Business Strategy. Competitive forces impacting the U.S steel industry

Nucor Case Study
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Executive Summary
In 2016, Nucor was ranked as the 13th largest producer of steel with a production capacity of 29 million tons. Behind that success was the low-cost leadership strategy that had reduced the company’s expenses considerably. As a company with diverse products, this strategy was instrumental in pushing the company’s products in the domestic and international markets. This is impressive considering that the U.S steel company is very competitive because all companies involved have the capacity to produce quality products using technological innovations. Porter’s five force model and the SWOT analysis portray an industry that is flooded with excessive products, which reduces the price significantly.
Despite that competition, Nucor has acquired several strategic firms that have turned it into a mega-corporation that enjoys economies of scale. Currently, acquisitions, technological innovation, and search of external markets have driven the industry to what it is today. This is reflected in the company’s financial report that displays a consistent increase in the amount of resources used to acquire and build new firms while undertaking research. The financial report also shows how Nucor’s net sales were not stable from 2011 to 2015. To attain stability, Nucor’s management must address whether to stick with scrap steel as the main raw material and how to deal with foreign competition.
1. Competitive forces impacting the U.S steel industry
Steel production companies in the U.S are located in a very competitive environment; domestically and internationally. The strong competition among the companies is because the supply of steel in the U.S exceeds the demand, which leads to low prices. When the steel industry is subjected to potters five force model, it is identified that there is;
a) Moderate threat of new entrants;
A new company can only be successful if it obtains economies of scale because the steel industry is capital intensive. Existing firms seek new customers in regions where they are not located. For instance, Chinese companies export their products into the US market. This is mainly motivated by the lack of product differentiation in the steel industry (Grossman, 2014). The acquisition of small companies by large companies such as Nucor indicates that there is moderate threat of new entrants.
b) Low threat of substitute
The threat of substitutes is low because only few products have the chance to be substitutes of steel products. Plastics, bricks, and stones can be considered because of their low production cost but they are not strong enough to replace steel products. Fiberglass and aluminum could also be considered but adjusting the production systems to accommodate such products has high switching costs.
c) Strong competition among rival firms
Competition is very strong since the majority of the firms know how to produce quality products. Since it is difficult to differentiate steel products, buyers only go for lower prices. Another factor that intensifies the competition is the use of low-cost scrap steel technology to produce a variety of products. In the case of Nucor, this strategy has enabled i...