The Co-opetition Strategies for Taiwan Integrated Steel Mills on the Global Consolidation Trend
Date Issued
2006
Date
2006
Author(s)
Chun,Hwang
DOI
zh-TW
Abstract
After 25 years of stagnation, the global steel industry has recovered and the total production capacity exceeded a staggering one billion tons in 2004. Over the past 5 years, China Steel Corporation (CSC) of Taiwan has consistently ranked top out of 20 global competitors in terms of operational efficiency. However, this energizing good news comes with some challenges on the horizon. CSC faces three major challenges: (1) the greater fluctuation of raw material prices due to the relative diminishing of CSC’s purchasing power, (2) the introduction of a new domestic integrated steel mill, and finally (3) the ever intense regional competition. Therefore this paper aims to (1) investigate the global competitive environment of the steel industry through studies of the co-petition of Mittal and Arcelor, the value-added synergy strategy of the Japan’s JFE, the impact of China’s domestic steel industry and their policy of consolidation, and the expansionist strategy of Korea’s POSCO; (2) to evaluate the domestic and the regional threats; and (3) to provides the author’s recommendations.
Mergers and acquisitions have become a common trend among steelmakers across the world. Because steel is heavy, it is primarily distributed regionally and only secondarily distributed trans-continentally. In order to distribute trans-continentally, steelmakers need to (1) access low-cost coal and iron ore, (2) manufacture in multiple locations globally, or (3) produce premium products such as those used for making automobiles or home appliances. A few steelmakers in Russia, Brazil and Australia can take advantage of their low-cost of coal and iron ore. Other major players (e.g. new Arcelo-Mittal, Mainland China) consolidate regional or/and domestic steel mills in order to achieve raw material acquisition, production, and distribution efficiencies. With this wave of consolidation, these major players have gained considerably advantages in their purchasing power. Relatively, CSC has not be able to compete in raw material acquisition.
Despite the fact that CSC has no intention of distributing transcontinentally, the firm still faces an immediate threat domestically and medium-term threat regionally. Currently, Taiwan is going through an economic structure transformation, promoting emerging high-tech industries whose products are light and slim, and reducing growth of traditional industries whose products are heavy and bulky. Because of this transformation, CSC’s traditional customers - steel-consuming industries and steel processing industries - are emigrating one after another to China and South East Asia. As a result, demand for steel has slowed as the domestic market is near saturation. Curiously, the government has expressed its support for FPG (Formosa Plastic Group) in their bid to build a blast furnace integrated steel mill. Meanwhile, CSC is managing its own integrated steel mill’s expansion. With CSC’s on-going expansion and FPG’s planned development, this may cause severe domestic competition in an already saturated market. With regard to CSC’s medium term threat, the WSD Core Report 03/06 forecasts that major competition for Taiwan’s steel industry will come from other areas in Asia. The three representative samples are POSCO of Korea, Baosteel of China, and JFE of Japan. Each of these companies has adopted a different strategy. POSCO has focused on globalization and quality improvement; Baosteel has focused on reengineering its production, sales and distribution processes; and JFE has focused on producing high-end value-added product such as that used to manufacture automobiles and appliances. All of these companies are potential competitors for CSC’s current customer base. In light of these domestic and regional threats, CSC is challenged to maintain its dominance domestically, and service its customers as they can so easily go offshore for their steel needs.
In this paper, the author applies Games Theory to analyze the domestic steel market taking into account both future demand requirements and capacity restraints. To prevent FPG’s new mill from effectively competing domestically, CSC could simulate the value net and competition model with entry deterrence by preemption & limiting pricing strategy. By doing so, FPG’s new mill would not succeed domestically. Instead of wasting precious resources fighting it out domestically, the author recommends that CSC and FPG form a strategic alliance. In short, FPG could invest in CSC’s manufacturing expansion and partake in its product distribution. FPG would then be able to avoid the learning curve of building a steel mill and managing production, and CSC would benefit from a cash infusion and gain additional sales channels both domestically and internationally. The steel industry consumes incredible amounts of energy and produces a staggering amount of greenhouse gasses (notably CO2). After the adoption of the Kyoto Protocol, these environmental issues have become a global concern. This strategic alliance would be a win-win situation, not only for CSC and FPG but for Taiwan as a whole. Therefore, the Taiwanese government should review its overall energy policy. Instead of encouraging the construction of an additional steel mill, the government should guide and reward the current steelmakers to engage in R&D, innovation, and value creation in order to strengthen the international competitiveness of Taiwan’s steel industry and to expand the horizontal value chain of domestic industries. To meet the requirements of the Kyoto Protocol, the government should require that domestic steel makers implement environmental accounting and audit their environmental liabilities.
As for the future development strategy of CSC, the author recommends that CSC focus on non-value-added processes elimination, strategic cost management, core product quality enhancement, raw material stabilization, high-value niche product development, and the formation of strategic alliances with key suppliers and customers. In addition to technological innovation, process reengineering and strategic alliances, the CSC should enhance or create the CSC’s image value in order to strengthen its international competitiveness.
Subjects
購併
整合
賽局理論
競合策略
策略聯盟
策略成本
價值鏈
鋼鐵業
一貫作業大鋼鐵廠
Merger & Acquisition
Consolidation
Games Theory
Co-petition
SDGs
Type
other
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