traditional coal equipment. ArcelorMittal’s steel-making procedures are one of
Ontario's largest greenhouse gas emisión sources. There are many advantages to using the
Electric Arc Furnace. It is smaller than a traditional blast furnace. It uses electricity as the
primary energy source to form and create metals. It has lower initial costs and does not take up
much space compared to the blast furnace. And lastly, it takes less time to manufacture and
create products. That is why these types of equipment may change how a steel manufacturer or
wholesaler works since its equipment will have a greener and cleaner ways to produce metal.
Logistics
There are many warehousing options in Canada for steel companies that want their
products stored and safe. The company that can accommodate Steel products would be the
Canaan Group. The company is Canaan Group. They offer a state-of-the-art warehouse here in
Vancouver. The warehouse is from their private land, which is a few companies in Canada to
have their real estate. That is why it gives assurance to customers that they will have a
competitive price when it comes to warehousing because they don’t have to compete with other
companies for their pricing since they own everything.
Another example is from Warehousing services. Maersk (n.d.) which is based on the
annex VII, it shows how the steel is transported from the manufacturer or production to the
warehouse, where it is securely stored afterward. Maersk offers these services from all over the
world.
Marketing
(a) Stockist and not a manufacturer: Krogman is a stockist and not a manufacturer.
Therefore, it has a dependency on the manufacturer in terms of the supply of steel as well as
its purchase price.
(b) Too small to influence the manufacturer and negotiate the price: Krogman is not a
giant organization that can affect the manufacturer to negotiate the price. The company is
growing and gradually building its goodwill but has a long way to go to be a market leader.
SWOT Analysis (Opportunities)
(a) Tie up or merge with any leading manufacturer in India or China: India and China
are two cost-effective steel producers due to low labor costs. Krogman can tie up or connect
with any such entity, and with economical steel, it can dump in the Canadian market and make
a mark right from the beginning.
Five Forces
Competition in the industry: In 2020, the market for stainless steel was estimated to be worth
USD 105.67 billion, with APAC holding the largest regional market share. In emerging
economies, rising energy demand, automobile production, and construction activity are all
predicted to increase stainless steel demand. (ReportLinker, 2021)
Within the Canadian market, some companies considered competition are ArcelorMittal SA,
Stelco Holdings Inc., and Gerdau SA, which are dedicated to manufacturing and
commercializing steel and metals. (IBIS World, 2021)
Potential of new entrants into the industry: The steel industry is well-established. The
ability to produce at economies of scale to survive is a challenge for new entrants. Significant
capital investment is also necessary for this sector. Due to the absence of product
differentiation, buyers also have a low switching cost. Worse than that, clients might readily
transfer to overseas rivals due to globalization. A further source of uncertainty for the steel
business is shifting laws and regulations. As a result, the threat posed by new competitors is
moderate.
Power of suppliers: Iron ore, coke, and limestone are the primary raw materials used in steel
production (Gaspar 2016). Since Krogman Metals has numerous suppliers worldwide, the
company has additional options if one source cannot produce a particular material, giving it a
strategic advantage over most of its market competitors. It also means that the business may
quickly form a strategic alliance with the top local vendors of this product to guarantee that it
can get the supplies for the most affordable price.
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Power of customers : North America has many steel producers, and fierce competition exists
among them. The pricing war is the fundamental source of competition. For buyers,
switching costs are minimal. Additionally, the economic cycle's fluctuations will lead to
cyclical demand, and there may occasionally be an oversupply situation. Buyers will seek out
the highest-quality goods in significant quantities at the lowest cost. (Morrison, 2016)
The threat of substitute products : In this case, the risk is minimal. The building,
transportation, and manufacturing industries all depend on steel products. For these
industries, finding a substitute for steel is nearly impossible. According to Ojo (2018), steel
gives structures strength, and using another material might not be viable.
VRIO
Value: Krogman Metals can define its corporate social responsibility. By doing this, the
company will engage in social responsibility actions and make them transparent with
prospective clients. The brand image on the webpage is developed.
Rarity: The company has an international profile and operates in several nations and regions,
which allows them to generate revenues all over the globe. Krogman Metals is also striving
for innovation, leading to higher competitiveness.The company can grow and expand in the
market.
Imitability: Quality product offering. They have a wide range of metal qualities.The
company has a marketing communications team, which helps them to be updated and easy to
keep up with. Competitive services- Logistics, customizable products, warehouse, and
certifications.
Risk Analysis
Hazards/risky activities: In general, within the steel industry, some familiar risks are falls,
noise, heat, vibrations, toxins, and heavy lifting. (Ranjbar, 2022)
Due to their high workstations, use of loud equipment, and chemical exposure, front-line
employees are especially vulnerable to these risks. These hazardous conditions can result in
accidents and physical and mental health issues for anyone performing any duty. The best
course of action for Krogman Metals is to take preventative measures, train their staff, and
ensure they are aware of the protocols they must follow to complete the necessary
responsibilities. The business should also give workers the equipment required to stay safe.
Besides these dangers, other risk are inflaction, raw material can increase prices, goverment
regulations accros different territories and lack of knowledge from employees.
Customer Analysis
There are mills in Canada's iron and steel manufacturing sector that create flat and long steel
products. Integrated steel mills, which make primary steel from minerals and metals, and
electric arc furnaces, commonly referred to as minimills, which create new steel products from
scrap, are two different types of enterprises that make up this sector. (IBIS World, 2021)
Even though steel is used in many industries (such as energy, construction, automotive and
transportation, infrastructure, packaging, and machinery) housing and construction sector are
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the largest consumer of steel today, using more than 50% of the steel produced (worldsteel,
2022). Therefore, there are two types of customers in business, people and companies, people
who generally work with metals and people who are developing a project and need metals for
it. And companies in the construction industry will need more products for their projects.
Depending on the quantity of the product and the quality they would require, the approaches
will be different, as well as each client.
Customs procedure
The import of steel products in Canada is governed by Canada’s Export and Import Permit Act
(EIPA). To import any steel product, custom brokers use GIP No. 80 or 81 with provisions of
EIPA and its regulations. Every import document of any shipment of products must mark that
the import is being done within the authority of GIP 80 and 81. This rule applies to all products
with HS heading 7206, 7302, 7304,7306,7308, 7312, and 7317. The custom brokers must
ensure the quantity (in Kg) and value (in cad), product classification, and country of origin.
They should also mention the name and address of the supplier and importer details in the
customs declaration form. Any wrong information served will likely be attracted to post-
clearance audit. After the products have been imported, the importer must keep the following
information for up to 6 years of import:
On November 30, 2018, Canada signed a free trade agreement with USA and Mexico at the G-
20 summit.
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Allianz. (n.d.). Guide to trade credit insurance: Definition, benefits & how it works.
https://www.allianz-trade.com/en_CA/insights/guide-to-trade-credit-insurance.html
BDC. (n.d.). Trade credit insurance. What is trade credit insurance | BDC.ca
cost/
Canaan Group. (2022, September 22). Full-Service Warehousing & Fulfillment in Canada.
https://www.canaangroup.ca/warehousing/
https://canadiansteel.ca/innovation
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List of Annexes
Annex IV: Russel Metal Financial Performance for the years ended December 31
https://www.russelmetals.com/wp-content/uploads/2021-Annual-Report.pdf
Annex V: the average financial performance of the steel wholesaler industry (NAICS
Source: Statistics Canada from 161 Small businesses performance in Canada, 2021
Rent 134.5 1%
Insurance 29.2 0%
Reference: Government of Canada. (2022, July 15). Report for: NAICS 4162 - Metal service
https://www.ic.gc.ca/app/sme-pme/bnchmrkngtl/rprt-flw.pub?execution=e1s4
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Annex VI: Russel Metals Location
https://www.russelmetals.com/en/location/?sector=metal-service-centers