MGT409 Nucor paper - In 1986, the US steel market felt a...

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In 1986, the US steel market felt a decline in domestic demand due to stagnation in steel intensive industries; however, this decline was not thought to continue into the future. In 1983 Nucor began looking into the thin-slab casting technology after experiencing its first sales decline under their current CEO, Iverson. In 1986 Nucor had agreed to a joint venture with Yamato Kogyo, a Japanese Steelmaker, to produce wide-flange beams. They hoped this low risk venture would help them get a strong grip on the high-end of the construction market. Even with this new venture, Iverson still felt that Nucor was facing competitive threats from Canada, Japan, and other industrializing nations. As new technologies in thin-slab casting were being created, Nucor was left with the decisions of which technology they should invest in. The problem is that many companies were investing in R&D to create the best thin-slab technology and there were still some concerns with adopting one of these new innovations. Nucor was mainly talking to a West German company that had developed a thin-slab technology called compact strip production (CSP). The strategic issue is whether or not Nucor should invest the time and capital into the CSP technology to create the thin-slab casting in order to get a stronger hold on the market and keep their sales moving in the positive direction. We came out with the idea that the threat level of new entrants is relatively low, since there are high entry barriers in the steel industry. Both the integrated steelmakers and minimills are in oligopoly market structures. The integrated steelmaker market was dominated by U.S. Steel, LTV Steel, and Bethlehem Steel. The minimills industry was led by five large firms. While 36 companies operated a total of 51 mini steel plants, 43% of all minimill steelmaking capacity was controlled by these five: North Star (2.4 million tons), Nucor (2.1 million tons), Northwestern Steel and Wire (1.8 million tons), Florida Steel (1.6 million tons), and Chaparral (1.1 million tons). 1
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The level of the bargaining power of buyers is relatively high, due to the generally good amount of steel companies and little product differentiation, also there are low switching costs. Though the dependence on external sales for Nucor had increased dramatically since the early 1970, Nucor had controlled its buyers’ bargaining power. It did not allow discounts for preferred customers or on large outside orders. They did this in order to let its buyers maintain lower inventories and order more frequently, which prevented the bargaining power of buyers to reach an extremely high level. The level of the bargaining power of suppliers is moderate. Nucor had two major supplier
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MGT409 Nucor paper - In 1986, the US steel market felt a...

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