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Nucor Corporation Business Analysis Report (Assessment)

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Updated: Nov 6th, 2021

Abstract

Nucor is a renounced organization in steel. Thus, it is essential to understand and evaluate its working process and opportunities. The paper would evaluate its production based on its Economic characteristics, and this would be followed by its Business characteristics. To attain this goal, Michael Porter’s Five Forces of Competition model would be enforced and analyzed in the context of Nucor. Then the types of Generic Strategies of Nucor would be studies, followed by the reality of Investment opportunity in Nucor from the perspective of investors.

Summary

In the year 1998, Nucor Corporation recorded sales of $4.3billion in steel and steel-related products. In the year 1972, the firm was renamed Nucor. Nucor also demonstrates a dedicated technological focus. With expenses for scrap metal climbing, production outlay for steel to amplifies. A large fraction of steel revenues is resultant of the large purchasers. Switching costs for purchasers are low. The threat of substitutes is fairly low in the steel sector. The rivalry scenario in the steel industry is intense. Here also, steel importation creates massive competition amongst companies as imported steel can time and again be procured for more economical prices. It divulges no plans of expanding beyond steel and steel-related products.

Economic and Business Perspectives

Nucor is recognized in the market as a Fortune 500 corporation with a strength of more than 6,900 employees. In the year 1998, it recorded sales of $4.3billion in steel and steel-related products. (Pederson, 2006) The company’s chairman, F. Kenneth Iverson, had been leading the firm for over 30 years. During his occupancy of the chairmanship, the steel markets faced numerous problems, incorporating overseas competition, stressed labor affairs, and dipping demand for steel (associated in part with the changeover to alternative materials). Regardless of these tough market challenges, Nucor’s performance under Iverson’s leadership climbed up at an annual compound rate of approximately 17 percent per annum (Pederson, 2006).

Nucor has established its varied services in rural areas throughout the United States, instituting healthy relationships with the local societies and its own labor force. As one of the foremost recruiters, along with the capability of paying excellent wages, it drew reliable, dedicated, and ready-to-toil employees. These issues also enabled Nucor to choose from among contending conditions, positioning its operations in locations that presented a tax structure that was conducive for business growth and legislative policies that endorsed the firm’s pledge to continue as a union-free outfit. By the year 1998, Nucor and its auxiliaries comprised nine businesses, possessing 25 plants. These businesses included the following: Nucor Steel, Nucor-Yamato Steel Company, Vulcraft, Nucor Cold Finish, Nucor Fastener, Nucor Bearing Products, Inc., Nucor Building Systems, Nucor Grinding Balls, and Nucor Wire (Pederson, 2006).

Nucor was at the beginning founded by Ranson E. Olds in the year 1897. On the brink of bankruptcy, Nuclear Corp. of America was set up in 1955, subsequent to unification with the Reo Truck Company. After recording substantial losses for successive years, a further restructuring in 1966 is referred to as the foundation of Nucor. In the year 1972, the firm was renamed Nucor. In more recent times, Nucor has been faced with few major challenges in relation to upholding Nucor’s repute for distinction and status in the industry (Thompson, 2004).

Nucor is still posting continuous growth due to many key success factors and tactical organizational potencies. The firm’s organizational approach is admired by many and presents a number of issues that which has had an important role to play in Nucor’s success.

Firstly, the corporation makes use of a decentralized business method. This approach has enabled Nucor to empower its managers and human resources to a large extent. The enhanced extent of empowerment enables every divisional authority to exercise proper control over everyday decisions that will boost productivity.

This decentralized business method also facilitates the company adopting a lean production approach as defined lean manufacturing refers to the fabrication of products by means of utilizing fewer resources, i.e., production of less waste, usage of lesser human exertion, raw materials, tools, inventory, and time. Nucor is continually determined to achieve improvement, i.e., an unvarying objective to trim down production cost is at all times the main concern, and this eventually facilitates lowering the costs of steel for the purchasers. Furthermore, a focus on caring for employees helps to lessen the employee turnover problem and thus increases the production efficiency. Safety is also a significant issue and a priority with Nucor and is constantly scrutinized and enhanced. Finally, Nucor emphasizes a healthy rapport with external entities. Consequently, the company is capable of instituting long-term sustainability with these entities. In addition, construction and supply outlay can often be lowered, which facilitates lowering the prices for customers (Thompson, 2004).

The categorically thriving business infrastructure of Nucor in conjunction with the aforesaid key management approaches has enabled the company to emerge as an industry leader. Nucor has surfaced as a highly regarded brand and boasts of first-rate brand awareness both internally and globally. Additionally, Nucor Corp. currently records a 22.4% market share in the U.S. and is coming into sight as an international leader in an industry which is extremely tough to contend in. Their dimensional growth has also enabled them to boost up production competence. Added facilities together with unvarying enhancement in the manufacturing procedures have allowed them to realize this enlarged capacity. Nucor also demonstrates a dedicated technological focus. The firm is continuously making efforts to amplify manufacturing and production rapidity. Sustainable innovation is at all times a priority and helps the firm maintain its status as a market leader (Pederson, 2006).

Porter’s five Forces of Competition Model

An industry atmosphere examination with the help of Porter’s five forces of competition model facilitates a better explanation of the present state of the markets and signifies the force of competition within it. The model is carved up into five divisions—the threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products, and rivalry among competing firms.

First, among the issues- the threat of new entrants is moderately small or practically non-existent. This is consequential to the fact that there exist exceptionally difficult barriers to entry into the market. Launching a company within the steel industry is incredibly expensive and necessitates enormous capital investment attributable to high-priced initial machinery prerequisites. Furthermore, the competition is basically too severe for bigger corporations. In a market where size does matter, it is tough for new players to participate alongside well-known, recognized firms that have a stronghold over the market. Thus, their deficiency of necessary experience and lack of substantial dimensions aftermarket ingress normally does not let them survive long enough to get recognized and post-growth figures. Typically, such a situation can be contested by placing a distinctive product in the market that contends with rival brands. Nevertheless, the steel industry allows little or practically no opportunity for product demarcation. And thus, bigger established companies are able to offer their products at lower costs that meet the requirements of the purchasers. New entrants in the market are unable to counter such competitive initiatives and thus cease to exist (Cohen, 2005).

Next in consideration, the bargaining power of suppliers is comparatively high in the steel industry. The supplier factions are influential as a result of the significance of raw materials in the manufacturing procedure. In essence, the supplier group has authoritative powers on account of their crucial role as acceptable replacements to scrap metal and iron ore are not at present available to the industry. In the course of supplies of raw iron ore going down, costs shoot up. With expenses for scrap metal climbing, production outlay for steel to amplifies. In essence, scrap metal and raw iron ore are intangible merchandises, given that there are no substitutes available, and thus manufacturers are required to accept the prices that suppliers quote. In this case, too larger companies have an edge as suppliers are often more inclined to trade with larger manufactures as order magnitudes are superior (Cadle & Yeates, 2007).

The third component of this model is the bargaining power of purchasers. In the same way as the bargaining power of suppliers, the authority of buyers is substantial. As there is little product differentiation, outlay becomes the key driver in the industry. Competition from overseas manufacturers is severe, and steel importations in the U.S. are soaring. As a consequence, purchasers increase the pressure on the company, which has to make every effort to be as economical as possible. It is also extremely vital to strive to procure bigger accounts and then devote the required concentration so as to sustain them. A large fraction of steel revenues is resultant of the large purchasers. It’s vital for manufactures like Nucor to strive to institute healthy relationships with such buyers to engender large and long-term benefits. Switching costs for purchasers are low. Consumers may bring in steel from overseas or acquire it from other domestic producers at lower costs. With the aim of remaining competitive, steel producers have to minimize costs and employ strategic managerial and business approaches to be capable of quoting the lowest value. (Cohen, 2005)

The fourth issue with which the model deals is the threat of substitutes. The threat of substitutes is fairly low in the steel sector. Basically, no other material can provide identical advantages per cost than that of steel. Aluminum is perhaps the most prevalent substitute for steel. However, aluminum is not as strong as steel. Most applications of steel have immense strength necessities (for example, infrastructure) that aluminum basically can’t provide. Another possible substitute for steel is composites. Composite metals may be sturdy and lightweight but are usually substantially more expensive as contrasted with steel. Therefore, both these alternatives are unable to meet the demands as effortlessly or economically as steel can. Nevertheless, the upcoming times may present dissimilar results. As technology enhances, the performance potentials of alternatives like aluminum may also be improved. Sustainable innovations like metal heat treating immensely amplify strength and may emerge as a viable alternative. The likelihood of using alternatives will grow if steel prices climb steeply. If the availability of mineral ores decreases or if production costs increase, purchasers would be more inclined to consider substitutes for steel (Cadle & Yeates, 2007).

The final part of Porters’ model deals with rivalry among competitors. The rivalry scenario in the steel industry is intense. The key factor here is the cost as a result of very little or almost no product differentiation. This results in stiff competition among manufacturers and summarizes the magnitude of trimming down costs in the manufacturing process. In addition, joint ventures are especially widespread, and such occurrences give larger companies that control the markets by economies of scale a considerable competitive edge. The large corporation can push costs down by using experienced techniques and placing outsized supply orders that less significant companies plainly can’t combat. Here also, steel importation creates massive competition amongst companies as imported steel can time and again be procured for more economical prices. Parallel labor legislation within the United States drives up production expenses that global firms don’t have to deal with. As mentioned previously, switching costs are also quite low. The industry is rather inundated and offers purchasers a range of alternatives when considering purchases. Steel companies that are able to quote the lowest values generally tend to acquire the accounts (Cohen, 2005).

Strategy

The Nucor Corporations’ strategy primarily pays attention to two key proficiencies: instituting steel manufacturing facilities cost-effectively and streamlining their operations so as to make them more productive. The company’s core competencies are incessant innovation, state-of-the-art equipment, personalized customer service, and a dedication to manufacturing premium-quality steel and steel products at viable costs. Nucor was amongst the first in the sector to implement several new products and pioneering development processes, such as thin-slab cast steel, iron carbide, and the direct casting of stainless wire.

In 1998 the company manufactured a larger variety of steel produces than any other steel producer in the whole of United States—both low-end (non-flat) steel, like reinforcing bar, and high-end (flat) steel, such as motor lamination steel which finds application in dishwashers, washers, and dryers, in addition to stainless steel utilized in the production of automotive catalytic converters and exhaust systems.

Nucor’s key client segments are the construction business (60 percent), the automotive and appliance sector (15 percent), and the petroleum industry (15 percent), while the residual 10 percent is split amongst various assorted purchasers. The company’s low-end steel produces (half of the total output) is distributed by steel service networks, while the high-end produce (the other half) is marketed directly to equipment producers (OEMs), manufacturers, or end-use consumers (Pederson, 2006).

Nucor’s relative amount of debt in relation to the total capital was held within the mark of 30 percent. In the fiscal year1997, this ratio was recorded at 7 percent. The company is not inclined towards mergers and acquisitions and focuses heavily on internally generated growth. It divulges no plans of expanding beyond steel and steel-related products.

Investing in Nucor Corporation

It may be said undeniably that Nucor has posted an outstanding performance reviving from the close proximity of bankruptcy to emerge as a market giant. A large number of challenging issues have been tackled and prevailed over by the company. Their time-honored organizational approach, administration, human resources, and the dynamic quest for growth methods have enabled them to become known as a contemporary international industry giant. (Cohen, 2005) Nevertheless, this does not imply there will be any more tough challenges in the future for Nucor. Nucor is at present faced with rising competition from both national as well as global rivalries. The moderately new management (including Daniel DiMicco as president) poses significant questions about long-term success. It’s very important that Nucor carries on growing and capitalizing on its international market share. The present administration must continue focusing on Nucor’s core competencies and make the most of a verified thriving organizational formation. The final verdict would be a yes to investment in the company with some degree of caution and restrain. (Cadle & Yeates, 2007)

References

  1. Cadle, J., & Yeates, D. (2007). Project Management for Information Systems. New York: Pearson Prentice Hall.
  2. Cohen, A. (2005). Secrets of special OPS leadership: dare the impossible, achieve the extraordinary. LA: AMACOM Div American Mgmt Assn.
  3. Pederson, J.P. (2006). International Directory of Company Histories. London: St. James Press.
  4. Thompson, A, A., Strickland, J., Strickland, A. J., & Gamble, J. (2004). Crafting and Executing Strategy: Text and Readings with Online Learning Center with Premium Content Card. NY: McGraw Hill Professional.
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