Strategy Proj - Group 3 - Tata Steel

1 TATA Steel: Strategy Analysis by Group 3
STRATEGY MANAGEMENT
PROJECT REPORT
On
TATA STEEL
Submitted on:
December 06, 2010
Submitted by:
WMP 5003 (Alok Sawalia)
WMP 5009 (Ankur Khullar)
WMP 5023 (Gaurav Katyal)
WMP 5024 (Gurudutt Virmani)
WMP 5026 (Kanika Bijlani)
WMP 5056 (Sudhakar Y)
Contents
1. Introduction...................................................................................................................................4
1.1 Industry Definition.......................................................................................................................4
1.2 Indian Steel Industry....................................................................................................................4
2. Market Dynamics............................................................................................................................5
2.1 Market Overview.........................................................................................................................5
2.2 Market Trends.............................................................................................................................5
2.3 Key Drivers...................................................................................................................................6
2.4 Major Issues and Implications.....................................................................................................6
3. Vision and Mission statement of Tata Steel....................................................................................6
3.1 Vision.......................................................................................................................................6
3.2 Mission....................................................................................................................................6
4. Financial Ratio Analysis of Tata steel (Is the Firm successful?)........................................................7
4.1 Asset Turnover Ratio................................................................................................................7
4.2 Interest Coverage Ratio...........................................................................................................8
4.3 Profit Before Interest Depreciation And Tax Margin................................................................8
4.4 Adjusted Profit After Tax Margin.............................................................................................9
4.5 Return On Capital Employed....................................................................................................9
4.6 Return On Net Worth............................................................................................................10
5. PEST Analysis................................................................................................................................11
5.1 External Environment Analysis For Tata Steel Using Pest Framework...................................12
6. SWOT Analysis..............................................................................................................................14
6.1. Strengths................................................................................................................................14
6.2 Weaknesses...........................................................................................................................15
6.3 Opportunities.........................................................................................................................15
6.4 Threats...................................................................................................................................16
7. Porter Five Forces Model..............................................................................................................17
8. Identifying “Core Competencies” and “Competitive Advantage” using Value Chain Analysis.......23
8.1 Primary activities (with respect to Tata Steel Limited)...........................................................24
8.2 Support activities: (With respect To Tata Steel Limited)........................................................27
8.3 Core Competencies of Tata Steel Limited on the Basis of Value Chain Analysis....................29
8.4 Competitive Advantages of Tata Steel Limited on the Basis of Value Chain Analysis............30
8.4.1 VRIO Framework................................................................................................................30

9. Identifying Critical Success Factors...............................................................................................31
10. Current Strategy of TATA Steel.....................................................................................................33
11. Conclusion....................................................................................................................................33
12. References....................................................................................................................................34
1. Introduction
1.1 Industry Definition
The Indian steel industry comprises producers of finished steel, semi-finished steel,
stainless steel and pig iron. The private sector controls almost two-thirds of the steel
market, while the public sector producers have the remaining one-third market share.
1.2 Indian Steel Industry

1.2.1 Sector structure/Market size
The steel industry in India has been moving from strength to strength and
according to the Annual Report 2009-10 by the Ministry of Steel, India has
emerged as the fifth largest producer of steel in the world and is likely to become
the second largest producer of crude steel by 2015-16.
Led by strong demand for autos and engineering services, the domestic steel
demand in India remains robust, as per Moody's sectoral analysis on Asia's steel
sector. According to the analysis, the outlook for the domestic operating
environment is positive, driven by robust growth in infrastructure, autos and
construction and constrains on additional supply by 2011.
Recently, Mr Virbhadra Singh, Minister for Steel, said that India will become the
world's second-largest steel producer by 2012, with a capacity of 124 million
tonnes (MT) as part of the push being given to assist overall infrastructure
development.
1.2.2 Production
India's steel production during 2009-10 was 64.88 million tonne (MT), up 11 per
cent from a year ago, according to Mr A Sai Pratap, Minister of State for Steel.
During the second quarter ended September 2010, steel majors Tata Steel and Steel
Authority of India Ltd (SAIL) reported a high growth in steel sales. SAIL
registered sales of 3.17 MT in the period under review, while Tata Steel's total
sales for the quarter stood at 1.66 MT which is around 14 per cent higher than the
corresponding quarter last year.
Meanwhile, JSW Steel's production during the quarter grew by 8 per cent to 3.14
MT on the back of a steady rise in demand.
1.2.3 Consumption
The domestic steel consumption grew by 9.8 per cent to 29.82 MT during April-
September 2010 over the year-ago period, on the back of steady demand from
sectors like automobile and consumer durables. As per the provisional data from
the Ministry of Steel, consumption was at 27.15 MT in the same period a year ago.
In September 2010, steel consumption rose 4.1 per cent to 4.72 MT, against 4.53
MT in the year-ago period.
1.2.4 Investments
A host of steel companies have lined up major investment proposals. Furthermore,

with an expanding consumer market, the Indian steel industry is likely to receive
huge domestic and foreign investments.
The domestic steel sector has attracted a staggering investment of about US$ 238
billion, according to Mr A Sai Prathap, Minister of State for Steel. This consists of
nearly 222 MoUs signed between the investors and various state governments
mostly in the states of Orissa, Jharkhand, Chhattisgarh and West Bengal.
Tata Steel plans to invest US$ 226.17 million to commission its proposed
ferroalloys plant and bar mill at its industrial park at Gopalpur and a greenfield
steel plant at Kalinga Nagar.
Essar Steel plans to expand its exclusive steel showrooms, Hypermart and retail
outlet, Expressmart in Madhya Pradesh.
JSW Steel plans to invest US$ 17 billion over the next 10 years to ramp up
capacity from 7.8 million tonne per annum (MTPA) to 32 mtpa through greenfield
and brownfield projects.
Jindal Steel has completed the acquisition of Oman-based Shadeed Iron and Steel
Co LLC for US$ 464 million.
Japan's Nippon Steel will begin a manufacturing operation in India making steel
pipes for use in automobiles and plans to invest US$ 37 million on production and
sales operations.
1.2.5 Government Initiative

As per the Press Information Bureau (PIB), during 2009, the government took a
number of fiscal and administrative steps to contain steel prices. Central value
added tax (CENVAT) on steel items was reduced from 14 per cent to 10 per cent
with effect from February 2009.
Moreover, in the Union Budget 2010-11, the government has allocated US$ 37.4
billion to the infrastructure sector and has increased the allocation for road
transport by 13 per cent to US$ 4.3 billion which will further promote the steel
industry.
Exchange rate used: 1 USD = 42.21 INR (as on October 2010)
2. Market Dynamics
2.1 Market Overview
India occupied the eighth position in terms of worldwide crude steel output. India’s
per capita steel consumption is low at 30 kg compared to global standards for
developed countries at 400 to 500 kg.
2.2 Market Trends

Low Per Capita Consumption
Rise of the Private Sector
Public Sector versus Private Sector
Gradual Industry Consolidation
2.3 Key Drivers

Huge Investment in Infrastructure
Booming Industrial Production
2.4 Major Issues and Implications
Rising Raw Material Prices
High Cost of Imported Coking Coal
Low R&D Expenditure
Inefficient Mining of Iron Ore
Demand-Supply Gap
3. Vision and Mission statement of Tata Steel

3.1 Vision
“We aspire to be the global steel industry benchmark for Value Creation and Corporate
Citizenship”
3.2 Mission
Consistent with the vision and values of the founder Jamsetji Tata, Tata Steel strives
to strengthen India’s industrial base through the effective utilization of staff and
materials. The means envisaged to achieve this are high technology and
productivity, consistent with modern management practices.
Tata Steel recognizes that while honesty and integrity are the essential ingredients
of a strong and stable enterprise, profitability provides the main spark for economic
activity.
Overall, the Company seeks to scale the heights of excellence in all that it does in an
atmosphere free from fear, and thereby reaffirms its faith in democratic values.
4. Financial Ratio Analysis of Tata steel (Is the Firm successful?)

All the graphs that we have plotted below point towards the fact that the financial health
of the Tata steel is pretty good and on most of the occasions it has performed better than
the industry. We do not plan to elaborate more on the financial analysis of the firm as it is
out of the scope of the project. The idea to here was to have a look at the key financial
ratios before taking a deep dive into the firm and industry analysis.
4.1 Asset Turnover Ratio
1.6
1.4
1.2
0.8 Steel Industry

Tata Steel
0.6
0.4
0.2
0
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
4.2 Interest Coverage Ratio
35
30
25
20
Steel Industry
15 Tata Steel
10
0
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
4.3 Profit Before Interest Depreciation And Tax Margin
45
40
35
30
25
Steel Industry
20 Tata Steel
15
10
0
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
4.4 Adjusted Profit After Tax Margin

25
20
15
10
Steel Industry
Tata Steel
5
0
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
-5
-10
4.5 Return On Capital Employed
70
60
50
40
Steel Industry
30 Tata Steel
20
10
0
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
4.6 Return On Net Worth

70
60
50
40
Steel Industry
30 Tata Steel
20
10
0
2010 2009 2008 2007 2006 2005 2004 2003 2002 2001
5. PEST Analysis
Before creating business strategy or when evaluating existing ones it is important to 'scan'
the external environment (general environment). This can be done using PEST analysis,
i.e. an investigation of the Political, Economic, Social, Technological and Legal
influences on a business.
A brief description of each of the factors is as follows:-
 Political factors include areas such as tax policy, labor law, environmental law, trade
restrictions, tariffs, and political stability. All these factors significantly impact the
way in which the business will operate and formulate its strategy.
 Economic factors include economic growth, interest rates, exchange rates and the
inflation rate. These factors have major impacts on how businesses operate and make
decisions. For example, interest rates affect a firm's cost of capital and therefore to
what extent a business grows and expands. Exchange rates affect the costs of
exporting goods and the supply and price of imported goods in an economy
 Social factors include the cultural aspects and include health consciousness,
population growth rate, age distribution, career attitudes and emphasis on safety.
Trends in social factors affect the demand for a company's products and how that
company operates. For example, an aging population may imply a smaller and less-
willing workforce (thus increasing the cost of labor).
 Technological factors include technological aspects such as R&D activity,

automation, technology incentives and the rate of technological change. They can
determine barriers to entry, minimum efficient production level and influence
outsourcing decisions. Furthermore, technological shifts can affect costs, quality, and
lead to innovation.
5.1 External Environment Analysis For Tata Steel Using Pest Framework
External External factors Affecting Tata Steel. Business Implications For Tata
Factors Steel.
Political 1. National steel policy 2005 1. Huge Scope for expansion in
targets the steel production of India with possible
100 million tonnes by 2019- government support.
2020
2. Upper cap on the export of steel. 2. Limits the scope of steel
3. Imposition of Export tax on steel export.
(10%)
4. Low import tariffs leading to 3. Reduces the profitability of
cheap imports. exports.
5. Stringent labor laws. 4. Threat of foreign
competition.
6. High political intervention, red
tapes, bureaucracy, corruption. 5. Cannot reduce manpower
easily in lean times, strong
unions.
6. Doing business can be
difficult in such
environment, there can be
restriction in acquisition of
resources (land, coal mines
etc) .
Economic 1. High GDP growth rate (8-9%). 1. Huge scope for expansion,
scope for adding capacity as
more steel consumption will
2. April-December 2009-10 steel happen as the economy
industries experienced 4% grows.
growth compared to the same 2. Higher growth of the
period last year. industry means more profits
3. Low cost of capital in the for Tata steel.
country.
3. Easy funding available for
4. The exchange rate of the Indian any kind of growth, R&D or
rupee vs dollar has been more or expansion plans.
less stable and in an acceptable 4. Predictable exports profit no
range over the past years. surprises in terms of
reduction in export profits
due to sudden change in the
exchange rates.
Social 1. India is a young country with a 1. Easy availability of cheap

large percentage of young labor.
working population.
2. Low Literacy rate.(about
65%,2001 census) 2. Skilled labor not easily
3. Urban India growing at a fast available.
rate. 3. Scope for expansion.

4. Large rural sector.
4. Scope for expanding into
5. Growing awareness towards rural India.
environment issues. 5. Better utilization of
resources, use of renewable
resources, reduction in co2
6. Higher disposable income emission, can give
competitive advantage.
6. Scope for growing profits.
Technologica 1. Shift in focus towards use of 1. Must invest in R&D to achieve

l cleaner technologies. more and more in this area, can
be a differentiation strategy.
2. Need for cost saving and 2. Can attain Higher profits, they
efficient technologies. are already low cost players can
improve on that further, failure
to continue innovation in this
area can give a lead to
competition.
3. Focus on delivering high quality 3. This is a source of competitive
and strength steel. advantage, if not acted upon it
can threaten their market share.
4. Adoption of advanced and new 4. Leads to more efficient
IT concepts eg SML (steel operations, source of
markup language) competitive advantage
6. SWOT Analysis
We have used this tool to do an internal analysis of the firm’s (strengths and weaknesses);
also we have analyzed the external industry environment by looking at the opportunities and
threats.
6.1. Strengths
Definition: characteristics of the business or team that give it an advantage over others in the
industry.
 Tata Steel‘s Indian operations are self-sufficient in the case of its major raw material iron
ore through its captive mines
 Tata has a strong retail and distribution network in India and SE Asia. Tata is a major
supplier to the Indian auto industry and the demand for value added steel products is
growing in this market
 Tata Steel addresses the risk of cyclicality of the Steel industry by maintaining rich
product mix and higher value added products whose volatility is lower.
 Corus acquisition brings Tata Steel 19 million tonne of capacity at once and at a cost,
which is roughly little more than half the cost of the Greenfield site.
 It gives the steel major access to very matured and developed markets in Europe where it
can go downstream much more than in a developing country like India and even to some
extent China.
 Highly diversified (2nd most geographically diversified steel producer).
 Large Size (The world’s 10th largest steel company).
 One of the world’s lowest cost producers of steel which means it is highly competitive
when it comes to pricing.
 Employee strength over about 34000.

 Huge product portfolio with products catering to following industries: construction,
Automotive, Aerospace, Materials handling, Rail, Engineering, Ship Building,
Packaging, Security and Defense.
 Strong R & D department which help Tata steel stay ahead of competition. Research &
Development (R&D) activity within the Tata Steel Group takes place in 5 major centres
namely, the Ijmuiden Technology Centre (the Netherlands), the Swinden Technology
Centre (United Kingdom), the Teesside Technology Centre (United Kingdom), the
Automotive Engineering Group (United Kingdom) and the Jamshedpur R&D Centre
(India).
 Over 100 years of experience in the steel industry.
 Large Asset Base.
 Value chain efficiencies as compared to other competitors.
 Number of green field projects already lined up .
1. 6 million tonne plant in Orissa (India)
2. 12 million tonne in Jharkhand (India)
3. 5 million tonne in Chhattisgarh (India)
4. 3-million tonne plant in Iran
5. 2.4-million tonne plant in Bangladesh
6. 5 million tonne capacity expansion at Jamshedpur (India)
7. 4.5 million tonne plant in Vietnam (feasibility studies underway)
6.2 Weaknesses
Definition: characteristics that place the firm at a disadvantage relative to others.
 Large Debt around 25000 crores in 2009-2010.

 Higher pressure on margins as the capacity increases.
 Corus was thrice as big as Tata hence there is short term operational issues till the
synergies of the takeover kick in.
6.3 Opportunities
Definition: External chances to make greater sales or profits in the environment.
 Consistent growth rate could take tata-corus to 4th place within the next 3-4 years.
 Exposure to Untapped foreign markets.
 Low per capita steel consumption within the country.
 Consolidation of coal mining and steel industry.
 Unexplored rural markets within India.
 Growing Domestic demand of steel.
 Low cost of export market penetration.
6.4 Threats
Definition: External elements in the environment that could cause trouble for the business.
 China becoming net exporter.

 Protectionism in the West.
 Dumping by competitors.
 Usage of plastic and composites as substitutes.
 Potential risk in the area of plant expansion in India, especially with Greenfield projects,
which have a longer gestation period because of possible delays that may arise on issues
of land, rehabilitation, forestry and environment.
 The steel industry is subject to cyclical swings arising from factors such as excess
capacity, regional demand & supply imbalances and volatile swings in market demand.
 The inherent risks of periodic overheating that continued rapid growth can unleash.
 Health, Safety & Environmental Risks
7. Porter Five Forces Model

Backed by robust volumes as well as realizations, steel Industry has registered a phenomenal
growth across the world over the past few years. The situation in the domestic industry was no
exception. In fact, it enjoyed a double digit growth rate backed by a robust growing economy.
However, the current liquidity crisis seems to have created medium term hiccups. We have
analyzed the domestic steel sector through Michael Porter’s five force model so as to understand
the competitiveness of the sector as well as pointed out the initiatives taken by Tata Steel to
safeguard its position from all the five forces of threats, namely:
 Threats of new entrants: the willingness and ability of firms to enter a particular
industry depends on the barriers to entry. Such barriers include; capital requirements,
economies of scale, government policy & product differentiation.
 Intensity of rivalry among existing competitors
 The bargaining power of suppliers
 The threat of substitute products
 The bargaining power of buyers
Entry barriers: High

 Capital Requirement: Steel industry is a capital intensive business. It is estimated that
to set up 1 mtpa capacity of integrated steel plant, it requires between Rs 25 bn to Rs 30
bn depending upon the location of the plant and technology used.
Tata Steel has already made sufficient efforts to safeguard itself in this regard . It has a
lineup of Greenfield projects which it plans to establish not only in domestic markets
(Jharkhand, Orissa &Chhattisgarh but also internationally (Bangladesh, Iran & Vietnam).
Besides, it has already completed its expansion capacity of its existing plant from 5 mtpa
to 6.8 mtpa at Jamshedpur with an investment of Rs 5,000 crore, while it is in the process
of expanding the capacity from 6.8 mtpa to 10 mtpa with an estimated investment of Rs
15,000 crore. The company has invested Rs 8,000 crore out it and it expects to achieve10
mtpa capacity by 2011-12. It would prove to be very difficult for any new entrant to
come up with such huge investment outlays.
 Economies of scale: As far as the sector forces go, scale of operation does matter.
Benefits of economies of scale are derived in the form of lower costs, R& D expenses
and better bargaining power while sourcing raw materials.
Tata Steel being an integrated steel company has its own mines for key raw materials
such as iron ore and coal and this protects them for the potential threat for new entrants to
a significant extent. Tata Steel owns raw material assets such as coal and limestone mines
through joint ventures or completely, with the assets spread across countries such as
Australia, Oman and Mozambique.
 Government Policy: The government has a favorable policy for steel manufacturers.
However, there are certain discrepancies involved in allocation of iron ore mines and land
acquisitions. Furthermore, the regulatory clearances and other issues are some of the
major problems for the new entrants.
Tata Steel being a century old company under the flagship Tata Sons which is known for
its Corporate Social Responsibility already enjoys a respectable position in front of the
Indian Government. The Jharkhand government on May 24th 2009 has granted a
prospecting license (PL) to Tata Steel for the Ankua iron ore mines. A senior company
official said that Tata Steel has been allocated 1,800 hectares for prospecting in the
Ankua area. Another 10,000 acres of land will be allocated to them for their project
in Ranchi.
 Product differentiation: Steel has very low barriers in terms of product differentiation
as it doesn’t fall into the luxury or specialty goods and thus does not have any substantial
price difference. However, Tata Steel still enjoys a premium for their products because of
its quality and its brand value created more than 100years back. Tata Steel has introduced
brands like Tata Steelium (the world's first branded Cold Rolled Steel), Tata Shaktee
(Galvanized Corrugated Sheets), Tata Tiscon (re-bars), Tata Bearings, Tata Agrico (hand
tools and implements), Tata Wiron (galvanized wire products), Tata Pipes (pipes for
construction) and Tata Structura (contemporary construction material).Apart from these
product brands, the company also has in its folds a service brand called “steel junction”.
Currently two Global Steel majors namely Arcelor- Mittal, which is the world’s largest I
and POSCO, are posed to be the biggest threat as they plan to enter the Indian Steel
Industry very soon.
Competition: High
The steel industry is truly global in terms of competition with large producing countries like
China significantly influencing global prices through aggressive exports. Steel, being a
commodity it is, branding is not common and there is little differentiation between competing
products.
The 4 major domestic rivals are SAIL, JSW, ISPAT & ESSAR STEEL. Rest all are smallish
mills which together accounts for 30 % of the total market share. The market shares of the 5
major players in the Indian Steel Industry are:
Competition Analysis
 Concentration Ratio:
In Economics, the concentration ratio of an industry is used as an indicator of the relative

size of firms in relation to the industry as a whole. This may also assist in determining the
market form of the industry. One commonly used ratio is the four-firm concentration ratio,
which consists of the market share, as a percentage, of the four largest firms in the industry.
IN general, the N-firm concentration ratio is the percentage of the market output generated
by the N-largest firms in the industry.
 The four firm concentration ratio of the Iron and Steel industry is 71%
 This implies that there is oligopoly in the industry as it is dominated by few major
players. Major percentage of the market output is generated by the 4 largest firms in
the industry
All the major domestic competitors like SAIL, ESSAR, JSW, JSPL have announced
massive expansion plans recently:
o SAIL has announced that it will achieve production capacity of 40 Million Tons
by 2020.
o JSW plans to expand its production to 32 Million Tons by 2020
o Other players such as JSPL, ESSAR have similar production expansion plans
which will contribute in overall achievement of 200 Million Tons steel production
by the year 2020.
 Herfindahl Index:
The Herfindahl index, also known as the Herfindahl-Hirschman index or HHI, is a measure
of the size of the firms in relationship to the industry and an indicator of the amount of
competition amongst them. It is an economic concept but widely applied in competition law
and antitrust. It is defined as the sum of squares of the market shares of each individual firm.
As such, it can range from 0 to 1moving from a very large amount of very small firms to a
single monopolistic producer. Decreases in the Herfindahl index indicate a loss of pricing
power and an increase in competition, whereas increases imply the opposite.
 Value of Herfindahl index for Indian Steel industry is 0.2470
It implies that the competition in the steel industry is medium to high and high
concentration.
Bargaining power of suppliers: High

 The bargaining power of suppliers is low for the fully integrated steel plants as they have
their own mines of key raw material like iron ore coal for example Tata Steel. However,
those who are non-integrated or semi integrated has to depend on suppliers. An example
could be SAIL, which imports coking coal.
 Since domestic raw material sources are insufficient to supply the Indian steel industry, a
considerable amount of raw materials has to be imported. For example, iron ore deposits
are finite and there are problems in mining sufficient amounts of it. India’s hard coal
deposits are of low quality. For this reason hard coal imports have increased in the last
five years by a total of 40% to nearly 30 million tons. Almost half of this is coking coal
(the remainder is power station coal). India is the world’s sixth biggest coal importer. The
rising output of electric steel is also leading to a sharp increase in demand for steel scrap.
Some 3.5 million tons of scrap have already been imported in 2006, compared with just 1
million tons in2000. In the coming years imports are likely to continue to increase thanks
to capacity increases.
 Globally, the Top three mining giants BHP Billiton, CVRD and Rio Tinto supply nearly
two-thirds of the processed iron ore to steel mills and command very high bargaining
power. In India too, NMDC is a major supplier to standalone and non–integrated steel
mills.
 In order to safeguard itself from the high bargaining power of the buyers, Tata Steel has
forayed much earlier into the strategy of ‘Backward Integration’. “Ownership of raw
materials and a continuous improvement in production have been the key to Tata Steel’s
profitability. In fact we’ve believed in owning raw materials for the past 100 years,” said
managing director B Muthuraman while elaborating on the century-old company’s
performance.
 Tata Steel and state-owned SAIL have largely been able to withstand raw material price
fluctuations due to captive iron ore mines. Tata Steel is also one of the least cost markers
of steel in the world. Other private steel companies, hit by steep iron ore and coal prices,
have passed on the hikes to the customers, prompting the government to clamp down on
price increases to control inflation.
 The company is dependent on imports for a major portion of its raw material — iron ore
and coking coal —requirements. Tata Steel is self-sufficient to the extent of 25 per cent
for iron ore needs. With supplies coming in from its mines at New Millennium
Corporation in Canada and potentially from the Ivory Coastover a longer term, its iron
ore security would gradually increase to around 62 per cent by 2015. Overall, raw
material security would reach 50 per cent by 2015 and go up to about 60 per cent by
2018.
 It is also evaluating several other mineral projects in Brazil and Australia

 Progressing towards the goal of achieving logistics control,Tata NYK Shipping Pte Ltd,
the Singapore-based joint venture (50:50) between Tata Steel and Nippon Yusen
Kabushiki Kaisha (NYK Line), a Japanese shipping major has entered into a long-term
charter for eight supramax/panamax vessels and orders have been placed for building two
new supramax vessels. The joint venture was floated to handle ocean transportation of
bulk cargoes such as coal, iron ore, limestone as well as finished steel, both imports and
exports, not only for Tata Steel but also for others including other Tata Group companies.
 To achieve coal security by way of imports, the company has formed a joint venture with
an Australian company for producing coal in Mozambique, acquired strategic interest of
five per cent with 20 per cent off take-rights in the coal mining project in Australia in
partnership with several other foreign companies and formed a 50:50 joint venture with
Steel Authority of India Ltd (SAIL).
 For limestone, Tata Steel has entered into a joint venture with the Al Bahja Group of
Oman for a 70 per cent stake. The joint venture will undertake mining of limestone in the
Uyun region in Salalah province of Oman.
By undertaking such long term strategies to increase its raw material security, Tata Steel
is making it difficult for the suppliers of raw material to bargain exorbitant prices.
Threat of substitutes: Low

 Plastics and composites pose a threat to Indian steel in one of its biggest markets —
automotive manufacture. For the automobile industry, the other material at present with
the potential to upstage steel is aluminium. Perhaps the most attractive alternative to
stainless is aluminium. Stainless producers themselves are offering their customers a
range of alternatives in an effort to prevent business being lost tonon-ferrous or carbon
steel materials. Such options include lower-nickel duplex grades and ferritic types. In the
meantime, nickel’s fluctuations will continue to create problems for the stainless industry
worldwide.
 However, at present in India the high cost of electricity for extraction and purification of
aluminum weighs against viable use of aluminium for the automobile industry. Steel has
already been replaced in some large volume applications: railway sleepers (RCC
sleepers), large diameter water pipes (RCC pipes), small diameter pipes (PVC pipes), and
domestic water tanks (PVC tanks). The substitution is more prevalent in the manufacture
of automobiles and consumer durables.
Bargaining power of Consumers: Mixed

Some of the major steel consumption sectors like automobiles, oil & gas, shipping, consumer
durables and power generation enjoy high bargaining power and get favorable deals.
However, small and retail consumers who are scattered and consume a significant part do not
enjoy these benefits.
8. Identifying “Core Competencies” and “Competitive Advantage” using

Value Chain Analysis.
As per the Text Book “Strategic Management” by Dess/Lumpkin/Eisner “Value-Chain

analysis views the organization as a sequential process of value-creating activities .The
approach is useful for understanding the building blocks of competitive advantage” .
Value Chain Analysis helps identify a firm's core competencies and distinguish those
activities that drive competitive advantage. Keeping this in mind we will try to study the
“Core Competencies” and “Competitive Advantage” of Tata Steel Limited under the
framework of value chain.
The below diagram depicts a typical Value–Chain:
8.1 Primary activities (with respect to Tata Steel Limited)
8.1.1 Inbound logistics: ( Materials handling, Warehousing, Inventory control,

Transportation)
 The dispatch from Ores Mines and Quarries (OMQ) Division to the Steel Works was
11.08 million tonnes and registered a substantial increase of 18% as compared to the
dispatch of 9.42 million tonnes in FY 09.
 In Year 2009-2010 Focused campaign launched to improve the safety in the area of
Material handling.
 Measures to reduce the inventory levels drastically in order to free up working capital
which could be used in other investment opportunities.
 The inventory management at Tata Steel is efficient and proper verification processes
are in place as suggested by the following excerpt from the annual report 2009-2010.
The following are the auditor’s comments.
8.1.2 Operations: (Machine Operating, Assembly, Packaging, Testing and Maintenance)
 Environmental sustainability has become an increasingly important item on the Tata

Steel Group Agenda. The Group’s various operations across the globe have all
undertaken numerous initiatives to realize improvements in this area.
 In line with the Group’s vision of achieving 0.4 Lost Time Injury Frequency Rate
(LTIFR) by 2012, there was a significant improvement in Tata Steel India’s safety
performance in FY 10 with a 30% reduction in LTIFR as compared to the previous
year’s. Against a plan of 0.6 LTIFR in FY 10, the actual LTIFR dropped to 0.56 in
this period due to implementation of many process related safety initiatives.
 The Company achieved best ever production of hot metal (7.23 million tonnes), crude
steel (6.56 million tonnes) and saleable steel (6.44 million tonnes) registering an
impressive increase of 16% for hot metal and crude steel production and an increase
of 20% for saleable steel production. The newly commissioned ‘H’ Blast Furnace
achieved a remarkable milestone by producing 3.07 million tonnes in the first full
year of its operation registering an impressive increase of 23% as compared to its
rated capacity of 2.5 million tonnes.
 For sustainability of its operations and reducing process hazards by strengthening

safety in processes, the Indian operations have initiated implementation of Process
Safety & Risk Management (PSRM) in high hazard operations. The prime objective
of Process Safety Management is to achieve “Operating excellence through
operational discipline”. PSRM will be implemented in all facilities by the financial
year 2011-12.
 Commitment towards continuous improvement and its development of cutting edge

technology have supported the company to become one of the lowest cost steel
producers worldwide.
 Adoption of new technologies continuously and striving to improve the operations at

all times has been an Endeavour of Tata steel limited. Following is an excerpt from
the 2009-2010 annual report to depict the same.
 Large number of Downstream businesses which keep their production in sync with
the steel production and drive the profits of the company very well.Eg Downstream
Businesses, such as Tubes and Wires performed very well in the second half of the
year 2009-2010
8.1.3 Outbound logistics: (Order processing, warehousing, Transportation and

Distribution.)
 Tata Steel Processing and Distribution Limited (erstwhile Tata Ryerson Limited)
became a 100% subsidiary of Tata Steel Ltd. w.e.f. July 2009. The company with a
steel processing capacity of around 2 million tonnes with 5 steel processing centres
across India, is the largest steel service centre in the country. During the financial
year 2009-10, the company recorded an all time high tolling and distribution volume
of around 1.4 million tonnes 27% higher than that of last year and recording the
highest profit t before tax in its history of operations.
 Tata has a strong retail and distribution network in India and SE Asia. Tata is a major
supplier to the Indian auto industry and the demand for value added steel products is
growing in this market
8.1.4 Marketing and sales: (Advertising, Promotion, Selling, Pricing, Channel

management)
 To increase the market reach, several initiatives were taken. 25 stores of

Steeliumzone, an exclusive retail store of TATA Steelium CR coils and sheets and
100 stores of Shaktee Sansaar that retail TATA SHAKTEE GC sheets were opened in
2009-10.
 Created a single global strategic marketing team with a goal to become the “best
supplier to best customer” and deliver profitable growth. Around 100 people across
TSE’s sales & marketing team worked on the first phase which was completed in
February 2010.Subsequent phases are now in progress, which include developing 3 to
5 year plans for each sector, identifying initiatives for executing these plans,
identifying quick wins and developing a customer satisfaction tool. Product
catalogues have been developed and high-level metrics have been defined.
8.1.5 Service: Installation, Servicing, Spare Part Management.
No Data available in annual reports.

8.2 Support activities: (With respect To Tata Steel Limited)
8.2.1 Firm infrastructure: (General Management, Planning, Finance, Legal, Investor

relations)
 Health and Safety continues to be one of the prime drivers of the Corporate Vision of
your Company. The Tata Steel Group lays significant emphasis on sustainable Health
& Safety performance as it has a direct impact on performance. The Company is
continuing its ‘Safety Excellence Journey’ with a philosophy that ‘Safety is a Line
Management function and all injuries can be prevented’. Health and Safety is
reviewed at all Board meetings of Tata Steel with a Health, Safety & Environment
Committee established to carry out more detailed reviews.
 Highly Qualified management headed By “Ratan N Tata” gives Tata steel a leading
edge over its competitors.
 Huge Investor base of around 800,000 people.
8.2.2 Human resource management: (Recruitment, Education, Promotion, Rewards

systems)
 Corporate Sustainability at Tata Steel has always meant focusing on the environment,
people and society. The Company carries out its business activities in ways that seek
to enhance the Earth’s resources rather than deplete them, thereby helping create a
sustainable world for future generations to inherit. This is achieved by focusing on a
number of initiatives and principles that are consistently applied across the Group.
 The following steps are taken in the human resources front to ensure that the
Company in India can continuously cater to the changing business adversities and
opportunities.
1. Leadership development and succession planning.
2. Career planning and job rotation.
3. Customer orientation -“Employee Contact Program” has been initiated and
reviewed on a monthly basis to improve on the HR connect with the Line
functioning.
4. Learning and development process through 70:20:10 where 70 per cent of
learning & development takes place from real life and on-the job experiences,
tasks, problem solving and self study; 20 per cent takes place through
coaching, mentoring, technical discussions, shadowing, working under
guidance by superiors or experts while 10 per cent of the learning comes from
formal class room training.
5. E-learning – 137 e-learning modules have been developed indigenously to
impart computer literacy classes to 11,000 employees during the fi nancial
year 2009-10. More than 3,300 employees have been provided basic Hindi
literacy and 28 e-learning centres have been opened in various locations of the
Company in India and around 300 PCs have been provided for these e-
Learning centres.
 The group empowers people to make decisions about their own jobs, the culture
values are that the people are not penalized for failures they should be educated and
led them to continuous improvement.
8.2.3 Technology development: (Research & development, IT, product and Process
development)
 The Jamshedpur R&D centre in India was established in 1937 and is one of the oldest
industrial R&D centres in the country. Since its inception, it has played a pivotal role
in the development of steel products and process routes that have given the Company
a competitive advantage in local and global markets.
 Energy Conservation measures taken:

1. 100% utilization of By-Product gases as fuel by Installation and commissioning of Power
House #6.
2. Generation of electrical energy by recovering waste energy through installation and
commissioning of Top Recovery
3. Turbine at ‘G’ Blast Furnace.
4. Higher L.D. Gas recovery and utilization.
5. Reduction in LDO consumption at Boiler Houses of Power House #4 by
Modification in oil burner.
6. Shut down of old & inefficient Blast Furnaces.
 Four research groups are actively engaged in developing new products and processes
for all businesses.
8.2.4 Procurement: (Purchasing raw materials, Lease properties, Supplier Contract

Negotiations)
 Company continued to implement its long-term strategy to secure ownership of assets

that will increase its raw materials security and share of value-added products. During
the financial year 2009-10 the Company’s primary focus was on expediting
implementation of its existing ventures. Some the projects are Benga Coal Project,
Mozambique, Coal Mining Project in Australia (CDJV), Limestone Project in Oman etc.
 The following major Improvement Projects were undertaken in the area of

Procurement:
1. Consolidation and cross-sourcing of Contracts for bulk shipping, coal, Raw
Materials, IT, etc.
2. Maximizing procurement from within Tata Steel Group.
The integrated Procurement function intends to combine the skills of procurement

across the group and work with a strong business alignment while strengthening the
earlier established processes like lead buying. During the year the concept of Lead
Buyers was also extended to the South East Asian (SEA) operations and the efforts
were focused on maximizing the buy within the Tata Steel Group companies.
8.3 Core Competencies of Tata Steel Limited on the Basis of Value Chain Analysis
 Low cost manufacturing of steel.
 Ability to acquire resources/raw material and feed the other industries such as steel
and automobile.
 Experienced senior management that has a clear understanding of their business as

well as micro and macro environment.
 Vast knowledge and experience of the Tata Steel Group.
 This is a Customer and Market Oriented corporate, listens to the customers And place
excellent emphasis to deliver quality, reliability and high level of service.
 Commitment towards continuous improvement and its development of cutting edge

technology. (Strong R & D wing).
 High productivity through the people, by giving them liberty and encouraging
entrepreneurship.
 Mature manufacturing processes which are highly efficient.
 Access to latest cutting edge technology.
8.4 Competitive Advantages of Tata Steel Limited on the Basis of Value Chain Analysis.
8.4.1 VRIO Framework

Resource Valuable? Rare? Difficult To Without Implications For
Description Imitate? Substitutes? Competitiveness.
Captive Mines. Yes Yes Yes Yes Sustainable
Competitive Advantage
Over Hundred Yes Yes Yes Yes Sustainable
years Experience Competitive Advantage
in Steel making.
Highly Yes Yes No No Temporary Competitive
Experienced Top Advantage
management.
Access to Global Yes No No No Competitive parity
markets.
Low cost Yes Yes No No Temporary Competitive
Manufacturing of Advantage
steel.
Strong R &D Yes No No No Competitive parity
department.
Loyal and Yes No No No Competitive parity
Experienced work
force.
Tata has a strong Yes Yes No No Temporary Competitive
retail and Advantage
distribution
network in India
Large steel Yes Yes No Yes Temporary Competitive
production Advantage
capacity.
Highly Diverse Yes No No No Competitive Parity
product portfolio
9. Identifying Critical Success Factors

Business strategy is concerned with establishing competitive advantage. By analyzing customer
needs and preferences and the ways in which firms compete to serve customers we identified the
general sources of competitive advantage in an industry-critical success factors.
WHAT DO HOW DO FIRMS CRITICAL SUCCESS

CUSTOMERS WANT? SURVIVE FACTORS (INDUSTRY)
COMPETITION?
(Analysis of demand) (Analysis of competition)  Conventional sources
 Low price.  Commodity products, of cost efficiency
 Product consistency. excess capacity, high include: large-scale
 Reliability of supply. fixed costs, excess plants, low-cost
 Specific technical capacity, exit barriers, location, and rapid
specifications for and substitute adjustment of capacity
special steels. competition mean to output.
intense price  Alternatively, high
competition and technology, small scale
cyclical profitability. plants can achieve low
 Cost efficiency and costs through
strong financial flexibility and high
resources essential. productivity.
 Differentiation through
technical specifications
and service quality.
Thus, the key success factors in the steel industry are:

 Diversified customer base: Customer profile in any segment of the steel industry determines
its business position. Some of the major steel consumption sectors like automobiles, oil &
gas, shipping, consumer durables and power generation enjoy high bargaining power and get
favorable deals. However, small and retail consumers who are scattered and consume a
significant part do not enjoy these benefits. Effective diversification of customer base
exhibits a greater degree of revenue consistency. Diversification may also be across the
geographies including export sales.
 Cost efficiency & profitability: Factors that measure costs and operating efficiency help in
assessing a company's ability to operate through economic downturns and its ability to not
only continue servicing its debt, but meet other obligations, which can vary extensively on a
geographic basis due to regulatory, environmental compliance and other differences.
 Technology:
The future growth prospects of SMEs in steel industry largely depend on efficient use of
available energy resources. It was recognized that small and medium enterprises not only
need greater awareness but also technical, financial and institutional support in order to
develop and adopt efficient technologies. The art of using efficient technology can enable
company to achieve a competitive cost position.
 Operating Efficiencies
Given the industry characteristics of underlying pricing volatility, limited producer
pricing power, sensitivity to underlying economic conditions, and a relatively high fixed-
cost base, particularly at the integrated producers; elements that are within a company's
ability to manage, such as cost structure and operating efficiency, are important
considerations in the rating analysis.
 Diverse product mix & proportion of value added products
 Access to raw materials at low costs
 Proximity to inputs and market
 Financial structure
 Ability to export
 Differentiation through technical specifications & service quality
S. No. Critical Success Factor Present in Tata Steel?

1 Diversified Customer Base 
2 Cost efficiency & Profitability 
3 Diverse product mix & proportion of value added 
products
4 Access to raw materials at low cost 
5 Proximity to inputs & markets 
6 Financial Structure 
7 Ability to export 
8 Differentiation through technical specifications & 
service quality
The current financial structure of Tata Steel is not favorable as it had taken up huge loans to
finance its acquisition of the Corus group. TATA Steel was able to buy Corus at eight billion US
dollars which made the deal to be fixed at 455 pence per share which needed to be paid in cash
by the TATA Steel to the shareholders of Corus. This deal was a highly expensive one and Tata
Steel is trying to reduce the debt each year.
The recovery of TATA steel from the debt would have been faster had there been no global
recession. The immediate impact of this recession on the steel industry was the sharp decline in
volume due to the lack of credit among customers. As a consequence steel prices across the
world declined significantly.
10. Current Strategy of TATA Steel
The current strategy directly quoted from the annual report of 2009-2010:
“Right now the Company’s key priority is to execute the 3 million tonne expansion project at
Jamshedpur. When completed in the third quarter of the financial year 2011-12, this project
will enhance the capacity of the Indian operations to 10 mtpa. In addition, the Company is
focusing on several downstream facilities that are being set up in coated and packaging
products, which are consistent with the Company’s long-term strategy to increase the ratio of
value-added products in its output. The Company continues to pursue its long-term strategy to
build Greenfield capacity in India, including in Orissa.”
11. Conclusion
The opportunities that came up from the SWOT analysis are:
 Untapped foreign markets.

 Low per capita steel consumption within the country.
 Consolidation of coal mining and steel industry.
 Unexplored rural markets within India.
 Growing Domestic demand of steel.

 Low cost of export market penetration.
If we look at the above points and their current strategy in parallel, it looks that Tata Steel is
looking to exploit all the available opportunities while maintaining focus on their key strengths.
Their strategy has focus on capacity expansion and adding more value to their products .
It is notable that their strategic intent has always been in line with the vision and mission
statement of the company .They have always looked to expand ,improve their processes through
continuous R & D ,Added new products ,Added in Markets and have been very involved in
various CSR programs.
One thing that Tata Steel Group as a whole needs to take care of is the high debt on their balance
sheet post the Corus acquisition ,Although it is understandable that just after the acquisition there
was a global recession which resulted in a dip in the demand for Tata-steel and hence lower
profits.
12. References
 http://steel.nic.in/
 http://www.provenmodels.com/26/value-chain-analysis/michael-e.-porter/
 http://www.thetimes100.co.uk/theory/theory--slept-analysis--235.php
 http://en.wikipedia.org/wiki/PEST_analysis
 http://www.renewal.eu.com/resources/Renewal_Pestle_Analysis.pdf
 http://www.learnmarketing.net/pestanalysis.htm
 http://www.researchandmarkets.com/reportinfo.asp?report_id=245787&t=t&cat_id=
 http://www.csc.com.tw/csc_e/pd/prs.htm
 http://www.tradechakra.com/indian-economy/industries/steel-industry.html
 http://www.indiaenvironmentportal.org.in/files/Domestic%20climate%20policy%20for
%20the%20Indian%20steel%20sector.pdf
 http://www.iloveindia.com/population-of-india/literacy-rate.html
 http://www.indianetzone.com/25/distribution_population_urban_rural_india.htm
 http://www.capitaline.com

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1 TATA Steel: Strategy Analysis by Group 3

8.4.1 VRIO Framework................................................................................................................30

1.2 Indian Steel Industry

A host of steel companies have lined up major investment proposals. Furthermore,

1.2.5 Government Initiative

Exchange rate used: 1 USD = 42.21 INR (as on October 2010)

2.2 Market Trends

2.3 Key Drivers

3. Vision and Mission statement of Tata Steel

4. Financial Ratio Analysis of Tata steel (Is the Firm successful?)

4.1 Asset Turnover Ratio

0.8 Steel Industry

4.2 Interest Coverage Ratio

4.3 Profit Before Interest Depreciation And Tax Margin

4.4 Adjusted Profit After Tax Margin

4.5 Return On Capital Employed

4.6 Return On Net Worth

A brief description of each of the factors is as follows:-

 Technological factors include technological aspects such as R&D activity,

Social 1. India is a young country with a 1. Easy availability of cheap

rate. 3. Scope for expansion.

Technologica 1. Shift in focus towards use of 1. Must invest in R&D to achieve

 Employee strength over about 34000.

Definition: characteristics that place the firm at a disadvantage relative to others.

 Large Debt around 25000 crores in 2009-2010.

Definition: External chances to make greater sales or profits in the environment.

 Low cost of export market penetration.

 China becoming net exporter.

7. Porter Five Forces Model

Entry barriers: High

In Economics, the concentration ratio of an industry is used as an indicator of the relative

Bargaining power of suppliers: High

 It is also evaluating several other mineral projects in Brazil and Australia

Threat of substitutes: Low

Bargaining power of Consumers: Mixed

8. Identifying “Core Competencies” and “Competitive Advantage” using

As per the Text Book “Strategic Management” by Dess/Lumpkin/Eisner “Value-Chain

The below diagram depicts a typical Value–Chain:

8.1 Primary activities (with respect to Tata Steel Limited)

8.1.1 Inbound logistics: ( Materials handling, Warehousing, Inventory control,

8.1.2 Operations: (Machine Operating, Assembly, Packaging, Testing and Maintenance)

 Environmental sustainability has become an increasingly important item on the Tata

 For sustainability of its operations and reducing process hazards by strengthening

 Commitment towards continuous improvement and its development of cutting edge

 Adoption of new technologies continuously and striving to improve the operations at

8.1.3 Outbound logistics: (Order processing, warehousing, Transportation and

8.1.4 Marketing and sales: (Advertising, Promotion, Selling, Pricing, Channel

 To increase the market reach, several initiatives were taken. 25 stores of

8.1.5 Service: Installation, Servicing, Spare Part Management.

No Data available in annual reports.

8.2 Support activities: (With respect To Tata Steel Limited)

8.2.1 Firm infrastructure: (General Management, Planning, Finance, Legal, Investor

 Huge Investor base of around 800,000 people.

8.2.2 Human resource management: (Recruitment, Education, Promotion, Rewards

 Energy Conservation measures taken:

8.2.4 Procurement: (Purchasing raw materials, Lease properties, Supplier Contract

 Company continued to implement its long-term strategy to secure ownership of assets

 The following major Improvement Projects were undertaken in the area of

The integrated Procurement function intends to combine the skills of procurement