Economies of scale as far as the sector forces go

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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.
BUSINESS STRATEGY: STRATEGY MANAGEMENT AT TATA STEEL 2009 23 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 licence (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 enjoy a premium for their products because of its quality and its brand value created more than 100 years 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 “steeljunction”. 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.

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