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EXECUTIVE SUMMARY

Global marketing offers a way for companies of all sizes to grow by expanding their
customer base beyond the domestic market. However, the complexities of global
marketing demand careful planning and proper implementation.

This study has been conducted to gain knowledge about the potential strength of Stainless
Steel exports of China. The supply demand scenario, domestic steel industry and the
present and possible role of India was analyzed in case of China.

To start with the Indian and the world Iron and steel Industry is studied and comparative
study of the performance of Exporting Countries and Indian industry is analyzed.

India’s positioning in the global perspective will depend upon cost competitiveness of
the Indian. Besides the continuous emphasis is to given on new
technology/process/products developed, productivity improvement, quality
improvement. The Chinese steel market is one of the most active markets in the world.
China is a country with a dynamic economy whose annual growth rate has stayed at 7-8
percent in the last five years.

After this China Customer are segmented, and the most attractive segments for Indian
Exporters are selected as target markets. The company studied is Jindal Steel Ltd. Jindal
Stainless is among the top twelve stainless steel producers in the world along with
Arcelor, KTS, Acerinox, Avesta Polarit, and POSCO etc. The company itself has two
offices in China and is a well-known brand in the Chinese Stainless Steel Industry. It is a
pioneer in the production of Chrome Manganese Stainless Steel and last year 90% of
Jindal Stainless exports were to China.

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OBJECTIVES OF THE STUDY

Indian business firms are facing problems on the international marketing front and the
possible strategies that can employ for going global and maintain their stride with global
scenario

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MARKETING MIX OF GLOBAL MARKETING

Marketing planning helps you decide what products or services are required in
your market, then how to sell them and what price to put on them. So focus on the
“seven P’s of marketing” — people, planning, product, positioning, pricing, place
and promotion.

People
The personal, cultural, social and psychological attitudes of your customers are
important. If you are going to meet their needs; do some basic market research.

Planning
Your market research needs to be analyzed and evaluated. You can then start to
predict the requirements of your customers.

Product (or service)


What makes your product different from that of your competitor? Can you
develop any brand values for your product? Decide what your unique selling point
is and work out how the customer will benefit from your product or service.

Positioning
Differentiate your product from that of your competitors. Look for the gap in the
market for your product; work out why this gap exists. How big is this market?
Does it have short and/or long term growth potential? Decide who your
competitors are and how they will react to your plans. What makes your product
special? How will you develop and exploit competitive advantage; work out the
best time to launch your product.

Pricing
What people feel about a product is reflected in what they are prepared to pay for

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it. Identify what value your customers place on your product. Then decide which
market segment you will attack e.g. premium or budget. What discount structure
(if any) will you offer for volume. What will be your pricing policy for agents,
wholesalers and retailers?

Place
You may need to work out how your goods will move from where they are
produced to where they are sold. You may want to use wholesalers, retailers or
your own premises. Or will you use direct marketing, telemarketing, or e-
commerce via the Internet?

Promotion
This is the most visible aspect of marketing. It pulls together various
communication elements- Corporate identity; Branding; Advertising strategy;
Public relations, internal and external; Direct marketing; Sales promotion and
merchandising; Sales and sales management; Exhibitions.

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DEVELOPING MARKETING STRATEGIES

• Positioning and differentiating the market offerings through the product lifecycle

• Developing new market offerings

• Designing global market offerings

This study will also be conducted to gain knowledge about the potential strength of
Stainless Steel exports of China. The supply demand scenario, domestic steel industry
and the present and possible role of India was analyzed in case of China.

To start with the Indian and the world Iron and steel Industry is studied and comparative
study of the performance of Exporting Countries and Indian industry is analyzed.

In the next step, the environmental analysis of China is done. The environments selected
included macro-micro economic environment, legal environment, social environment,
and business environment, of China.

India’s positioning in the global perspective will depend upon cost competitiveness of
the Indian. Besides the continuous emphasis is to given on new
technology/process/products developed, productivity improvement, quality
improvement. The Chinese steel market is one of the most active markets in the world.
China is a country with a dynamic economy whose annual growth rate has stayed at 7-8
percent in the last five years.

The Iron and Steel Industry is one of the major foreign exchange earners, despite of
important role it plays in balancing India’s international trade. Steel has pervaded our
daily lives from the kitchen to hospital and industry. Because of its ability to
withstand corrosion, steel has found an indispensable slot even in the medical world.

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Extensively used, steel is sudden in a wide assortment of container industry,
galvanizing units, engineering industry electrical industry, re-rolling industry and
heavy industry. Hence we can say that:

There is a little bit of steel in everyone’s life

Iron containing less than 2% carbon and less than 1-% silicon and not more than a
trace of phosphorus is what is usually termed steel. Carbon is the principal hardening
element in steel. The increment of carbon % within steel increases the hardness of
steel. The hardness becomes correspondingly less in steel containing more than 85%
carbon than low carbon ranges.

PRODUCTION PROCESS

There are two primary methods of making steel, differing in terms of the process and
raw materials used : the blast furnace route (BF) and the electric arc furnace (EAF)
route. In the BF process, the iron is first reduced with coke in a blast furnace and then
refined to produce molten steel, while in the EAF process a mix of scrap and sponge
iron is melted using electricity in an electric are furnace to produce long and flat
products.

Stainless steel is gaining recognition and it is considered as the friendly and sustainable
material because of its corrosive resistance and for its easy to clean / hygienic surfaces.
Its versatility, durability and its supraliminal quality makes stainless steel the exceptional
material of a choice for the new millennium. Initially stainless steel found its applicability
in cutlery and gradually into textile, chemical and other engineering industries. Today its
application has created wonders in the Architecture, Building and Construction (ABC)
and Automobile, Railways and Transportation (ART).

Stainless steel usage in the building and construction sector would increase in the coming

years. If the potential of the market is fully realized in terms of the prospective end use

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sectors mentioned above along with the continuing growth of the utensil market, the

future growth rate of stainless steel can even be higher than witnessed in the last decade.

INDIAN STEEL INDUSTRY

Indian Steel Industry is now going through a speedy growth path. In the global

scenario, China remains the world’s largest crude steel producer in 2008. China’s steel

sector has been following an upward trend, with sale of steel product reaching their

highest levels in recent years. Increased imports and decreased export have combined to

bring great pressure to bear upon china’s steel market. The Antidumping Measure taken

by the United States against China HR Plates has seriously helped up China’s export.

In china the volatile Nickel price create uncertainty in the stainless steel market. China’s

Metal Sector has been enjoying a period of astonishing growth. Trend of production and

consumption are further elaborated with respect to category of products like cold rolled

flat, bars, wire rods and pipes. Stainless steel world has a department specialized in

research and intelligence to help meet the market’s increasing need for the resolution of

complex technological and informational problem.

Stainless steel production in India is speedily increasing since the last three decades.

Initially India had to depend on foreign markets to meet its requirement of stainless steel.

Today India is self sufficient enough to make stainless steel of all grades, shapes & sizes

and is also a major exporter of stainless steel of utensil grade. In the Public Sector, the

special steel plants of Steel Authority of India Limited (SAIL) at Durgapur and Salem

have made significant contribution for the growth of this industry. Mukand Limited,

Panchmahal Steel Limited, Shah Alloys Industries Ltd., Jindal Strips Limited have also

contributed significantly in making India self-sufficient in stainless steel production.

(William A. Johnson, 2001)

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Most (around 75%) of the Indian stainless steel market is still in the kitchen segment.

Indian Railways is switching over to manufacture their passenger coaches which will

require 15 mt stainless steel per coach in coming 5 years. The Indian government is

using Ferric cold rolled stainless steel strips for making coins. The main focus of Indian

stainless steel industry is China which still imports 90% of stainless steel. (William A.

Johnson 2001)

EXPORTS FROM INDIA

Iron and steel exports from India started after 1964, the first time India’s supply

dominated her domestic needs. Though the Indian exports are quite vulnerable to

domestic demand conditions, the export market has been doing reasonably well in the

past few years, with FY03 seeing an increase of more than 100% over the previous year.

The increase in exports to Asia (approx. 227%) and America (105%) has contributed to

this massive growth. The abundant availability of raw materials like iron ore and cheap

manpower in India provide tremendous potential for the iron and steel sector to grow.

(Peter M Fish, 2003)

The recovery of the steel sector witnessed in 2006-07 was carried forward in Q1 2007-08.

Production and apparent consumption were higher by 8.4 per cent and 1.6 per cent,

respectively. Production growth was 9.4 per cent in the flats segment as against 5.7 per

cent in the non-flat segment. Apparent consumption growth in the flat and non-flat

segments was —1.5 per cent and 5.1 per cent, respectively.

The apparent consumption growth in the flat segment was negative despite a positive

production growth, due to sharp rise in exports coupled with a poor domestic off-take

largely due to the transporters strike in April 2003. Export performance was remarkable

with a growth of 38.6 per cent during the period. Imports were higher by 26.8 per cent.

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Export growth was higher for flat products (41.8 per cent) as against non-flat products

(21.8 per cent). Import growth was higher for non-flat products (42.9 per cent) as against

flat products (25.7 per cent). The capacity utilization (primary and secondary producers)

of crude steel production improved from 86.3 per cent in Q1 2002-2003 to 92.0 per cent

in Q1 2003-2004.

India exported about 3.85 million tonnes of stainless steel production in 2007-08. Of

these, low nickel high manganese grade hot rolled and cold rolled products were 30,000

tones. In the 300 series, hot rolled and cold rolled products were about 30,000 tones,

Corex Furnace Bars 43,600 tones, wire and cables about 22,000 tones. The export of 400

series was 13,800 tones of which CF Bars were 9,200 tones and wire and coils about

3,400 tones. The export of utensils and kitchenware during 2007-08 was about 80,000

tones. The value of utensil export by India in 2007-08 was about US $ 47 million to

Middle-East.

STATEMENT OF THE PROBLEM

The study is intended to find the export potential of Stainless steel to Chinese market, to

reveal present pattern and possible future developments of supply, demand and

consumption in relevant product specific markets.

Jindal Strips Limited is the largest integrated producer of stainless steel in India. It is

Flagship Company of Jindal Group set up in 1970 under the visionary of Mr. O.P.Jindal.

Jindal Organization is ranked fourth amongst the top Indian Business houses.

The company initiates developing new market for its stainless steel products around four

to five years back and has been able to achieve compounded average growth. Jindal is the

leader in domestic market of stainless steel and it is trying to become a major player in

international market. With a market share of 50% in India, it also exports to various

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countries across the globe. Jindal stainless is the only company in India which has the

composite stainless steel plant for the manufacture of Slabs, Blooms, Hot rolled and Cold

Rolled Coils.

This study is carried out keeping in the interests of Jindal Strips Limited and hence it

becomes important to have an insight of the domestic market and export potential in the

Chinese market.

OBJECTIVES OF THE STUDY

1. To study various global marketing strategies

2. This study highlights the export potential of Jindal Strips Limited in China.

3. This study may help Jindal Strips Limited in identifying new markets.

4. This study would present the strategic alliances that Jindal Strips limited can form
to reduce the risk in the market.

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A global industry is an industry in which the strategic positions of competitors in major
geographic or national markets are fundamentally affected by their overall global
positions. A global firm is a firm that operates in more than one country and captures
R&D, production, logistical, marketing, financial advantages in its costs and reputation
that are not available to purely domestic competitors. Global firms plan, operate, and
coordinate their activities on a worldwide basis. Ford’s “world truck” has a European-
made cab and a North American- built chassis, is assembled n Brazil, and is imported
into the United States for sale. Otis Elevator gets its door systems from France, small
geared parts from Spain, electronics from Germany, and special motor drivers from
Japan; it uses the United States for systems integration. A company need not be large to
sell globally.

DEVELOPING AN INTERNATIONAL MARKETING STRATEGY

An international marketing strategy involves developing and maintaining a strategic fit

between the international company's objectives, competencies, and resources and the

challenges presented by its international market or markets. (Terpstra, V. and Sarathy, R.,

1997) As such, the international strategic plan forges a link between the company's

resources and its international goals and objectives in a complex, continuously changing

international environment. Given the changing nature of the environment, the

international company's strategic plan cannot afford a typical long-term focus (a five- or

ten-year plan); rather, the planning process must be systematic and continuous, and it

must re-evaluate objectives in light of new opportunities and potential threats. (Carol

Graham, 2001)

Another dimension of international marketing strategy is linked to the company's

commitment to its international markets. Some companies use international marketing

only to test the waters or to unload overproduction. (Carol Graham, 2001) This

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approach to international marketing, although it might open long-term opportunities to

the company, does not indicate a substantial commitment to internationalization and is

not a premise for success in the long term in international markets. A long-term

international commitment that entails substantial investment in terms of resources and

personnel is likely to bring the company the greatest rewards in the long run. Such a

strategy will make the company a stronger competitor in the world market, as well as at

home.

International strategic planning takes place at different levels (Isobel Doole and Robin

Lowe, 2003):

• At the corporate level, the strategic plan allocates resources and establishes

objectives for the whole enterprise, worldwide. The corporate plan has a

long-term focus and involves the highest levels of management. PepsiCo

Beverages headquarters (including its international headquarters) are

located in Purchase, New York, USA. The company's corporate plan is

developed here.

Frank Bradley and Michael Gannon (2000) propose that planning at this level involves

international target market selection decisions:

• At the division level the strategic plan allocates funds to each business unit

based on division goals and objectives. In the PepsiCo example, its division

for Eastern Europe is located in Vienna, Austria. From there, the company

coordinates all local (country-level) operations. At this point, Pepsi may

use various portfolio analysis tools to decide which brands to harvest, to

invest in, or to divest, and plan its resources accordingly.

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• At the business unit level, within each country, decisions are made regarding which

consumer segments to target. At this level, Pepsi develops a strategic plan.

• At the product level (line, brand), a marketing plan is developed for achieving

objectives. PepsiCo's marketing plan for Poland, for example, might

include increasing the consumption of Pepsi and Pepsi Light and launching Pepsi

Max beyond the cities of Warsaw, Krakow, Wroclaw, and Poznan.

DEVELOPING AN INTERNATIONAL MARKETING PLAN

At this stage of the planning process, the international company develops a marketing

plan. Assuming that the company has already analyzed its marketing opportunities and

researched and selected the target market, it must now (Terry Hennessy, 1999)

• Develop marketing strategies for the target market, deciding on the prod-

cut mix for the local target market, as well as on the other components of

the marketing mix—distribution, promotion, and pricing.

• Plan the international marketing programs.

• Manage (organize, implement, and control) the marketing effort.

The decision on which elements of the marketing mix to use in a particular target market

is closely linked to the product's life cycle and to the market entry strategy selected: A

product in the early stages of its life cycle, such as the Palm Pilot, will most likely be sold

to consumers in highly industrialized countries for a high price, accompanied by heavy

promotion. (Isobel Doole and Robin Lowe, 2003) A product will most likely be man-

ufactured in a developed country and exported to the rest of the world. Alternatively, a

product in the later stages of its life cycle, such as a videocassette recorder, will be sold to

consumers worldwide, regardless of country development level. The company selling the
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product will heavily compete on price and, thus, most likely manufacture the product in a

developing country where labor is inexpensive, to sell all over the world. Most likely, the

company will have at least one subsidiary located in the country of product manufacture.

(Carol Graham, 2001)

Insights into the marketing strategies that companies use to target international markets

reveal that marketing mix decisions are complex and based on extensive research.

Kraft Foods (www.kraftfoods.com), for example, has made interesting product mix

decisions: It sells coffee products and confectionery products that cover the spectrum of

target consumers—and the brands often cannibalize.

Among the many brands of coffee Kraft Foods offers are:

• Jacobs coffee: This product sells mainly in Central and Eastern Europe.

Jacobs coffee is popularly known as a quality German brand. Because con-

sumers in Central and Eastern Europe have traditionally had frequent

interaction with German consumers and have acquired a taste and prefer

ence for German brands, marketing the Jacobs brand in this region was

appropriate. Had Kraft brought the product to the United States, it would

have had to challenge quality perceptions of bulk coffee associated with

developing countries in Latin America (Colombia and Guatemala, in par-

ticular) and Africa (Kenya, especially) and value perceptions held by store

brands and other low-priced national brands such as Folgers and Kraft's

own Maxwell House. (Dana-Nicoleta Lascu 2003)

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• Gevalia coffee: This brand is aimed at the Scandinavian market and

imported into the United States as a gourmet product sold exclusively by

mail order.

Among the numerous confectionery products Kraft offers are the following:

• Milka: Kraft Foods is now importing its European Milka brand of choco

late into the United States, selling it primarily through chain stores such as

Target. Mass-market consumers in the United States are increasingly

replacing favorite local candy bars with products that are perceived as

more sophisticated and that are available at competitive prices. (Dana-Nicoleta Lascu

2003) Competitors such as Ferrero Rocher and Dove have had great success with the

pre mium chocolates they sell in the U.S. market, and they are increasingly placing

their products in the impulse-purchase section, by the cash register. Kraft's Milka is

using a similar strategy, selling its basic-milk chocolate

with the picture of a Swiss cow in the Alps on the packaging at Target

stores. Milka also is available in a wider selection at shops that specialize in

foreign gourmet foods. (Frank Bradley and Michael Gannon, 2000)

• Suchard: Kraft Foods is restricting the distribution of its premium

chocolate Suchard to Western Europe. Suchard has been for decades the

traditional competitor to Lindt in the premium chocolate market in

Europe. The Suchard name has long been associated with French-speaking

Switzerland, and most European consumers do not know that it is owned

by an American company.

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• Toblerone: Kraft is distributing its Toblerone chocolate brand extensively,

all over the world.

Kraft also has numerous brands that are restricted to a few markets. Among them are

Daim, aimed at Scandinavian consumers, and Bis, aimed at Argentina and Brazil.

Kraft Foods, a company based in the United States, has different mix strategies for each

market. And it sells to the U.S. consumer only a fraction of its international offerings,

some of which are positioned as premium European imports. It should be mentioned that

companies with more limited resources will very likely be more restricted in their

worldwide market coverage.

Companies entering more and more countries in search of new markets are likely to

face increasing difficulty in continuously monitoring and controlling their

international operations. These firms must monitor not only the constantly changing

marketing environment, but also changes in competitive intensity, in competitor

product/service quality strategies, in supply chains, and in consumer expectations. (Dana-

Nicoleta Lascu 2003)

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MAJOR DECISION IN INTERNATIONAL MARKETING:

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Deciding Deciding Deciding how

whether to go which markets to enter the

abroad to enter market

Deciding the Deciding on

marketing the marketing

program organization

DECIDING ON THE INTERNATIONAL ENTRY MODE

The company control over operations and overall risk increase from the export mode to

the wholly owned subsidiary entry mode. (Terpstra, V. and Sarathy, R., 1997) In general,

companies tend to use the export mode in their first attempt to expand internationally and

in environments that present substantial risk, and companies tend to approach markets

that offer promise and lower risk by engaging in some form of foreign direct investment.

(Terpstra, V. and Sarathy, R., 1997) There are, however, many exceptions to these

statements: Companies that have been present for decades in attractive international

markets, such as Airbus Industries and Caterpillar, continue to export to those markets,

rather than manufacture abroad. Similarly, many new small businesses find that they can

manufacture products cheaply abroad and distribute them in those markets without

making a penny in their home country; this is increasingly becoming a possibility for

companies selling on the World Wide Web. (John D. Daniels, 2005)

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Amount of commitment, risks, control, and profit
potential

Direct
investment

Joint
ventures
Indirect Exporting

Indirect exporting means that the company sells its products to intermediaries in the
Licensing
company's home country who, in turn, sell the product overseas. A company engaging in

indirect exporting can use middlemen such as export management companies, trading
Direct
companies, or agents/brokers to distribute itsexporting
products overseas. (Carol Graham, 2001)

Alternatively, the company can use cooperative exporting, also referred to as

"piggybacking" or "mother henning." With cooperative exporting, companies use the


Indirect
exporting
distribution system of exporters with established systems of selling abroad who agree to

handle the export function of a no competing (but not necessarily unrelated) company on

a contractual basis. (Isobel Dole and Robin Lowe, 2003) Such companies are paid on
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commission or are charged a discount price for the product; they are larger companies

with extensive experience in and knowledge of the target international market. (Gilligan,

C. and Hird M., 1986)

Using indirect exporting does not require market expertise, nor a long-term commitment

to the international market. The company's risk also is minimal; at most, it can lose a

product shipment. Among disadvantages are lack of control over the marketing of its

products - which could ultimately lead to lost sales and a loss of-good will that might

ultimately affect the perception of the company and its brands in other markets where it

has a greater commitment.

Some companies use indirect exporting as a first step toward a greater degree of

involvement. After a sufficient consumer franchise is secured and the market is tested with

the initial shipment, a company might commit resources for additional investment in the

market. It should be mentioned, however, that indirect exporting in the long term does

not necessarily mean that the company is not committed to the market; it simply means

either that the company does not have the resources for greater involvement or that other

markets are performing better and need more company resources. (Carol Graham, 2001)

One of Europe's leading car makers, Germany's Volkswagen, operates through

independent importers and distributors in Belgium, the Netherlands, Switzerland, and

Austria, while in France, Germany, Italy, and Spain, which together account for 83 percent

of European sales, it controls its wholesale operations directly. (Frank Bradley & Michael

Gannon, 2000)

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Direct Exporting

Companies engaging in direct exporting have their own in-house exporting expertise,

usually in the form of an exporting department. Such companies have more control over

the marketing mix in the target market: They can make sure that wholesalers and retailers

observe the company's marketing policies, charging the suggested sale price, offering the

appropriate promotions, and handling customer requests promptly and satisfactorily.

(Terpstra, V. and Sarathy, R., 1997) More control, however, is expensive. Companies

carry the cost of their export department staff, and the costs involved in selecting and

monitoring the different middlemen involved in the distribution process—freight

forwarders, shipping lines, insurers, merchant middlemen, and retailers—as well as other

marketing service providers, such as consultants, marketing researchers, and advertising

companies. (Dave Savona, 1992)

One venue that opens new opportunities for direct exporting is the Internet. With a well-

developed web site, companies now can reach directly to customers overseas and process

sales online. And many companies do: Catalog retailers and dot-corn companies, such as

Lands' End and Amazon, respectively, long ago made their first international incursions

by exporting their products to consumers abroad and are rapidly expanding their

international operations. (Frank Bradley and Michael Gannon, 2000)

The challenges for companies using the Internet to export their products involve

securing the appropriate credit in environments where credit cards and personal checks

are uncommon and, finally, having sufficient sales to warrant staff expenditures needed to

process and handle the international sales. (John D. Daniels, 2005)

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Licensing

A popular international entry mode, licensing presents more risks to the company but also

offers it more control than exporting. Licensing involves a licensor and a licensee. The

licensor offers know-how, shares technology, and often shares a brand name with the

licensee. The licensee, in turn, pays royalties. (Dave Savona, 1992) The two approaches

to licensing are licensing without the name and licensing with the name.

Licensing without the Name

A licensor is very selective when choosing a licensee, ensuring that products manufactured

under license are of the highest quality. When quality cannot be guaranteed, either

because the licensee does not allow the licensor sufficient control and scrutiny, or

because the licensee cannot guarantee quality, it is preferable for the products produced

under license not to carry the licensor's brand name. (Frank Bradley and Michael

Gannon, 2000) In the early 1970s, Italy's Fiat granted a license to Avto VAZ, Russia's

largest automobile manufacturer, to manufacture Lada, Russia's most popular

automobile, and an important export to neighboring and other developing countries.

Under a similar arrangement, France's Renault granted a license to build Dacia brand

automobiles in Romania in the 1960s. Today, the automobile, which continues to sell under

the Dacia name, is as popular as ever, and, in 1999, Renault acquired a 51 percent stake in

the company. (Isobel Doole and Robin Lowe, 2003)

Licensing with the Name

Licensors can decide to adapt the names of their products when they have a greater

confidence in the capability of the licensee's workforce. One example is Poland's Polski

Fiat. Fiat was confident of the reliability of Polish manufacturing and did not require the

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use of a different name for the product. Today, Fiat no longer licenses the Fiat name to

Polish manufacturers; it has set up a subsidiary with multiple operations, Fiat SpA, which

manufactures many of the Fiats sold in Eastern Europe under the Fiat brand name

(primarily lower-priced models, such as Fiat Punto and Seicento J. (John D. Daniels,

2005)

Licensing is a lower-risk entry mode that allows a company to manufacture a product all

over the world for global distribution. Beverly Hills Polo Club, for example, conducts

business in approximately 85 countries around the globe, producing apparel licensed

under its own name, all licensed apparel for Harvard University, as well as Hype, Karl

Kani, and Blanc Bleu—a line that sells in upscale European retailers. (John D. Daniels,

2005)

Licensing permits the company access to markets that may be closed or that may have

high entry barriers. In the examples in the "Licensing without the Name" section, Lada,

Dacia, and Polski Fiat were sold in the countries of manufacture at low prices, with few

taxes, while automobile imports were charged tariffs at rates ranging from 50 to 100

percent.

Companies that engage in licensing agreements also limit their exposure to economic,

financial, and political instability. In the event of a national disaster or a government

takeover, the licensor licensing without the name incurs only the loss of royalties. The

licensor that permits the use of the name may suffer a loss of reputation in the short term

if the products are manufactured without licensor supervision and/or if they do not

uphold the licensor's standard. In the latter case, the licensor has some control, at least in

international markets. (Gilligan, C. and Hird M., 1986) For example, it can bring to the

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attention of international trade bodies the sale of products that are illegally using its

brand name, assuming the company has international trademark protection; in most

markets, it also can sue the former licensee.

A downside of licensing is that it can produce a viable competitor in the licensee, who

is well equipped to competently compete with the licenser. Simply training locals in

company operations, particularly technology, can lead to the development of skills for

future competitors.

Franchising

According to Isobel Doole and Robin Lowe (2002) Franchising is a means of marketing

goods and services in which the franchiser grants the legal right to use branding, trade

marks and products, and the method of operation is transferred to a third party – the

franchisee – in return for a franchise fee. The franchiser provides assistance, training and

help with sourcing components, and exercises significant control over the franchisee’s

method of operation. It is considered to be a relatively less risky business start up for the

franchisee but still harnesses the motivation, time and energy of the people who are

investing their own capital in the business. For a franchiser it has a large number of

advantages including the opportunity to build greater market coverage and obtain a

steady, predictable stream of income without requiring excessive investment. (Isobel

Doole and Robin Lowe, 2002)

Franchising (or business format franchising, to be accurate) is ‘the permission given by

one person, the franchisor, to another person, the franchisee, to use the franchisor’s trade

name, trade marks and business system, in return for an initial payment and further

regular payments’ (Sandhya, Krishnamurthy 2002)

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Having satisfied himself that franchisee would be suited to running his own business and

that he will accept the restrictions laid down by the franchiser, franchisee will choose the

type of business in which he would like to work and be happy that it is in a market with

good potential. (Harry G. Barkema, 1997) Franchisee now need to choose the franchiser.

If he has picked a category in which there are only one or two franchisers, it would be

wise to select a second category to avoid having too small a choice. This will also give

him a wider selection of territories. (Sinha, Piyush Kumar 1999)

Obtain a list of the franchises, which are available in the business category franchisee has

chosen. Which is best for him? Although this is the last stage of your assessment process,

it is, of course, the most important. He may be right for franchising and the market he has

chosen may be full of promise, but this will not make up for an ineffective franchiser.

There are many questions (Windsperger J. 2002) that can be asked to assess the quality of

a franchiser, but most falls into the following fields.

Has the franchise been sufficiently tested and are its franchisees successful? Do the initial

fee and continuing fees (or product mark up) represent good value for money? Do the on-

going fees (or product mark up) still leave the product or service competitive in the

market place and provide sufficient profit for the franchiser and franchisee to make the

business worthwhile?

Have the franchiser sufficient financial and management resources to do what they say

they will do to make your business succeed? Are they fair and ethical in their business

conduct? Are they a member of the British Franchise Association, whose members are

required to abide by a code of business practice? In the event of the franchiser’s failure

are there alternative suppliers?

28
Joint Ventures

Joint ventures involve a foreign company joining with a local company, sharing capital,

equity, and labor, among others, to set up a new corporate entity. Joint ventures are a

preferred international entry mode for emerging markets. In developing countries, joint

ventures typically take place between an international firm and a state-owned enterprise;

in this case, the company's partner is the local government. As such, the company is

assured instant local access and preferential treatment.

Many developing countries welcome this type of investment as a way to encourage the

development of local expertise, of the local market, and of the country's balance of trade

—assuming the resultant production will be exported abroad. (Gilligan, C. and Hird M.,

1986) In most developing countries, the international firm will typically provide expertise,

know-how, most of the capital, the brand name reputation, and a trademark that is

internationally protected, among others. The local partner will provide the labor, the

physical infrastructure (such as the factory and access to the factory), local market

expertise and relationships, as well as connections to government decision-making

bodies. (Carol Graham, 2001)

It is typical for the local government of the developing country to limit the joint-venture

ownership of international firms to less than 50 percent. It is also typical for the local

government to encourage the reinvestment of profits into the firm, rather than the

repatriation of profits by the international firm. As such, the government, in effect, leads

the international firm to engage in transfer pricing, a method whereby the parent

company of the international joint-venture partner charges the joint venture for

equipment and expertise, for instance, above cost. (Harry G. Barkema, 1997)

29
Joint ventures could constitute a successful approach to a greater involvement in the

market, which is likely to result in higher control, better performance, and higher profits

for the company. Successful joint ventures abound. (Frank Bradley and Michael Gannon,

2000) In one example, British Petroleum PLC established a joint venture in Russia, under

the name Petrol Complex, with ST, a powerful local partner with close ties to the Moscow

city government. The company owns 30 BP gas stations, each of which sells an average of

3.5 million gallons of gasoline a year, four times the average of a gas station in Europe.

(John D. Daniels, 2005) BP offers Russian drivers good service (a rare commodity in

this market), as well as minimarkets with espresso bars and a wide selection of wines; this

is in stark contrast to the Russian gasoline stations where customers pay for gasoline by

stuffing cash through a tinted window and where they communicate with the salesperson

through a microphone. (Sabrina Tavernise, 2001)

The joint-venture entry mode is not limited to developing countries. Numerous joint

ventures are operating throughout Europe, and they are increasingly coming under the

scrutiny of the European Commission, which assesses their impact on competition.

(Harry G. Barkema, 1997) Typically, the Commission appoints a taskforce to investigate

the impact of the joint venture on competition and then issues a statement of objections

within six to eight weeks, giving the companies involved a chance to respond and request

a hearing before the Commission makes its final decision with regard to the joint

venture; whenever no such statement is issued, the deal is assumed to be on its way for

approval, (Brandon Mitchener and Deborah Ball, 2001) One joint venture that the

European Commission has examined involves the diamond giant De Beers Centenary

AG (the world's largest diamond-mining company) and the French luxury goods company

LVMH Moet Hennessy Louis Vuitton SA (which owns, among others, Christian Dior,

30
Moe't & Chandon, Louis Vuitton, and Donna Karan); the company wants to produce De

Beers-branded jewelry and open a network of exclusive shops all over the world. (Brandon

Mitchener and Deborah Ball, 2001)

Overall, 70 percent of all joint ventures break up within 3.5 years, and international joint

ventures have an even slimmer chance for success (Dave Savona, 1992). Companies can,

to a certain extent, control their chances for success by carefully selecting the joint-venture

partner; a poor choice can be very costly to the company. Other factors that will increase

the success of the international joint venture are the firm's previous experience with

international investment and the proximity between the culture of the international firm

and that of the host country; a greater distance erodes the applicability of the parent's

competencies. (Harry G. Barkema, 1997)

Reasons for the failure of joint ventures are numerous. The failure of a partner can lead to

the failure of the joint venture—for example, the joint venture between a mid-size

company, Bird Corp. of Dedham, Massachusetts, and conglomerate Sulzer Escher Wyss

Inc., a subsidiary of Sulzer Brothers Ltd. of Switzerland. Although the joint venture

performed well, Bird Corp. experienced serious problems, with unsteady revenues and

slim profits, leading to the failure of the joint venture. (Savona, 2004) Even a natural

disaster or the weather could lead to failure: Zap-ata, a $93 million Houston, Texas,

company involved in natural gas exploration, took a 49 percent share in a joint venture

with Mexican investors with the goal of fishing on Mexico's Pacific coast for anchovies,

processing them, and selling them as cattle and poultry feed The weather system El Nino

caused the anchovies to vanish, leading to the failure of the joint venture. (Savona, 2004)

31
Like licensing and franchising, joint-venture partners can turn into viable competitors

that know the firm's operations and competitive strategies. In this case, the local partner

will undoubtedly become a formidable competitor locally, where the firm will be

protected by the government. (Harry G. Barkema, 1997) Internationally, however, the

international firm has some capability to combat the new competitors through controls

and agreements with the supply chain and distributors that will prevent access to

equipment or to markets, for example.

WHOLLY OWNED SUBSIDIARIES

Companies can avoid some of the disadvantages posed by partnering with other firms by

setting up wholly owned subsidiaries in the target markets. The assumptions behind a

wholly owned subsidiary are that (John D. Daniels, 2005)

• The company can afford the costs involved in setting up a wholly owned

subsidiary.

• The company is willing to commit to the market in the long term.

• The local government allows foreign companies to set up wholly owned

subsidiaries on its territory.

Frank Bradley and Michael Gannon, (2000) suggests that the company can develop its

own subsidiary, referred to as greenfielding, which represents a costly proposition, or it

can purchase an existing company through acquisitions or mergers. Many

opportunities for acquisitions have recently emerged in developing and developed

markets alike: Governments have been de-socializing services and industries, rapidly

privatizing industries that were formerly government owned or operated. Opportunities

32
have emerged in the area of telecommunications, health care, energy, and even the

national mail service.

The most important advantage that a wholly owned subsidiary can provide is a relative

control of all company operations in the target market. In particular, a subsidiary offers

the company control over how to handle revenue and profits. Wholly owned subsidiaries

also carry the greatest level of risk. A nationalization attempt on the part of the local

government could leave the company with just a tax write-off.

Additional difficulties could arise when a company decides to acquire or merge with

another. In the case of DaimlerChrysler, Daimler quickly found out that the former

Chrysler was not performing up to par and quickly proceeded to restructure, weeding out

former Chrysler employees. (Dana-Nicoleta Lascu 2003) In general, the company

acquiring another or building its wholly owned subsidiary will not be able to share risks

with a local partner, nor will it benefit from a partner's connections; it must build its own.

Even selling the subsidiary can eventually haunt the company years later. Har-rods Buenos

Aires was originally set up as a subsidiary of Harrods London, but became an

independent company in 1913 and changed hands several times. Today, Harrods Buenos

Aires operates in Argentina and has no relationship whatsoever with Harrods London—

which cannot address this issue successfully in the local courts in Argentina.

STRATEGIC ALLIANCES

In analyzing the results of joint ventures in China, Vankonacker (1997) observes that

joint ventures are hard to sustain in stable environments and concludes that more direct

investment will be wholly owned offering Johnson and Johnson’s oral-care, baby and

feminie hygiene products business as a success story.

33
Whilst all market entry methods essentially involve alliances of some kind, during

the1980s the term strategic alliance started to be used without being precisely defined to

cover a variety of contra contractual arrangements which are intended to be strategically

beneficial to both parties and which cannot be defined as clearly as licensing or joint

ventures. Bronder and Pritzl (1992) have defined strategic alliances in terms of at least

two companies combining value chain activities for the purpose of competitive

advantage. Perhaps one of the most significant aspects of strategic alliances has been that

it has frequently involved cooperation between partners who might in other

circumstances be competitors. Some examples of the bases of alliances are(Frank Bradley

and Michael Gannon, 2000):

• Technology swaps
• R&D exchanges
• Distribution relationships
• Marketing relationships
• Manufacturer supplier relationships
• Cross-licensing
There are a number of driving forces for the formation and operation of strategic

alliances.

Insufficient resources: the central argument is that no organization alone has sufficient

resources to realize the full global potential of its existing and particularly its new

products, competitors will exploit the opportunities which arise and become stronger. In

order to remain competitive, powerful and independent companies need to cooperate.

Pace of innovation and market diffusion: the rate of change of technology and consequent

shorter product life cycles mean that new products must be exploited quickly by effective

diffusion out into the market. This requires not only effective promotion and efficient

34
physical distribution but also needs good channel manager, especially when other

members of the channel are powerful, and so, for example the strength of alliances within

the recorded music industry including artists, recording labels and retailers has a

powerful effect on the success of individual new hardwire products such as the Sony

compact disc and Philips digital compact cassette. (Dana-Nicoleta Lascu 2003)

High research and development costs: as technology becomes more complex and

genuinely new products become rarer, so the costs of R&D become higher. For example,

Olivetti and Canon set up an alliance to develop copiers and image processors. In order to

recover these costs and still remain competitive, companies need to achieve higher sales

levels of the product.

The pharmaceutical company Glaxo’s success in marketing Zantac, its nulcer drug, was

achieved by using a network of alliances the most effective of which was including

Roche in the US.

Concentration of firms in mature industries: many industries have used alliances to

manage the problem of excess production capacity in mature markets. There have been a

number of alliances in the car and airline business, some of which have lead ultimately to

full joint ventures or take\overs.

Government cooperation: as the trend towards rationalization continues, so governments

are more prepared to cooperate on high cost projects rather than try to go it alone. There

have been a number of alliances in Europe- for example, the European airbus has been

developed to challenge Boeing, and the Euro fighter aircraft project has been developed

by Britain, Germany, Italy and Spain.

35
Self-protection: a number of alliances have been formed in the belief that they might

afford protection against competition in the form of individual companies or newly

formed alliances. This is particularly the case in the emerging global high technology

sectors such as information technology, telecommunications, media and entertainment.

(Dana-Nicoleta Lascu 2003)

Market access: strategic alliances have been used by companies to gain access to difficult

markets, for instance, Caterpillar used an alliance with Mitsubishi to enter the Japanese

market.

In light of the fact that two thirds of alliances experience severe leadership and financing

problems during the first two years, Bronder and Pritzl (1992) emphasise the need to

consider carefully the approach adopted for the development of alliances. They have

stressed the need to analyse the situation, identify the opportunities for cooperation and

evaluate shareholder contributions Devlin and Blackley (1988) have identified some

guidelines for success in forming alliances. There needs to be a clear understanding of

whether the alliance has been formed as a short-term stop gap or as a long term strategy.

It is, therefore, important that each understands the other partner’s motivations and

objectives, as the alliance might expose a weakness in one partner which the other might

later exploit. It is apparent that many strategic alliances are a step towards a more

permanent relationship, but the consequences of a potential breakup must always be

borne in mind when setting up the alliance.

Glaxo appears to have changed its strategy resulting in the take-over of Welcome. More

recently it announced a proposed, merger with Smith Kline Beecham but at the first

36
attempt it failed, apparently because of a clash of personalities of the top executives.

(John D. Daniels, 2005)

As with all entry strategies, success with strategic alliances depends on: effective

management, good planning, adequate research, accountability and monitoring. It

is also important to recognize the limitations of this as an entry method.

Companies need to be aware of the dangers of becoming drawn into activities for

which it is not designed.

EACH OF THESE HAS ADVANTAGES AND DISADVANTAGES

Entry Mode Advantages Disadvantages


Exporting Ability to realize location High transport costs
and experience curve Trade barriers
economies
Problems with local
marketing agents
Turnkey contracts Ability to earn returns from Creating efficient
process technology skills in competitors
countries where FDI is Lack of long term market
restricted presence
Licensing Low development costs and Lack of control over
risks technology inability to
realize location and
experience curve economies

Inability to engage in global


strategic coordination
Franchising Low development costs and Lack of control over quality
risks Inability to engage in global
strategic coordination
Joint ventures Access to local partners Lack of control over

37
knowledge technology

Sharing development costs Inability to engage in global


and risks strategic coordination

Politically acceptable Inability to realize location


and experience economies
Wholly owned Protection of technology High costs and risks
subsidiaries Ability to engage in global
strategic coordination

Ability to realize location


and experience economies
(Hill, C.W.L., Hwang, P. & Kim, W.C. 2006)

The magnitude of the advantages and disadvantages associated with each entry mode is

determined by number of factors, including transportation costs, trade barriers, political

risks, economic risks, costs and firm strategy. The optimal entry mode varies by situation,

depending on these factors. (Hill, C.W.L., Hwang, P. & Kim, W.C. 2002) Thus, whereas

some firms may best serve a given market by exporting, other firm may better serve the

market by setting up a new wholly owned subsidiary or by acquiring an established

enterprise. In the opening case Tesco has primarily entered foreign markets through

acquisition of established players in those markets. (John D. Daniels, et al, 2005)

Strategic alliances are cooperative agreements between actual or potential competitors.

The term strategic alliances is often used to embrace a variety of arrangements between

actual or potential competitors including cross-shareholding deals, licensing

arrangements, formal joint ventures, and informal cooperative arrangements. Strategic

alliances have advantages and disadvantages, and Tesco must weigh these carefully

before deciding danger is that the firm will give away more to its ally than it receives.

38
Deciding which markets top enter

In deciding to go abroad, the company needs to define its marketing objectives and

policies. What proportion of foreign to total sales will it seek? Most companies start

small when they venture abroad. Some plan to stay small; others have bigger plans.

“Going abroad” on the internet poses special challenges.

Product

Warren Keegan has distinguished five adaptation strategies of product and promotion to a

foreign market

Straight extension means introducing the product in the foreign market without any
change. Straight extension has been successful with cameras, consumer electronics, and
many machine tools. In other cases it has been a disaster. General foods introduced its
standard powered jell-O in the British market only to find that British consumers prefer
the solid wafer or cake form. Campbell Soup Company lost an estimated $30 million in
introducing its condensed soups in England; consumers saw expensive small-sized cans
and did not realize that water needed to be added. Straight extension is tempting because
it involves no additional R&D expense, manufacturing retooling, or promotional
modification; but it can be costly in the long run.

Product

39
Do Not Change Adapt Develop New
Product Product
Promotion Product

Do not Change Straight extension Product


Promotion adaptation
Product
invention
Adapt Promotion Communication Dual adaptation
adaptation

40
41
All types of steel products will be required to support the ongoing industrial growth in

the country. Because there is a little bit of steel in everybody’s life starting from pin to

construction, automobile, railways and engineering. In short, promotion of steel usage

today has gained so much of importance both at national and international levels. But

one needs to be very selective well in advance today in deciding the product mix that

should be able to meet users demand in domestic international market.

Successful operation of highly sophisticated iron and steel industry depends to a great

extent or technical and commercial information, particularly, the information in

respect of various options of plants and equipments, their availability, range of

investment, selection of sites, use or users of the product, availability and demand for

the product in market (present and future) prospective competitors, various tariff and

non tariff barriers, price trends in domestic and international markets are some of the

essential information which an entrepreneur must know at least broadly before

entering into steel industry.

However, India’s positioning in the global perspective will depend upon cost

competitiveness of the Indian. Besides the continuous emphasis is to given on new

technology/process/products developed, productivity improvement, quality

improvement. However, India’s positioning in the global perspective will depend

upon cost competitiveness of the Indian. Besides the continuous emphasis is to given

on new technology/process/products developed, productivity improvement, quality

improvement.

42
MAJOR DEMAND DRIVERS FOR STEEL INDUSTRY IN INDIA

Higher infrastructure spending - It is an unquestionable fact that the infrastructure

situation in India is poor. If the Indian economy has to maintain its growth rates, the

infrastructure situation has definitely got to improve. Spending on infrastructure will

definitely lead to a higher demand for steel. (Anthony P D'Costa, 2000)

Higher standard of living – The standard of living is expected to go up in the coming

decade. This will in turn push up the demand for consumer durable and automobiles.

Percentage of the demand for flat products comes from these industries. Hence, any

pickup in these sectors should lead to a higher demand for flat products. (Anthony P

D'Costa, 2000)

According to Sanjiv J Phansalkar (2003) Steel Products can be categorized as:

Semi-finished: These are intermediate products cast from liquid steel for further rolling

into finished products. These are often sold by Integrated Blast Furnace Producers

(IBFPs) to small mini mills and rolling mills to be rolled into finished steel. They include

billets, blooms, rods, which are rolled into long products or slabs which are rolled into

flat products. While some countries export semis (e.g. Russia), India uses them in the

domestic industry as inputs for higher value-added long and flat products.

Long products: These include bars, rounds, angles and structural and are mainly used in

construction, infrastructure and heavy engineering. These products require lesser

capacities. Long products are the largest steel category produced in India accounting for

around 50% of total production.

Flat products: These include sheets, coils and plates and are mainly used in automobiles

and consumer durable. The technology for the manufacture of flats is critical and it
43
requires larger capacities for manufacturing. These are high-value products and enjoy

higher margins. These can be hot rolled, cold rolled, galvanized or coated. This category,

usually the largest product category in developed countries is small in India accounting

for about 44%.

Pipes: These include seamless pipes and welded pipes.

Source: Anthony P D'Costa (2008)

Stainless steel is the generic name for a number of different steels used primarily for their

resistance to corrosion. The one key element they all share is a certain minimum

percentage (by mass) of chromium: 10.5%. Although other elements, particularly nickel

and molybdenum, are added to improve corrosion resistance, chromium is always the

deciding factor. The vast majority of steel produced in the world is carbon and alloy steel,

with the more expensive stainless steels representing a small, but valuable niche market.

44
ANALYSIS OF STEEL INDUSTRY

GLOBAL SCENARIO

According to recent estimates (Metal Bulletin, Feb. 17, 2004) the total world finished

steel consumption is expected to be of the order of 1120mt by the year 2007.

During the past decade, international trading of steel has been to the tune of 25-30%

of the total world production. On an average, around 180-190m tones of saleable steel

drawing (finished products and semis) is traded in the international market.

China remained the world’s largest Crude Steel producer in 2008 also (220.12 million

metric tons) followed by Japan (110.51 million metric tons) and USA (91.36 million

metric tons). India occupied the eighth position (31.78 million metric tons). EU27, USA,

S.korea, China, UAE and Germany were the largest importers of steel in 2008. China,

Japan, EU27 and Ukraine were the largest exporters of steel in 2008.

The Surplus capacity and prevalence of market distorting practices in the global steel

market have induced protectionist measures from a number of steel trading countries. In

the OECD meeting they suggests that there was a long-term solution to global steel over-

capacity, the proponents of the OECD steel deliberations are of the view that subsidies

and related government support have caused and are causing significant distortions in the

steel markets and these will be required to be reduced.

• In retaliation to the US action EU countries, China, Canada and Thailand have

imposed provisional safeguard measures against import certain steel products.

45
Table 2: WORLD TOP STEEL EXPORTERS

(Million of tons of exports)

2007 2008 % change y-o-y


China 65.2 56.2 -14
JAPAN 35.1 37.1 4
EU25 32.2 34 6
Ukraine 29.9 28.4 -5
RUSSIA 29.2 28.2 -3
South Korea 18.1 19.7 9
Turkey 14.8 18.3 24
USA 10.3 12.6 23
Taiwan 10.9 9.8 -10
BRAZIL 10.4 9.1 -12

(World Steel Dynamics, April 2009)

46
MARKET SCENARIO

Liberalization, which started in 1991, changed the market scenario. There have been

no shortages of steel materials in the country after liberalization.

The opening up of the economy has brought in new dimensions in the demand analysis
for the steel sector, with the reduction in import duties and the partial abolition of the
freight equalization scheme being some of the changes. The implication of these changes
is that steel demand is no longer fully supply determined but is governed by market
forces. Carbon steel consumption increased from 14.84 million tones in 1991-92 to
33.370 million tones in 2004-05.

There was a recession in Steel industry for some time has staged a turnaround since the

beginning of 2002 and the efforts are being made to boost demand.

China has been the main export destination. The Indian steel industry is buoyant by the

reason of strong growth in demand mainly by the demand for steel in China. Domestic

prices have firmed up in the face of strong demand – both domestic and foreign.

Production

Steel production has gone up considerably during the last decade from 9.4 million tones

in 1985-86 to about 21 million tones in 1995-96, that is, a growth of about 125% within a

period of 10 years and planning to reach 49 million tones by the year 2006-07. In 2004-

05, production of finished carbon steel was 38.39 million tones and Pig iron production in

2004-05 was 3.17 million tones. The market share of main producers (i.e. SAIL, RINL,

and TISCO) was 39%

47
Table 3: Production Performance

(In million tones)

Item 2006-07 April – December 2007

Target Actual Fulfilment(% Target Actual Fulfilment(%)


)

Hot 14.10 14.60 104 10.96 11.31 103


Metal

Crude 13.03 13.50 104 10.26 10.37 101


Steel

Saleable 11.86 12.58 106 9.26 9.60 104


Steel

Prime Producers Secondary Producers Total

Pig Iron 11.00 (8.3) 41.50 (35.8) 52.50 (29.0)

Sponge Iron - 2.26 54.44

Finished Steel 143.00 (9.6) 185.50 (5.5) 32.85 (7.2)


(Steel Scenario, July 2008)

48

i . ex e
Graph 1: Production of pig iron and finished carbon steel

Pig Iron
Finished Carbon Steel
40

30

20

10

0
2001-02 2002-03 2003-04 2004-05 2005-06

(Source: Steel Scenario, July 2005)

The Race to Consolidate

Chinese mills now dominate the list of the world's biggest producers

In 2008 the top 15 steel producers accounted for 36% of world production - 10 years ago

the top 15 made just over 25% of world production. Arcelor-Mittal remains by far the

biggest producer but with output down 11% in 2008 its share of world output fell by 1%

to 8%. Nippon Steel remains the 2nd biggest producer but now only marginally ahead of

49
Baosteel which, helped by the acquisition of Guangdong, increased its output 24% in

2008. Indeed 6 of the top 10 producers are now Chinese, helped by a spate of merger

and acquisition activity in 2008.

Global Steel Price Indicators

Main Regional Steel Trade Flows

50
International Steel Trade

Pricing and Distribution

• Price regulation of Iron and steel was abolished on 16.1.1992.

• The government removed the distribution controls on iron & steel except five priority
sectors i.e. Railways, Defense, Small Scale Industries Corporations, Engineering
Goods Exporters and North Eastern Region.

• Government has no restriction over prices of iron and steel products

• Price increases have taken place mainly in long products than flat products.

Imports of Iron and Steel

Least potential items are ERW and seamless pipes and tubes, since their imports are

controlled.

India has been importing around 1.5 Million Tones of steel yearly.

51
Graph 2: Import of Iron & Steel from 1997-98 to 2003-04

(Stainless Steel Review, Mar 2004)

1.8
1.56 1.59 1.6
1.6
1.55
1.41
1.4 1.27
1.2 1.13

0.8

0.6

0.4

0.2

0
1997-98 1998-99 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004

In the case of unbridled imports of cheap/seconds and defective steel there are several
measures like:

a. The Government has fixed floor prices for 7 items of steel products - HR
coils, HR sheets, CR coils, tin plates, CRNO, Plates and Alloy Steel Rods
and Bars.

b. The customs duty on defective HR Coils has been lifted to the bound rate
of 40 per cent.

• The imports of certain steel items have been depend to mandatory compliance of
quality standards certified by the Bureau of Indian Standards (BIS). Coalition to BIS
norms imply supplying information like name and address of the importer, generic or
common name of the commodity, net quantity, weights and measures, month and
year of packaging and maximum retail sale price. (www.steel.gov.in/annual.htm)

52
Iron and Steel Exports

• Advance Licensing Scheme allows duty free import of raw materials for exports.

• Duty Exemption Pass Book Scheme also facilitates exports.

• Indian steel exports have been subject to anti-dumping/anti-subsidy duties actions


by the stronger economies over the last few years.

China has imposed safeguard measures on import of various items of steel products by
fixing tariff quotas. However, these measures do not apply to India.

The rising trend in Indian steel exports that was being witnessed in the last couple of
years was halted due to these anti dumping actions initiated by the advanced, developed
nations of the world, which led to the loss of major markets for the Indian steel exporters.
Despite the initial setbacks Indian exports have recovered - largely due to the ability to
find out alternative export markets where selling steel has been profitable.
(www.steel.gov.in/annual.htm)

Table 4: Export of finished carbon steel

Years Exports

2001-02 1.622

2002-03 1.880

2003-04 1.771

2004-05 2.670

2005-06 2.664

2006-07 2.725

2007-08 4.20

(Iron & Steel Review, May 2008)

53
Duties & Levies

Custom Duties

• Peak rate of Custom Duty has been reduced during last 5 years .In the Union
Budget 2003-04 it has been further reduced to 25%. This has compelled domestic
sector to become internationally competitive.

• The custom duty on seconds and defective steel has also been retained at 40%,
which would increase the gap between the prime and the defective category and
make the import of seconds and defectives less attractive.

• Custom Duty has been reduced on a wide range of inputs, which cause the cost of
production for the domestic steel industry.

• In the Union Budget 2003-04 the Customs Duty on Met Coke has been
rationalized at 10%. However, the steel manufacturers have been given exemption
from paying 4% SAD. (www.steel.gov.in/annual.htm)

Excise Duty

• Excise Duty on iron and steel has not been reduced in consecutive union budgets.

• Currently excise duty on all iron and steel is 16% ad valor called CENVAT.

54
INDIAN STEEL INDUSTRY: AN OVERVIEW

India got into steel making in the early 20th century when JRD Tata set up the first steel

mill in the country in 1907 in Jamshedpur. Since then, the steel industry has undergone a

lot of changes but the TISCO continues to be the largest private steel maker in the

country. Tisco and SAIL dominated the steel industry in the 70s and 80s. With the price

control regime in place, the steel firms could turn in a profit without any major effort.

Structure of Indian Iron & Steel Industry


(Capacity in million tonnes)

No. of Working Total Working


Category Sector
Units Units Capacity Capacity

Integrated
Crude Steel 9 9 17.78 17.78
Pelts

EAF 188 45 10.68 5.33

IF 934 661 9.41 7.23

Secondary Sector Iron


Pig iron units 18 16 5.74 5.57
making and Resolvable

Sponge iron
23 20 6.07 5.79
units

Rerolling
Rerolling/Downstream 2710 2080 27.44 22.81
units

HR Units 12 7 4.59 4.33

CR Units 75 60 2.93 2.7

GP/GC Units 16 13 1.04 0.96

Tinplates 2 1 0.15 0.09

(Source: Iron & Steel Review, 2004)

The Categorized Steel Products


55
Type End Product User Industries

EAF Units and mini-steel


Semi-finished Ingots, billets & slab
plants

Long Products Wire rods and bars Construction & wires

Hot rolled (HR), cold Rolled (CR) Consumer durable, industry


Flat Products
and Galvanized coils (GC) machinery

Railway materials Railway tracks Railways

Automobiles, aircraft &


Special Tin plates and pipes
shipbuilding

(Source: World Steel Dynamics)

Production, Performance and Projections


(In million tones)

1999-00 2000-01 2002-03 2003-04 2004-05 2006-07 (P)


Pig Iron 3.29 3.39 3.00 3.16 3.11 4.65
Sponge Iron 5.00 5.32 5.11 5.34 5.44 6.18
Finished Steel 22.72 23.37 23.82 26.71 29.70 32.01
(Source: Iron & Steel Review)

Production

(In million tones)

56
Primary Secondary
Total
Producers Producers

0.96.23
Pig Iron 2.15 (11, 40%) 3.11 (-2.2%)
(- 22.58%)

Sponge Iron - 12.51 (11.70%) 5.44 (1.87%)

Finished Steel 12.51 (11.70%) 17.19 (10.83%) 29.70 (11.19%)

* Figures in brackets indicate percentage increase over last year


(Source: Iron & Steel Review)

India’s Export of Iron & Steel

(In million tones)

Total Pig Total Total Finished


Year Total Steel
Iron Semis Carbon Steel

2000-01 451 300 1622 1922

2001-02 785 503 1880 2383

2002-03 281 174 1770 1944

2003-04 290 328 2670 2998

2004-05 230 195 2805 3000

2005-06 242 270 2730 3000

2006-07 275 300 2575 3150

2007-08 295 335 2850 3480


(World Steel Dynamics, 2004)

Future Prospects – Indian Stainless Steel Industry

57
The Indian steel industry has a bright future with 75% of market of stainless steel is in

kitchen segment. 95% of the gas stove market uses only stainless steel. India has emerged

as the largest manufacturer of 200 series low nickel stainless steel in the world. Railways

will used to manufacture of passenger coaches requiring 15 mt stainless steel per coach in

next 5 years. The Delhi Metro Rail Corporation tendered for 200 all stainless steel

coaches. The government of India is using ferric cold rolled stainless steel strips for

making coins. (www.steel.gov.in/annual.htm) The usage in industrial and other segments

is still very low which will be expected increase in future.

Global trends and its affect on Indian markets

The transport and automotive sector accounts for nearly 14% and the construction sector

takes around 12% stainless steel. In India at present consumption in these two segments

put together is just l%. This gives clear picture of future prospects in both building and

transport sectors in India. The automobile companies also will be demanding the use of

stainless steel in increasing amounts for the production of fume exhaust and catalytic

converter applications. The major international fast food joints are investing in India for

the consumption of stainless steel. Fast food joints using good quantity of stainless steel

for making kitchen equipments, service area and furniture.

The major steel exporting companies aimed on China because it still imports 70% of its

total demand of 1.5 million tons. The large potential exists in value added products like

pipes, tubes and kitchen utensils. Also India also good production environment for

stainless steel long products like bar, rod and wires which has good markets in Europe,

South East Asian region and USA.

NATIONAL STEEL POLICY

58
1. OBJECTIVE:

 Strategic Goal :
a) Diversified steel demand through modern and efficient steel policy.
b) Global competitiveness in terms of cost, quality and product mix.
c) 100(mT) by 2019-20 from the 2005 level of 38 mT.

 IMPORTS:
1. Imports duty rates brought down.
2. Industry should be protected from unfair trade practices.
3. Institutes mechanisms for import surveillance.
4. To monitor export subsidies in other countries.

Production, Imports and Exports and Consumptions

(In Million Tones)

SWOT ANALYSIS OF THE INDUSTRY

59
Strength Weaknesses
 Availability of iron ore  Unscientific mining.
and coal.  Low productivity.
 Low labor wage rates.  Coking coal import
 Abundance of quality dependence.
manpower.  Low R & D investments.
 Mature Production base.  High cost of debt.
 Inadequate infrastructure

Opportunities Threats
 Unexplored rural market.  China becoming net
 Growing domestic exporter.
market.  Protectionism in the
 Exports. west.
 Consolidation.  Dumping by competitors.

Technologies, Research & Development

 Have synergy with the natural resources endowments with the country.
 Conducive to production of high-end and special steel required for sophisticated
industrial & scientific applications
 Minimize damage to the environment at various stage of steel making and mining.
 Optimize resource utilization
 Development of front end and strategic steel based material.

60
TRADE POLICY

 EXPORTS :

1. 25% of total production in 2019-20 from 11% in 2004-05.


2. 30% share of exports in global production
3. Export credit, trade information.
4. Cut transaction cost and progress of multi-lateral negotiations.
5. Trade agreement to broaden the export base.
6. Export of value-added steel through project exports.

INVESTMENT PROMOTION AND POLICY IMPLEMENTATION

 Provide a single-window clearance for large projects.


 110 mt of steel production by 2019-20.
 Prepare & implement road maps for technological & productivity improvement.
 Monitor the implementation of the national steel policy to global standard.

61
CASE STUDY

ORGANIZATION: THE JINDAL

When we talk about the business empire, the Jindal group is ranked sixth amongst the top

Indian Business Houses in terms of assets, the Group today is a US$2 billion

conglomerate.

Jindal Organization was set up in the year 1970. It has grown from an indigenous single-

unit steel plant in Hisar, Haryana to the presently one of the largest steel producer in

Asia. The organization is still expanding, integrating, amalgamating and growing. New

directions, new objectives, but the Industries’ motto remains the same- "We are the

Future of Steel". (www.jpcindiansteel.org/jindalprofile8.htm)

The Jindal group has been technology-driven and has a broad product portfolio. Yet, the

focus at Jindal has always been steel. From mining of iron-ore to the manufacturing of

value added steel products, Jindal has a preminent position in the flat steel segment in

India and is on its way to be a major global player, with its overseas manufacturing

facilities and strategic manufacturing and marketing alliances with other world leaders.

Jindal Organization aims to be a global player. In achievement of its objectives, it is

committed to maintain world class quality standards, efficient delivery schedules,

competitive price and excellent after sales service. US$2 billion Jindal Organisation has

expanded and diversified into core business areas ensuring synergy amongst its various

business ventures, spreading over 13 plants at 10 pivotal locations in India and two plants

in USA.

The Jindal team embodies one of the most popular talent pools of technological acumen

available in the country today. With experience that has enabled the organisation to put

up large scale projects within record time.

62
Jindal Stainless Limited

India's largest integrated manufacturer of Stainless Steel catering to about 40 percent of


Indian demand.

Plant Location - Hisar, Haryana


Capacity - 500,000 tpa
High Carbon Ferro Chrome plant at Visakhapatnam, Andhra Pradesh

GROUP COMPANIES

Jindal Iron & Steel Company Limited


Plant Locations - Vasind and Tarapur, Maharashtra

Saw Pipes Limited


Plant Location - Kosikalan, Uttar Pradesh, Gujarat

Jindal Vijayanagar Steel Limited


Plant Location - Toranagallu, Karnataka

Jindal Steel & Power Limited


Plant Location - Raigarh, Madhya Pradesh

Saw Pipes Usa Inc


Location - Bay Town, Texas, USA

Jindal United Steel Corporation


Plant Location - Bay Town, Texas, USA

Vijayanagar Minerals Private Limited


Plant Location - 20 km from JVSL plant

Jindal Thermal Power Company Limited


Plant Location - Toranagallu, Karnataka

Jindal Praxair Oxygen Company Limited


Location - Toranagallu, Karnataka

(www.jpcindiansteel.org/jindalprofile8.htm)

63
PROFILE OF JINDAL STAINLESS LTD

JINDAL is India's largest integrated stainless steel manufacturer, which is continuing

growth through positive measures, such as a construction project of a new Ferro-

chromium factory, as well as pursuing an expansion program of a new stainless steel

plant, and it expects the further development and has keenly requested cooperation from

Nisshin Steel which has many years' experience in actual performance of various

Technical Assistance projects.

JINDAL STRIPS LIMITED was incorporated to manufacture mild steel, HR plates and

coils. It started a mini steel mill at Hisar in 1971. As a strategy to counter low margins in

mild steel, JSL diversified into production of stainless steel in the late 70s. JSL was the

first company to produce stainless steel HR coils. . In 1977 stainless steel production

started. In 2003 the company was reorganized as JINDAL STAINLESS LIMITED.

(Annual Report, JSL)

In 1983, JSL forward integrated with a CR plant for stainless steels at a site adjacent to its

sister company Jindal Iron's plant at Vasind (near Mumbai). In 1990, JSL embarked upon

major backward integration-cum-expansion by commencing work on a sponge iron plant

at Raigad in Madhya Pradesh. JSL has over the years developed a number of

technologically new processes to save on capital and operational

costs. (www.jindalstainless.com)

The Company's indigenously designed rotary kilns, for sponge iron, had teething

problems and the setting up of the sponge iron plants was hence, considerably delayed. It

is the largest (around 40%) integrated producer of Stainless Steel in India.

At Hisar lies India’s only fully integrated Stainless Steel plant. With the expansion of the

unit, the production capacity has increased from 250,000 to 300,000 tonnes per annum.

64
The main reason for the success of JSL is the fact that everything from the conversion of

raw material into billets and slabs to hot rolling of strips and plates and cold rolling is

done in-house. (www.jindalstainless.com)

The Hot Rolling Division at Hisar

At Hisar there are two major operational units’ namely hot rolling unit and cold rolling

unit. The hot rolling unit comprises of steel melting shops, hot rolling mills (steckel mill,

strip mill), finishing units, power plants and oxygen plant etc.

The cold rolling unit comprises of cold rolling, annealing and pickling lines and finishing

facilities. Maximum value addition takes place in cold rolling unit. During the Financial

year 2001-02, the division had produced 326,405mt of stainless steel that represents

around 130 per cent of the capacity utilization.

The higher capacity utilization has been feasible with increased focus of the company to

improve the operational efficiency, which has also supported the company's strategy to

reduce cost. During the year an additional 60,000 tones of cold rolling capacity was

commissioned which has now resulted in total cold rolling capacity of 90,000 tones per

annum. The additional capacity would be utilized for producing predominately value

added stainless steel products for both domestic and Exports markets.

(www.jindalstainless.com)

Highlights

Jindal Organization is a celebrity. Ranked sixth amongst the top Indian Business Houses.

New directions, new objectives... but the Jindal motto remains the same- "We are the

Future of Steel” (www.jindalstainless.com)

The last decade has been very challenging as the business environment was very

competitive, India was globalizing and there were multiple complex issues at play. But
65
we managed to surmount it all and emerge on the top adding new parameters to our

achievements and bringing in the kind of excellence that will make the industry and

country proud. The company’s net sales stood at Rs. 5,459 crore in 2007-08 as compared

to Rs. 377.15 crore in 1998-99 and Profit After Tax (PAT) at Rs.1,236.96 crore in 2007-

08, while it was Rs. 46.50 crore in the year 1998-99. JSPL’s compounded annual growth

rate in terms of net sales is 35% & PAT is 44%, a stupendous growth indeed and I am

thankful for that to our committed workforce.

It has been a decade gone well and we look forward to another challenging decade with

our determination to reach for the stars.

Milestones:

* Spreading out globally in steel production and mining.

* The largest private sector investor in the state of Chhattisgarh.

* An ISO 9002 & ISO 14001 certified Company.

* Manufactured 120 meters Rail, longest in the world.

* First to produce the 3.5 meters wide steel plates.

* Pioneered manufacturing of Hot Rolled Parallel Beam & Columns in medium and large

size.

* World’s largest coal based Sponge Iron manufacturing unit with its captive mines &

power plant.

Recognitions:

* JSPL was nominated as one of the emerging companies by Economic Times in 2001

* Among the top 20-investor friendly companies listed by Business Today in2004.

* One of the ten fastest growing large size companies listed by Dalal Street,2006.

* One of the ten most investor friendly companies listed by Dalal Street, 2006.

66
* National Energy Conservation Award six times between 2001-07.

* Eight Environment Awards between 2003-08.

* Six Performance Awards between 2001-2005.

* Three Safety Awards and two HR Awards.

Growth story of the decade

67
68
Exports

Worldwide demand of stainless steel has shown an average growth of around 4-5 per cent

as compared to growth in domestic markets of around 5-7 per cent. The company started

developing new markets for its stainless steel products around 4-5 years back and has

been able to achieve compounded average growth of 234 per cent based on exports worth

Rs. 653.01 Crore during FY 2007-08 as compared to exports worth Rs. 592.84 Crore

during FY 2006-07. During the FY 2001-02 the company executed order worth US$ 55

million for export of 55,000mt of stainless steel slabs to leading stainless steel producers

in US in a short time span of around five months. The positioning of your company in

international markets has improved extensively with the execution of the above export

order.

As a result of rapid growth of economic development and increase in people's standard of

living in China, demand of stainless steel has climbed to a record high. China has become

the largest stainless steel consuming country with its stainless steel apparent consumption

exceeding that of USA. The stainless steel markets in China have shown average annual

growth rate of 17 per cent will consumption of 2,253,000mt in 2001 compared to

260,000mt in 1990.

The company has been able to successfully tap the increasing stainless steel demand in

China & other South East Asian countries and has established its office in China and

Vietnam to service the expanding customer base in these markets.

69
70
NET SALES & OTHER INCOME

71
PROJECTS

Investment in Chhattisgarh:
An MoU was signed between JSPL and the Govt. of Chhattisgarh on 4th May 2007 for

additional projects worth Rs. 8,438 crore.

Total Project Cost:


8,720Crore

Investment in Chhattisgarh:

An MoU was signed between JSPL and the Govt. of Chhattisgarh on 4th May 2007 for

additional projects worth Rs. 8,438 crore.

Further Expansion at Raigarh Plant:

* 2 MTPA Cement Plant

* Additional Power Generation of 270 MW

* Medium Structural Mill

* Pipe conveyor from mines to plant

* Mini Blast Furnace upgradation

* 1 MT SMS Bloom Caster and Oxygen Plant

* Fabrication Plant in Industrial Estate

Investment in Orissa:

JSPL is investing over Rs. 40,000 crore in Orissa in steel production and

power generation. It proposes to produce 12.5 MTPA steel in two phases

and generate 2500 MW of power over the next decade or so.

Highlights of Angul Project:

* The Project is proposed to be setup on 5750 acres of land, 93% of which is barren.

72
* The technology to be adopted for this Integrated Steel Plant will be the DRI/BF/EAF

route. The DRI Plant has unique feature of using Syn Gas from the Coal Gasification

Plant as reluctant. The DRI/coal gasification route is being used for the first time in the

world and has the advantage of using high ash coal which is predominantly available in

the vicinity of the project site.

* Work on setting up of DRI plant of 2.0 MTPA capacity, plate mill of 1.5 MTPA

capacity and power plant has started.

* Plate Mill of 1.5 MTPA has already been ordered and Hot Strip mill is planned to be

finalized by August, 2008.

Investment in Jharkhand:

In Jharkhand the company plans to produce 11 MTPA of steel and 2600 MW of power in

phases at a combined investment of over Rs. 27,000 crore.

Highlights:

* JSPL has taken over the assets of closed Bihar Alloys & Steel Ltd. at Patratu,

About 40kms f rom Ranchi.

* Using the available land and adding some more, the company is setting up the new steel

and power plants, which would provide gainful employment to a large number of people

and will also help in the economic and infrastructure development of the region.

* Foundation Stone for the Plant was laid by Shri Madhu Koda, Hon’ble Chief Minister

of Jharkhand on 18th March, 2007.

* Feasibility Report and Detailed Project Report completed by MECON for the Steel

Plant.

* Complete plant layout frozen, site activities like leveling started, basic engineering

in progress.

73
* Bar Mill of 1 MT and Wire Rod Mill of 0.6 MT capacity already ordered and

civil structural work has started.

* Jeraldaburu Iron Ore Mines, Jitpur Coal Block and Amrakonda-Murgadangal Coal

Block allocated.

Marketing

The continuing recessionary trend observed during the first half of the financial year

2005-06 got reversed during second half. The demand for stainless steel increased

substantially during later part of the year and there were chaotic activities by the service

centers trying to build inventories by placing larger orders to tile manufacturers. Jindal

also benefited by this trend and has resulted in surge of export volumes. There was

almost a three-fold increase in the export dispatches. This trend continued during the first

quarter of 2002-03 also and is likely to continue further. JSL, in addition to exports, has

increased its dispatches on the domestic front as well as some new areas got special

attention from the marketing team, this includes dispatches to auto industry, Govt of

India Mint and Railways. Jindal continues to be regular supplier to large and prestigious

corporate customers like BHEL, NITRO, and Dep’t. Of Atomic Energy, L&T, Nuclear

Fuel Complex etc. (www.jindalstainless.com)

Quality and Research & Development

JSL supplies quality products to a host of industries and customers. The consistency of

the product quality has ensured that stainless steel manufactured at Hisar is meeting

requirements for special applications such as nuclear power, atomic energy, railway

coaches and wagons, coinage, refineries, fertilizers, copper industry, surgical and razor

blades, utensils, etc. Besides the Quality Assurance Department is working independently

to operations so as to ensure strict compliance to the requirements of the customers. The

74
Company is upgrading ISO 9002 system to ISO 9000-2000 version, which will be more,

focused towards customers' feedback and hence will bring the company more closely and

responsive to meet the customers requirement. ISO 14001 systems is in place, which

shows the concern of the company towards environment protection. As a step forward the

company is now in process of implementing OHSAS-18001 which will ensure safe and

healthy working condition to the employees and people living in the vicinity of the

Company Research & Development unit in Hisar is further making rapid strides to

introduce more value-added products in the company's product portfolio, the

manufacturing of duplex stainless steel which finds applications in manufacturing of

pressure vessels, equipment for water treatment, digesters in pulp and paper industry etc.

has been stabilized by the R&D team. The company has also started manufacturing of

cupronickel material for coinage and high Nickel alloys such as 'Invar' utilized in

manufacturing of thermostats.

Information Technology

Today's most successful companies take advantage of new technology to refocus

attention on their relationships with stakeholder’s viz. customers and suppliers. In

focusing on complete relationships, rather than independent pieces of information, they

seize opportunities for new avenues of I increased business opportunities. These solutions

include IT Outsourcing, Business and IT Synchronization, Computer Operations

Services, Data base administration services, CBIT Solutions for Enterprise Internet

working, Business Continuity services, eBusiness solutions, Web application Services.

To keep pace with the technological advancement, JSL has been regularly updating itself

on this front. JSL is also in the process of state-of-the-art ERP systems tightly coupled

with supply chain management.

75
Subsidiary Companies

The company has 4 subsidiaries namely Jindal Holdings Limited, Jindal Steel & Alloys

Limited, Jindal Stainless (Mauritius) Limited and Massillon Stainless Inc., USA.

CATEGORIES OF SHAREHOLDERS (AS ON 31.03.2008)

Category No. of Shares % of Holding


Promoters 9,06,28,615 58.86
FIs/ Banks/MF/UTI 75,10,831 4.88
Corporate Bodies 36,17,765 2.35
NRIs/OCBs/FII 3,71,34,269 24.12
Public 1,50,69,860 9.79
Total 15,39,61,340 100.00

Industry Structure and Development

Indian stainless steel industry witnessed a nominal growth of 5% to 7% during the year
2001-02, though the first half was relatively sluggish. The demand started picking up

76
during the second half. During the financial year 2007-08 the expected growth of the
stainless steel industry will be about 8 - 10%. This surge in growth is mainly fuelled by
industrial revival in Indian markets and demand for stainless steel is expected to grow
further. In international markets the prices of stainless steel have gone up, in Europe and
US mainly due to de-stocking of huge inventories and consequently fresh inventory built
up. In China domestic demand outstrips supply and hence prices are very firm and
attractive in those markets. Jindal Strips Limited has continued to manage its leadership
position by recording a turnover of Rs.6180.75 crore during financial year 2007-08 as
compared to Rs3948.76 crore during previous year. The increased sales are mainly on
account of rise in level of exports, improvements in domestic price realization and focus
on value added cold rolled stainless steel products.

Jindal’s export turnover has increased from Rs. 592.84 crore to Rs. 653.01 crore during
the financial year 2007-08 as compared to the financial year 2006-07. Exports now
comprise around 30% of company's total turnover. JSL strategy to combat perceived
threat in domestic markets by focusing on exports has started showing positive results.
Due to diversions of capacities from low value added domestic products to high value
products for exports has resulted in two fold benefits. Firstly this has resulted in firming
up of prices of these low value products in domestic market and increasing their
contribution and secondly better realization from products meant for exports. The focus
of JSL to develop 200 series products in South East Asian Markets has shown very good
results and these products have become a favorite with stainless steel users in these
markets. China has also exhibited a great potential as it has posted a growth of over
20% in stainless steel during the year 2006-07s. Realizing large potential for its products
in China and neighboring countries, JSL has opened a full fledged office in China.
Another high growth area will be other South East Asian markets and in view of the
same, an office of JSL is setup in Vietnam also. Plans are now afloat to open offices in
Europe and other areas to further strengthen overseas markets of JSL. (Annaul Report,
Jindal Steel Ltd.)

Segment wise and Product wise Performance

Jindal flat produces 2 categories of stainless steel – (a) hot rolled flat base products that
are used for manufacture of stainless steel utensils and (b) segment uses wider width hot

77
rolled and cold rolled products and includes coinage, razor blade manufacturing, atomic
energy, railways, pipe manufacturers and fabricators. Jindal Steel Ltd produces hot rolled
and cold rolled stainless steel flat products at Hisar and Ferro chrome at Kothavalasa
(AP). The addition Jindal produces cold rolled products in different finishes such as 2B,
2D, BA, No.3 and No.4 has helped a lot in increasing the market share in the Industrial
segment of domestic stainless steel industry like nuclear, space, railways, etc.

The congruous quality and variety of product mix has created a confidence with
customers and this effected in sustained domestic market share and has also given a
major export promotion.

Production and Sales of Jindal Strips Ltd

Sales Exports Sales Exports Sales Exports

2007-08 2007-08 2006-07 2006-07 2005-06 2005-06


(Rs in crores) (Rs in crores) (Rs in crores) (Rs in crores) (Rs in crores) (Rs in crores)

6180.75 653.01 3948.76 592.84 2905.46 371.85


(ISSB)
Financial Performance
Jindal keeping its superiority in Indian stainless steel market and it caters to about 40% of
the stainless steel requirement. In the year 2007-08 sales were at Rs. 6180.75 crore,
during this year the company registered export turnover of Rs. 653.01 crore.

In Rs. Crores
Gross Profit 6089.42
Operational Profit 2162.61
Other Income 49.12
Interest Expenses 101.19
corporate tax liability 2.98
Provision for deferred tax 14.07
Net Profit 1236.96
Capital Expenditure 98.08
Equity share capital 15.40
EPS 80.34

INDIA – CHINA TRADE

78
Table 9: Exports from India to China
The major exports from India to China during January - December 2004 are given below:

Item description Value during Value during % Change


January – January –
December 2006 December 2005
(US $ Million) (US $ Million)

Minerals, slag and ash 626.1 548.5 14%

Plastics & articles thereof 262.1 166.4 57%

Iron & steel 262.0 200.1 31%

Organic Chemicals 234.8 141.5 67%

Cotton 188.5 156.7 -20%

Precious stones 104.7 83.4 26%

Salt, sulphur, earth, stone 104.3 96.2 8%

Inorganic Chemicals 72.6 26.8 168%

Electrical Machinery 62.5 24.1 158%

Fish & crustaceans 49.7 77.5 -54%

Raw hides and skins 43.5 38.9 11%

Paper & paperboard 40.6 9.8 305%

Machinery & Mech. appliances 31.8 25.0 56%

Prepared feathers and down 28.3 22.3 27%

Mineral fuel and oil 28.1 37.2 -32%

Total 2274.10 1699.97 33.7%

In 2004, the export of Mineral Products from India to China increased by 14%,
compared to 2003. Exports of Cotton (-20%), marine and seafood (-54%) and mineral
fuels (-32%) recorded negative growth in 2004 compared with the previous years.

Exports of Plastics (57%), Iron & Steel (31%), Organic Chemicals (67%), and Minerals
(14%) registered significant increase. Other star performers that showed high growth
rates included Electrical Machinery (158%), Inorganic chemicals (168%) and Paper &

79
paperboard (305%). Another encouraging feature was the 56% increase in the exports of
machinery and mechanical appliances from India.

Table 10: India's imports from China


The major items imported by India from China are given below:

Item description Value during Value during % Change


January – January -
December 2002 December 2001
(US $ Million) (US $ Million)

Electrical machinery & 564.6 250.3 125%


Equipment

Organic Chemicals 543.3 378.8 57%

Silk 219.5 181.0 21%

Machinery & Mech. 199.6 157.3 27%


Appliances

Mineral fuels and oils 189.1 268.6 -42%

Optical & Medical 82.66 48.9 69%


Instruments

Impregnated fabrics, 71.82 41.8 71%


textiles

Inorganic chemicals 70.8 63.1 13%

Man-made filaments 65.2 13.8 372%

Edible vegetables 44.9 14.1 221%

Salt, sulphur, stone 37.3 70.6 -90%

Precious stones 32.6 33.9 -5%

Total 2671.7 1896.3 40.8%

Graph 3: Chinese monthly steel Imports, exports

80
(China Business, MARCH. 2009)

Imports of chemicals and allied products increased by 43% in 2002 compared to 2001.
Imports of silk increased by 21% while those of Machinery & Mechanical appliances
increased by 27%. Imports of electrical machinery (125%), man-made filaments (363%),
edible vegetable (221%) and Optical & Medical instruments (69%) increased
significantly in 2002.

Iron ore constitutes about 53% of India's total exports to China. Value added items like

machinery including electrical machinery dominate Chinese exports to India, which

together constitute about 36% of exports from that country. The top 15 Chinese exports

to India have recorded growth between 29% in organic chemicals and 219.89% in iron

and steel products.

Investments

81
China, commodity and capacity known as the 3Cs of corporate India's investment plans.

Chinese demand for steel is fuelling a billion dollar investment cycle across the country's

steel producers. An association of domestic demand and the promotion of the export

market is seeing a host of auto majors planning to invest another $500-700 million in the

four-wheeler passenger segment. However, there is a quota of 1.3 million tonnes for

exports from India, Chinese demand presently accounts for 29% of Tata Steel's exports,

35-40% of SAIL's and 35% of Essar Steel's exports.

Major Company’s Investment Plans for next 2-3 years (In Rs crore)
Tisco 2,000
Jindal stainless 1600
Stemcor 250
SAIL 500
Hyundai 1,000
Toyota (two units) 600-700
Honda (possible) 1,000
General Motors 600
Gujarat Ambuja 1,000
(Source: World Steel Dynamics)

JINDAL STAINLESS EXPORTS TO CHINA MARKET

Indian stainless steel makers are resting their business hopes on steadily growing demand
from China, which is gearing up to boost imports following entry to the World Trade
Organisation. The anticipated growth in China's appetite for stainless steel has prompted
India's largest stainless steel maker Jindal Strips Limited to ponder "some kind of
strategic alliance" in China.

India produces about 780,000 tonnes of stainless steel annually, out of which Jindal

Strips contributes about 325,000 tonnes. India exports about 100,000 tonnes of stainless

steel and the Chinese market accounts for about 25,000 tonnes of that.

82
China imports about 1.6 million tonnes of stainless steel annually, trade officials say.

Apart from China, jindal strips was also considering a strategic alliance in Indonesia in its

push to gain Southeast Asian markets. Vietnam's demand for stainless steel is growing

rapidly although the volumes are small. Jindal Stainless Ltd is also eyeing exports to the

United States, Middle East and Africa.

Jindal Stainless Ltd’s long term marketing agreement with Minmetals Steel Co. Ltd

suggests that Minmetals Steel Co., Ltd. will purchase around 50,000 M.T. of Hot Rolled /

Cold Rolled Stainless Steel Coils (more than US$ 60 million), from Jindal Stainless Ltd.

The agreement is the strategy of JSL to strengthen its foothold in the Chinese market.

This will be executed in 12 months time.

Jindal Stainless Ltd. has won an order worth US$60mn to supply 50,000 tons of steel to

Minerals Steel, a Chinese state-run steel-buying house. The 50,000 metric tons export

order would consolidate its foothold in the lucrative Chinese market. The order is valid

for a year and could be extended on mutual consent. This order will enable the company

to cross 2,00,000 tons export mark for the Chinese market, along with which the

company was aiming for an export growth of 20% for FY05.The order is part of efforts

by India's largest integrated stainless steel producer to tap the growing demand in China

which imported 28mn tons of stainless steel coils last year. Jindal Stainless exported 1.9

lakh tons of steel to China in FY04, accounting for nearly 90% of the company's 2.15

lakh tons of exports in 2003-04. Minmetals Steel would buy both hot-rolled and cold-

rolled stainless steel from Jindal Stainless which has a production capacity of more than

5,00,000 tons a year. The company planned to increase its exports to 2,70,000 tons during

the year ending March 31, 2005 from 215,000 tons in the previous fiscal year. This year

the domestic markets are looking better as of now, but things are likely to improve from

the second quarter onwards for exports.


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JSL Ponder CR plant in China

With China emerging as one the largest buyers of stainless steel products from Jindal

Strips Ltd (JSL) in 2004, the company is seriously evaluating possibilities to set

up cold-rolling manufacturing facilities in the country.

Besides, JSL is also evaluating option to relocate its US plant, Massillon Stainless, to

China. According to JSL CEO N.C.Mathur, with 80% of JSL’s exports to China, the

company is looking at opportunities to tap China’s booming construction market by

setting up production facilities there. The growing demand from this sector has also led

to firming up of stainless steel prices in the domestic market, said a dealer.

In 1993, the US and Japan were the two main markets for the commodity with a

combined volume of 3.7 MT. In 2002, China alone consumed 3.2 MT. According to

estimates, in 1993, usage of the top seven markets was 73%, which is down to 69% in

2002. This is largely because concentration of the top consumers has reduced as all other

markets managed to expand by 5.8%, while growth in China has been in excess of 17%.

JSL estimates its turnover to cross the Rs. 45,000-crore mark during the current fiscal as

compared to Rs. 3,600 crore during 2006.

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85
FINDINGS

With the completion of this study I am able to know various aspects of JSL and also
gained huge knowledge about stainless steel and its market situation. This research
enabled me to gain the following findings:

• JSL, one of the top organizations in India, is a celebrity in the world of


business.

• The anticipated growth of stainless steel in China has prompted Jindal


Stainless Ltd. To strengthen relationship with China.

• In the preparation of Olympics the Chinese has begun construction


binge the demands for steel.

• As result, JSL has won an order worth US$60mn. To supply 50,000


tons of steel to China over a period of one year.

• JSL has announced a long term agreement with Mean metals Steel Co.
Ltd. In china.

• JSL is evaluating to set up cold rolling manufacturing facilities in


China.

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CONCLUSIONS

The export potential of 141236 MT and 107741 MT for the years 2007-08 and 2006-

07 respectively, as forecast in the five-year plans, are only indicative. Factors like

capacity utilization, domestic price realization, international price movements,

exchange rate variations etc. would ultimately determine the level of actual export.

Infrastructural constraints like domestic movement, port facilities, etc. would have

important bearing on exports.

The tight demand scenario market is likely to increase the need to reduce cost of sell

material in both the domestic and the international markets at competitive prices.

Superior qualities, determined largely by the requirements of the cold reducers, who

produce cold-rolled sheets for the sophisticated automobile and white goods

industries, would have to be achieved which would imply attainment of high surface

finish, high degree of ductility. This would make focusing of technologies and

technical controls necessary.

Asia, as a whole, will continue to import steel, meaning Asian steel prices are likely

to remain higher than in China. India Integrated steel companies, being one of the

world's lowest cost producers are better placed in terms of exports to these high

growth Asian countries.

The huge need of basic steel froth essential infrastructural development of this vast

under-developed region they are concentrating on development of their backward

infrastructure for which steel is undoubtedly the primary material. "The growth of

infrastructure actives in the Asian region will open up a big steel market which is till

now not properly explored.

India’s exports to China are now growing at a much faster rate than imports, and balance

of trade is stabilizing. For instance, the growth in imports from China between 1997 to

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2000 stood at 70 per cent and went up to 171 per cent in the period 2001-2005. Growth in

exports to China meanwhile has jumped from 12 per cent in 1997 to 2000 to 258 per cent

in the period 2001-2005.

Inspire of the increase in demand from China this year, the steel industry is still worried

about the possibility of a slowdown in purchases by China by 2004-05. This could occur

on account of two reasons:

• The infrastructure development work related to the 2008 Olympics may start slowing

by that year, and the coming on stream of additional steel producing capacities in that

country.

• India's exports have also been marginally hit by trade actions initiated by, among

others, US, Canada and Thailand.

Since the steel market has just began to grow, if Indian products can establish

themselves right at the beginning, markets should not be neglected even if initially

absolute amounts are low. What is required is a constant presence.

At present, India has a significant presence tube, pipes and fittings. As industries

develop, demands for other products are bound to rise.

The initial spurt and the subsequent fall in imports of Kuwait can be explained due to

the boom in reconstruction of the economy after the war with Iraq slowing down.

In order to increase Indian steel exports, good quality material at the most competitive

prices is needs. Considering that more than 90% of steel produced in India is

consumed domestically, for a long time our producers have had nearly captive market.

With the near-removal of the tariff barriers, they care being forced to come to terms

with their uncompetitive producers to deliver goods at lowest operating costs.

In my opinion, unless the Government steps into lend to hand, Indian exports, not just

of steel, are bound to suffer. The additional burden put on the producers in terms of
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high freight due to poor infrastructure, various cases and taxes imposed by both State

and Central Governments, etc. cause the goods to become uncompetitive priced by the

time they reach the ports. What can be a bigger indictment of the conditions than the

acknowledged craft hat it costs three times as much to transport half-way across the

globe.

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RECOMMENDATIONS

After studying the market scenario of stainless steel in India and China, I would like to

recommend the following:

• The production of stainless steel has to be regularly updated with new technology.

• The stainless steel industry can help in creating more demand for stainless steel by

discovering its new uses.

• High efficiency in mining and transportation of stainless steel has to be maintained.

• Development of low nickel contents products should be given more priority.

• The Indian market of stainless steel should understand the demand drivers and

explore new applications.

• The Antidumping duties must be levied to overcome the injury caused by dumping.
• Online customer relationship management has a very good scope in future as
predicted by the world Steel Dynamics. The internet and the intranet should be
exploited to the full extent.

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BIBLOGRAPHY

Jindal Steel Ltd. - Annual Report 2008-09

Kathuria, S and N. Taneja (1986) India’s Exports: The Challenge from China, ICRIER,
New Delhi.

Wolf, Martin (2002), India's Exports, Oxford University Press for the World Bank,
Washington, D.C.

R Amavis , Refractoriness’ for the Steel Industry, Springer, Google Books Partner
Program World Steel Statistics Monthly

William A. Johnson (2001), The Steel Industry of India. Harvard edition nfs UK &
British.

Liedholm, C. (1998) The Indian Iron and Steel industry: An Analysis of Comparative
Theory of Permanent Revolution, New Left Books, London

Sanjiv J Phansalkar (2002), Opportunities and Strategies for Indian Business: Preparing
for a Global India, Sage Publications Inc

Ramaswamy V.S and Namakumari S.,Marketing Mnagement 3RD Edition (2005)


Macmillan India.

Stainless Steel Review, Mar 2008, July 2008

Links we used are as follows:

ASSOCHAM

• www.jindalstainless.com

• www.steel.gov.in/annual.htm

• www.tradeportalofindia.com

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