UNIVERSITY OF NOTTINGHAM AN EMPIRICAL STUDY ON MARKETING PROSPECTS AND POTENTIAL OF STEEL INDUSTRY IN INDIA

VARUN P. BAGLA 2008 MA MARKETING

AN EMPIRICAL STUDY ON MARKETING PROSPECTS AND POTENTIAL OF STEEL INDUSTRY IN INDIA

by VARUN P. BAGLA 2008

A DISSERTATION PRESENTED IN PART CONSIDERATION FOR THE DEGREE OF MA MARKETING.

ABSTRACT

In this dissertation, a sectoral review of the steel industry in India was taken into consideration. The emphasis was laid down in finding out to know the competitive advantages, which the large Indian Steel Companies have created overtime and their adaptation to the changing environment. I also analyzed the marketing potential and

prospects of the steel industry in India. This study focuses on the two major companies in the steel sector in India, namely Steel authority of India ltd (SAIL) and TATA Steel. For the purpose of investigation, both primary as well as secondary source of information was collected to get the results. Many books on the related topic like books on steel marketing, competitive advantage, business research methods etc. were also consulted along with a number of visits to the libraries for research purpose. Related quotes and texts have been mentioned in the literature review section of the report. Successful questionnaires and interview surveys were conducted among the officials of Steel authority of India ltd (SAIL) and TATA Steel in New Delhi in order to know their responses towards the research questions. After all the research work and collection of questionnaires and surveys, I have come to know the various marketing aspects of steel sector in India. This also helped me to know about the various strategies that the companies have adopted to gain competitive advantage.

TABLE OF CONTENTS
TITLE Chapter 1 INTRODUCTION
1.1 Background of the study.1 1.2 Research objectives.2 1.3 Steel Industry...4 1.3.1 Steel for Social Cause.6 1.3.2 Steady Progress in the Steel Sector in India...7 1.3.3 Performance of the Steel Sector in India in the last 25 years.8 1.3.4 Sparkling Future Ahead..8 1.3.5 Steel Getting Stiff Competition from Other Metals..11 1.3.6 Revolutionary Developments13 1.3.7 Rapid Economic Growth...15 1.3.8 Production..16 1.4 Steel Author ity of India Limited (SAIL)..18 1.4.1 Integrated Steel Plants19 1.4.2 Special Steel Plants19 1.4.3 Subsidiaries20 1.4.4 Joint Venture..20 1.5 Tata Steel 22 1.5.1 Future Plans23 1.5.2 Other Projects.24 1.5.3 Products..24 1.5.4 Community Outreach and Environment Management25 1.5.5 Awards and Recognition.26

PAGE NO.

Chapter 2 LITERATURE REVIEW

2.1 Introduction...27 2.2 Competitive Dimensions and Advantages..27 2.3 Effective strategies of SAIL to attain competitive advantage...30 2.3.1 Techno-economic parameters..32 2.3.2 Cost Effectiveness33 2.3.3 Marketing Muscle34 2.3.4 Human Resource Management35 2.3.5 Research & Development36 2.3.6 Environment Management.37 2.3.7 Public Relations...38 2.3.8 Cost competitiveness39 2.3.9 Quality competitiveness...39

2.4 Mar keting Strategies Of SAIL40 2.4.1 Market Development...41 2.4.2 JIT Delivery.42 2.4.3 Production According To Market Needs.42 2.4.4 Policies Of Marketing And Strategic Planning...42 2.5 Analysis Of Steel Across The Globe...43 2.5.1 Demand for Steel.47 2.5.2 Relevance Of Steel To National Economy..48 2.6 Summary50

Chapter 3 RESEARCH METHODOLOGY

3.1 Introduction52 3.2 Research Sources53 3.2.1 Primary Research...53 3.2.2 Secondary Research...54 3.3 Proposed Analysis...56 3.4 Steel Industry Trends.57 3.5 Major Producers of GP/GC Sheets In India60

Chapter 4- EMPIRICAL FINDINGS

4.1 Introduction..62 4.2 Plan for Data Analysis.62 4.3 Strategies...83 4.4 Oppor tunities and threats for SAIL...84 4.4.1 Opportunities...84 4.4.2 Threats.85 4.4.3 Risks and Concerns.86 4.4.4 Outlooks.87

Chapter 5- CONCLUSION
5.1 Govt. Initiatives in this regar d90 5.1.1 Government Protection for Indian Steel Industry...92 5.2 Export opportun ities of Indian Steel industry to enhance National Income..93 5.3 Other Sectors94 5.4 My Suggestions to Enhance Efficiency Of Steel Indus try in India..95 5.5 Limitations97

REFERENCES.99 APPENDIX ..102

LIST OF TABLES
TABLE NO. Table 1.1 NAME
Production, Consumption, Export and Import of Finished carbon steel and Pig iron Production Of Steel Across The Globe Production Of Steel in 2005 and 2004 Growth percentage of Steel across the Globe Sector wise Consumption of Steel in India Global Steel Production and Consumption Global Steel transa ctions Steel Production and Consumption in India Steel transa ctions in India Major Steel Producers in India Major Competitors Company Competitiveness Public sector Hurdle Overseas expansion Effect of Govt. Policies Opening up of the Indian Steel sector Style of leadership Environment at work Turnover rate Advancement of career Culture of the organization Customers Performance Rewards Defined future goal 17

PAGE NO.

Table 2.1 Table 2.2 Table 2.3 Table 2.4 Table 3.1 Table 3.2 Table 3.3 Table 3.4 Table 3.5 Table 4.1 Table 4.2 Table 4.3 Table 4.4 Table 4.5 Table 4.6 Table 4.7 Table 4.8 Table 4.9 Table 4.10 Table 4.11 Table 4.12 Table 4.13 Table 4.14

44 45 46 49 57 58 58 59 60 63 64 65 66 67 68 69 70 71 72 73 74 75 76

Table 4.15 Table 4.16 Table 4.17 Table 4.18 Table 4.19 Table 4.20

Authority and responsibility relationships Company shares Dividend payouts Performance of your companies stock Invest money in own companies stock Organization ready to face the competition

77 78 79 80 81 82

LIST OF FIGURES
FIGURE NO.
Figure 2.1 Figure 3.1

NAME
Sector wise Consumption of Steel in India Annual capacity 2007

PAGE NO.
50 61

CHAPTER 1- INTRODUCTION

1.1 BACKGROUND OF THE STUDY

Mehta states in Business World (2007) that steel is a highly capital intensive industry and cyclical in nature. Its growth is intertwined with the growth of the economy at large, and in particular the steel consuming industries such as manufacturing, housing and infrastructure. Steel, given its backward and forward linkages, has a large multiplier effect. Mehta (2007) also opine that with capital investments of over Rs 100, 000 crores, the Indian steel industry currently provides direct/indirect employment to over 2 million people. As India moves ahead in the new millennium, the steel industry will play a critical role in transforming India into an economic superpower.

According to Mehta (2007) in recent times, the Indian steel industry has been in the limelight. This sudden catapult of interest is due mainly to the few large merger and acquisition deals. They involved big name players such as the takeover of Arcelor by LN Mittal and the recent TATA acquired Corus, the giant Anglo Dutch group. Steel Authority of India also known as SAIL is chosen for my dissertation as I have been following on the companys development. While the company is large in size by Indian standards, it is still a domesticated player unlike its other rivalries like TATA Steel. Having acquired managerial knowledge in the MBA programm, I have a strong desire to

explore how Steel Authority of India could achieve its competitive advantage for the future.

The study investigates the competitive factors that influence on the steel industry and these include among others, the impact of government regulations, market liberalization, etc in addition to the market potential and prospects of the Steel Industry in India. The purpose of this study is to analyze the market prospects, market potential and the marketing strategies adopted by the key players in the steel industry in India.

1.2 RESEARCH OBJECTIVES

To find out the competitive advantages which the large Indian Steel Companies

have created overtime and their adaptation to the changing environment. To analyze the marketing aspects of the companies functioning and understanding

them from the industrys point of view. To analyze the marketing potential and prospects of the steel industry in India To mark out the future of these companies and recommend specific points which

have the potential for sustaining the competitive advantage

Shroff (2005) argues that the competitive nature of the Indian steel sector has been held back by the bureaucratic practices by the Indian government until early 1990s. The survival and growth of some of the oldest Indian steel companies come under scrutiny as

they were considered white elephants by many quarters. Since then, the Indian steel sector has undergone drastic change. Government practices have been streamlined and the level of interventions has been substantially reduced. Bureaucracy has come to an end. Instead efficiency is the order of the day! The market liberalization programm,

which kicked in since early 1990s, is the main engine of growth for the Indian steel industry.

Shroff (2005) also reveals that the Indian companies emerged even stronger with the opening up of the economy and now command a competitive position not only in the Indian steel industry but are competing globally. This study intends to find out the competitive advantages which one of the largest Indian steel companies has created over time and how have they adapted to the changing environment. A thorough analysis of the leading companies particularly SAIL has been conducted in order to identify the future potential of the company and also understand the way in which it could sustain its competitive advantage.

According to M k Pandhe (2007) the steel industry in India is experiencing favorable conditions due to upswing in international prices. The cold rolled coils prices increased from $478 to $587 per tonne between January and April 2006 while hot rolled coil prices shot up from $368 to $469 per tonne during the same period. However no one is certain about the long-term trend in these prices. It is imperative that the steel industry in India should mainly depend on domestic consumption.

Michael Porter, (1985) opines that competitive advantage means creating unique capabilities and strengths, which can be defended against imitations from rival firms (Porter, 1985). Wharton (1997) on the other hand suggests that a company in various ways can obtain competitive advantage but it is very important for us to define the scope. This research document examines the competitive advantage created by SAIL vis a vis the other industry players (Indian steel industry Journal). Public sector policies can create and help sustain competitive advantage for firms, or can undermine and even destroy advantages (Wharton, 1997), thus it is necessary to understand the policy issues governing the industry.

1.3 STEEL INDUSTRY Some major structural changes have occurred of late in India, which have resulted in robust industrial performance of Indian industry, so much so, that it has become the subject of global discussions, applauded or envied by many. The industrial recovery in this country really began to be seen in 2002-03; was consolidated during 2003-04; gathered momentum during 2004-05; and scaled new heights in the last financial year 2005-06(ICFAI PRESS, 2006). Several factors have contributed towards this remarkable state of affairs. These include: the dramatic decline in lending rates, significant turnaround in public investment, introduction of infrastructure development programm, the consumer durable boom, and so on and so forth. The resultant climate has been instrumental in unprecedented acceleration of industrial growth in India.

The industrial society has always been closely linked to iron and steel production. Iron, along with bronze, was used in Asia Minor for producing weapons as early as the 10th century BC. In the period between 800 and 400 BC, iron became such a predominant material that this era is commonly referred to as the Iron Age. Later, the Romans began bulk steel production by installing large plants for extracting iron. The method of extraction of iron changed little over the next two thousand years, i.e., until the industrial revolution in the 18th century. The first coke blast furnace was commissioned in 1735 in England, and soon thereafter, iron production became a key industry. 20,000 tones of pig iron was produced in England in 1740, one hundred times this amount in 1845, and since then, there has been no looking back. Almost 850 million tones of crude steel was made and consumed in 2000 and over 1100 million tones last (ICFAI PRESS, 2006). The dominance of steel as a commodity required by mankind is thus well established. Steel is without doubt the most widely used metal or more broadly speaking, material today. What is perhaps particularly significant in today's ecology conscious world is that steel is also the most recycled material; so much so that every new steel product, contains recycled steel. In fact, steel is 100% recyclable without "downcyling", i.e., without losing quality. The use of steel scrap is estimated to prevent the mining of close to 800 million tones of iron ore and 250 million tones of coking coal worldwide per year. To this extent, steel is a material that prides itself in being almost 'natural'.

The steel industry as whole is convinced that with sustainability as the paradigm of the future, recyclability of steel will be a feather in its cap.

This industry has also already recognized that the earth's resources are not unlimited, and time has come to initiate a process of rethinking. It is heartening to note that the steel business is continuously working towards reduction in emissions along with using lower amounts of resources and energy. It has also become extremely aware of finding more economical ways of utilizing its by-products. Thus, the long-term sustainability of steel production appears to be guaranteed. Nonetheless, the steel industry is conscious that over the long haul, it will need to develop a whole generation of technologies, where being environmentally benign will be as important a consideration as providing top-class products at reasonable cost.

1.3.1 Steel for Social Cause There is more to an assessment of sustainability of a material than just looking at the use of natural resources. The positive and negative effects of the application of any material also play a role. In this context, steel is currently in the process of positive developments. For example, in power stations new steel materials that can be exposed to higher pressures and temperatures are making a significant contribution towards increasing efficiency, thereby reducing CO2 output to help society. The development of new steels for thick-walled high-performance components for boilers and pipes has begun. Pipelines made of steel have proved the ideal solution for the bulk transport of oil and natural gas over long distances before they are used by customers. High-strength steels with superior cleanliness and greater resistance towards corrosion have found widespread use, for example, in sea-water desalination plants. There has been remarkable progress in the area

of eco-efficient light-weight steel constructions, which is a classic example of the synergetic advantage that can be gained by society at large from disciplines like construction, material science, and production technology coming together. (Das SN, 2006)

1.3.2 Steady Progress in the Steel Sector in India India's association with iron and steel began more than three centuries ago. High-quality Wootz steel was made in southern India more than a thousand years before steel as good was even thought of in the West. The Harappan civilization used a variety of minerals and metals, including iron. The Rig Veda mentions the use of minerals as gemstones; Chanakya also referred to the significance of minerals and metals in Indian civilization in his famous dissertation "Arthashastra" dating back 320-620 A.D. The Iron Pillar in Delhi made over 15 hundred years ago is a metallurgical wonder since it has not rusted at all over all these years. It can thus be justifiably claimed that India's association with iron and steel has stood the test of time. The production of steel in India on an industrial scale began early. By setting up The Tata Iron and Steel Company (now Tata Steel Limited) at Jamshedpur almost exactly hundred years ago, Jamsetji Nusserwanji Tata pioneered the Indian steel industry. Immediately after Independence, India's iron and steel production increased quite rapidly. The visionary behind this achievement was the late Prime Minister Jawaharlal Nehru who considered steel plants to be 'temples of modern India'. Unfortunately, India's steel capacity was not augmented to any appreciable extent over the next three decades. (Das SN, 2006)

1.3.3 Performance of the Steel Sector in India in the last 25 years The decade of the eighties (and even early nineties) saw the Indian steel industry at cross roads. After a number of companies had decided to go in for new steel plants, the South East Asian boom turned into a crash. To make matters worse, this coincided with a downward turn in local demand, followed by a collapse of some industrial financial institutions of India. The net result was that fresh investment in the Indian steel industry was considered extremely risky, leading to a period of lull. Fortunately, this is now all a part of history. The liberalization of the Indian economy in the early nineties has resulted in a rejuvenation of the Indian steel industry. Huge investments have been announced both by the Government as well as many private players from India and overseas. Consequently, over the last few years, the steel industry has been witnessing unprecedented growth. This turn around is really not surprising, since India has always been reckoned as a 'potential' global steel hub. (Hindu, 2006)

1.3.4 Sparkling Future Ahead World renowned 'pundits' are "gung ho" about the future of the Indian steel industry. Perhaps this is because India is amongst a few countries in the world having the dual advantage of fast growing domestic demand coupled with access to raw materials. Further, the trend that is already discernible is that the axis of global steel production / consumption is shifting towards Asia. With their large populations, China and India already account for 35 % of the total world steel production - more than double of

Europe. Asia is expected to outpace other regions of the world to an even greater extent in the coming years. Several macro-trends favor growth in Asia. First, Asia is now experiencing what the developed nations faced in the previous century - strong industrial demand led by infrastructural and construction needs. Second, regulations on industrial pollution control have become so stringent in the US and Europe that the capital cost required to install environment approved new capacity has become prohibitive. Third, for long-term sustenance of the industry, access to raw materials is a must, and Asia as a whole has some of the best and largest deposits of iron ore and coal. Amongst the Asian nations, China has established a huge, unbridgeable lead. It is accepted that China will continue to be the leader. However, India is slated to emerge as the second Asian giant in the next ten years. Figuratively speaking, while the "Dragon" has reached maturity; the "Lotus" is about to bloom in resplendent splendor. In 2005 Chinese steel consumption was around 320 Mt, i.e China swallowed almost 32% of global steel. It is unlikely that future production and consumption would continue to flourish at growth rates of 8% and 18% respectively as has been the case over the last few years. On the other hand, it is sun-rise time for India where the demand has increased by 7-8% in the last couple of years
(Hindu,2005).

In the long run, Indian steel is likely to be more cost-effective since unlike

China, India has relatively large reserves of iron ore (14 billion tones), which if strategically exploited, can sustain domestic production of 120-130 million tones for at least 25-30 years.

However, the position with coal is not so favorable. Though thermal coal reserves of over 92 billion tones can fuel industry, large-scale iron making using the traditional blast furnace route would require coking coal. India does not have adequate reserves of coking coal; nor is the meager amount available of appropriate quality. Thus, the steel industry always had to contend with the dual problems of inadequate availability and poor quality of Indian coking coal. This has been partly addressed by adopting alternative iron making processes that are not dependent on coking coal; it can not be denied that coal is the biggest cause of concern for bulk steel production in India. It is here that China, with 11% of the world's coal reserves, has an advantage. Today, China is the world's leading coal producer followed by USA. The Indian reserves are only 7.6%, of which coking coal is only 15%. These meager reserves also have high ash content and are of low rank. Therefore, for the last ten years or so, Indian integrated steel producers have made extensive use (30-50 % of the total coal requirement) of high grade, low ash (10-12%) coking coal imported from Australia. Despite such large scale imports, over the last four years, the demand for coal in India has consistently outstripped supply. While coal production has grown at 2% annually, the demand has risen at 8% (Hindu,2005). Even in allocating the limited production, priority is given to the power sector. Because of the paucity of indigenous coal, attempts have been made by steel producers to ensure longterm supplies by tying up with global majors or by acquiring mines in other countries. This is the only long-term solution, but with a global shortage of coal it may not remain cost-effective in the long run.

1.3.5 Steel Getting Stiff Competition from Other Metals Another "litmus test" that has to be passed is whether steel will remain competitive relative to alternative materials like aluminum, magnesium, plastics, titanium, etc. These materials are already finding use in the automobile industry, which is without doubt the biggest individual consumer of steel. Therefore, a long-term view has to be taken as far as their threat to steel in the automobile industry is concerned. Competition from

aluminum: Aluminum is often touted as a metal that steel has to contend with in future in the automobile sector. Even today, average European cars contain 70 kg aluminum and up to 120 kg of plastics; just double of the 1980's figures. Despite this, steel has continued to be the predominant metal used partly because of the fact that concerted efforts were made by the steel industry to arrest the growth of the usage of aluminum in automobiles. Some five years back, more than 35 steelmakers across the globe (including Tata Steel and SAIL from India) embarked upon an exercise entitled "Ultra Light Steel Automobile Body" under the aegis of the Internat ional Iron and Steel Inst itute (IISI) to promote the usage of steel in automobiles. This effort was a success and automakers were convinced that steel had an edge. For example, Audi who were experimenting with aluminum for car bonnets, roof, etc. reverted to high strength, light weight steel sheets. They became aware that improper use of aluminum can result in problems in contrast to steel. The reduction by two-thirds in weight by using an aluminum part compared with a similarly sized iron / steel part seemed enormously attractive, but it was found that it was accompanied by a reduction by two thirds in the stiffness of the part. (Smark, 2006)

However, the threat from aluminum replacing steel in packaging (cans, foil, etc.), water treatment, construction (windows, doors, siding, building wire, etc.), consumer durable goods (appliances, cooking utensils, etc.) is real. In fact, for beverage cans aluminum has replaced steel to a large extent in USA, in particular. Fortunately these markets are small, and not of great significance in many developing countries. Plastics / composites replacing iron / steel: The automotive industry is also viewed as a huge and growing market for plastics and composite materials. Self-reinforced plastics (SRPs) combine the versatility and easy re-cyclability of a thermoplastic with the high performance of fiberreinforced composites. Though SRPs are in the nascent stage of development, their low weight, high stiffness and impact resistance are making them candidate materials for a wide range of semi-structural and structural automotive applications. SRPs are being actively marketed as a suitable material for making lighter and smaller cars that save fuel. It is claimed that the weight of a mid-size car is likely to decrease from 1,400 kg to 1,150 kg by 2010, if SRPs are able to penetrate this market. However, as of now, in order to meet the new design requirements, automobile manufacturers are still in search of low density plastics that possess good mechanical properties. Titanium and its alloys:

Titanium is lightweight, corrosion resistant, and has high strength. The density of titanium is about half that of copper, nickel and approximately 60% of stainless steel. The strength of titanium and titanium alloys ranges from ~205 MPa to ~1585 MPa. Titanium exhibits the highest strength to density ratio amongst all materials up to 550C. Further, in many environments, particularly those where oxidizing conditions exist; it is highly resistant to corrosion. From a property point of view, titanium appears to be a threat. However, at the current premium price of titanium, only special sports vehicles are able

to use titanium. Only in such vehicles can the initial high cost of the material be compensated for either by the advantages of weight reduction or by the increased life of the component on account of its extremely high corrosion resistance. (Smark, 2006). If the general anticipation that the price of titanium metal will decrease substantially with increasing production and improvement in processing using some recent revolutionary developments involving extraction of titanium from limonite comes true, titanium may be able to replace steel in automotives. For the moment, there is no real threat. 1.3.6 Revolutionary Developments Talking about the advent of nanotechnology, since many illustrious scientists have predicted that this revolutionary technology has the potential to change the very way we live. Thus if nanotechnology fulfils even a part of its considerable promise, the outlook for most metals / materials including steel could come in for scrutiny. Many of you are probably aware of what nanotechnology is all about. One millimeter is one million nanometers and this forms the basis of the 'nano-magic'. Just to give a physical idea of how small a nanometer (nm) actually is, we need to visualize that ten hydrogen atoms make 1 nm, the width of normal human hair is 80,000 nm, and a red ant is 5 million nm thick. Thus, nanotechnology is all about really small objects, often down to the size of individual atoms. The application of nanotechnology would cover the entire range from 1 to 100 nm. For some, nano-scale includes objects as small as a tenth of a nanometer, which is about the size of the bond between two carbon atoms; for others, the range extends to 50 nm only. What is clear is that the magic of nano-scale atoms and molecules is difficult to comprehend. Indeed it is mind-boggling to imagine the extent to which

'strange' things can happen in this 'new world'. If someone throws a tennis ball against a brick wall, he would certainly be shocked if the ball passed cleanly through the wall and sailed out to the other side. Yet, this is 'real' in the nano-world. It happens because at very small scales, the properties of materials including steel, can change dramatically in terms of colour, magnetism, the ability to conduct electricity and so on. In this nano-world, tiny particles of gold melt at temperatures several hundred degrees lower than a large nugget; and copper, which is normally a good conductor of electricity, can become resistant to electrical / magnetic fields because electrons, like the imaginary tennis ball, can simply jump from one place to another, and molecules can attract each other at moderate distances. By the way, this is the effect that allows geckos to walk on the ceilings of buildings using tiny hairs on the soles of their feet. (Hindu, 2005) At the nano-scale, new, exciting and altogether different properties come into contention. If one were to start with a grain of sugar, and chop it up into even smaller pieces to simply end up with a tiny grain of sugar, that would not be surprising at all. However, if one is aware that as an object gets smaller, the ratio between its surface area and its volume rises, a new vista would open up because of the fact that the atoms on the surface of a material are generally more reactive than those at its centre. As a result, icing sugar, for instance, dissolves far more rapidly in water than does the granulated form. Similarly, if a metal like silver is turned into very small particles, it begins to show antimicrobial properties that are not present in the bulk material. A company overseas has already begun to exploit this phenomenon by making nanoparticles of cerium oxide, which are chemically reactive enough to serve as a catalyst. A company in USA, has created metallic rubber, which flexes and stretches like rubber, but conducts electricity like a

solid metal. General Electric is trying to make flexible ceramics and many companies are working on materials that could one day be made into solar cells in the form of paint. The story of the researcher working in Japan who discovered that there was a new form of carbon that had extraordinary properties is already well known. The so called carbon nanotube is like a tiny sheet of graphite rolled into a cylinder, with a diameter of around one nanometer, and is very strong and light. It has become the 'star' of nanotechnology. A host of uses that has since been proposed include sensors, molecular probes, computer memory, televisions, batteries and fuel cells. Work is in progress to find a way of spinning nanotubes into fibers to make the world's toughest polymer. If even a small

percentage of these efforts, in which billions of dollars are being spent, actually succeed, new materials would become available. At that stage, most materials we know of today would take a back seat. Indeed, nanotechnology has such tremendous potential that many believe that it may turn out to be as important as electricity or plastic. The comforting thought is that this is unlikely to happen in the next two to three decades at least, because of the inherent lag between the dreams of material scientists and the availability of the final product on a commercial scale.

Again, the future of steel looks 'safe' and steel will continue to be way ahead of the metals / materials pack in the foreseeable future. (Hindu, 2005)

1.3.7 Rapid Economic Growth

India's rapid economic growth is being built on a frame of steel. Soaring demand by sectors like infrastructure, real estate and automobiles, at home and abroad, has put

Indias steel industry on the world map. Dominating the Indian horizon are steel giants like Tata Steel, which has just pushed through a US$ 8 billion buyout of UK-Dutch steel company Corus. Meanwhile, the LN Mittal-owned Mittal Steel has acquired French steel company Arcelor to create the worlds number one steel company, Arcelor Mittal; and Korean steel giant POSCO is pumping money into mines and steel plants in Orissa to emerge as one of the biggest steel plants in the state.

The International Iron & Steel Institute (IISI) in its forecast for 2006 has confirmed the trend of recent years of an increase in steel use in line with general economic growth, the fastest growth occurring in the countries with the highest GDP growth such as India and China. Apparent worldwide steel demand is forecast to grow to between 1,040 and 1,053 million tones in 2007 from a total of 972 million tones in 2004. This is a growth of 4 - 5 per cent over the three-year period. However, according to IISI, the cost of raw materials and energy would continue to represent a major challenge for the world steel industry. (Prakash, 2006)

1.3.8 Production

India currently occupies the eighth position in the list of global producers of crude steel. Production of finished (carbon) steel stands at 42.64 million metric tones for 2005-06 (provisional estimates by the Ministry of Steel). These numbers are poised to increase radically in the next six to seven years, when a slew of investments flow into resourcerich states in eastern India like Orissa, Jharkhand and Chhatisgarh. (Prakash, 2006)

TABLE 1.1

PRODUCTION, CONSUMPTION, EXPORT AND IMPORT OF FINISHED CARBON STE EL AND PIG IRON (IN MILLION TONNES) IN INDIA

Item (April-October)

2004-05

2004-05

2005-06*

PRODUCTION FINISHED CARBON STEEL MAIN PRODUCERS SECONDARY PRODUCERS TOTAL PIG IRON MAIN PRODUCERS SECONDARY PRODUCERS TOTAL EXPORTS FINISHED CARBON STEEL PIG IRON 4.39 0.40 2.44 0.12 2.30 0.11 0.62 2.60 3.23 0.25 1.41 1.66 0.56 1.56 2.12 15.61 24.44 40.06 8.78 13.80 22.58 9.06 15.2 24.26

IMPORTS FINISHED CARBON STEEL PIG IRON APPARENT CONSUMPTION FINISHED CARBON STEEL PIG IRON 34.39 2.8 19.53 1.48 21.25 1.99 2.2 0.008 1.11 Nil 1.76 Nil

(Economic Survey, 2005-06, Government of India Publication)

1.4 STEEL AUTHORITY OF INDIA LIMITED (SAIL)

Steel Authority of India Limited (SAIL) is the leading steel-making company in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defense industries and for sale in export markets. Ranked amongst the top ten public sector companies in India in terms of turnover, SAIL manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanized sheets, electrical sheets, structural, railway products, plates, bars and rods, stainless steel and other alloy steels. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines.

SAIL's wide range of long and flat steel products is much in demand in the domestic as well as the international market. SAILs own Central Marketing Organisation (CMO) and the International Trade Division carry out this vital responsibility. CMO encompasses a wide network of 38 branch offices and 47 stockyards located in major cities and towns throughout India. With technical and managerial expertise and know-how in steel making gained over four decades, SAIL's Consultancy Division (SAILCON) at New Delhi offers services and consultancy to clients worldwide.

SAIL has a well equipped Research and Development Centre for Iron and Steel (RDCIS) at Ranchi that helps to produce quality steel and develop new technologies for the steel industry. Besides, SAIL has its own in-house Centre for Engineering and Technology (CET), Management Training Institute (MTI) and Safety Organization at Ranchi. Our captive mines are under the control of the Raw Materials Division in Calcutta. The Environment Management Division and Growth Division of SAIL operate from their headquarters in Calcutta. Almost all our plants and major units are ISO Certified. Major Units (www.sail.co.in)

1.4.1 Integrated Steel Plants

Bhilai Steel Plant (BSP) in Chhattisgarh Durgapur Steel Plant (DSP) in West Bengal

Rourkela Steel Plant (RSP) in Orissa Bokaro Steel Plant (BSL) in Jharkhand IISCO Steel Plant (ISP) in West Bengal

1.4.2 Special Steel Plants

Alloy Steels Plants (ASP) in West Bengal Salem Steel Plant (SSP) in Tamil Nadu Visvesvaraya Iron and Steel Plant (VISL) in Karnataka

1.4.3 Subsidaries

Maharashtra Elektrosmelt Limited (MEL) in Maharashtra

1.4.4 Joint Venture

SAIL has promoted joint ventures in different areas ranging from power plants to ecommerce. NTPC SAIL Power Company Pvt. Ltd Set up in March 2001, this 50:50 joint venture between SAIL and the National Thermal Power Corporation (NTPC) operates and manages the Captive Power Plants-II of the Durgapur and Rourkela Steel Plants which have a combined capacity of 240 MW.

Bokaro Power Supply Company Pvt. Limited This 50:50 joint venture between SAIL and the Damodar Valley Corporation formed in January 2002 is managing the 302-MW power generation and 1880 tonnes per hour steam generation facilities at Bokaro Steel Plant.

Bhilai Electric Supply Company Pvt. Limited Another SAIL-NTPC joint venture on 50:50 basis formed in March 2002 manages the 74 MW Power Plant-II of Bhilai Steel Plant which has additional capacity of producing 150 tonnes of steam per hour.

UEC SAIL Information Technology Limited This 40:60 joint venture between SAIL and USX Engineers & Consultants, a subsidiary of the US Steel Corporation, promotes information technology in the steel sector.

Metaljunction services Private Limited A joint venture between SAIL and Tata Steel on 50:50 basis, this company promotes ecommerce activities in steel and related areas.

SAIL has formed a joint venture with BMW industries Ltd. on 40:60 basis to promote a service centre at Bokaro with the objective of adding value to steel.

North Bengal Dolomite Limited

A joint venture between SAIL and West Bengal Mineral Development Corporation ltd on 50:50 basis was formed for development of Jayanti Dolomite Deposit, Jalpaiguri for supply of Dolomite to DSP and other plants.

Romelt-SAIL (India) Ltd A joint venture between SAIL, National Mineral Development Corporation (NMDC) and Russian promoters for marketing Romelt Technology developed by Russia for reducing of iron bearing materials, which is carried out with carbon in single stage reactor with the use of oxygen.

Ownership and Management The Government of India owns about 86% of SAIL's equity and retains voting control of the Company. However, SAIL, by virtue of its "Navratna" status, enjoys significant operational and financial autonomy.(www.sail.co.in)

1.5 TATA STEEL

Established in 1907, Tata Steel is Asia's first and India's largest private sector steel company. Tata Steel is among the lowest cost producers of steel in the world and one of the few select steel companies in the world that is EVA+ (Economic Value Added).

Its captive raw material resources and the state-of-the-art 5 MTPA (million tonne per annum) plant at Jamshedpur, in Jharkhand State, India give it a competitive edge. Determined to be a major global steel player, Tata Steel has recently included in its fold NatSteel, Asia (2 MTPA) and Millennium Steel (1.7 MTPA) creating a manufacturing network in eight markets in South East Asia and Pacific rim countries. Soon the Jamshedpur plant will expand its capacity from 5 MTPA to 7 MTPA by 2008. The Company plans to enhance its capacity, manifold through organic growth and investments. The Company's wire manufacturing unit in Sri Lanka is known as Lanka Special Steel, while the joint venture in Thailand for limestone mining is known as Sila Eastern.

Tata Steel's products are targeted at the quality conscious auto sector and the burgeoning construction industry. With wire manufacturing facilities in India, Sri Lanka and Thailand, the Company plans to emerge as a major global player in the wire business.(www.tatasteel.com)

1.5.1 Future Plans

Steel Plant Projec ts India: The Company has embarked upon setting up three green field steel plants in eastern India:

12 MTPA* plant in Jharkhand 6 MTPA plant in Orissa 5 MTPA plant in Chhattisgarh Jamshedpur Steel Works will become a 7 MTPA unit by 2008. *MTPA = million tonnes per annum

Overseas: Iran Bangladesh

1.5.2 Other Projects

India: 1.2 MTPA Metcoke project in West Bengal Deep sea port in Dhamra, Orissa Titanium Dioxide project in Tamil Nadu Joint Venture with BlueScope Steel for metallic coating and painting steel unit

Overseas: Development of a source of low ash coal from Queensland, Australia Ferro Chrome production in Richards Bay, South Africa

1.5.3 Products

Tata Steel's products include hot and cold rolled coils and sheets, galvanized sheets, tubes, wire rods, construction rebars, rings and bearings. In an attempt to 'decommoditise' steel, the company has introduced brands like Tata Steelium (the world's first branded Cold Rolled Steel), Tata Shaktee (Galvanised Corrugated Sheets), Tata Tiscon (re-bars), Tata Bearings, Tata Agrico (hand tools and implements), Tata Wiron (galvanised wire products), Tata Pipes (pipes for construction) and Tata Structura (contemporary construction material). The company has launched the Customer Value Management initiative with the objective of creating complete understanding of customer problems and finding solutions jointly. The company's Retail Value Management addresses the needs of distributors, retailers and end consumers. The company has also launched India's first steel retail store - steeljunction - for making steel shopping a happy and memorable experience.

1.5.4 Community Outreach and Environment Management

While the Company is focused in the pursuit of its operational goals, it is also committed to being a good corporate citizen. Tata Steel extends support to the economically underprivileged not by charity but by strengthening and empowering them with expertise and knowledge. Its community outreach programm covers the Tata Steel managed city of

Jamshedpur and over 600 villages in and around its manufacturing and raw materials operations. Its steel works, mines and collieries and civic services in Jamshedpur are ISO 14001 certified for Environment Management. The Company's steel works is the first in the world to be conferred the SA 8000 certification for work conditions and improvements in the workplace. It's Ferro Alloys and Minerals Division is also SA 8000 certified. According to the UNEP and Standard & Poor's survey, the Corporate Sustainability Report filed by Tata Steel, according to the Triple Bottom Line Reporting Initiative, is the strongest by any corporate in the emerging economies and the Top Reporter in corporate India.

1.5.5 Awards and Recognitions

World Steel Dynamics has ranked Tata Steel as the world's best steel maker (for two consecutive years) in its annual listing in February 2006.

Tata Steel has been conferred the Prime Minister of India's Trophy for the Best Integrated Steel Plant five times.

It has been awarded Asia's Most Admired Knowledge Enterprise award in 2003 and 2004. (www.tat asteel.com)

CHAPTER 2- LITERATURE REVIEW

2.1 INTRODUCTION

In this chapter I have discussed and critically analyzed the literature related to competitive dimensions & advantages, which are crucial in modern economic environment. The effective strategies of SAIL to attain competitive advantage have also been discussed here. Techno-economic parameters, cost effectiveness, human resource management issues, Research & Development, environment management, public relations, cost competitiveness, quality competitiveness, all these issues in regard to steel sector in India have been discussed in length. This section also discusses the policies of marketing and strategic planning as well as the demand for steel and its relevance to national economy.

2.2 COMPETITI VE DIMENSIONS & ADVANTAGES ARE CRUCIAL IN MODERN ECONOMIC ENVIRONMENT

Given the choices that customers face today, how do they decide which product or service to buy? Different customers are attracted by different attributes. Some customers are primarily interested in the cost of a product or service, and correspondingly some companies attempt to position themselves to offer the lowest price. The major

competitive dimensions that form the competitive position of a company include the following.

Cost Make it cheap

Within every industry, there is usually a segment of the

market that buys solely on the basis of low cost. To successfully compete in this niche, a firm must be the low cost producer, but even doing this does not always guarantee profitability and success. (Harvard Business Review, 1996)

Product quality and reliability Make it good.

Quality can be divided into

two categories: product quality and process quality. The level of quality in a products design will vary with the market segment at which it is aimed. Obviously, a childs first two-wheeled bicycle is of significantly different quality than the bicycle of a world class cyclist. The goal in establishing the proper level of product quality is to focus on the requirements of the customer. Over-designed products with too much quality will be viewed as prohibitively expensive. Under-designed products, on the other hand, will lose customers to products that cost a little more but are perceived by the customers as offering greater value. (Harvard Business Review, 1996)

Process quality is critical because it relates directly to the reliability of the product. Regardless of whether the product is a childs first two wheeler or a bicycle for an international cyclist, customers want products without defects. Thus, the goal of process quality is to produce error free products.

Delivery speedMake it fast. In some markets, a companys ability to delivery more quickly than its competitors may be critical. Seeing a need for speedy, reliable overnight

delivery, FEDEX became a $15 billion company and the worlds large expedited delivery service. (Harvard Business Review, 1996)

Delivery reliabilityDeliver it when promised. This dimension relates to the ability of the firm to supply the product or service on or before a promised delivery due date. For an automobile manufacturer it is very important that their supplier of tires provide the needed quantity and types for each days car production.

Coping with changes in demand Change its volume. In many markets, a companys ability to respond to increases and a decrease in demand is an important factor in its ability to compete. It is well known that a company with increasing demand can do little wrong. When demand is strong and increasing, costs are continuously reduced due to economics of scale, and investments in new technologies can be easily justified. But scaling back when demand decreases may require many difficult decisions relating to laying off employees and related reductions in assets. The ability to effectively deal with dynamic market demand over the loan term is an essential element of operations strategies.

Flexibility and new product introduct ion speedChange it. Flexibility, from a strategic perspective refers to the ability of a company to offer a wide variety of products to its customers. An important element of this ability to offer different products is the time required for a company to develop a new product and to convert its processes to offer the new product. (Harvard Business Review, 1996)

According to a report published in Times of India (2007) SAIL had received excellent rating for achieving targets set in the MOU with the Government for the year 2005-06. Considering the sustained growth demonstrated by the company during 2006-07, a similar rating is expected this year as well. During 2005-06, while maintaining capacity utilisation at 104%, the company focused on the production of finished steel, lower energy consumption and reduction in coke rate, increased production through the continuous cast (CC) route and improved the product mix during 2006-07. (Sarkar, 2007)

2.3 EFFECTIVE STRATEGIES OF SAIL TO ATTAIN COMPETITIVE ADVANTAGE

Rawat (2007) states that despite the market remained buoyant, the rising steel production worldwide put tremendous pressure on availability of essential inputs like coking coal. Despite facing a severe coking coal crisis during the first half of 2006-07, however, the SAIL plants achieved all-time best performance by optimising operations and laying a thrust on value addition in downstream units such as production of finished steel, plates, rails, structural steel, etc. according to Rawat (2007), total finished steel production went up by 4 lakh tones to a record level of 9.28 million tonnes (MT), a growth of 5% over the previous year. The proportion of finished steel production in total steel went up to 84% during 2006-07 from a level of 80% achieved in 2005-06. The SAIL plants showed marginal increase in production of crude steel as well as saleable steel 21,000 tonnes and 4,000 tonnes respectively. (Rawat, 2007)

Rawat (2007) also states that the four main integrated steel plants of SAIL produced a record 7.53 MT of steel through the concast route during the year. This was 4% higher than the CC production of the previous year. As a result, the proportion of BOF-CC production went up to 64% of total crude steel production. In fact, 2006-07 save best-ever average capacity utilisation of continuous casting facilities at 125%. Production of valueadded items like plates, bars & rounds and railway products recorded growth. Plate production at 2.12 MT was the highest ever, with a growth of 15% Bhilai steel plant also produced 864,00 tonnes of rails, the highest so far and 7% more than the production in 2005-06. The first consignment of 65-meter long rails welded into 130-meter panels was dispatched by BSP to the Indian Railways during the year. Production of wheels &axels by Durgapur Steel Plant at 29,000 tonnes was the highest ever and 38% more than that of 2005-06. (Rawat, 2007)

Zubin (2007) states in his article on steel industry in Indian express (2007) that the long product plants also produced the highest-ever volume of 5.4 lakh tonnes of bar & rounds during the year recording a growth of 8%. A total of 6 lakh tonnes of structurals were produced by SAIL in 2006-07, 3% higher than the previous year and the highest so far. The three special steel plants of SAIL at Durgapuri, Salem and Bhadravati together produced 3.79 lakh tonnes of saleable steel, the highest ever and 27% more than their achievement of 2005-06, contributing substantially to the companys cumulative production performance. The total iron ore requirement of the SAIL plants was met from captive sources. The companys mines produced 19.83 MT of iron ore, the highest ever,

during the year. The mines of Raw Materials Division in the eastern part of the country together produced nearly 13 MT of iron ore, showing a growth of around 1.2% over the previous year and setting a record. While all the RMD mines registered best-ever yearly output, Barusa Iron Mine deserves special mention for showing highest growth of 14.5% with a production volume of 1,341,000 tonnes.

According to Zubin (2007) the special thrust laid by RMD during 2006-07 on quality enhancement measures and cost reduction resulted in better productivity and effective mitigation of the companys variable input costs. Among the various steps taken by RMD to enhance efficiency were better mine planning, development of mines in new areas, improved processing facilities, and replacement of old heavy earthmoving machinery with new equipment. Adoption of various cost cutting measures led to substantial savings. During 2006-07, SAIL became the first industrial enterprise in the country to wheel surplus power from one of its captive units to another through the national grid. Generation of power by the captive power units at 525 MW was also the highest ever, showing a growth of 6% over 2005-06. (Zublin, 2007)

2.3.1 Techno-economic parameters

Sheryn (2007) states the following techno-economic parameters:-

Coke rate: Lowest ever rate of 536 kg/tonne of hot metal was achieved during the year, an improvement of 1% over 2005-06.

Refractory consumpt ion: At 16.7 kg/tonne of crude steel, was lowest ever, 9% lower than the consumption in 2005-06, due to significant increase in BOF lining and ladle life at all the plants.

Energy consumpt ion: The SAIL plants together consumed only 7.28 giga calories per tonne of crude steel on an average, which was 2% lower than the previous year, in spite of the increase in production of value-added steel which consumes higher energy. (Sheryn, 2007)

2.3.2 Cost Effectiveness

Kim (2006) writes in Economic Times that the thrust on improving efficiency of cost management launched by SAIL during the downturn in the steel sector continued during the year 2005. New schemes were identified and existing schemes reviewed and revised to offset the impact of the sharp rise in input prices, particularly in the case of coking coal, Ferro alloys, etc., during the year, resulting in savings of about Rs. 130 crore. SAILs cost management endeavours once again received recognition at the national level. The Institute of Cost & Works Accountants of India adjudged SAIL as being the second best company in the public sector in India during 2005 in this parameter and presented the company its National Award for Excellence in Cost Management. SAIL

had received the winners trophy last year for excellence in cost reduction during 2004. (Kim, 2006)

2.3.3 Marketing Muscle

Kim (2006) states that the consumption of finished steel in the country is estimated to have crossed the 33 MT mark during 2006-07 a growth of about 6% over the previous year. In line with the increased level of consumption, SAIL established a new domestic sales record of 10.3 MT, an increase of 8% over the achievement of the previous year. To ensure higher availability of steel in the domestic market, SAIL consciously contained exports at a minimum level during the year. Kim (2006) writes in Economic Times that the company shipped only about 4 lakh tonnes of steel during the year against 11 lakh tonnes in 2003-04. SAIL sold a total volume of 8.6 MT of finished steel during 2006-07 recording a growth of 8%. The major product categories in which sales growth took place were plates (32%), HR coils (8%), TMT (30%), wheels & axles (33%) and heavy structurals (20%). Supplies of rails to the Indian Railways increased by 5% over the previous year to 7.3 lakh tonnes, including long rails up to a length of 78 meters. (Kim, 2006)

According to Kim (2006) a thrust was given on supplying steel on priority to user segments of national importance such as government, PSUs (public sector undertakings) and state small-scale industry corporations (SSICs). As a result, there was a 25% increase in supplies of SAIL steel to the government sector and 65% to SSICs. Along with 40%

higher supplies to projects, SAIL was able to hike supplies to consumers by 17% during the year on an overall basis. During the year, all the branches, stockyards and offices of CMO were linked to a centralised database. This helped in online availability of data, consistent data integrity and seamless information flow across all applications, leading to increased efficiency in serving customers. (Kim, 2006)

2.3.4 Human Resource Management

Mohan Das (2006) states in Business & Economy that around 4,700 employees separated from the company during FY 07, around 1,440 voluntarily. SAILs total manpower at the end of the year thus stood at around 127,000, showing a reduction of about 48,000 since 1998. The companys labour productivity grew by 4% to 142 tones/man/year in 2006-07. To equip employees with higher technical skills, SAIL has signed an agreement with Tata-Corus/UK and CAI/Austria for provision of specialised training. (Das, 2006)

Sharing of prosperity with employees was a major management thrust during 2006-07. Among the initiatives taken in this regard were payment of wage/salary arrears for the period 1.1.1997 31.12.2000, restoration of earned leave encashment, enhancement in conveyance expenses, mining allowance, reimbursement of night shift expenses, enhanced incentive payments, etc. A rolling trophy was introduced to encourage management excellence amongst young managers of the company. A team from Bhilai

Steel Plant lifted the inaugural Chairmans Trophy for Young Managers for the year 2004 from amongst 130 contesting teams across the organization. The Ministry of Labour for the nations highest awards recognizing exceptional achievements of workmen for the year 2007 selected ten SAIL employees. Three BSP employees will receive the Shram Vir shile 7 employees (5 from BSP and 2 from VISL) will receive the Shrem Shri title later this year. (Das, 2006)

2.3.5 Research & Development

Daniel (2005) elaborates the development measures at SAIL; according to Daniel (2005) R&D projects at SAIL focus on process improvement, cost competitiveness, product quality, product development and basic research for improvement in techno-economic parameters to increase capacity utilization. Major initiatives aimed at cost

competitiveness included: Improvement in lining life of converter to 2,000 heats in SMS-II at RSP including steel ladles at RSP & BSP by technological initiatives Raising productivity of DSP Sinter Plant to 1.36 tonnes/m/hr (peak 1.6 tonnes) Increase in BF productivity at RSP by process changes in furnace working from peripheral working, reversal off BLT matrix and other changes in charging system. Technological initiatives like hot charging of wheels, modification of ingot design, etc., helped in record production of wheels & excles at DSP

Reduction in HSM roll spalling at BSL Measures to obtain increased campaign length and reduced roll consumption at BSL. Installation of automation of hot saws in BSPs Rail & Structural Mill.

Product development efforts by RDCIS included the following:

SAIL-HITEN 690 AR grade plates at BSP Spring steel at DSP High strength cold rolled steel (HSCR-35) at BSL. Steel noise barriers for roads/highways DMR-249 for Indian Navy warships. (Daniel, 2005)

2.3.6 Environment Management According to Annual Report of SAIL published in March 2007, SAIL is committed to providing a healthy environment in and around its steel plants. Over 2 lakh trees planted in 2006-07 added further substance to the companys efforts in this direction. SAIL at different plant/unit/mine locations has planted around 13 million trees so far. The SAIL plants/units maintained their thrust on controlling pollution during the year. Some of them even received awards for excellence in pollution control measures. They are:

Gold award in metal sector for outstanding achievement in environment management for 2003-04 by Greentech Foundation/New Delhi to BSP and RSP

Indira Gandhi Memorial National Award-2004 for Excellent Pollution Control Implementation Gold Award by International Greenland Society (IGS)/Hyderabad to BSP and RSP Indira Gandhi Memorial National Award for Excellent Environment and Ecological Implementation Gold Award by IGS to Barsua Iron Mine. (SAIL, 2007)

2.3.7 Public Relations

According to Annual Report of SAIL published in March 2007, to reinforce employee morale, internal communication activities were further strengthened. A planned approach yielded excellent results, with appreciative feedback from employees at all levels on the initiatives taken and themes selected to motivate, inform and instill pride in the workforce. Wide and focused communication through both print and electronic media strengthened the image of the organization amongst the companys stakeholders and general public. Revival of the television ad campaign Theres a little bit of SAIL in everybodys life in the later part of the year, re-enforced the companys image as the industry leader in viewers minds due to its excellent recall value. Other campaigns such as the one highlighting SAILs turnaround as the most impressive in Indian industry, Steel Green and Steel in Need, SAIL in Deed were well received by the target audiences. A radio jingle in Hindi, Safetypin se flyover..., also generated popular response. (SAIL, 2007)

2.3.8 Cost competitiveness

According to Annual Report of SAIL published in March 2007, the following cost reduction measures are adopted in SAIL to gain competitive advantage:(a) Reduction in fixed cost through volume growth, reduction in manpower cost and financial charges; (b) Reduction in variable cost through technological interventions like elimination of ingot steel route, 100% Basic Oxygen Furnace and Continuous Casting, coke rate reduction via CDI/auxiliary fuel injection, and higher levels of process control computerization/automation, leading to enhancement of operating efficiency; and (c) By business process improvements such as streamlining of supplies of key inputs of steel making through higher utilization of e-commerce, centralized procurement for select items, etc. (SAIL, 2007) 2.3.9 Quality competitiveness

SAIL also emphasize on technology & input quality improvement across value chain; thrust on special quality steel and new products; improvement in process consistency and metal treatment; advanced online testing and quality control facilities;

standardization/automation/process control & IT. Corporate Plan-2012 has considered the market growth projections assuming overall steel consumption at about 8% per annum. However, the growth trends and macro-economic indicators could lead to higher growth potential. Therefore, depending on the market growth, strategies of competitors, global economic scenario, government policies and resource availability, SAILs plans may be

revised from time to time, and further growth in terms of volume, products, etc., may be aimed through Greenfield investments, acquisitions/mergers etc. The current plan provides the broad direction for SAIL to move forward and would be reviewed periodically. (SAIL, 2007)

2.4 MARKETING STRATEGIES OF SAIL

Sinha (2007) categorically states the clinical marketing strategies adopted by SAIL, according to Sinha (2007), the Steel being an industrial commodity it is very necessary to maintain customer relationship for profitability and smooth running of company. SAIL adopts following practices for customer satisfaction.

Procedure / process adapted to access current / future expectation of customers.

It induces market research visiting customer premises attending to customer

complaints.

CMO has Market Management Group where specialists monitor changing

demand pattern and development in each Market segment is carried on.

It has posted market development officers at various locations that are its eyes and

ears for monitoring current and future expectation of its customer.

The Business-planning department is exclusively meant to study customer's

changing demand scenario and assess current and future expectation.

To

understand

customer

needs SAIL also organizes workshops and seminars.

Building Customer Relationship SAIL has adopted the philosophy of recognizing segment of the market and identifying key customer in segment and giving them preferential treatment. CMO sales executives have been trained to use direct selling as tool for building long lasting relationship with the customers. Easy access to customers to seek assistance makes proposals send comments and compliments. (Sinha, 2007)

2.4.1 Market Development

SAIL has valued customers group in identifying their specific needs specific to that group thus segmenting and developing market segment for our products. Major product modifications are done as per their specific needs of the Market segment thereby creating product differentiation packages. (Sinha, 2007)

2.4.2 JIT Delivery

JIT Delivery means just in time delivery. SAIL is able to make delivery just in time because it works in pre-planned manner; it takes order only after consulting the production units. So that the products car be delivered in right time. (Sinha, 2007)

2.4.3 Production According To Market Needs

SAIL is always in touch in market and tries to produce according to market needs. SAIL tries to produce quality products / new products which full fill the need of market. (Sinha, 2007)

2.4.4 Policies Of Marketing And Strategic Planning

Raunil Desouza (2007) writes in Business Herald that SAIL has responsible function in the working of marketing department. All the risky developments, taking out solution to crippled situations, this section carries out product pricing and related activities, some of the programms, policies and procedures are as follows: Positioning the product a value based place in customer mind. Finalize annual sales plan and quantity, monthly, weekly, and daily rolling programm of Rolling mills in consultation with CMO and mills. This plan is based on the sales forecast receive from JPU SPL/ Iron and steel controller.

 Optimizing the product-mix by proper utilization of available stocks. Receiving Enquiries and complaints, cancellation of orders etc. Coordinating the works of mills and traffic department so as to maximize dispatches. Co-ordinations with CMO from stages of enquiry, for exports, development of new Profiles, sections, modification of product scheduling till the orders are completed. Development of new qualities of steel. Periodical market surveys of products to analyze the market position. Implementation of suggestions received from the customers feed bock. Ensure customer satisfaction by meeting customers regularly; provide redressal to their problems and fulfillment of demand. (Desouza, 2007)

2.5 ANALYSIS OF STEEL ACROSS THE GLOBE

The declining price trend after an unprecedented rise in Q1 of 2007 has taken sheen off the global steel market. However, there is a widespread perception that in the post Q2 of the current year the global price are bound to go up. Only this time the rise would be flattened and not abnormal. The domestic demand in Europe is steel low with industries production showing a downward trend forcing the major steel producer to call back the price hike announced earlier. The postponement of purchase by the buyers is likely to result in running down the current inventories. Data released recently indicate that EU has imported a total of 22.8 million tones including semis; which have gone up by 8

percent in 2006.The import of CR coil and coated coils were also higher than last year EU exports totaled 245 million tones in 2006.

TABLE 2.1

Production Of Steel Across The Globe

Prod in Jan-Mar Area EU (25) Other Europe CIS N America S America Africa Middle East Asia/Oceania* China World *Excluding china 2007 (million tones) 47.96 6.83 27.62 32.42 11.21 4.34 3.58 55.46 77.79 267.21

Prod in Jan-Mar 2006 (million tones) 48.13 6.94 27.67 32.32 11.18 3.91 3.27 54.55 62.82 250.79

% Growth

-0.3 -1.6 -0.2 0.3 0.3 10.8 9.4 1.7 23.8 6.5

[Source: Business Today, 2007, 09 September issue, pp: 29]

TABLE 2.2

Production Of Steel in 2005 and 2004 (Jan March) across the Globe

300 250 200 150 100 50

EU 25 other europe cis north america south america africa middle east asia/oceania china world

0 production in jan-march 2005(million tones) production in jan-march 2004(million tones)

[Business Today, 2007, 09 September issue, pp: 29]

TABLE 2.3

Growth percentage of Steel across the Globe

EU 25 other europe cis north america south america africa middle ea st asia/ocea nia china world

% growth -0.3 -1.6 -0.2 0.3 0.3 10.8 9.4 1.7 23.8 6.5 30 25 20 15 10 5 0 -5 -0.3 -1.6 -0.2 % growth 0.3 0.3 1.7 10. 8 9.4 6.5 23.8 EU 25 other europe cis north americ south americ africa middle ea st asia/ocea nia china world

(Business Today, 2007, 09 September issue, pp: 29)

Flat price have fallen in North American market by $70-80 per ton in the last two month. The current HR coil price by US mills is pegged at $615 fob/t with CR price at $695 per ton. Compared to flat producer the long product market is relatively stable and there is no decline in the price of structural more due to fall in import volumes. China has also remove a 13 percent rebate on steel billet and slab exporter with effect from 1 April
st

2005 to enhance domestic availability this has led to price fall in April. The export rebate on bars and rods has been reduced from 13 to 10 percent from 1
st

May. Indian long

product market is largely influenced by global price of semis. The CIS price of billets is currently running at $370gob/t; which is nearly at the same level as in March. There are reports that Russian steel producer are expending a major chunk of the equity participation in mills in other countries as a long term trading ventures. Crude steel production figure for 2008 released by HIS exhibits a growth of 6.5 percent in the first three month over the corresponding period in previous year. China remains the leading steel producer with growth touching 24 percent. (Business Today, 2007)

2.5.1 Demand for Steel

Ramaswamy (2006) writes in his book on Global Economy that, Steel Being vital for industrial development; developing countries have great demand for steel. Whereas developing countries have 70 percent of worlds population, 30 percent of worlds iron ore deposits, they produce only 7 percent of worlds steel. In the case of India whereas she has 15 percent of worlds population, she produces only 1.5 to 2 percent of worlds steel even after setting up four new steel plants (the fifth plant, that is, Vizag Steel plant is yet to go into production). Indias position regarding foreign dependence for its industrial growth before the establishment for its steel plants, therefore, can be well visualized. There was a spurt in the consumption of steel during the first Five-year Plan. After a fall during the next three years, the consumption rose again but by varying

degrees. From the consumption level of 3.3 million tones (mt.) of steel in 1960-1961, the anticipated consumption during the year (1988-89) is expected to be around 14 (mt) Independent variable steel demands are: Production level of or demand from steel consuming industries, particularly engineering industries; Level of construction activities; and Level of power generation

In order to assess the requirement of steel and the planning of production it would be necessary to trace the end uses of steel. Details of various categories and size also need to be worked out. First, steel processing industries are the clear cases where various categories of steel are used for fabrication/manufacture of equipment/machinery. Second, the non-stop processing industries such as food, chemical, pharmaceutical use steel for machinery and factory structures. In agriculture sector, steel is required for agriculture implements, tractors, plant protection equipment etc. In transport sector, steel is essential for railway rolling stock, ships, motor vehicles, etc. Steel is also required for manufacture of host of goods in consumer sector, like concrete buildings, rail bridges, railway tracks, etc. (Ramaswamy, 2006) 2.5.2 Relevance Of Steel To National Economy According to Ramaswamy (2006) iron and steel products are closely interrelated with the various sectors of construction, agriculture and capital good industry. To mention a few, structural bars, rods, sheets and pipes are required for industrial building, housing and

power distribution networks. Forgings and castings are

required for agriculture

implements, machine tools, industrial machinery and defense. Various types of sheets are required by automobiles, shipbuilding, cycle, furniture and packaging industries.

TABLE 2.4

Sector wise Consumption of Steel in Ind ia

(%of the total consumption) 1. 2. 3. 4. 5. 6. 7. 8. Construction Sector Transport Equipment Electrical Power Equipment Industrial Machinery Other Metal Manufacturing Mix metal Consuming Industries Small Scale Industries Processing Loss 43.0 9.3 2.6 5.0 14.4 7.5 17.7 0.5

FIGURE 2.1

Sector wise Consumption of Steel in India

consumption of steel
construction sector transport 17.70% 7.50% 14.40% 5% 2.60% 9.30% 0.50% 43% electrical power equipment industrial machinery other metal manufacturing mix metal consuming industrie small scale industries processing loss

(Ramaswamy MAM, 2006, Global Business Economy, 2e, pp: 70)

2.6 SUMMARY

For a nation that is economically strong, free of the problems of underdevelopment and plays a meaningful role in the world as befits a nation of over one billion people, the groundwork would have to begin right now. The Indian Steel Industry will be required and is willing to play a critical role in achieving this target. The findings from the above discussion suggest that with abundant iron ore resources and well-established base for steel production in the country, steel is poised for growth in the coming decades in India.

Steel will continue to have a stronghold in traditional sectors such as construction, housing, ground transportation; special steels will be increasingly used in hi-tech engineering industries such as power generation, petrochemicals, fertilizers etc. As the key attributes discussed above are very much in favor of steel industry. Marketing is one of the most dynamic fields in any business along with finance, production and operations, Human resource management and systems. Its orientation needs to be handled carefully as it is only through integration of marketing with other fields that makes an organization successful or face the odds. Indian steel industry is also concentrating on its marketing activities.

CHAPTER 3- RESEARCH METHODOLOGY

3.1 INTRODUCTION The present chapter describes the research methodology, which was applied for conducting this research. The various aspects of the research methodology were described into the various specified sections which are; design of the research, data collection and data analysis. Research methodology is a way to systematically solve the research problems. It may be understood as a science of studying how research is done scientifically. In it we study the various steps that area generally adopted by a researcher in studying his research problem along with the logic behind them. It is necessary for the researcher to know not only the research methods / techniques but also the methodology. Researchers not only need to know how to develop certain indices and tests, how to calculate the mean, the mode, the median or the standard deviation or the chi square, how to apply particular research techniques, but they also need to know, which of these methods or techniques, are relevant and which are not, and what would they mean and indicate and why. A research has been carried out which is both qualitative and quantitative in its support. The qualitative approach applies to both, descriptive and inductive forms of research. While as in case of quantitative approach, an extensive use has been made of the

literature available to carry out a detail research on the nature of the problem. SAIL & TATA Steel have been chosen as the target companies in particular.

3.2 RESEARCH SOURCES

A combination of both primary and secondary resources have been used to achieve the aims and objectives of this report

3.2.1 Primary Research

The internal functioning of the organization, its cultural aspects, its management style and leadership systems were determined through surveys with the present and exemployees of the organization, extensive use of questionnaires were made for this purpose. Questionnaires were sent out by two basic ways, first the questionnaires were sent through electronic mail and second the questionnaires were sent out through the traditional mailing method i.e. by post. A draft questionnaire is attached at the end. Interviews were also carried out with the officials of SAIL & TATA Steel involved in the functioning of the company and other people from the industry to determine the marketing aspects of the organization and the industry, this aimed to find out the reasons for the attainment of competitive advantage through employing effective marketing strategies by the company.

The data collected was analyzed to determine the positive as well as the negative aspects of the organization in relation to the industry, to better understand the factors which have

contributed to its competitive advantage and to mark out the factors which are hindering its growth and can affect the sustainability of the competitive advantage in the future.

Primary data collection methods Sample size: Sample area: Sample unit: 100 NCR Delhi officials and employees of SAIL & Tata steel

Method of collection of data Questionnaire method as well as interview method was employed to extract best results from the target respondents

3.2.2 Secondary Research The secondary sources of data consists of books for an academic perspective, industry journals, magazines for competitive strategy, annual reports, government publications and views of other authors.

Some of the secondary sources of informa tion include

Books Financial accounting a managerial perspective Narayana Swamy 2 nd edition Ethics in public management-- Fredrickson and Ghere

Johnson G, Scholes K, Whittington R. (2005). Exploring Corporate Strategy Text

Th

and Cases. 7

Edition, Harlow England. FT Prentice Hall.

Porter, E M, (1985) Competitive Advantage, Creating and Sustaining Superior

Performance. USA, the Free Press. Competitive Strategy: Techniques for Analyzing Industries and Competitors

by Michael E. Porter

Internet links www.sail.co.in www.tatasteel.com www.indianmetals.com

Other Sources including journals The Indian Steel Industry Journal (Steel World) Resource for Business Technology Management and Knowledge Management

(www.brint.com) Ministry of Steel (India) Reports, figures, analysis, research Annual Reports CRISIL (Indian Ratings, Financial News, Risk, and policy advisory company) The Indian steel alliance

3.3 PROPOSED ANALYSIS

The results of the questionnaire were analyzed using graphs and charts and a trend on the internal working of the organization were marked out. This allowed reaching conclusions on the issue as to whether the internal operations of the organization are conducive for growth or not.

The results of the interviews would allow us to go in-depth into the marketing policies of the organization and would allow us to link it to the future competitive position.

Both quantitative and qualitative data analysis shall be done by using appropriate means which complies with both academic and professional standards.

3.4 STEEL INDUSTRY TRENDS

TABLE 3.1 GLOBAL STEEL PRODUCTION AND CONSUMPTION

Year
2002

Production
(Million tonnes)

Consumption
(Million tonnes)

513.5 529.5 532.9 545.7 537.7 541.0

514.2 530.0 531.5 545.2 535.1 534.2

2003 2004 2005 2006 2007 (E)

(E) Estimate source IISI, Brussels

The global production and apparent consumption of pig iron (basic plus foundry grade) between 2002 and 2006 are as follows

TABLE 3.2

Global Steel Transac tion s

550 540 530 520 510 500 490 2002 2003 2004 2005 2006 2007 (E) (Million tonnes) Production (Million tonnes) Consumption

years

(Business World, 2006, volume 4, issue 8, pp:42)

TABLE 3.3

STEEL PRODUCTION AND CONSUMPTION IN INDIA

Year

Production (Million tonnes)

Consumption
(Million tonnes)

2002

2,795 3,290 3,396 2,998 3,181 3,100

2,300 2,854 2,949 2,773 3,028 2,950

2003 2004 2005 2006 2007 (E)

(E) Estimated , based on DCIS figures upto Feb.,2001

The production and consumption of pig iron in India between 2002 and 2007 (estimated) are furnished in Table 3.3

TABLE 3.4

STEEL TRANSACTIONS IN INDIA

4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 20012002 20022003 20032004 20042005 20052006 20062007 (Million tonnes) Production (Million tonnes) App.Consumption

years

[Business World, 2006, volume 4, issue 8, pp: 43]

The above bar chart shows that domestic consumption of India is growing at a rapid rate than production, which is favorable for the growth of steel industry.

3.5 MAJOR PRODUCER OF GP/GC SHEETS IN INDIA

The capacities of the major galvanized steel producers in India are furnished in table 3.5

TABLE 3.5

MAJOR STE EL PRODUCERS IN INDIA

Annual Capacity Name of the Producer ('000 tonnes) Rourkela Steel Plant Bokaro Steel Plant Tata Steel National Steel Bhushan Steel Lloyds Steel TCIL 160 170 400 150 350 150 100

Ispat Industries JISCO Uttam Steels Sipta Coated Steels Usha Rectifiers

225 450 160 100 60

The galvanised plain coils / sheets and corrugated sheets (GP/GC) are value - added steel products which are tough, sturdy, light weight, bright and corrosion resistant. In India these are produced in the thickness range of 0.15 mm to 2.0 mm and width range of 800 mm to 1560 mm. JISCO, Bhushan steel and Tata steel are the major producers as shown in figure 3.1

FIGURE 3.1 ANNUAL CAPACITY 2007

A nnu al C apacity 200 7 R ou rkela S tee l P lant B oka ro S tee l P lant T ata S tee l N ation al S tee l B husha n S tee l Lloyds S tee l T C IL Ispat Indu stries JIS C O U ttam S tee ls S ipta C oa ted S tee ls U sha R ectifiers

(Business World, 2006, volume 4, issue 8, pp: 44).

CHAPTER 4- EMPIRICAL FINDINGS

4.1 INTRODUCTION

The data, after collection, has to be processed and analyzed in accordance with the outline laid down for the purpose at the time of developing the research plan. This is essential for a scientific study and for ensuring that we have all relevant data for making contemplated comparisons and analysis. Technically speaking, processing implies editing, coding, classification and tabulation of collected data so that they are amenable to analysis. The term analysis refers to the computation of certain measures along with searching for patterns of relationship that exist among data groups. Thus in the process of analysis, relationships or differences supporting or conflicting with originals or new hypothesis should be subjected to statistical tests of significance to determine with what validity data can be said to indicate any conclusion. But there are persons (Kothari, 2007) who do not like to make difference between processing and analysis. (Kothari, 2007) 4.2 PLAN FOR DATA ANALYSIS

A graphical analysis has been conducted based on the responses received from the persons questioned and interviewed. Once the interview was over, the responses received were be grouped together, and a graphical presentation and analysis has been made for every set of questions.

01. Which company do you think is the main competitor of your company? (1 for very poor, 5 for very strong)

A)TATA Steel

B)Jindal Steel

C)Essar Steel

TABLE 4.1

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

4 3 2 5

TATA STEEL JINDAL STEEL ESSAR STEEL SAIL

TATA STEEL JINDAL STEEL ESSAR STEEL SAIL

02. How would you rate your companies competitiveness in relation to the industry?

A)Less Competitive

B)Moderately Competitive

C)Very Competitive

TABLE 4.2

5 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0

Less competitive Moderately Competitive Very Competitive 5 5 TATA STEEL SAIL

Less competitive Moderately Competitive Very Competitive

03. Do you think being a public sector company is a hurdle for the growth of the company?

A)Yes

B)No

TABLE 4.3

70% 60% 50% 40% 30% 20% 10% 0%

yes no

yes no

SAIL 30% 70%

04. In your opinion is your company ready to expand overseas like other Indian steel companies?

A)Yes

B)No

TABLE 4.4

90% 80% 70% 60% 50% 40% 30%

yes no

20% 10% 0%
yes no TATA STEEL 90% 10% SAIL 85% 15%

05. What affect do the government policies have on the company?

A)Positive

B)Negative

TABLE 4.5

80% 70% 60% 50% 40% 30% 20% 10% 0%

positive negative TATA STEEL 65% 35% SAIL 80% 20%

positive negative

06. What affect will the opening up of the Indian steel sector will have on the future of your company?

A)Positive

B)Negative

TABLE 4.6

80% 70% 60% 50% 40% 30% 20% 10% 0%

positive negative TATA STEEL 70% 30% SAIL 75% 25%

positive negative

07. In your opinion, which style of leadership does your company have?

A)Autocratic

B)Moderate

C)Democratic

TABLE 4.7

40% 35% 30% 25% 20% 15% 10%

Autocratic Moderate Democratic

5% 0%
Autocratic Moderate Democratic TATA STEEL 30% 40% 30% SAIL 40% 20% 40%

08. How are the atmosphere and the environment at work?

A)Very Tensed

B)Tensed

C)Moderate

D)Relaxed

E)Very Relaxed

TABLE 4.8

40% 35% 30% 25% 20% 15% 10% 5% 0%

very tensed tensed moderate relaxed very relaxed TATA STEEL 30% 40% 20% 5% 5% SAIL 35% 35% 15% 10% 5%

very tensed tensed moderate relaxed very relaxed

09. How would you rate the turnover rate in your organization?

A)Very High

B)High

C)Medium

D)Low

E)Very Low

TABLE 4.9

40% 35% 30% 25% 20% 15% 10% 5% 0%

TATA STEEL very high high medium low very low 30% 25% 20% 15% 10% SAIL 25% 20% 40% 5% 10%

very high high medium low very low

10. Does the company offer you opportunities for growth and advancement of your career?

A)Yes

B)No

TABLE 4.10

80% 70% 60% 50% 40% 30% 20% 10% 0%

yes no TATA STEEL 75% 25% SAIL 70% 30%

yes no

11. According to you how is the culture of the organization?

A)Conducive for growth

B)Hinders Growth

TABLE 4.11

70% 60% 50% 40% 30% 20%

conducive for growth hinders growth

10% 0%
conducive for growth hinders growth

TATA STEEL 65%

SAIL 70%

35%

30%

12. What does your company think about its customers?

A)Customer is king

B)Customer is Important

C)Customers are just Customers

TABLE 4.12

70% 60% 50% 40% 30% 20% 10% 0%

consumer is king consumer is important consumers are just important TATA STEEL 60% 35% 5% SAIL 70% 28% 2%

consumer is king consumer is important consumers are just important

13. Does your company reward you for your performance?

A)Yes

B)No

TABLE 4.13

80% 70% 60% 50% 40% 30% 20% 10% 0%

yes no TATA STEEL 75% 25% SAIL 70% 30%

yes no

14. Does your company have a clear and defined future goal? A) YES B)NO

TABLE 4.14

90% 80% 70% 60% 50% 40% 30%

yes no

20% 10% 0%
yes no TATA STEEL 80% 20% SAIL 85% 15%

15. How clear are authority and responsibility relationships defined in your organization? A) Very clear B) Very unclear C) Cant say

TABLE 4.15

45% 40% 35% 30% 25% 20% 15% 10% 5% 0%

very clear very unclear cant say TATA STEEL 40% 30% 30% SAIL 45% 15% 40%

very clear very unclear cant say

16. Do you own the shares of your company?

A)Yes

B)No

TABLE 4.16

80% 70% 60% 50% 40% 30% 20% 10% 0%

yes no TATA STEEL 75% 25% SAIL 70% 30%

yes no

17. If yes, then are you happy with the dividend payouts?

A) Yes

B) No

TABLE 4.17

90% 80% 70% 60% 50% 40% 30%

yes no

20% 10% 0%
yes no TATA STEEL 85% 15% SAIL 90% 10%

18. In your opinion how has been the performance of your companies stock in the recent past?

A) Good

B)Very good

C)Satisfactory

D)Outstanding

TABLE 4.18

35% 30% 25% 20% 15% 10% 5%

good very good satisfactory outstanding

0%
good very good satisfactory outstanding

TATA STEEL 20% 30% 35% 15%

SAIL 25% 30% 20% 25%

19. Would you invest money in your own companies stock?

A)Yes

B)No

TABLE 4.19

70% 60% 50% 40% 30% 20%

yes no

10% 0%
yes no

T AT A ST EEL 60% 40%

SAIL 65% 35%

20. The future is very competitive; do you think your organization is ready to face the competition?

A) YES

B)NO

TABLE 4.20

70% 60% 50% 40% 30% 20%

yes no

10% 0%
yes no

TATA STEEL 60% 40%

SAIL 65% 35%

4.3 STRATEGIES

Demand Side

Strengthening of delivery chain Interface between producers, designers of steel intensive products,

fabricators and ultimate user of steel Creating awareness about cost-effective and technically efficient end-use

Supply side

services

Enhanced and easy access to critical inputs iron ore & coking coal Expansion and improvement in quality of infrastructure Well developed financial market Increased focus on R&D, training of manpower and integrated information

Strategies for Fuelling Demand

Facilitate Rural Consumption

Increased usage in Bridges, Crash Barriers, Flyovers and Building Constructions Closer interaction between INSDAG / Large Producers and Architects/ Engineers/

Students

4.4 OPPORTUNITIES & THREATS FOR SAIL

4.4.1 Opportunities

SAIL has four main integrated Steel Plants (ISPs) which have a combined capacity of 10.2 million tonnes of saleable steel with modernized facilities available to meet diverse customized requirements in the terms of quality, size, grade, delivery etc.

The per capita consumption of steel in the country is just about 30 kgs as compared to the world average of about 144 kgs. There is therefore scope for substantial increase in domestic steel consumption through better utilization of existing capacity and enhancement of production capacity.

Given the substantial investments taking place in infrastructural development in the country in the form of construction of highways, bridges, seaports and airports etc. And the fact that SAILs long products are preferred for their superiors quality, there is sufficient opportunity to increase the production and sales of long products.

In case of flat products, SAIL remains a major supplier of HR Coils to the tube making sector while increasing its presence in the cold rolling segment. Further, the growing demand from the white goods and automobile segments provide good opportunity for enhanced sales of CR Coils and Sheets.

The water supply, oil & gas sectors are other segments where there is large growth potential as a number of major pipeline projects are on the anvil. The Electric Resistance Welded Pipe Plant (ERWPP) at Rourkela which is being modernized will be able to cater to the requirements of the oil and gas sector through supply of higher grades of API Pipes upto API X-70 in wall thickness of 3.2 12.7 mm. Besides, SAIL would continue to supply HR Coils and Plates to meet the requirement of these sectors.

During last few years, the Company has taken several measures to reduce costs in areas such as operations, purchases etc., which has helped in containing SAILs cost of production by neutralizing the impact of input cost escalations. Cost reduction would continue to remain a thrust area for SAIL as the company strives to further improve its cost-competitiveness.

4.4.2 Threats

During the fourth quarter of 2005-2006 custom duties on steel have been reduced from 25% to 15% and imports have also been exempted from levy of Special Additional Duty (SAD), thereby effectively reducing the customs duty by about 50%. As and when

international prices go down there could be an increase in imports. Furthermore, any downward trend in international market prices may result in consequential reduction in realization in domestic market.

Anti-dumping measures continue to be held in place of USA and the European Union and experts to these countries still remain largely affected. Further, the growth in global steel demand, which has been powered by the high demand from China, may not be maintained at the present level and, in due coarse, could get reversed when Chinese demand comes down of production capacity of China increases. In respect of HR Coils, there is still an estimated surplus capacity about 3 million tonnes in the country and exports could need to be maintained so long as domestic demand falls short of availability. While SAIL has upgraded and modernized the Rail Mill at Bhilai Steel Plant, entry of new producers of rails in the country is a potential source of competition. However, SAIL has signed an MOU with the Railways who are sourcing almost their requirement of rails from SAIL. Also, new capacities are being set up in the country, which on commissioning, would further intensify the present level of competition.

4.4.3 Risks and Concerns

Given the increasing globalization of the Indian economy, high volatility of international prices has a direct effect on domestic steel prices, particularly in respect of flat products. Also, the decline in international prices would lead to lower margins on exports. Inadequate availability and higher prices of key raw materials such as coal, Ferro alloys

etc. In the required quality coupled with infrastructural constraints, like wagon availability, port congestion etc. Would greatly impact operations at SAIL Plants as well as their operating margins

4.4.4 Outlooks

The domestic per capita steel consumption in India is still quite low and much below the average international level, thus having an impact on the future prospects of Indian steel companies. However, implementation of steel intensive projects in key sectors of economy would be beneficial to the Indian Steel Industry. The buoyancy in the Indian Steel is a combination of demand for exports, mainly to China, and also a positive outlook in certain steel consuming sectors of the Indian Economy, which is expected to continue in the coming year too. Infrastructure development, and also the number of industrial projects taking off would result in increased economic activity which would generate demand and consumption of steel.

CHAPTER 5- CONCLUSION

It was a privilege for me to take this opportunity to choose SAIL & TATA Steel as the target organizations for my research study. As a result of my research work and analysis further, I reached the following conclusion:-

SAIL recognizes that leadership is essential for survival in competition environment. Customer's satisfaction like quality is a journey and not a destination. It is essential that everyone in the company have a clear understanding of what customer satisfaction means if the plant aim to achieve leadership in customer satisfaction. While improved customer satisfaction is necessary for ensuring prosperity of the company must also be recognized that ability of the company to satisfy its customers would depend on its ability to continuously improve its profit and growth.

The management at TATA Steel believes that Customer's satisfaction would happen when the management fulfills the following dimensions.

1. Delivery in time. 2. Product mix according to customer requirement 3. Flexible pricing policies 4. Complaint settlement 5. Culture of customer service.

I have observed certain problems in the marketing department of SAIL which has scope of improvements:-

1. Policies and strategies to create awareness among the customers about the product are not effective. 2. All marketing procedure of prime products are decided by SAIL and carried out by the Central Marketing Organization (CMO). 3. As the organization is concerned with a large number of productions activities and the departmental work are done mostly manually from placement of orders to documentation, which ultimately frustrates the employees. 4. The organization is more concerned with larger orders of steel products by ignoring the smaller orders. 5 The local customers with business of by-products are sometimes made to wait for

days to get their papers. Cleared by the department. 6. Most of the existing yards suffers from improper stocking space and siding facility often they are not well developed due to this the material stored there are rusted and other defects are caused and later they are disposed of by offering some concession or at low rate which result in loss. 7. Due to improper packing, the materials reach the stockyard often in damaged

condition, which is attracting criticism from the customers and these damaged materials are sold with loss.

8. Export considered Secondary to domestic selling as SAIL is a government undertaking and its First priority is given to domestic marketing.

The current usage of steel in construction in our country is reasonably low. It may be noted that the present per capita consumption in the country is barely 29 kgs, as against the world demand of 149 kgs and over 400 kgs in several developed countries. Nonetheless, this scenario is expected to change and the countrys steel consumption figures are likely to rise substantially in coming years. Steel production in India, at a level of 35 million tonnes during 2005-06, is expected to jump to a level of 60 million tonnes by 2011-12, and to about 100 million tonnes by 2020. But for this change to happen, both rural and urban housing needs to be given a thrust in our country. As of now, the existing housing shortage in the country is estimated at over 12.8 million dwelling units. As per estimates nearly 140 million new dwelling units shall be required by the year 2020, involving an investment of around Rs. 14,000 billion. The urban housing sector in India would need investments worth US$ 25 billion over the next 5 years.

5.1 GO VT. INITIATIVES IN THIS REGARD

Interestingly, while housing construction constitutes about 3-5% of GDP in developed countries, in India it is just about 1%. Thus to promote housing, the government has announced several schemes such as the Valmiki Ambedkar Awas Yojana, Indira Awas Yojana, Birla Awas Yojana, through NGOs and self-help groups, etc. Additionally, in its

fiscal policy, the government has provided various incentives for construction of new dwelling units. The interest rates on housing loans have been cut to almost half of what they were 15 years back. Similarly, personal tax reliefs have been provided for contribution towards the principal amount where loan facilities have been availed for house construction.

Road building is another important area in the construction sector, which is all set to experience immense growth. Under the National Highway Development Programme, 14,279 kms of national highways are to be converted to 4/6lanes at a total estimated cost of Rs. 65,000 crore. The project involves the Golden Quadrilateral linking the four major citiesof Delhi, Mumbai, Kolkata and Chennai, the North-South and East-West corridors involving 7,300 kms of roads connecting Srinagar in the north to Kanyakumari and Silchar in the east to Porbandar in the west, as well as port connectivity and other projects to the extent of 133 kms. Further, by the end of the year 2005 all villages with a population of 1,000 are to be connected and by 2008 all villages having a population of 500 people are to be connected to the main road.

5.1.1 Government Protection for Indian Steel Industry

Steel industry does not enjoy any unreasonable protection from the Government. Import duty on steel was reduced from 25% to 20% and has been lowered further to 15%. HR Steel imports have become cheaper by almost Rs 6000 to Rs 8000. The Government has also suspended DEPB benefits on export of HR Steel. The combined effect of this has practically abolished any meaningful protection. An appreciating Rupee has made exports even less viable for the industry and imports continue becoming cheaper.

Numerous non-tariff barriers on steel exports have been put in place by other countries. Developed countries like US have imposed high anti-dumping duty as high as 60% on certain varieties of steel

While this is the case with Indian steel industry, user groups such the Indian automobile industry enjoys a high protection with 100% import duty on finished products.

Despite these difficulties the Indian steel industry has managed to keep itself competitive

5.2 EXPORT OPPORTUNITIES OF INDIAN STEEL INDUSTRY TO ENHANCE NATIONAL INCOME Taking a look at the global outlook of the Stainless Steel Industry Mr. N C Mathur, Director Corporate Affairs and International Marketing, Jindal Stainless Steel Ltd. said, "In 2006, world production of stainless steel was 24,583 MT as compared to 22,861MT in 2005, a growth of 7.5%. During the same period, the growth in Asia was much higher at 11.9% with 11,896 MT of stainless steel produced in 2005 as compared to 10,645 MT in 2004. India & China will contribute to the maximum growth in Asia. In fact, Asia including China, South Korea, India, Thailand, Taiwan, have become the largest user segment with a share of almost 43% last year, which is expected to increase to 50% in the coming years. This change in market dynamics is expected to have a substantial impact on raw material pricing, material flow, product mix by grades and market development. India has a good chance of benefiting from this.

One of the major consumers of steel is the automobile industry. Analysing the Auto Industry Growth Potential, Steel Demand and Product Development, Mr Anuj Munjal, Dy. Chief Executive Officer, Hero Cycles Ltd. Cold Rolling Divison, stated, "Worldwide, the auto industry is showing good growth and the scenario is similar in India too. For the Indian steel industry, there is a great opportunity to move up the value chain and manufacture a range of special steels that have a good demand in the auto industry. These include Trip Steel, Dual Phase Steel, Dent Resistant Steel, Tailor Welded Blanks, Micro Alloyed Steel, Boron Steel and Tubular Hydroforming."

5.3 OTHER SECTORS

Other sectors where substantial growth is expected in the coming years are power generation & transmission, telecom, ports, housing and urban infrastructure. The total outlay on major infrastructure sectors during the 10 Plan is Rs 413,197 crore, of which the estimated share of construction is Rs 271,177 crore. The major outlays are on power (Rs 143,399 crore), urban infrastructure (Rs 12,168 crore), railways (Rs 60,600 crore), roads(Rs 59,700 crore), ports (Rs 5,418 crore), shipping (Rs 14,220 crore), telecom(Rs 86,964 crore) and water supply & water resources (Rs 17,800 crore).
th

With all these above mentioned investments, demand for steel is expected to increase extensively. To justify this claim, it is imperative to mention the estimates which suggest that every 500 MW power unit about 18,000 tonnes of structural steel, 15,000 tonnes of reinforcement bars, 24,000 tonnes of steel for boilers and 68,000 tonnes of cement is required. Also, as per a leading estimate, the growth in flat steel products such as plates, HR coils/sheets, CR coils/sheets, galvanised sheets, for example, during the 10 and 11
th th

Five year Plans, is expected to be of the order of 8.5% and 9.4% respectively. On the other hand, in the case of non-flat steel products like bars & rods, structurals, rails, etc., the growth rate is expected to be about 5.9% and 5.7% respectively.

The advantages of using steel in the construction segments are manifold as it can be easily transported, recycled and it is cost-effective. Besides, it is a sustainable commodity, which does not shrink, wrap or change in shape. It is non-combustible, fire

resistant and its properties remain consistent for longer period of time. Steel has a wide range of applications in the construction sector. Wire rods for the manufacture of fasteners, wires for reinforcement, rebars for buildings, equipment foundation and structural applications, sections for building construction, structures, bridges, ships and vessels, universal beams, wide-flange beams, H-shapes for purlins and frames, tubular products for water, steam and slurry piping, plates for fabrication of steel structures, HR coils/sheets for manufacture of welded pipes, cold rolled sheets for press-formed components, tanks and containers, galvanised sheets for roofing, side cladding, fencing and water tanks and coated sheets for interior decoration, roofing, panelling, etc., are few examples of the vast construction possibilities of steel.

5.4 Suggestions To Enhance Efficiency Of Steel Industry in India

There is a need to continue the current thrust on infrastructure related activities and extend them to rural India. Rural Indian today presents a challenge for development of the country and the opportunity to increase usage of steel in these areas through projects such as rural housing etc.

Current shortage of inputs has pushed up the costs for the steel industry. Government should ensure that quality raw material such iron-ore and coke are available to the industry. With Ministry of Steel targeting an output of 100 MT of steel by 2020 there is an urgent need to develop raw material resources for inputs like iron-ore and coal

within or outside the country. Countries like Japan have already taken similar steps to safeguard their industries.

Adequate enabling infrastructure such as power, ports, roads, rail transport is prerequisite for the Indian steel industry to remain competitive.

Government should not regulate prices and free market forces should prevail. Intervention by the Government is only a short-term solution to the issue of steel prices in the country. Once left alone, market dynamics will automatically ensure price corrections and determine the optimum price of steel.

The Indian steel Industry is amongst the least protected in the world. While developed countries have put numerous tariff and non-tariff barriers on steel exports from the country, the domestic industry is exposed to cheaper imports from competing nations. As in case of other important industries, the Government should give reasonable levels of protection to the domestic steel industry, which is just starting to get back on its feet.

Industry should be allowed to have a fair return on investment and contribute to the overall health of the Indian manufacturing segment. The steel industry has invested a capital of over Rs 90, 000 crores. CRISIL in a recent study has concluded that given the large exposure that banks and financial institutions have to the steel industry, a healthy steel sector is in the interest of the economy. Steel industry still continues to be unattractive for investors.

Today, Indian producers employ world-class standards of technology. Steel from Indian finds growing acceptability in international markets. But despite this Indias share in world trade steel is a miniscule 2%. Given the capabilities of the Indian steel industry there is tremendous scope to increase this share further. While the steel industry will continue servicing the domestic demand there is a lot of untapped export potential with the industry.

5.5 LIMITATIONS

In completing the study a number of difficulties were encountered. In such a short span of time it is very difficult to study the whole personnel functions or a/c of the organization. The impact of the marketing programm on organization is a

continuous process. It is impossible to study the whole procedure within such a short span. Apart from this there were lots of other problems encountered during the research work. The officials were very hesitant and reluctant to give interviews and answers to questions of investigators. Further this study of SAIL & TATA Steel does not give scope for the comparative study with other organizations.

As a concluding remark, it is essential to note that while the growth in construction is one of the major indicators of economic growth, the increasing usage of steel is one aspect that cannot be missed. Poised for this substantial development, the Indian steel industry is bound to receive adequate support by the proposed large-scale investment in the

construction sector, including building roads, highways, airports, seaports, power or the industry sector. Yet to ensure this kind of backing, there is an urgent need to encourage the flow of financial resources to this sector. Similarly, it is essential to make project management more efficient and to facilitate close monitoring of project completion. This comes in light of the fact that in the past instances, projects have been badly hit by time and cost overruns.

REFERENCES

1. Brealey R, Myers S, (2003). Principles of Corporate Finance, Seventh Edition, New Delhi, Tata McGraw-Hill. 2. Johnson G, Scholes K, Whittington R. (2005). Exploring Corporate Strategy Text and Cases. 7
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Edition, Harlow England. FT Prentice Hall.

3. Mehta, SR, Business World, 2007, volume-2, issue-iv, pp: 29-30 4. Shroff, Pesi, 2005,India Today, issue dated 15th June 2005, pp: 48 5. Pandhe M K, 2007, Business Today, issue dated 1st August 2007, pp: 98 6. Porter, E M, (1985) Competitive Advantage, Creating and Sustaining Superior Performance. USA, the Free Press. 7. Wharton (1997) Wharton on Dynamic Competitive Strategy New York, John Wiley & Sons, Inc 8. ICFAI Press, Journal on Industry, Feb 06, Volume-2, PP.21-22 9. Das SN, Business & Economy, Jan 06, Volume-1, pp14-15 10. Hindu, Survey Of Industry, 2006, pp.24-25 11. Smark J, 2006, The Sunday Indian, March 2006, Volume-3, Pp.42 12. Hindu, Survey Of Industry, 2005, pp.24-25 13. Prakash B, 2006, The Economist, December 2006,Volume-12,pp.29 14. Economic Survey, 2005-06, Government of India Publication 15. What is Strategy? Harvard Business Review, Nov-Dec 1996, p. 73 16. Sarkar JK, 2007, Times of India, issue dated 14th Feb 2007, pp: 25

17. Rawat NM, (2007), Business & Management Chronicle, issue dated 30th Nov 2007, pp: 98-99 18. Zubin Jayed Sayeed (2007), Civil Services Chronicle, issue dated 1ST April 2007, pp: 101-102 19. Sheryn Drick M, 2007, Business Standard, issue December 2007, pp: 98-99 20. Kim Suzi, 2006, Economic Times, page-4, column -2, issue dated 09 September, pp: 9 21. Mohan Das (2006), Business & Economy, volume-4, issue-8, pp: 165-166 22. Daniel M, 2005, BBC report published in Business Deccan, dated 30th Nov 2005, 23. SAIL Annual Report 2007, pp: 56 24. SAIL Annual Report 2007, pp: 57 25. SAIL Annual Report 2007, pp: 58 26. SAIL Annual Report 2007, pp: 59 27. Sinha Kumar K, 2007, competitive strategies for better future, ICFAI Journal, volume-4, pp: 39 28. Raunil Desouza (2007), business herald, volume-1, pp: 99 29. Business Today, 2007, 09 September issue, pp: 29 30. Business Today, 2007, 09 September issue, pp: 29 31. Business Today, 2007, 09 September issue, pp: 30 32. Ramaswamy MAM, 2006, Global Business Economy, 2e, pp: 69 33. Ramaswamy MAM, 2006, Global Business Economy, 2e, pp: 70 34. Business World, 2006, volume 4, issue 8, pp: 43 35. Business World, 2006, volume 4, issue 8, pp: 44

INTERNET LINKS

1. www.sail.co.in

2. www.tatasteel.com

3. http://www.tatasteel.com/Company/profile.asp

APPENDIX
INDIAN STEEL INDUSTRY SWOT ANALYSIS

STRENGTHS

Abundant resources of iron ore Low cost and efficient labor force Strong managerial capability Strongly globalize industry and emerging global competitiveness Modern new plants & modernized old plants Strong DRI production base Regionally dispersed merchant rolling mills

WEAKNESSES

High cost of energy Higher duties and taxes Infrastructure Quality of coking coal Labor laws Dependence on imports for steel manufacturing equipments & technology Slow statutory clearances for development of mines

OPPORTUNITIES

Huge Infrastructure demand Rapid urbanization Increasing demand for consumer durables Untapped rural demand Increasing interest of foreign steel producers in India

THREATS

Slow growth in infrastructure development Market fluctuations and Chinas export possibilities Global economic slow down

SURVEY QUESTIONS 1. Which company do you think is the main competitor of your company? A)TATA Steel B)Jindal Steel C)Essar Steel

2. How would you rate your companies competitiveness in relation to the industry?

A)Less Competitive

B)Moderately Competitive

C)Very Competitive

3.

Do you think being a public sector company is a hurdle for the growth of the

company? A)Yes B)No

4. In your opinion is your company ready to expand overseas like other Indian steel companies? A)Yes B)No

5. What affect do the government policies have on the company? A)Positive B)Negative

6. What affect will the opening up of the Indian steel sector will have on the future of your company? A)Positive B)Negative

7. In your opinion, which style of leadership does your company have? A)Autocratic B)Moderate C)Democratic

8. How are the atmosphere and the environment at work? A)Very Tensed B)Tensed C)Moderate D)Relaxed E)Very Relaxed

9. How would you rate the turnover rate in your organization? A)Very High B)High C)Medium D)Low E)Very Low

10. Does the company offer you opportunities for growth and advancement of your career? A)Yes B)No

11. According to you how is the culture of the organization? A)Conducive for growth B)Hinders Growth

12. What does your company think about its customers? A)Customer is king B)Customer is Important

C)Customers are just Customers

13. Does your company reward you for your performance? A)Yes B)No

14.

Does your company have a clear and defined future goal? B)NO

A) YES 15.

How clear are authority and responsibility relationships defined in your

organization? A) Very clear B) Very unclear C) Cant say

16. Do you own the shares of your company? A)Yes B)No

17. If yes, then are you happy with the dividend payouts? A) Yes B) No

18. In your opinion how has been the performance of your companies stock in the recent past? A) Good B)Very good C)Satisfactory D)Outstanding

19. Would you invest money in your own companies stock? A)Yes B)No

20. The future is very competitive; do you think your organization is ready to face the competition? A) YES B)NO