IMPLICATIONS OF CEO DECISION

ON CORPORATE STRATEGY
Submitted By
Diksha Sachan(2018MBA007)
Introduction
• Essar Group, founded by Shashi Ruia and Ravi Ruia, in 1969, as a construction company,
later diversified into various core sectors, to become one of India's biggest multinational
conglomerates.

• Essar Steel, Essar Energy, Essar Oil and Gas, Essar Ports(India's second-largest private
sector port and terminal company by capacity and throughput),Essar Projects, Essar
Telecom, Consumer durables and IT retail, Essar Realty, Essar Shipping.

• In the 1990 Essar began its steelmaking business by setting up India’s first sponge iron
plant in Hazira, a coastal town in Gujarat.
 • CEO of Essar Steel - Dilip C Oommen

• Steel Industry has been desired in India in post-

independence tiers till 3rd year of 5 year plan. On the
same direction, after 22 years of globalization of Indian
Economy, Essar Steel CEO Dilip Oommen recommend a
strategic initiative which concerned promoting of extra
Essar Steel products manufactured supposed for captive intake only.

(India) Ltd. • Essar Steel (India) Ltd. Has commissioned 6 Mtpa

pelletization plant at Paradip, India. If this plant works at
its full capacity there could be extra pellets produced
then required for captive consumption. As stated by way
of Mr. Dilip Oommen, “Extra pellets, if any, will be sold.”
This is a new strategic initiative in steel industry. The case
offers with implications of this strategic initiative on the
subject of synergies with present day strategies, changes
in sector.
 1. Is this Strategy synergistic with current
trends in Steel Industry of India?

The Problem ?
2.Should company use its own produced
pellets or buy from suppliers?
 • Selling an extra pallets in the open market will actually
help the company to earn double revenue as it was a new
invention in the steel industry as a raw material(First
Movers Advantage). It will later give a good cost
advantage as the production will cost very less to Essar in
long run(Marginal Cost) and they can have a monopoly in
future.
The Solution 1
• We can use transfer pricing(Transfer price is the price at
which related parties transact with each other) to
determine the pricing of pellets. The price can
determined by the cost incurred in the production of iron
to make steel.
• Yes, the strategy made by the CEO is synergic in every
aspect.
 Advantage of having own production

• Retain control over the product.(Customization)

• There is a potential for you to make huge earnings. If
the product does well, you reap in all the benefits.
• Lower Cost when producing in low volumes
• The government will give priority in iron ore mine
allocation to steel companies that build pellet plants,
Solution 2 as an incentive to prompt more companies to invest in
ore improving facilities.
• This would also reduce the need to export certain
categories of ore. (Source : Economic times)
• The expected rate of return of pellets is 6.50%
• With being sufficient ,Essar will be able to cut huge
amount of cost incurred on input materials (Transfer
Cost)
• So it is a better option to produce, consume and sell
the pellet by manufacturing by own as it would help in
growing rapidly in the industry.