KELOMPOK 10 1. Audy Ishida Djansen (10810010 2.

Cindy Caroline (10810010

3. Hajar Adhi Wibowo (1081001052) 4. Zahra Alibasye (1081001148)

Analysis of Nucor in 2005 Case (Case 2-2)

Case Overview Historical Overview Nucor Corporation has its origins in Reo Motor Works (Reo), a leasing, MI, automobile producer .founded by Ransom Olds in 1904. Following sporadic profitability early in the century, the company abandoned automobile production in 1934, instead producing trucks for military contract Demand waned after World War II, and the company faced serious financial difficulty. In 1954, Reo liquidated all assets and began to distribute this money to shareholders. A proxy battle ensued, and in 1955, shareholder TelAutograph Corporation won control of the company and forced it to acquire Nuclear Consultants, one of its subsidiaries. The new company was named Nuclear Corporation of America (Nuclear). One bright points of Nuclears history was 1962 acquisition of South Carolina- based Vulcraft, a manufacturer of steel joist. Although Vulcraft had virtually no strategic fit with any of Nuclears other divisions, within a few years it would become the core ot the organization. Similarly, many of activities that Vulcraft adopted during these early years as a subsidiary division would later resonate throughout Nucor Corporation. When Nuclear purchased Vulcraft in1962, arguably the only link between the two organization was Thomass Brief prior experience in steel. Vulcraft was a financially atractive target, however, a market leader in its segment with annual sales in excess of $6million. Then Nuclear hired 35-year-old outsider F. Kenneth Iverson to oversee operations. Iversons management style had two primary goal : improving productivity and foresting strong employee relationships. In both endeavors, Iverson seemed driven by a firm belief that all employees should be treated fairly. Following operational and managerial upheaval in 1960s, Nuclear embraced the 1970s with the objective of rebuilding the firm around its major profitable operations. Management directed its

energies toward two basic business- the steel joist business, operated as Vulcraft, and the steel business, operated as Nucor Steel. 1972 was a major inflection point for the evolution of Nucor as profitable steel business. Management explicity communicated that the firms core competencies were progressing towards steel production. Effective on January 1st 1972, the company name changed to Nucor. Iverson stated :We feel that Nucor Corporation, or new name, not only is simpler but also more accurately reflects the nature of our business today, since the nuclear end of it accounts for less than 5% of our sales. In July that, Nucor was also listed on the New York Stock Exchange and enterde ranks of the Fortune 1000. Soon after Nucors name change and NYSE listing, Iverson announced his intention to expand the company steelmaking facilities. In august 1972, the company announced the construction of its second minimill in Norfolk, Nebraska. In 1974, the construction of the third minimill in Texas was underway. Like the other two minimills, the Jewett mill was near Nucors joist operation, which maximized the effeciency and timeliness of product delivery. The next minimill (400.00 tons/yr) was built in 1981 in Plymouth Texas, which enabled the company to penetrate the western regional market as well as supply its Vulcraft division. The next decade was one of continous growth for Nucor, marked by expansion into different products and the construction of several new mills. The steel industry had rebounded from slump in the early 80s and in 1985 sales and net earning had climbed to $758.4 million and $58.4 million, compared to $486 million and $22.2 million in 1982. Several firms has exited the steel industry during the recession, which caused ins=dustry-wide losses of $6 billion and created a one-third unemployment rate among steel workers. Nucor had preserved profitability and managed to retain its entire workforce by using a reduced workweek, and found itself in a position to expand its market share to take up slack. In 1986, with David Aycock newly elected as president and COO to share the burden of leadership with Iverson, Nucor began growth in new directions. In a risky move that committed a large portion of their assets, it announced the decision to invest in thin-slab casting, a form of technolgy developed by the German Company SMS Comcast. The proposed timeline projected a new mill becoming fully operation within three years. As it turned out, the gamble paid off with impressive result. In august of 1989, the plant began operations. After some initial adjustment were made, the plant was able to produce high-quality thin sheets that could be used to make aotomotive parts. Within two yaers of operation, it was profitability producing 700.000 tons of steel; within four, it was being expanded to a capacity of 2.1 million tons per year.

Nowdays Competition In September of 2000 Aycock resigned from the company and Daniel R. DiMicco, and EVP, became CEO of Nucor. From the beginning, Dimicco confessed to an internatioal focus and continued with the wave of expansion that was set in motion before him. Under DiMicco, Nucor cast its reach oversea. Early in 2000, Nucor, along with Australias Broken Hill Proprietary Corporation and Japans Ishikawajima-Harima Heavy Industries, began joint venture called Castrip, LLC for strip casting. Strip casting allowed steel makers to produce in smaller, cheaper plants. N March 2001 Nucor purchased a significant amount of assets of Auburn Steel, a producer of merchant steel bar. Within the United States, Nucor purchased Alabama-based Trico Steel, a steel sheet producer, for aproximately $116 million. In late 2002 Nucor bought financially troubled Birmingham Steel for $615 million in cash and debt. Backward integration alsi continued for Nucor into this period because of the rise in steel input costs. Nucor teamed up with Companhia Vale do Rio Doce (CVRD), a brazilian producer and exporter of iron-ore pellets, to develop low-cost iron based products in an effort to replace its depedency on steel scrap suppliers. Nucor also changed its traditionally anti-protectionist position in 2001. In a significant turnaround, Nucor lobbied with fellow steel maker for Bushs proposition 201, which ultimately imposed a 30% tariff on steel import. Unfortunately, government intervention was unable to significantly boost to Nucors bottom line because of high cost of expansion. Nucors results were hurt by a 50% rise in start-up costs. On the positive side, Revenue rose 31% to $1.53 billion as acquisitions of new steelproducing assets boosted total steel shipped. Steel Industry Environment Porters Five Forces Degree of rivalry In many ways, steel makers profit are determined by their ability to contend with the cyclicality of steel demand. The soft economy, reduced construction demand, and foreign influx of steel products all could and did contributed to downward pressure on steel price in 1996-2005. Foreign competition was an important factor. For intance, increased imports resulted ini lower prices by $30/ton for minimills in 2000. This situation was assuaged to an extent by the Presidents import tariff and a weak dollar in 2002-2003. With bushs abolishing the tariff in December of 2003, the degree of rivalry increased and the threat of a price war returned to a heightened level. Despite the public attention on foreign competition, imports were not the only driver for the high degree of rivalry. Import certainly have a major impact, causing 30 or 40 percent [of the problem]. The other 60 percent is self-inflicted. Triggered by foreign competitors, US steel makers engaged in price wars and gave away value to the customers unnecessarily. Moreover, steel industry continues to

be plagued by excess capacity due largely to increasing number of minimills in the US. When combined with the growth of imports and a sluggish economy, the degree of rivalry escalated. Recognizing the need to reduce the degree of rivalry, steel makers have begun to consolidate amidst bankruptcy and acquisition, Nucor acquired the bankrupted Birmingham Steel in 2002. These trends reduce the degree of rivalry as firms recognize their interdependence and restrain their rivalry. Barriers to Entry Cost of building plant has steadily decreased and the cost of entry has been lowered as a consequence. To make the matters worse, Nucors minimill rechnology is highly transferable. The reduces initial investment became an opportunity for other manufacturers to enter the market. Ironically, Nucors market success has demonstrated the potential profitability for steel insdustry and reduced the barrier to entry by pioneering a disruptive technology. More importantly, the buyers willingness to switch encoyraged the expansion of minimills in this period. As an case in point, Steel Dynamic, Inc followed a similar expansionary path as Nucor. The Nucor model worked well for the SDI. SDIs success demonstrated the lowered barrier to entry and Nucor could easily trace this development back to its own success. Supplier Power Nucors relationship with the scrap-metal suppliers mirrored its downstream relationship with the steel buyers. Because of the competitive profit margin and the commodity nature of scrap, supplier power is usually low when the prices of steel are low. Nucors source of power stems from large number of suppliers as well as low switching cost of changing suppliers. In 2005, supplier power has been boosted by the increased demand for scraps of global market. In particular, Asian steel makers bought scrap metal to feed the expansion in Asia. Specifically, Nucor experienced a sharp increase in input cost as Chinas demand for raw material shot up due to its heightened construction activity. It is partialy because of this increase in supplier power that Nucor saw its profit drop by 59% in 2003. Buyer Power On the demand side, minimal product differentiation and low switching cost allow buyers to switch between steel producers with ease. The proliferation of minimills and high amount of imports of recent years meant there are increasing numbers of steel producers for steel buyers to choose from. As a result, buyer power in the steel industry is extremely high.

Strategic Positioning of Competitors In basic steel production, one can observe the Red Queen effect as both the integrated steel makers and minimills, such as Nucor and SDI, consolidated in order to increas operation efficiency and lower production cost. Fortunately, Nucor has simultaneously expanded into higher margin, more complex product lines to avoid competing on similar competitive competencies. As a result of this broadening of product focus, Nucors overall position moves up and to the right in he strategic positioning chart into a cost leadership focus. Interestingly, integrated steel makers took the opposite track and trimmed their product lines to retain only the most profitable operations narrowing to a cost base focus in order to achieve solvency for many troubled operations. This resulted in moving up and to the left. Overall, Nucor faces leaner and meaner competitors in the domestic market from the traditional steel makers. Minimills such as SDI have increased the level of competition by closely following Nucors expansion model. Nucors ability to broaden its product line profitably is due to the high quality of its labor resources. The high production dicipline of its labor resources can be ulitized across different product lines to capitalize on their expertise. In short, Nucors superior resource and stronger industry position potentially allow it to operate more profitably than traditional steel makers in the wide product scope position.

high threat of new entrants

high bargaining power of customer

high competiti ve rivalry

low bargaining power of suppliers

low threat of subtitute product

VRIO analysis of Nucor Does a resources enable Nucor to exploit an environmental opportunity and/or neutralize an environmental threat? Yes. Nucors strategy of high incentive structure reduce the suppliers opportunity cost for doing business with Nucor. By maintaining good supplier relationship and offering bonuses for timely delivery, Nucor is able to open its plants at lower cost and create higher value for it self. And also Nucors focus on new technology such as Parsytec automatic surfacedetection system produces superior quality steel and increase customers willingness to pay. Is a resources currently being controlled by one small number of competing firms? No. Nucors minimill technology is highly transferable. Nucors market success has demonstrated the potential profitability for steel industry and reduced the barrier of entry by pioneering a disruptive technology. But, Nucor has always been an innovator with technology, they plant strip casting technology which casts molten steel directly inti thin sheets, allows steelmakers to switch among multiple steel grades quickly. Do firms without a resource face a cost disadvantage in obtaining or developing it? No. According to David Stickler, a steel-industry investment banker :all you need is iron, cheap electricity, and 300 workers. The reduced initial investment became an oppportunity for other manufacturers to enter market. For example, Steel Inc in 1996 managed to start a plant at low start-up cost $600 million and followed a similar expansionary path as Nucor. Are a Nucor other policies and procedures organized to support the exploitation of its valuable, rare, and costly-to-imitate resources? Yes. Nucor choose not to engage in significant trimming of its activity system in 1996-2005. Instead, Nucors activity system demonstrated thickening around the original core elements of low cost structure, strong labor relation, technology focus, specialized product, and focus on high margin products through a set of new activities. Overall, Nucor has consolidated its position in steel industry through elaboration of previously created core elements. Conclusion Nucors story is one of growth towards a strategis fit against the competitive backdrop of the ultimate commodity market. Over years and largely through the vision of one man, Nucor has evolved towards a strong strategic fit with a consistene activity system. By strenghtening around its core elementa in its activity system, the company has shown a strong commitment to its strategy. Eventhough competitor might attempt to immitate Nucors management system, the minimills main sticky factor of an extraordinary strong worker relations as well as the complex host of onterrelated activities made the firms success difficult to replicate. Thus despite economic swings and tough competition, Nucor continues to grow rapidly.

There are three main takeaways from Nucor story that can apply to any industry : (1) Advantages of intangible sticky factors : Nucors greatest sticky factor was intangible of extraordinary labor management practices. This was key factor in their rapid, successful growth, and in their ability to produce steel at margins that could compete with imports. Intangible sticky factors share or exceed the inimitability of tangible sticky factors ib commitment, while being more inherently flexible than tangible commitments nade by integrated mills. (2) Dependence vs Continuity : If a leader has a successful vision like Iverso, an organization dependent on that one person can achieve outstanding results. However every great leader will eventually leave, and there is no guarantee that a carefully selected successor can achieve the same results. A potential way to smooth this transition is to clearly and credibly incultate the leaders vision into the firms internal structure and governance. Otherwise, best practices may prove to be transient and limited to the leaders tenure. (3) Controlled growth : even in rapidly growing firm, it is important to control the pace and direction of that growth. Profitability consistently remained the core consideration in new projec evaluations. Nucor carefully monitored growth during its expansion period, selecting only projects where its sticky factors could be successfully leveraged.