Case: Nucor at a Crossroads

Question: Whether Nucor should accept SMS’s CSP technology and enter the flat product segment of
steel business.

Porter’s forces analysis:

Bargaining power of buyers- High, due to large orders and rejections based on quality considerations
(Internal (Vulcraft~0.1 mnT) and external (mainly service centers & distributors and construction))

Bargaining power of suppliers- currently Low, as electric arc based plants which uses scrap steel are
less (16%). Nucor does strategic sourcing of scrap steel through independent agent and demand
pooling.

Competition- High competition from integrated steel players and cheap imports

Threat of new entrant- Low, due to high investment required

Competitive edge- Low-cost steel producer: First mover advantage with low-cost flat steel producing
capability using new technology. Although this is imitable, imitation will need at least 3-4 years. The
operating cost of new plant will be 15-20% less than current integrated steel plants, providing a cost
advantage which is crucial for low end flat steel segment. The expected operating profit is likely to
increase by $81 mn at full scale production.

Market Analysis: Stagnant market demand. However, there is a very high possibility of penetrating
the low-end flat steel segment, which is price sensitive, due to competitive prices as compared to
the integrated sector and imported steel.

Operational feasibility: Feasible due to Nucor’s existing experience and technical support of SMS.
Nucor’s flat and decentralized organisational structure, open and risk taking culture and strategic
employee hiring and training gives it fast learning and innovative capability.

Financial feasibility: Possible through either debt or equity financing. Its existing earnings and on
hand cast of $185 mn will lessen the financing burden.

Risks: Unproven technology on industrial scale, however it could be mitigated using industrial scale
testing. Possibility of new entrants if technology is proved successful. Technology leapfrogging after
10-12 years. However both will take sufficient time before which Nucor could hold significant market
share and possibly expand to high end steel segment.

Recommendation:

Based on the above analysis and

the strategy diamond-

1. Nucor should ask SMS for

industrial-scale testing.
2. If successful, it should accept
SMS’s proposal and enter
low-end flat steel segment.
3. It should also work on
expanding into the high-end
flat steel segment.

Strategy Diamond