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									            NUCOR Corporation: Case Analysis




                         Kyle Ciolli
                         BUSA499
                          3/6/2008




K. Ciolli                                      0
Abstract:

         Nucor and its subsidiaries manufacture and sell steel and steel products in the
United States and abroad. Nucor is the United States’ largest steel manufacturer, and the
nation’s largest recycler. Nucor uses scrap steel and other substitutes to create sheet steel
and other steel products. Nucor has grown to be one of the nation’s largest manufacturing
companies and one of the most profitable companies in American industry.
         There are many challenges Nucor has faced in the past decades, and many yet to
come and Nucor grows into the future. In such a competitive industry, with added
pressures coming from abroad, Nucor needs to continue to focus on its core competencies
in its effort to gain market share and sustain its earnings growth. Though there are many
obstacles in this competitive and often volatile market, Nucor has the ability to position
itself to weather the turbulence of the global economic storm.
         By analyzing both the external and internal factors that affect the company, we
will get a better understanding of how and why Nucor will continue to thrive. With
strategic investments and savvy business practices, Nucor will continue its dominance in
the United States steel manufacturing industry, and can continue to grow in the global
marketplace.




K. Ciolli                                                                                  1
External Analysis
Section 1: PEST Analysis
         Political
         There are two very important areas of politics that have proven to have, and will
continue to have great implications on Nucor and its business. They are international
trade law and policy and domestic tax incentives and subsidies.
         Nucor stated in its most recent annual report that “unfairly traded steel imports
have devastated the U.S. steel industry and its workers” (Nucor 10K, 2008). While it is
important to consider the obvious bias of the corporation in making such a statement, we
also need to examine the trade policies to determine if they are indeed “unfair.” Nucor
argues that foreign companies are illegally dumping their steel in US markets, meaning
they sell their steel at lower than market prices. There are trade laws that prohibit
dumping, but there are a lot of factors that determine if a firm is actually engaged in this
activity or not. Historically, dumping has been a huge issue. In 1999 it was concluded
that six countries had illegally dumped steel in US markets as a result of unfair subsidies
abroad that effectively reduced the effective price. Legislative measures were taken to
curb the influx of cheap steel, but no bills were ratified and the onslaught of reduced
prices hampered the US steel market. US steel makers had to slash prices in order to
compete abroad, and many firms did not survive. The Bush administration took steps to
curtail the unfair trade by imposing anti-dumping tariffs under section 201 of the Trade
Act of 1974 (Barnes & Tyler, 2005), however in 2006 the International Trade
Commission removed the duties that were designed to aid the industry.
         Another trade issue that plagues US steel is the negative affects the stale Chinese
currency is having on the US manufacturing sector. Nucor naturally supports the
adoption of a Chinese currency bill “that would identify the mercantilist practices of
currency manipulation that result in distorted trade, an insurmountable trade deficit and
the loss of manufacturing jobs in the United States” (Nucor 10K, 2008).
         Although the global trade environment is not as favorable for Nucor as they
would like, domestic policy has historically been very good to Nucor. The United States
has traditionally been very hospitable towards Nucor and its ambitious growth. Tax
incentives, both federal and local, have enabled Nucor to expand with ease. During the
economic downturn in the 2000’s, Nucor received an estimated 161 million dollars in tax
incentives from the state of North Carolina to aid its expansion (Parker, 2005).

        Economic
        The steel industry is cyclical heavy reliance upon economic growth in
construction and infrastructure. Prolonged slowdowns in the steel manufacturing industry
or economic recessions have a direct negative affect on the steel manufacturers, as steel
manufactures are sensitive to changes in the market. The steel production industry
supports commercial construction, energy, appliance and automotive industries, as well
as residential construction and other various markets (Nucor 10K, 2008). Downturns in
the United States economy as a whole or any of these industries which account for a large
portion of steel sales could have drastic affects on the company’s bottom line. The recent



K. Ciolli                                                                                  2
developments in the US economy, with the recession fears and major economic
slowdowns to consider, will again prove to be an obstacle for Nucor to overcome.
        The rise and prominence of the global economy for steel also poses a challenge
for Nucor. Over-capacity abroad, particularly in China, could cause a drop in prices of
foreign steel, and consequently increase imports of cheaper steel from abroad. Although
Nucor has been resilient to foreign dumping in the past, there is no doubt that this hurts
the company’s growth and profitability (Barnes & Tyler, 2005).
        Nucor is also sensitive to energy prices. Since their mills consume large quantities
of electricity and natural gas in the steel manufacturing process, increases in energy
prices could adversely affect their business, results of operation, and cash flows (Nucor
10K, 2008). The commercial natural gas price according to the Energy Information
Administration rose from $8.20 per thousand cubic feet in 2000, to a high of $14.76 in
2005, an 80% increase. However, prices dropped to $11.02 in 2007 (Energy Information
Association, 2008). Nonetheless, volatile commodities markets pose tough challenges to
companies like Nucor that are so energy dependent. To curb these rising costs, Nucor
uses cash flow hedges and gas purchase contracts to mange it’s exposure to price risk in
energy (Nucor 10K, 2008).

        Social
        Many social topics face the management of Nucor. Of most importance to this
discussion however are energy efficiency, social responsibility, and the conservation of
domestic jobs.
        A particularly interesting development in the world economy that directly pertains
to Nucor is the coined “green movement.” There is added pressure domestically and
abroad for corporations to reduce their negative impact on the environment. This is
especially prevalent in the manufacturing sector, and important to us, steel production.
The process of producing steel is inherently energy intensive, requiring vast amounts of
energy to heat and/or melt metals. Nucor has the challenge of reducing its “carbon
footprint” by reducing its dependence on fossil fuels, and by reducing the emissions its
procedures create. Since 1990, Nucor has reduced its greenhouse emissions by 30%, and
has continued to be the lowest carbon emission producer in the industry (Nucor 10K,
2008). There have been many technological advances that have helped Nucor become
more energy efficient. These will be talked about in depth in later in the analysis.
        Another important development in corporate America is the growing push
towards becoming socially responsible. Aside from environmental implications,
corporate philanthropy is a growing issue of importance, and Nucor has a very firm
stance on this subject. Though Nucor is determined to focus on its “social responsibility,”
its focus should still remain on its stakeholders and employees according to Ken Iverson.
Nucor tries so make social donations in areas that will benefit its workers. Iverson felt
that there was too much corporate philanthropy in America on the basis of executive self-
fulfillment, and embraced the late Milton Friedman’s ideology of corporate philanthropy
(Barnes & Tyler, 2005).
        Outsourcing is a particularly interesting aspect of Nucor’s place in society. Nucor
has always focused on its employees as their most important aspect, and has built the
company around them. Many argue that this is their core competency. However, there is
an increasingly amount of pressure from abroad to increase profits by reducing labor



K. Ciolli                                                                                 3
costs. One way to do this is to outsource production to countries with lower labor costs.
One reason China can produce steel more cheaply is their wage rate is significantly lower
than in the United States. This challenge has already affected Nucor, as cheap foreign
steel has eroded the market share of US steel producers. However, joint ventures and
other partnerships are a way in which Nucor can reduce costs without ceasing American
production of steel altogether.

         Technological
         According to Nucor, their steel mills are the most modern and efficient in the
United States (Nucor 10K, 2008). Because of Nucor’s willingness to take risks, they were
able to make great leaps in the production of steel and change the face to the steel
industry. In the 1970’s Nucor pioneered the mini-mill, which was a German technology
Nucor pioneered. Mini-mills produce steel using electric arc furnaces to melt scrap steel
or direct reduced iron into new steel. Traditionally steel was made using blast furnaces to
create steel out of iron ore, known as integrated mills. Mini-mills were originally
produced concrete reinforcing bars (rebar), but since the development of the strip casting
procedure, mini-mills can produce sheet steel, bars, beams and other steel products. The
development of strip casting in mini-mills enabled Nucor to enter into smaller markets
and capitalize on their location to customers (Barnes & Tyler, 2005).
         After the introduction of mini-mills, Nucor then implemented a revolutionary
technological process in steel making known as continuous casting, unlike the old batch
method (Barnes & Tyler, 2005). The objective was to keep the casters working in an
effort to avoid reheating the steel billets and ovoid the losses attributed to oxidation
(Barnes & Tyler, 2005). By 1987, 60.9% of all steel production was form continuous
caster. Continuous casters could produce thin sheets of steel more efficiently by
eliminating the slab-casting and rolling technique that was used by the integrated steel
mills.
         The twin shell electric arc furnace was the next new technology that would prove
to help the growth and productivity of mini-mills. Twin shell furnaces would increase
production, lower costs, and help Nucor gain market share (Barnes & Tyler, 2005). The
twin shell capitalized on residual heat from the first shell to begin heating a second.
When the scrap was fully melted in the first, the electrodes moved to the second while the
first was emptied and then refilled. It was a perpetual procedure, and increased
production by 60%. Twin shell furnaces increase flexibility, and have become widely
used in the last few years (Barnes & Tyler, 2005).
         In 1995 Nucor implemented a new information technology infrastructure that
would integrate all the planning, production, and order fulfillment aspects of the business
process. New computer systems have also been developed and implemented to precisely
control the quality of the steel produced.
         All these technological advances in steel making have contributed greatly to the
reduction in emissions and energy requirements. Nucor has often been the pioneer of or
on the cutting edge of all these technologies




K. Ciolli                                                                                4
Section 2: Porters Five Forces
        Rivalry Among Competitors
        In a market that has low product differentiation, in which customers demand the
lowest possible price, fierce rivalry ensues as a result of the price competition. Nucor was
the dominant player in the US economy, but fierce price competition from abroad
increased competition among firms. Add to that the excess capacity in steel production,
and lackluster economic growth, the result is a very tense environment. Although the
threat of substitute steel products from competitors is high in such a non-differentiated
market, management at Nucor does not focus on its competitors and their practices.
Rather, management focuses on Nucor and its own business (Barnes & Tyler, 2005).
Responding to the fierce competition, Nucor acquired Birmingham Steel in 2002 and
began seeking other strategic acquisitions in an effort to reduce the rivalry in the market,
and focus on its business and how to compete with cheap foreign steel.

        Threat of new Entry
        The biggest threat is added production of cheap foreign steel. New entry into the
US market is not likely because of the enormous capital expenditures required and
because of the unfavorable labor conditions. New firms are more likely to enter markets
with lower labor costs, such as Asian or South American countries. Nonetheless, the
threat of new competition from abroad is a growing concern for Nucor. They desperately
need assistance from the International Trade Commission to ensure that free and fair
trade is taking place, and profit eroding dumping does not occur.

        Bargaining Power of Suppliers
        The primary raw material for Nucor’s steel mills segment is ferrous scrap steel.
Essentially, Nucor remanufactures scrap steel into new products and/or steel stock.
Unlike the big integrated steel manufactures, which make steel from iron ore, Nucor
capitalizes on the remanufacturing of scrap steel. Price increases in scrap steel as a result
of increased demand domestically and abroad have put added pressure on Nucor in
keeping their supply costs low. In 2003 scrap steel prices increased 25% and in 2004
prices increased a staggering 74% (Nucor 10K, 2008). In reaction to these added costs of
goods sold, Nucor has successfully implemented a surcharge added to the sale price to
offset the added cost of raw materials. According to Nucor, the surcharge has allowed
Nucor to better fill customers’ orders by reducing the volatility it experiences in the scrap
market. Although Nucor’s steel mills segment is dependent on scrap steel prices, the steel
products segment buys steel exclusively from their own steel mills. This inherently
reduces price volatility, and ensures the lowest possible prices since they are essentially
their own supplier.
        As aforementioned, because of the increased demand for scrap steel both
domestically and abroad (namely, China), Nucor has made many strategic moves towards
vertical integration to have more upstream control of raw materials (Nucor 10K, 2008).
Nucor just launched a new subsidiary, Nu-Iron, to produce direct reduced iron. This is a
direct substitute for scrap steel and can be used by Nucor’s steel mills segment in
production (Nucor 10K, 2008). Nucor also entered in a joint venture with The Rio Tinto


K. Ciolli                                                                                  5
Group, Mitsubishi Corporation, and Shougang Corporation to construct a new plant in
Australia that will produce high-quality scrap steel substitutes (Nucor 10K, 2008).
        Most importantly in the quest to control materials costs and reduce the bargaining
power of suppliers, Nucor recently announced the acquisition of SHV North America
Corporation, parent company of The David J. Joseph Company. DJJ operates over 30
scrap processing facilities, brokers ferrous scrap, pig iron, and scrap substitutes, and
provides inbound logistics via railcars for transport of scrap steel. Nucor states, “Since
scrap steel is Nucor’s largest single cost, this strategic investment provides an ideal
growth platform for Nucor to expand its direct ownership in the steel scrap supply chain
and further its raw materials strategy” (Nucor 10K, 2008).

        Bargaining Power of Buyers
        In the steel mills segment of Nucor, which produce hot and cold rolled steel
sheets, roughly 50% of production is produced to customer orders. Orders are priced at
determined fixed levels, and surplus inventories are sold at spot prices in the market at
the time of sale. The remaining production is produced in standard sizes an inventories
are maintained (Nucor 10K, 2008). However, in the steel products segment, all
production is to order and no inventories are maintained. These products include steel
joists and girders and steel decking and are used as finished goods in the construction of
bridges, large buildings, and roads. Production is fixed priced and is bid on against
competitors, and often the bids are for long term contracts.
        Because the majority of Nucor’s sales are on a bid framework, buyers have
tremendous bargaining power. Because of the lack of differentiation in the steel business,
Nucor must keep costs low to keep prices low and grow its market share. Besides keeping
production costs low, one way that Nucor has excelled in keeping prices low for the
customer is to locate plants near them. Nucor is notorious for building new plants on sites
where customers who use the steel are also located. This keeps transportation costs low
and also allows them to utilize a pull approach to the production. This will be elaborated
on later in the analysis.

        Threat of Substitute Products
        There are substitutes to steel in the production of many products. Across the
economy steel competes with aluminum, ceramics, cement, composites, glass, plastic and
wood. While many are not direct substitutes for steel products such as joists are girders,
these other materials can erode market share in other areas, such as automobile
production. In commercial construction and infrastructure, steel only really competes
with cement with regards to the quantity used. Important to note is that concrete and steel
are complements in these markets, concrete/steel usage ratios can vary based on price and
availability (Nucor 10K, 2008).




K. Ciolli                                                                                6
                                 Internal Analysis
Section 1: Value Chain Analysis
Primary Activities

        Inbound Logistics
        In such a tangible intensive market, with large quantities of raw materials coming
in to be used in production, it is essential that steps are taken to ensure the flow of
materials is responsive and consistent.
        As previously mentioned, Nucor has made strategic investments to add value in
its inbound logistics by acquiring SHV North America Corporation, parent company of
The David J. Joseph Company. As previously stated, DJJ operates over 30 scrap
processing facilities, brokers ferrous scrap, pig iron, and scrap substitutes, and provides
inbound logistics via railcars for transport of scrap steel (Nucor 10K, 2008).

        Operations
        Technological advances have played a key role in the superiority of Nucor’s
production processes. As outlined previously, strip casting technology and continuous
casting within the mini-mill framework have unequivocally been a key to the success of
their operations. Nucor also has been an industry leader in reducing its work-in-progress
inventories and reducing the storage and warehousing needs by utilizing a demand-pull
approach to their production material needs rather than a supply-push strategy (Barnes &
Tyler, 2005). Thorough performance evaluation and productivity metrics have also
enabled Nucor to fine tune its performance standards, and ensure that high levels of
productivity and throughput are maintained. Management is trained to search out and
eliminate bottle-necks.
        Nucor is also able to capitalize on its high quality labor force. With their
expertise, most employees are able to perform all different tasks in the production
process. This enables Nucor to increase its product line profitability (Barnes & Tyler,
2005). This is particularly important in the steel products segments, as often times the
products produces have a great deal of variation, and the flexibility of the labor force
enables them to maintain the high levels of productivity from job to job. This is not as
important in the standardized steel mill segment, as products are generally uniform.
However, the high quality of labor still contributes to the bottom line, as productivity
remains high.

        Outbound Logistics
        Nucor’s mini-mills reduce the need for sophisticated outbound logistics systems
because of their very nature. Mini-mills were originally designed in part to bring the steel
closer to the customer, reducing the need for cumbersome distribution systems and
decreasing the turnaround time from purchase to delivery. The mini-mill framework has
taken away market share from businesses that specialize in distributing steel products
from integrated steel manufacturers and reduced the dependency on third party steel
brokers. Needless to say, there still is reliance upon third-party railcar and semi-freight
transportation systems to deliver steel to customers.


K. Ciolli                                                                                  7
        Marketing and Sales
        Products from all segments of Nucor’s business are marketing mainly through in-
house sales forces with the main competitive factors being price and service (Nucor 10K,
2008). Roughly 92% of total steel production was sold to outside customers in 2007, with
the remaining 8% sold to Nucor’s steel products segment. Customers are primarily
manufactures, fabricators, and contractors. Marketing objectives aim to create long term
relationships with these customers in an effort to continue supplying them with value-
added products (Nucor 10K, 2008). Supply contracts range from six to twelve months
and have various renewal dates. These contracts uphold supply and price agreements, and
are non-cancelable. Unlike many other large firms, Nucor does not rely heavily on
marketing promotions to sell its products. In such an undifferentiated market, price and
service are the main drivers in sustainable sales growth.

        Service
        Recently, Nucor acquired a 75% stake in Novosteel S.A. through its acquisition of
Harris Steel. Novosteel is a Switzerland based steel trading company that matches buyers
and sellers of steel products on a global basis. It also offers customers outbound logistics
support, material handling, quality certifications and schedule management
(Nucor 10K, 2008). This is an excellent service platform for Nucor to leverage off of in
an attempt to maximize the value-added from service that customers receive.
        Nucor’s steel product divisions also work closely with customers before and after
the production of steel used in prefabricated buildings, custom girders and joists, and
other custom steel products. It is imperative that service is a point of focus throughout
this process, as the relationship between buyer and seller is often as important as price,
and could result in future sales.

Support Activities

        Procurement
        Nucor has implemented Datastream technology developed by Insor Corp. to track
and maintain capital assets by managing maintenance schedules and processing work
orders, purchases and labor data through Insor’s software systems. Nucor has also used
these software systems to store production data in databases to more accurately monitor
performance. With this technology, Nucor is “able to integrate with existing enterprise
systems and make critical business decisions through advanced modules” (Insor, 2008).
Nucor adds value by increasing accuracy and efficiency in their procurement processes.

        Human Resource Management
        Nucor takes a “no-frills” approach to human resource management. As one of the
foundations of their corporate philosophy, each employee is considered a “teammate”
(Nucor Corp, 2008). Nucor is a non-union employer, and empowers workers to be
innovative and productive. Jobs at Nucor are extremely competitive, as wage potential is
extremely competitive because of a strong incentive program. The incentive program is
entirely based off performance, with no discretionary bonuses to speak of. Employees can



K. Ciolli                                                                                 8
make anywhere from 0-75% bonuses as a percentage of their wages. This program
compensates the workers for the work they do, and not the work they should be doing. A
plant manager was quoted as saying “I believe very strongly in the incentive system we
have. We are a non-union shop and we all feel that the way to stay so is to take care of
our people and show them we care” (Barnes & Tyler, 2005). Nucor considers its human
capital as its strongest asset, with a tremendous focus on employee’s job security (Barnes
& Tyler, 2005).

         Technology Development
         Nucor has proven to be leader in technological innovation. Throughout the
company’s existence it has developed new technologies in steel making that have reduced
costs and emissions, and increased productivity.
         Nucor as part of a joint venture has began construction on a revolutionary HIsmelt
facility in Australia. “The HIsmelt process converts iron ore fines and coal fines directly
to liquid metal, eliminating the need for a blast furnace, sinter/pellet plants and coke
ovens. Additionally, the HIsmelt technology offers an alternative supply of high-quality
iron units as a scrap substitute” (Nucor 10K, 2008).

Section 2: SWOT
        Strengths
        It would be nearly impossible, and also impractical, to try to cover all of Nucor’s
strengths. It is imperative, however, that they key strengths that have propelled the
company to economic success over the past half century be documented. Nucor’s key
strengths in my opinion are its corporate philosophy, cost control, and innovative
leadership.
        One of Nucor’s key strategic strengths is its philosophy of empowering its
workers and reducing the inefficient bureaucracy that plagues corporate America.
According to Nucor, of its 18,000 employees, only 80 are located in the corporate offices.
They are highly decentralized, and operate much like a bunch of smaller lean firms under
one roof (Nucor 10K, 2008). Nucor’s website states:

       “This streamlined chain of command allows the general managers at each Nucor
       division to operate their facility as an independent business. It is one of the main
       reasons that Nucor has maintained a strong entrepreneurial spirit, even as annual
       sales grew into the multi-billions. With the day-to-day decisions made at the
       operating facilities, Nucor can respond to suppliers, customers, employees, and
       neighbors without waiting for a decision from the corporate office” (Nucor,
       2008).

       Since markets differ, Nucor embodies a philosophy that plant managers can
operate their facilities more effectively and efficiently that by taking orders from a
corporate body. This also helps to keep costs low, as the need for middle-management
and many tiers of executive management are reduced. This philosophy is embraced by
the workers, and each employee believes that they were a pivotal part of the company
(Barnes & Tyler, 2005). Employees at Nucor feel that their corporate structure is a way


K. Ciolli                                                                                     9
of doing business, not just making steel. By capitalizing on the independence and
entrepreneurial spirit of and within each worker, rather than the uniformity and lack of
feeling as an integral part of the company as in the labor union based system, Nucor can
more effectively compete in the market.
        Another one of Nucor’s key strengths is its focus on cost control. To be
competitive in a market with little product differentiation, price is the main competitive
factor. One of Nucor’s core competencies is that it excels in keeping costs low. Through
its continuous quest of reducing production costs, strategic acquisitions to reduce
materials costs, and utilization of productivity based compensation programs, Nucor has
become the largest and most productive steel manufacturer in the United States. Late
chairman and CEO David Aycock said:

       “The key to making a profit when selling a product with no aesthetic value, or a
       product that you really can’t differentiate from your competitors’, is cost. We
       maintain low costs by keeping the employee force at the level it should be, not
       doing things, that aren’t necessary to achieve our goals, and allowing people to
       function on their own and by judging them on their results”(Barnes & Tyler,
       2005).

        Nucor is also not afraid to take risks. Throughout its history, Nucor has led the
industry in technological innovation. The implementations of the mini-mill, strip-casting
techniques, and twin-shell electric arc furnaces have proven that Nucor is not afraid to
break industry norms on its quest to be the best. They management has also proven to be
incredibly savvy in their investment in new businesses, technologies, and systems.

        Weaknesses
        Dependency on scrap steel and energy prices and the inherent volatility in these
markets pose to be the biggest weaknesses of Nucor. Spikes in natural gas prices and
scrap steel prices have direct effects on the company’s bottom line. In such a price
dominated industry, costs are a huge factor in the success or demise of a company. Nucor
has historically been the cost leader, but nonetheless is still brought to its knees by
soaring energy and material costs.
        Huge capital requirements for expansion and technological modernization are
another weakness of Nucor. Acquisitions and expansions require tremendous amounts of
capital, and as the market becomes more competitive as cheap foreign steel squeezes the
budgets of US steelmakers, and reduces the ability for them to consolidate in an effort to
remain competitive in the global marketplace. Also, modernization of existing facilities is
capital intensive, and in a cost cutting environment, new technologies need to be
capitalized on to remain competitive. Implementing new technologies in manufacturing is
both risky and expensive, so extra care must be given in determining whether or not a
potential investment is sound. Lack of needed capital could prohibit Nucor from
implementing cost reducing strategies, and in turn making them not as competitive in the
market because of their higher prices.

       Opportunities




K. Ciolli                                                                                 10
         As the US steel economy continues to be beat down by cheap foreign steel, many
companies that have continued to thrive, namely Nucor, have tremendous opportunities
to capitalize on. As many US steel manufacturing companies fall into bankruptcy, Nucor
can acquire them and increase production capacity and increase their economies of scale.
This can be extremely beneficial in gaining market share, and has already proven to be so
with the recent acquisition of Birmingham Steel. Acquisition expenditures for Nucor
increased 589% since last fiscal year, a clear indication of the strategic consolidation in
US steel (Nucor 10K, 2008). Consolidation is but one way Nucor can better position
itself in the global market.
         Another opportunity is more product diversification to reduce volatility in product
markets. By diversifying the products it produces, through expansion or acquisition of
other technologies or businesses, Nucor can hedge itself against supply and demand
volatility for specific products. Nucor has historically done a good job of this, making
key acquisitions of steel product companies that have proven to add value to the
corporation. A recent acquisition of Magnatrax Corporation, a producer of prefabricated
buildings, has proven to be extremely lucrative as building products sales have doubled in
the past year for Nucor and have accounted for roughly 12% of revenues (Nucor 10K,
2008).

        Threats
        The biggest threat the firm will encounter going forward is unequivocally the
erosion of their market share and profitability resulting from growing imports of cheaper
foreign steel. Foreign steel manufacturers have been devastating to the US steel industry
because of their cheap labor force, reduced regulation, and unfair subsidies (Barnes &
Tyler, 2005). As the American Iron and Steel Institute’s CEO Andrew Sharkey said,
“once again, data shows clearly that America’s steel trade crisis continues. US steel
companies and employees continue to be injured by high levels of dumping and
subsidized imports” (Barnes & Tyler, 2005).
        Another threat that looms in the steel industry is the heavy correlation between
economic growth and the demand for steel. Nucor is directly affected negatively by
economic slowdowns. As our country’s economy slows into recession, like it is now,
there is reduced demand for industrial goods. Nucor will experience lower steel prices as
a result of reduced demand and will also see lower sales and quantity demanded
decreases. Also, the overcapacity in the global steel market will continue to drive prices
lower, as supply increases have a direct negative effect on price.
        New legislation could also have a negative effect on Nucor’s bottom line, as
Greenhouse Gas requirements could be enacted into law, further increasing production
costs. Since foreign competitors are not held to the same regulatory standards, it will be
harder for Nucor to compete with their lower prices (Nucor 10K, 2008).




K. Ciolli                                                                                11
                                      Conclusion
         If Nucor wants to continue to thrive in the global steel market, it needs to focus on
and exploit its key core competencies by upholding its rich business philosophy,
continuing to stay lean and focus on cost minimization, and continue to take risks in
pursuit of operational excellence. Nucor needs to capitalize on the weak US steel
manufacturing industry, and acquire companies that can add value increase Nucor’s
market share. Nucor also needs to continue to vertically integrate its supply chain in an
effort to reduce supply costs. If Nucor does all these things, they will be prepared to face
the eminent threats in the global economy, and continue to thrive in the steel industry




K. Ciolli                                                                                  12
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K. Ciolli                                                                                                 13

								
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