Nidya Judhi Astrini <nidyajudhi_astrini@yahoo.

com)
FEB UGM 06/ 193754/ EK/ 16243

I. COMPANY PROFILE

“Nucor Corporation is made up of 17,300 teammates whose goal is to "Take

Care of Our Customers." We are accomplishing this by being the safest, highest
quality, lowest cost, most productive and most profitable steel and steel
products company in the world. We are committed to doing this while being
cultural and environmental stewards in our communities where we live and
work. We are succeeding by working together”

"About us." Nucor Homepage. 2008. Nucor Corp. <http://www.nucor.com/indexinner.aspx?finpage=aboutus>.

Nucor steel is a leading steel company headquartered in Charlotte, North Carolina.

They are an innovative and lean company. They benefit from each manager
operating their segment as its own business entity. The excellent relationship has
allowed management to achieve success through financial goals and has given
employees job security and a great working environment. Although the company
has seen it’s rough times over the past 100 years, it certainly seem to come
through strong for many after mergers and acquisitions set in during the early
2000’s. Nucor has also pioneered the mini-mill steel which led to reduction in cost,
energy use, and pollution. Environmentally speaking Nucor is industry best and
largest recycler of any material in America.

Nucor’s analysis will primarily focus on management’s ability to allocate resources

while cutting costs and competing in international markets. The industry itself does
not allow for product differentiation or immense technological advances, therefore
companies are forced to offer the lowest prices in order to remain competitive.

II. DIMENSION OF CORPORATE STRATEGY

Nucor chose to enhance the scope of the company for corporate performance
reasons. In order to gain higher degree of control, Nucor established a functional
diversification which concerns an expansion of backwards range activities towards
supplier (vertical integration) and acts directly as distributor. The breadth of scope
along functional dimension was followed by narrow scope along geographic
dimension which can be seen from its geographic concentration solely in United
States. Since Nucor’s business-units have the same basic resource; steel, it has
high level of relatedness.

Nucor has architectural, allocating, administrating, and assisting role. In

architectural role, Nucor is responsible for the strategy (scope decision, defining
growth paths, and goals for the corporation as a whole and the configuration of the
company), corporate value creation (capitalizing opportunities, exploiting synergies,
and assessing parenting fit), and accumulation of assets for the corporation. Nucor
business units act as dealers for other businesses (supplier role). It delivers large

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Nidya Judhi Astrini <nidyajudhi_astrini@yahoo.com)
FEB UGM 06/ 193754/ EK/ 16243

portion of its output in the form of end products internally. As a vertical integrated
firm, Nucor’s business units take this role largely.

The governance characteristics of the corporations allowed the business units to

respond to competitive demands of a specific business area quickly. Nucor, as a
diversified firm was able to reap the benefits of ‘governance economies’ in case
market demands changed. As a diversified company, Nucor has the ability to
exploit ‘economies of scope’ in steel industry. Nucor choice to linking up sequential
activities enables firms to reduce overall operating cost in one or more of its SBU,
as well as driving profit by corporate value creation.

III. SITUATION ANALYSIS

III. 1. External Environment

In every country, tax policies are unavoidable. Nucor deals with taxes in United
States such as states, federal, and local taxes. Even though taxes heavily affect
their bottom line, they do not always negatively affect a business, especially when
those taxes are meant to protect local company. In international perspective, Nucor
also deals with international trade law. Markets are attractive when currency is
weak. This was the case for the steel industry during the economic downturn in
2001. Imports soared to record highs, while exports were very low.

Nucor targets small rural towns in order to have a very loyal community base. It
avoids building in major cities to maintain relationships more directly with its
community. Nucor faces problems with the increasing age of baby-boomers
because it led to a nationwide decrease in blue-collar workers. Technology has
major impact to steel industry. While some steel industries outsource their
production due to high pace of technology, Nucor took the opposite approach.
Nucor was the first to pioneer mini-mill technology of small factory production of a
specific product and eventually increase its capacity utilization.

III. 2. Internal Analysis

Nucor’s primary inbound logistics are scrap metal and electricity. Nucor has
established a raw materials strategy to control directly and indirectly through joint
ventures with various partners. Their first material control occurred in 1968 when
they decided to move to steel business to provide raw material for Vulcraft. In
August 2005, Vulcraft Structural Products, Vulcraft Decking, Nucor Building Systems
Products, NUCON Light Gauge Framing, and Nucor Fastener Products were being
supplied by groups of Nucor Bar, Beam, Plate, and Sheet Mills. The groups of Mills
used scrap steels until 99% from both post-consumer (17%) and post-industrial
recycled content (83%). Post-industrial scrap steel acquired through joint-ventures.
Nucor’s battle with energy prices was solved by using mini-mill technology.

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Nidya Judhi Astrini <nidyajudhi_astrini@yahoo.com)
FEB UGM 06/ 193754/ EK/ 16243

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. Because Nucor has wide array of products, production
processes in Nucor had been decentralized and considered excellent since they had
implemented innovative technology which is supported by lean management,
empowered employees, and strong control over raw materials.

In the steel industry, product differentiation is hardly noticeable so companies in

this industry must compete in cost and delivery service. Nucor’s plants were built
near the customers so that it could guarantee the lowest possible cost for steel
purchases and Nucor does have significant distribution channels in the US with its
14 different steel plants which allow wide market coverage. But with a globalization
challenge, this kind of distribution approach will create a problem since Nucor do
not have any steel plants outside US.

Nucor’s marketing strategy involving environmental friendliness, worker safety, and

its contribution to the community. Nucor associated themselves with environmental
friendliness through its recycled content and their mini-mill technology which
reduce pollutions made by steel making process. Nucor pronounced its concern
about worker’s safety since high death rate could deteriorate employee’s moral and
feel of safety. The wave of co-locating companies near Nucor’s plants has added
another one or two hundred jobs for people in the community.

Since Nucor has broke traditional way of equalizing freight, domestic markets
relocate around Nucor’s plants in order to receive substantial cost reductions and
use JIT. From international approach, Nucor does not give many services.

Since the divisions did their own manufacturing, selling, accounting, engineering,
and personal management, corporate staff only consisted of less than forty-five
people. The offices were simple, routine, and business-like. To be successful with
integration, corporate managers required new functional skills to expand their
knowledge structures to address new complementary perspectives since there are
unique functional capabilities specific to each stage in the industry chain. Nucor
has worked through a difficult time in the industry to become the world’s 10th-
largest steelmaker and the biggest steelmaker in the US. Their key success is their
excellency in managing knowledge and people. Nucor philosophy of self-
empowerment has encouraged them to hire people that want to make decisions on
their own, responsible for what they do, and have an attitude of pride and
excitement in their accomplishment.

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Nidya Judhi Astrini <nidyajudhi_astrini@yahoo.com)
FEB UGM 06/ 193754/ EK/ 16243

III. 3. Industry Analysis (Appendix-1)

In a market that has low product differentiation, in which customers demand the
lowest possible price, fierce rivalry ensues because of the price competition. Nucor
was the dominant player in the US economy, but fierce price competition from
abroad increased competition among firms. 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. Price increases in scrap steel which was caused by increased demand
domestically and abroad have added pressure on Nucor in keeping their supply
costs low. Because the majority of Nucor’s sales are on a bid framework, buyers
have tremendous bargaining power. Unlike the other sections of the model so far,
the threat of substitutes is relatively low. Essentially, no other metal can offer equal
benefits per cost that steel currently can. Aluminum is probably the biggest
substitute product to steel for most applications but it is not as strong as steel.

III. 4. Financial Analysis (Appendix-2)

The year 2005 is a good year for Nucor. Their net income rose significantly but
their liabilities continue to grow in a stable rate. Nucor revenue was above average
even though still under the United States Steel Corp. Nucor has the biggest number
of ROE and market capitalization among its rivals. After February 2005, Nucor’s
stock price jumped dramatically.

IV. SWOT ANALYSIS (Appendix-3)

Nucor’s key strengths 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. 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 its expertise in
keeping costs low.

Dependency on scrap steel and energy prices and the inherent volatility in these
markets pose to be the biggest weaknesses of Nucor. Huge capital requirements
for expansion and technological modernization are another weakness of Nucor.

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, increase production capacity, and increase

Strategic Management
Nidya Judhi Astrini <nidyajudhi_astrini@yahoo.com)
FEB UGM 06/ 193754/ EK/ 16243

their economies of scale. Another opportunity is more product diversification to

reduce volatility in product markets.

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. Another threat that looms in the steel industry is the heavy
correlation between economic growth and the demand for steel.

V. STRATEGY FORMULATION

Nucor faces a problem with excess capacity of steel production on a global scale.
The high capacity has created a price war for steel, as well as steel dumping into
the U.S. market which has diminished profit over the last couple of decades.
Another problem they face is lack of innovation of technology. In order for Nucor to
maintain, and continue to post profits, in the future they must identify areas to
increase technology to lower production costs and increase throughput.

a. Strategy Alternatives

Nucor’ strategy alternatives are:

1. Stay domestic and maintain its technological advances and cost reductions

2. Works internationally

b. Strategy Choice and Evaluation

Based on several factors, our team suggests that Nucor works globally rather than
stay domestic and maintain its technological advances and cost reductions.

b.1. Justifications for Not Staying Domestic

Steel market in US has cyclical characteristic, it is mature, and overflowed by

excess capacity. Technological advances cannot be done in short time and it
involves enormous investments. Excess capacity in steel industry creates price war
between living entities inside the industry. Even though Nucor has good
technology, power over raw materials, and exciting marketing pitch, the pressure
from foreign company who can provides cheaper steels has made Nucor’s
technology seemed obsolete.

The decreasing number of baby-boomers workforce also hurts Nucor. Jobs in steel
plants are considered uninteresting for the young generation and labor wages in US
are high compared with China and Korea. Exporting steels from US to another
country might result on high cost and risky distribution since Nucor does not have
any plants outside US.

Strategic Management
Nidya Judhi Astrini <nidyajudhi_astrini@yahoo.com)
FEB UGM 06/ 193754/ EK/ 16243

b.2. Justifications for Working Internationally

The risk which arises because of US market cyclical characteristics can be overcome
by spreading the risk into larger market base and the excessive capacity can be
allocated to several different countries. The price war in a global market is not as
stiff as in local market. Nucor has the choice to outsource the research and
development of the technology to its partner.

Nucor’s marketing pitch such as environmentally friendly, workers safety, and its
unique incentive pay might attract both consumers and workforces outside US.
Each plants in several different country will enable Nucor to serve consumers in a
better way.

VI. STRATEGY IMPLEMENTATION

Nucor needs to find cheaper global suppliers and make joint-ventures with them to
ensure the availability of raw materials which will be included in supplier’s balance
sheet rather than Nucor’s balance sheet. It will help Nucor to maintain low
inventory.

Analyze steelmaker companies outside US and initiate a plan to acquire or build

joint-ventures. The top managers must accurately assess the cost and benefit of
each possible acquisition which will involve considerations of transaction cost and
knowledge transfer. Corporate managers must determine how to direct and
operate their firm beyond its original boundaries. Using the knowledge of acquired-
firm managers who have different organizational and industry experiences might be
challenging and difficult for corporate managers, but it will broaden corporate
knowledge about running business outside US.

Nucor must pay attention to the latest technology which will be useful in steel
industry and be prepared to take the risk by implementing that technology. Make
the entire value chain from raw material control until distribution process as the
center of gravity.

VII.CONCLUSION

Overall, the steel industry is a very tough industry to compete in and be successful.
It is vital that Nucor is in a position to acquire other companies and form joint
ventures. Nucor currently has done a remarkable job moving itself to an industry
leader. Their proven organizational style, management, employees, and active
pursuit of growth have allowed them to emerge as a global industry leader.
However, that is not to say there will not be more major challenges for Nucor.
Nucor is currently faced with increasing competition from both domestic and
international rivalries. It is critical that Nucor continues to grow and increase global

Strategic Management
Nidya Judhi Astrini <nidyajudhi_astrini@yahoo.com)
FEB UGM 06/ 193754/ EK/ 16243

market share. Current management must continue to specialize in Nucor’s core

product and capitalize on a proven successful organizational structure.

REFERENCES

ACCS. 2005. Dimensions of Corporate Strategy: Framing The Real Issues. Vallendar,
Germany.

Hill, Charles and Jones, Gareth. 2007. Strategic Management: An Integrated

Approach. New York: Houghton Mifflin Company.

Lockridge, Deborah. 2006. Hot Times in Tennessee Valley. Tennessee.

Peyrefitte, J., Golden, P., and Brice Jr, J. 2002. Vertical Integration and Economic
Performance: A Managerial Capability Framework.

http://www.emeraldinsight.com/0025-1747.htm

http://www.marketgrader.com (search on NUE)

http://www.nucor.com/indexinner.aspx?finpage=aboutus

Strategic Management