Download - Global Marketing Strategies for Indian Firms
EXECUTIVE SUMMARY
Global marketing offers a way for companies of all sizes to grow by expanding their
customer base beyond the domestic market. However, the complexities of global
marketing demand careful planning and proper implementation.
This study has been conducted to gain knowledge about the potential strength of Stainless
Steel exports of China. The supply demand scenario, domestic steel industry and the
present and possible role of India was analyzed in case of China.
To start with the Indian and the world Iron and steel Industry is studied and comparative
study of the performance of Exporting Countries and Indian industry is analyzed.
India’s positioning in the global perspective will depend upon cost competitiveness of
the Indian. Besides the continuous emphasis is to given on new
technology/process/products developed, productivity improvement, quality
improvement. The Chinese steel market is one of the most active markets in the world.
China is a country with a dynamic economy whose annual growth rate has stayed at 7-8
percent in the last five years.
After this China Customer are segmented, and the most attractive segments for Indian
Exporters are selected as target markets. The company studied is Jindal Steel Ltd. Jindal
Stainless is among the top twelve stainless steel producers in the world along with
Arcelor, KTS, Acerinox, Avesta Polarit, and POSCO etc. The company itself has two
offices in China and is a well-known brand in the Chinese Stainless Steel Industry. It is a
pioneer in the production of Chrome Manganese Stainless Steel and last year 90% of
Jindal Stainless exports were to China.
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OBJECTIVES OF THE STUDY
Indian business firms are facing problems on the international marketing front and the
possible strategies that can employ for going global and maintain their stride with global
scenario
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MARKETING MIX OF GLOBAL MARKETING
Marketing planning helps you decide what products or services are required in
your market, then how to sell them and what price to put on them. So focus on the
“seven P’s of marketing” — people, planning, product, positioning, pricing, place
and promotion.
People
The personal, cultural, social and psychological attitudes of your customers are
important. If you are going to meet their needs; do some basic market research.
Planning
Your market research needs to be analyzed and evaluated. You can then start to
predict the requirements of your customers.
Product (or service)
What makes your product different from that of your competitor? Can you
develop any brand values for your product? Decide what your unique selling point
is and work out how the customer will benefit from your product or service.
Positioning
Differentiate your product from that of your competitors. Look for the gap in the
market for your product; work out why this gap exists. How big is this market?
Does it have short and/or long term growth potential? Decide who your
competitors are and how they will react to your plans. What makes your product
special? How will you develop and exploit competitive advantage; work out the
best time to launch your product.
Pricing
What people feel about a product is reflected in what they are prepared to pay for
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it. Identify what value your customers place on your product. Then decide which
market segment you will attack e.g. premium or budget. What discount structure
(if any) will you offer for volume. What will be your pricing policy for agents,
wholesalers and retailers?
Place
You may need to work out how your goods will move from where they are
produced to where they are sold. You may want to use wholesalers, retailers or
your own premises. Or will you use direct marketing, telemarketing, or e-
commerce via the Internet?
Promotion
This is the most visible aspect of marketing. It pulls together various
communication elements- Corporate identity; Branding; Advertising strategy;
Public relations, internal and external; Direct marketing; Sales promotion and
merchandising; Sales and sales management; Exhibitions.
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DEVELOPING MARKETING STRATEGIES
Positioning and differentiating the market offerings through the product lifecycle
Developing new market offerings
Designing global market offerings
This study will also be conducted to gain knowledge about the potential strength of
Stainless Steel exports of China. The supply demand scenario, domestic steel industry
and the present and possible role of India was analyzed in case of China.
To start with the Indian and the world Iron and steel Industry is studied and comparative
study of the performance of Exporting Countries and Indian industry is analyzed.
In the next step, the environmental analysis of China is done. The environments selected
included macro-micro economic environment, legal environment, social environment,
and business environment, of China.
India’s positioning in the global perspective will depend upon cost competitiveness of
the Indian. Besides the continuous emphasis is to given on new
technology/process/products developed, productivity improvement, quality
improvement. The Chinese steel market is one of the most active markets in the world.
China is a country with a dynamic economy whose annual growth rate has stayed at 7-8
percent in the last five years.
The Iron and Steel Industry is one of the major foreign exchange earners, despite of
important role it plays in balancing India’s international trade. Steel has pervaded our
daily lives from the kitchen to hospital and industry. Because of its ability to
withstand corrosion, steel has found an indispensable slot even in the medical world.
Extensively used, steel is sudden in a wide assortment of container industry,
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galvanizing units, engineering industry electrical industry, re-rolling industry and
heavy industry. Hence we can say that:
There is a little bit of steel in everyone’s life
Iron containing less than 2% carbon and less than 1-% silicon and not more than a
trace of phosphorus is what is usually termed steel. Carbon is the principal hardening
element in steel. The increment of carbon % within steel increases the hardness of
steel. The hardness becomes correspondingly less in steel containing more than 85%
carbon than low carbon ranges.
PRODUCTION PROCESS
There are two primary methods of making steel, differing in terms of the process and
raw materials used : the blast furnace route (BF) and the electric arc furnace (EAF)
route. In the BF process, the iron is first reduced with coke in a blast furnace and then
refined to produce molten steel, while in the EAF process a mix of scrap and sponge
iron is melted using electricity in an electric are furnace to produce long and flat
products.
Stainless steel is gaining recognition and it is considered as the friendly and sustainable
material because of its corrosive resistance and for its easy to clean / hygienic surfaces.
Its versatility, durability and its supraliminal quality makes stainless steel the exceptional
material of a choice for the new millennium. Initially stainless steel found its applicability
in cutlery and gradually into textile, chemical and other engineering industries. Today its
application has created wonders in the Architecture, Building and Construction (ABC)
and Automobile, Railways and Transportation (ART).
Stainless steel usage in the building and construction sector would increase in the coming
years. If the potential of the market is fully realized in terms of the prospective end use
sectors mentioned above along with the continuing growth of the utensil market, the
future growth rate of stainless steel can even be higher than witnessed in the last decade.
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INDIAN STEEL INDUSTRY
Indian Steel Industry is now going through a speedy growth path. In the global
scenario, China remains the world’s largest crude steel producer in 2008. China’s steel
sector has been following an upward trend, with sale of steel product reaching their
highest levels in recent years. Increased imports and decreased export have combined to
bring great pressure to bear upon china’s steel market. The Antidumping Measure taken
by the United States against China HR Plates has seriously helped up China’s export.
In china the volatile Nickel price create uncertainty in the stainless steel market. China’s
Metal Sector has been enjoying a period of astonishing growth. Trend of production and
consumption are further elaborated with respect to category of products like cold rolled
flat, bars, wire rods and pipes. Stainless steel world has a department specialized in
research and intelligence to help meet the market’s increasing need for the resolution of
complex technological and informational problem.
Stainless steel production in India is speedily increasing since the last three decades.
Initially India had to depend on foreign markets to meet its requirement of stainless steel.
Today India is self sufficient enough to make stainless steel of all grades, shapes & sizes
and is also a major exporter of stainless steel of utensil grade. In the Public Sector, the
special steel plants of Steel Authority of India Limited (SAIL) at Durgapur and Salem
have made significant contribution for the growth of this industry. Mukand Limited,
Panchmahal Steel Limited, Shah Alloys Industries Ltd., Jindal Strips Limited have also
contributed significantly in making India self-sufficient in stainless steel production.
(William A. Johnson, 2001)
Most (around 75%) of the Indian stainless steel market is still in the kitchen segment.
Indian Railways is switching over to manufacture their passenger coaches which will
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require 15 mt stainless steel per coach in coming 5 years. The Indian government is
using Ferric cold rolled stainless steel strips for making coins. The main focus of Indian
stainless steel industry is China which still imports 90% of stainless steel. (William A.
Johnson 2001)
EXPORTS FROM INDIA
Iron and steel exports from India started after 1964, the first time India’s supply
dominated her domestic needs. Though the Indian exports are quite vulnerable to
domestic demand conditions, the export market has been doing reasonably well in the
past few years, with FY03 seeing an increase of more than 100% over the previous year.
The increase in exports to Asia (approx. 227%) and America (105%) has contributed to
this massive growth. The abundant availability of raw materials like iron ore and cheap
manpower in India provide tremendous potential for the iron and steel sector to grow.
(Peter M Fish, 2003)
The recovery of the steel sector witnessed in 2006-07 was carried forward in Q1 2007-08.
Production and apparent consumption were higher by 8.4 per cent and 1.6 per cent,
respectively. Production growth was 9.4 per cent in the flats segment as against 5.7 per
cent in the non-flat segment. Apparent consumption growth in the flat and non-flat
segments was —1.5 per cent and 5.1 per cent, respectively.
The apparent consumption growth in the flat segment was negative despite a positive
production growth, due to sharp rise in exports coupled with a poor domestic off-take
largely due to the transporters strike in April 2003. Export performance was remarkable
with a growth of 38.6 per cent during the period. Imports were higher by 26.8 per cent.
Export growth was higher for flat products (41.8 per cent) as against non-flat products
(21.8 per cent). Import growth was higher for non-flat products (42.9 per cent) as against
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flat products (25.7 per cent). The capacity utilization (primary and secondary producers)
of crude steel production improved from 86.3 per cent in Q1 2002-2003 to 92.0 per cent
in Q1 2003-2004.
India exported about 3.85 million tonnes of stainless steel production in 2007-08. Of
these, low nickel high manganese grade hot rolled and cold rolled products were 30,000
tones. In the 300 series, hot rolled and cold rolled products were about 30,000 tones,
Corex Furnace Bars 43,600 tones, wire and cables about 22,000 tones. The export of 400
series was 13,800 tones of which CF Bars were 9,200 tones and wire and coils about
3,400 tones. The export of utensils and kitchenware during 2007-08 was about 80,000
tones. The value of utensil export by India in 2007-08 was about US $ 47 million to
Middle-East.
STATEMENT OF THE PROBLEM
The study is intended to find the export potential of Stainless steel to Chinese market, to
reveal present pattern and possible future developments of supply, demand and
consumption in relevant product specific markets.
Jindal Strips Limited is the largest integrated producer of stainless steel in India. It is
Flagship Company of Jindal Group set up in 1970 under the visionary of Mr. O.P.Jindal.
Jindal Organization is ranked fourth amongst the top Indian Business houses.
The company initiates developing new market for its stainless steel products around four
to five years back and has been able to achieve compounded average growth. Jindal is the
leader in domestic market of stainless steel and it is trying to become a major player in
international market. With a market share of 50% in India, it also exports to various
countries across the globe. Jindal stainless is the only company in India which has the
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composite stainless steel plant for the manufacture of Slabs, Blooms, Hot rolled and Cold
Rolled Coils.
This study is carried out keeping in the interests of Jindal Strips Limited and hence it
becomes important to have an insight of the domestic market and export potential in the
Chinese market.
OBJECTIVES OF THE STUDY
1. To study various global marketing strategies
2. This study highlights the export potential of Jindal Strips Limited in China.
3. This study may help Jindal Strips Limited in identifying new markets.
4. This study would present the strategic alliances that Jindal Strips limited can form to reduce the risk in the market.
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A global industry is an industry in which the strategic positions of competitors in major
geographic or national markets are fundamentally affected by their overall global
positions. A global firm is a firm that operates in more than one country and captures
R&D, production, logistical, marketing, financial advantages in its costs and reputation
that are not available to purely domestic competitors. Global firms plan, operate, and
coordinate their activities on a worldwide basis. Ford’s “world truck” has a European-
made cab and a North American- built chassis, is assembled n Brazil, and is imported
into the United States for sale. Otis Elevator gets its door systems from France, small
geared parts from Spain, electronics from Germany, and special motor drivers from
Japan; it uses the United States for systems integration. A company need not be large to
sell globally.
DEVELOPING AN INTERNATIONAL MARKETING STRATEGY
An international marketing strategy involves developing and maintaining a strategic fit
between the international company's objectives, competencies, and resources and the
challenges presented by its international market or markets. (Terpstra, V. and Sarathy, R.,
1997) As such, the international strategic plan forges a link between the company's
resources and its international goals and objectives in a complex, continuously changing
international environment. Given the changing nature of the environment, the
international company's strategic plan cannot afford a typical long-term focus (a five- or
ten-year plan); rather, the planning process must be systematic and continuous, and it
must re-evaluate objectives in light of new opportunities and potential threats. (Carol
Graham, 2001)
Another dimension of international marketing strategy is linked to the company's
commitment to its international markets. Some companies use international marketing
only to test the waters or to unload overproduction. (Carol Graham, 2001) This
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approach to international marketing, although it might open long-term opportunities to
the company, does not indicate a substantial commitment to internationalization and is
not a premise for success in the long term in international markets. A long-term
international commitment that entails substantial investment in terms of resources and
personnel is likely to bring the company the greatest rewards in the long run. Such a
strategy will make the company a stronger competitor in the world market, as well as at
home.
International strategic planning takes place at different levels (Isobel Doole and Robin
Lowe, 2003):
• At the corporate level, the strategic plan allocates resources and establishes
objectives for the whole enterprise, worldwide. The corporate plan has a
long-term focus and involves the highest levels of management. PepsiCo
Beverages headquarters (including its international headquarters) are
located in Purchase, New York, USA. The company's corporate plan is
developed here.
Frank Bradley and Michael Gannon (2000) propose that planning at this level involves
international target market selection decisions:
At the division level the strategic plan allocates funds to each business unit
based on division goals and objectives. In the PepsiCo example, its division
for Eastern Europe is located in Vienna, Austria. From there, the company
coordinates all local (country-level) operations. At this point, Pepsi may
use various portfolio analysis tools to decide which brands to harvest, to
invest in, or to divest, and plan its resources accordingly.
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At the business unit level, within each country, decisions are made regarding which
consumer segments to target. At this level, Pepsi develops a strategic plan.
At the product level (line, brand), a marketing plan is developed for achieving
objectives. PepsiCo's marketing plan for Poland, for example, might
include increasing the consumption of Pepsi and Pepsi Light and launching Pepsi
Max beyond the cities of Warsaw, Krakow, Wroclaw, and Poznan.
DEVELOPING AN INTERNATIONAL MARKETING PLAN
At this stage of the planning process, the international company develops a marketing
plan. Assuming that the company has already analyzed its marketing opportunities and
researched and selected the target market, it must now (Terry Hennessy, 1999)
• Develop marketing strategies for the target market, deciding on the prod-
cut mix for the local target market, as well as on the other components of
the marketing mix—distribution, promotion, and pricing.
• Plan the international marketing programs.
• Manage (organize, implement, and control) the marketing effort.
The decision on which elements of the marketing mix to use in a particular target market
is closely linked to the product's life cycle and to the market entry strategy selected: A
product in the early stages of its life cycle, such as the Palm Pilot, will most likely be sold
to consumers in highly industrialized countries for a high price, accompanied by heavy
promotion. (Isobel Doole and Robin Lowe, 2003) A product will most likely be man-
ufactured in a developed country and exported to the rest of the world. Alternatively, a
product in the later stages of its life cycle, such as a videocassette recorder, will be sold to
consumers worldwide, regardless of country development level. The company selling the
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product will heavily compete on price and, thus, most likely manufacture the product in a
developing country where labor is inexpensive, to sell all over the world. Most likely, the
company will have at least one subsidiary located in the country of product manufacture.
(Carol Graham, 2001)
Insights into the marketing strategies that companies use to target international markets
reveal that marketing mix decisions are complex and based on extensive research.
Kraft Foods (www.kraftfoods.com), for example, has made interesting product mix
decisions: It sells coffee products and confectionery products that cover the spectrum of
target consumers—and the brands often cannibalize.
Among the many brands of coffee Kraft Foods offers are:
Jacobs coffee: This product sells mainly in Central and Eastern Europe.
Jacobs coffee is popularly known as a quality German brand. Because con-
sumers in Central and Eastern Europe have traditionally had frequent
interaction with German consumers and have acquired a taste and prefer
ence for German brands, marketing the Jacobs brand in this region was
appropriate. Had Kraft brought the product to the United States, it would
have had to challenge quality perceptions of bulk coffee associated with
developing countries in Latin America (Colombia and Guatemala, in par-
ticular) and Africa (Kenya, especially) and value perceptions held by store
brands and other low-priced national brands such as Folgers and Kraft's
own Maxwell House. (Dana-Nicoleta Lascu 2003)
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Gevalia coffee: This brand is aimed at the Scandinavian market and
imported into the United States as a gourmet product sold exclusively by
mail order.
Among the numerous confectionery products Kraft offers are the following:
Milka: Kraft Foods is now importing its European Milka brand of choco
late into the United States, selling it primarily through chain stores such as
Target. Mass-market consumers in the United States are increasingly
replacing favorite local candy bars with products that are perceived as
more sophisticated and that are available at competitive prices. (Dana-Nicoleta Lascu
2003) Competitors such as Ferrero Rocher and Dove have had great success with the
pre mium chocolates they sell in the U.S. market, and they are increasingly placing
their products in the impulse-purchase section, by the cash register. Kraft's Milka is
using a similar strategy, selling its basic-milk chocolate
with the picture of a Swiss cow in the Alps on the packaging at Target
stores. Milka also is available in a wider selection at shops that specialize in
foreign gourmet foods. (Frank Bradley and Michael Gannon, 2000)
Suchard: Kraft Foods is restricting the distribution of its premium
chocolate Suchard to Western Europe. Suchard has been for decades the
traditional competitor to Lindt in the premium chocolate market in
Europe. The Suchard name has long been associated with French-speaking
Switzerland, and most European consumers do not know that it is owned
by an American company.
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Toblerone: Kraft is distributing its Toblerone chocolate brand extensively,
all over the world.
Kraft also has numerous brands that are restricted to a few markets. Among them are
Daim, aimed at Scandinavian consumers, and Bis, aimed at Argentina and Brazil.
Kraft Foods, a company based in the United States, has different mix strategies for each
market. And it sells to the U.S. consumer only a fraction of its international offerings,
some of which are positioned as premium European imports. It should be mentioned that
companies with more limited resources will very likely be more restricted in their
worldwide market coverage.
Companies entering more and more countries in search of new markets are likely to
face increasing difficulty in continuously monitoring and controlling their
international operations. These firms must monitor not only the constantly changing
marketing environment, but also changes in competitive intensity, in competitor
product/service quality strategies, in supply chains, and in consumer expectations. (Dana-
Nicoleta Lascu 2003)
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MAJOR DECISION IN INTERNATIONAL MARKETING:
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DECIDING ON THE INTERNATIONAL ENTRY MODE
The company control over operations and overall risk increase from the export mode to
the wholly owned subsidiary entry mode. (Terpstra, V. and Sarathy, R., 1997) In general,
companies tend to use the export mode in their first attempt to expand internationally and
in environments that present substantial risk, and companies tend to approach markets
that offer promise and lower risk by engaging in some form of foreign direct investment.
(Terpstra, V. and Sarathy, R., 1997) There are, however, many exceptions to these
statements: Companies that have been present for decades in attractive international
markets, such as Airbus Industries and Caterpillar, continue to export to those markets,
rather than manufacture abroad. Similarly, many new small businesses find that they can
manufacture products cheaply abroad and distribute them in those markets without
making a penny in their home country; this is increasingly becoming a possibility for
companies selling on the World Wide Web. (John D. Daniels, 2005)
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Deciding
whether to go
abroad
Deciding
which markets
to enter
Deciding how
to enter the
market
Deciding the
marketing
program
Deciding on
the marketing
organization
Indirect Exporting
Indirect exporting means that the company sells its products to intermediaries in the
company's home country who, in turn, sell the product overseas. A company engaging in
indirect exporting can use middlemen such as export management companies, trading
companies, or agents/brokers to distribute its products overseas. (Carol Graham, 2001)
Alternatively, the company can use cooperative exporting, also referred to as
"piggybacking" or "mother henning." With cooperative exporting, companies use the
distribution system of exporters with established systems of selling abroad who agree to
handle the export function of a no competing (but not necessarily unrelated) company on
a contractual basis. (Isobel Dole and Robin Lowe, 2003) Such companies are paid on
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Direct investment
Joint ventures
Licensing
Direct exporting
Indirect exporting
Am
ou
nt
of
co m mit
me
nt,
ri
sks
, co ntr
ol,
an
d
pro
fit
pot
ent
ial
commission or are charged a discount price for the product; they are larger companies
with extensive experience in and knowledge of the target international market. (Gilligan,
C. and Hird M., 1986)
Using indirect exporting does not require market expertise, nor a long-term commitment
to the international market. The company's risk also is minimal; at most, it can lose a
product shipment. Among disadvantages are lack of control over the marketing of its
products - which could ultimately lead to lost sales and a loss of-good will that might
ultimately affect the perception of the company and its brands in other markets where it
has a greater commitment.
Some companies use indirect exporting as a first step toward a greater degree of
involvement. After a sufficient consumer franchise is secured and the market is tested with
the initial shipment, a company might commit resources for additional investment in the
market. It should be mentioned, however, that indirect exporting in the long term does
not necessarily mean that the company is not committed to the market; it simply means
either that the company does not have the resources for greater involvement or that other
markets are performing better and need more company resources. (Carol Graham, 2001)
One of Europe's leading car makers, Germany's Volkswagen, operates through
independent importers and distributors in Belgium, the Netherlands, Switzerland, and
Austria, while in France, Germany, Italy, and Spain, which together account for 83 percent
of European sales, it controls its wholesale operations directly. (Frank Bradley & Michael
Gannon, 2000)
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Direct Exporting
Companies engaging in direct exporting have their own in-house exporting expertise,
usually in the form of an exporting department. Such companies have more control over
the marketing mix in the target market: They can make sure that wholesalers and retailers
observe the company's marketing policies, charging the suggested sale price, offering the
appropriate promotions, and handling customer requests promptly and satisfactorily.
(Terpstra, V. and Sarathy, R., 1997) More control, however, is expensive. Companies
carry the cost of their export department staff, and the costs involved in selecting and
monitoring the different middlemen involved in the distribution process—freight
forwarders, shipping lines, insurers, merchant middlemen, and retailers—as well as other
marketing service providers, such as consultants, marketing researchers, and advertising
companies. (Dave Savona, 1992)
One venue that opens new opportunities for direct exporting is the Internet. With a well-
developed web site, companies now can reach directly to customers overseas and process
sales online. And many companies do: Catalog retailers and dot-corn companies, such as
Lands' End and Amazon, respectively, long ago made their first international incursions
by exporting their products to consumers abroad and are rapidly expanding their
international operations. (Frank Bradley and Michael Gannon, 2000)
The challenges for companies using the Internet to export their products involve
securing the appropriate credit in environments where credit cards and personal checks
are uncommon and, finally, having sufficient sales to warrant staff expenditures needed to
process and handle the international sales. (John D. Daniels, 2005)
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Licensing
A popular international entry mode, licensing presents more risks to the company but also
offers it more control than exporting. Licensing involves a licensor and a licensee. The
licensor offers know-how, shares technology, and often shares a brand name with the
licensee. The licensee, in turn, pays royalties. (Dave Savona, 1992) The two approaches
to licensing are licensing without the name and licensing with the name.
Licensing without the Name
A licensor is very selective when choosing a licensee, ensuring that products manufactured
under license are of the highest quality. When quality cannot be guaranteed, either
because the licensee does not allow the licensor sufficient control and scrutiny, or
because the licensee cannot guarantee quality, it is preferable for the products produced
under license not to carry the licensor's brand name. (Frank Bradley and Michael
Gannon, 2000) In the early 1970s, Italy's Fiat granted a license to Avto VAZ, Russia's
largest automobile manufacturer, to manufacture Lada, Russia's most popular
automobile, and an important export to neighboring and other developing countries.
Under a similar arrangement, France's Renault granted a license to build Dacia brand
automobiles in Romania in the 1960s. Today, the automobile, which continues to sell under
the Dacia name, is as popular as ever, and, in 1999, Renault acquired a 51 percent stake in
the company. (Isobel Doole and Robin Lowe, 2003)
Licensing with the Name
Licensors can decide to adapt the names of their products when they have a greater
confidence in the capability of the licensee's workforce. One example is Poland's Polski
Fiat. Fiat was confident of the reliability of Polish manufacturing and did not require the
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use of a different name for the product. Today, Fiat no longer licenses the Fiat name to
Polish manufacturers; it has set up a subsidiary with multiple operations, Fiat SpA, which
manufactures many of the Fiats sold in Eastern Europe under the Fiat brand name
(primarily lower-priced models, such as Fiat Punto and Seicento J. (John D. Daniels,
2005)
Licensing is a lower-risk entry mode that allows a company to manufacture a product all
over the world for global distribution. Beverly Hills Polo Club, for example, conducts
business in approximately 85 countries around the globe, producing apparel licensed
under its own name, all licensed apparel for Harvard University, as well as Hype, Karl
Kani, and Blanc Bleu—a line that sells in upscale European retailers. (John D. Daniels,
2005)
Licensing permits the company access to markets that may be closed or that may have
high entry barriers. In the examples in the "Licensing without the Name" section, Lada,
Dacia, and Polski Fiat were sold in the countries of manufacture at low prices, with few
taxes, while automobile imports were charged tariffs at rates ranging from 50 to 100
percent.
Companies that engage in licensing agreements also limit their exposure to economic,
financial, and political instability. In the event of a national disaster or a government
takeover, the licensor licensing without the name incurs only the loss of royalties. The
licensor that permits the use of the name may suffer a loss of reputation in the short term
if the products are manufactured without licensor supervision and/or if they do not
uphold the licensor's standard. In the latter case, the licensor has some control, at least in
international markets. (Gilligan, C. and Hird M., 1986) For example, it can bring to the
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attention of international trade bodies the sale of products that are illegally using its
brand name, assuming the company has international trademark protection; in most
markets, it also can sue the former licensee.
A downside of licensing is that it can produce a viable competitor in the licensee, who
is well equipped to competently compete with the licenser. Simply training locals in
company operations, particularly technology, can lead to the development of skills for
future competitors.
Franchising
According to Isobel Doole and Robin Lowe (2002) Franchising is a means of marketing
goods and services in which the franchiser grants the legal right to use branding, trade
marks and products, and the method of operation is transferred to a third party – the
franchisee – in return for a franchise fee. The franchiser provides assistance, training and
help with sourcing components, and exercises significant control over the franchisee’s
method of operation. It is considered to be a relatively less risky business start up for the
franchisee but still harnesses the motivation, time and energy of the people who are
investing their own capital in the business. For a franchiser it has a large number of
advantages including the opportunity to build greater market coverage and obtain a
steady, predictable stream of income without requiring excessive investment. (Isobel
Doole and Robin Lowe, 2002)
Franchising (or business format franchising, to be accurate) is ‘the permission given by
one person, the franchisor, to another person, the franchisee, to use the franchisor’s trade
name, trade marks and business system, in return for an initial payment and further
regular payments’ (Sandhya, Krishnamurthy 2002)
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Having satisfied himself that franchisee would be suited to running his own business and
that he will accept the restrictions laid down by the franchiser, franchisee will choose the
type of business in which he would like to work and be happy that it is in a market with
good potential. (Harry G. Barkema, 1997) Franchisee now need to choose the franchiser.
If he has picked a category in which there are only one or two franchisers, it would be
wise to select a second category to avoid having too small a choice. This will also give
him a wider selection of territories. (Sinha, Piyush Kumar 1999)
Obtain a list of the franchises, which are available in the business category franchisee has
chosen. Which is best for him? Although this is the last stage of your assessment process,
it is, of course, the most important. He may be right for franchising and the market he has
chosen may be full of promise, but this will not make up for an ineffective franchiser.
There are many questions (Windsperger J. 2002) that can be asked to assess the quality of
a franchiser, but most falls into the following fields.
Has the franchise been sufficiently tested and are its franchisees successful? Do the initial
fee and continuing fees (or product mark up) represent good value for money? Do the on-
going fees (or product mark up) still leave the product or service competitive in the
market place and provide sufficient profit for the franchiser and franchisee to make the
business worthwhile?
Have the franchiser sufficient financial and management resources to do what they say
they will do to make your business succeed? Are they fair and ethical in their business
conduct? Are they a member of the British Franchise Association, whose members are
required to abide by a code of business practice? In the event of the franchiser’s failure
are there alternative suppliers?
28
Joint Ventures
Joint ventures involve a foreign company joining with a local company, sharing capital,
equity, and labor, among others, to set up a new corporate entity. Joint ventures are a
preferred international entry mode for emerging markets. In developing countries, joint
ventures typically take place between an international firm and a state-owned enterprise;
in this case, the company's partner is the local government. As such, the company is
assured instant local access and preferential treatment.
Many developing countries welcome this type of investment as a way to encourage the
development of local expertise, of the local market, and of the country's balance of trade
—assuming the resultant production will be exported abroad. (Gilligan, C. and Hird M.,
1986) In most developing countries, the international firm will typically provide expertise,
know-how, most of the capital, the brand name reputation, and a trademark that is
internationally protected, among others. The local partner will provide the labor, the
physical infrastructure (such as the factory and access to the factory), local market
expertise and relationships, as well as connections to government decision-making
bodies. (Carol Graham, 2001)
It is typical for the local government of the developing country to limit the joint-venture
ownership of international firms to less than 50 percent. It is also typical for the local
government to encourage the reinvestment of profits into the firm, rather than the
repatriation of profits by the international firm. As such, the government, in effect, leads
the international firm to engage in transfer pricing, a method whereby the parent
company of the international joint-venture partner charges the joint venture for
equipment and expertise, for instance, above cost. (Harry G. Barkema, 1997)
29
Joint ventures could constitute a successful approach to a greater involvement in the
market, which is likely to result in higher control, better performance, and higher profits
for the company. Successful joint ventures abound. (Frank Bradley and Michael Gannon,
2000) In one example, British Petroleum PLC established a joint venture in Russia, under
the name Petrol Complex, with ST, a powerful local partner with close ties to the Moscow
city government. The company owns 30 BP gas stations, each of which sells an average of
3.5 million gallons of gasoline a year, four times the average of a gas station in Europe.
(John D. Daniels, 2005) BP offers Russian drivers good service (a rare commodity in
this market), as well as minimarkets with espresso bars and a wide selection of wines; this
is in stark contrast to the Russian gasoline stations where customers pay for gasoline by
stuffing cash through a tinted window and where they communicate with the salesperson
through a microphone. (Sabrina Tavernise, 2001)
The joint-venture entry mode is not limited to developing countries. Numerous joint
ventures are operating throughout Europe, and they are increasingly coming under the
scrutiny of the European Commission, which assesses their impact on competition.
(Harry G. Barkema, 1997) Typically, the Commission appoints a taskforce to investigate
the impact of the joint venture on competition and then issues a statement of objections
within six to eight weeks, giving the companies involved a chance to respond and request
a hearing before the Commission makes its final decision with regard to the joint
venture; whenever no such statement is issued, the deal is assumed to be on its way for
approval, (Brandon Mitchener and Deborah Ball, 2001) One joint venture that the
European Commission has examined involves the diamond giant De Beers Centenary
AG (the world's largest diamond-mining company) and the French luxury goods company
LVMH Moet Hennessy Louis Vuitton SA (which owns, among others, Christian Dior,
30
Moe't & Chandon, Louis Vuitton, and Donna Karan); the company wants to produce De
Beers-branded jewelry and open a network of exclusive shops all over the world. (Brandon
Mitchener and Deborah Ball, 2001)
Overall, 70 percent of all joint ventures break up within 3.5 years, and international joint
ventures have an even slimmer chance for success (Dave Savona, 1992). Companies can,
to a certain extent, control their chances for success by carefully selecting the joint-venture
partner; a poor choice can be very costly to the company. Other factors that will increase
the success of the international joint venture are the firm's previous experience with
international investment and the proximity between the culture of the international firm
and that of the host country; a greater distance erodes the applicability of the parent's
competencies. (Harry G. Barkema, 1997)
Reasons for the failure of joint ventures are numerous. The failure of a partner can lead to
the failure of the joint venture—for example, the joint venture between a mid-size
company, Bird Corp. of Dedham, Massachusetts, and conglomerate Sulzer Escher Wyss
Inc., a subsidiary of Sulzer Brothers Ltd. of Switzerland. Although the joint venture
performed well, Bird Corp. experienced serious problems, with unsteady revenues and
slim profits, leading to the failure of the joint venture. (Savona, 2004) Even a natural
disaster or the weather could lead to failure: Zap-ata, a $93 million Houston, Texas,
company involved in natural gas exploration, took a 49 percent share in a joint venture
with Mexican investors with the goal of fishing on Mexico's Pacific coast for anchovies,
processing them, and selling them as cattle and poultry feed The weather system El Nino
caused the anchovies to vanish, leading to the failure of the joint venture. (Savona, 2004)
31
Like licensing and franchising, joint-venture partners can turn into viable competitors
that know the firm's operations and competitive strategies. In this case, the local partner
will undoubtedly become a formidable competitor locally, where the firm will be
protected by the government. (Harry G. Barkema, 1997) Internationally, however, the
international firm has some capability to combat the new competitors through controls
and agreements with the supply chain and distributors that will prevent access to
equipment or to markets, for example.
WHOLLY OWNED SUBSIDIARIES
Companies can avoid some of the disadvantages posed by partnering with other firms by
setting up wholly owned subsidiaries in the target markets. The assumptions behind a
wholly owned subsidiary are that (John D. Daniels, 2005)
• The company can afford the costs involved in setting up a wholly owned
subsidiary.
• The company is willing to commit to the market in the long term.
• The local government allows foreign companies to set up wholly owned
subsidiaries on its territory.
Frank Bradley and Michael Gannon, (2000) suggests that the company can develop its
own subsidiary, referred to as greenfielding, which represents a costly proposition, or it
can purchase an existing company through acquisitions or mergers. Many
opportunities for acquisitions have recently emerged in developing and developed
markets alike: Governments have been de-socializing services and industries, rapidly
privatizing industries that were formerly government owned or operated. Opportunities
32
have emerged in the area of telecommunications, health care, energy, and even the
national mail service.
The most important advantage that a wholly owned subsidiary can provide is a relative
control of all company operations in the target market. In particular, a subsidiary offers
the company control over how to handle revenue and profits. Wholly owned subsidiaries
also carry the greatest level of risk. A nationalization attempt on the part of the local
government could leave the company with just a tax write-off.
Additional difficulties could arise when a company decides to acquire or merge with
another. In the case of DaimlerChrysler, Daimler quickly found out that the former
Chrysler was not performing up to par and quickly proceeded to restructure, weeding out
former Chrysler employees. (Dana-Nicoleta Lascu 2003) In general, the company
acquiring another or building its wholly owned subsidiary will not be able to share risks
with a local partner, nor will it benefit from a partner's connections; it must build its own.
Even selling the subsidiary can eventually haunt the company years later. Har-rods Buenos
Aires was originally set up as a subsidiary of Harrods London, but became an
independent company in 1913 and changed hands several times. Today, Harrods Buenos
Aires operates in Argentina and has no relationship whatsoever with Harrods London—
which cannot address this issue successfully in the local courts in Argentina.
STRATEGIC ALLIANCES
In analyzing the results of joint ventures in China, Vankonacker (1997) observes that
joint ventures are hard to sustain in stable environments and concludes that more direct
investment will be wholly owned offering Johnson and Johnson’s oral-care, baby and
feminie hygiene products business as a success story.
33
Whilst all market entry methods essentially involve alliances of some kind, during
the1980s the term strategic alliance started to be used without being precisely defined to
cover a variety of contra contractual arrangements which are intended to be strategically
beneficial to both parties and which cannot be defined as clearly as licensing or joint
ventures. Bronder and Pritzl (1992) have defined strategic alliances in terms of at least
two companies combining value chain activities for the purpose of competitive
advantage. Perhaps one of the most significant aspects of strategic alliances has been that
it has frequently involved cooperation between partners who might in other
circumstances be competitors. Some examples of the bases of alliances are(Frank Bradley
and Michael Gannon, 2000):
Technology swaps
R&D exchanges
Distribution relationships
Marketing relationships
Manufacturer supplier relationships
Cross-licensing
There are a number of driving forces for the formation and operation of strategic
alliances.
Insufficient resources: the central argument is that no organization alone has sufficient
resources to realize the full global potential of its existing and particularly its new
products, competitors will exploit the opportunities which arise and become stronger. In
order to remain competitive, powerful and independent companies need to cooperate.
Pace of innovation and market diffusion: the rate of change of technology and consequent
shorter product life cycles mean that new products must be exploited quickly by effective
diffusion out into the market. This requires not only effective promotion and efficient
34
physical distribution but also needs good channel manager, especially when other
members of the channel are powerful, and so, for example the strength of alliances within
the recorded music industry including artists, recording labels and retailers has a
powerful effect on the success of individual new hardwire products such as the Sony
compact disc and Philips digital compact cassette. (Dana-Nicoleta Lascu 2003)
High research and development costs: as technology becomes more complex and
genuinely new products become rarer, so the costs of R&D become higher. For example,
Olivetti and Canon set up an alliance to develop copiers and image processors. In order to
recover these costs and still remain competitive, companies need to achieve higher sales
levels of the product.
The pharmaceutical company Glaxo’s success in marketing Zantac, its nulcer drug, was
achieved by using a network of alliances the most effective of which was including
Roche in the US.
Concentration of firms in mature industries: many industries have used alliances to
manage the problem of excess production capacity in mature markets. There have been a
number of alliances in the car and airline business, some of which have lead ultimately to
full joint ventures or take\overs.
Government cooperation: as the trend towards rationalization continues, so governments
are more prepared to cooperate on high cost projects rather than try to go it alone. There
have been a number of alliances in Europe- for example, the European airbus has been
developed to challenge Boeing, and the Euro fighter aircraft project has been developed
by Britain, Germany, Italy and Spain.
35
Self-protection: a number of alliances have been formed in the belief that they might
afford protection against competition in the form of individual companies or newly
formed alliances. This is particularly the case in the emerging global high technology
sectors such as information technology, telecommunications, media and entertainment.
(Dana-Nicoleta Lascu 2003)
Market access: strategic alliances have been used by companies to gain access to difficult
markets, for instance, Caterpillar used an alliance with Mitsubishi to enter the Japanese
market.
In light of the fact that two thirds of alliances experience severe leadership and financing
problems during the first two years, Bronder and Pritzl (1992) emphasise the need to
consider carefully the approach adopted for the development of alliances. They have
stressed the need to analyse the situation, identify the opportunities for cooperation and
evaluate shareholder contributions Devlin and Blackley (1988) have identified some
guidelines for success in forming alliances. There needs to be a clear understanding of
whether the alliance has been formed as a short-term stop gap or as a long term strategy.
It is, therefore, important that each understands the other partner’s motivations and
objectives, as the alliance might expose a weakness in one partner which the other might
later exploit. It is apparent that many strategic alliances are a step towards a more
permanent relationship, but the consequences of a potential breakup must always be
borne in mind when setting up the alliance.
Glaxo appears to have changed its strategy resulting in the take-over of Welcome. More
recently it announced a proposed, merger with Smith Kline Beecham but at the first
36
attempt it failed, apparently because of a clash of personalities of the top executives.
(John D. Daniels, 2005)
As with all entry strategies, success with strategic alliances depends on: effective
management, good planning, adequate research, accountability and monitoring. It is also
important to recognize the limitations of this as an entry method. Companies need to be
aware of the dangers of becoming drawn into activities for which it is not designed.
EACH OF THESE HAS ADVANTAGES AND DISADVANTAGES
Entry Mode Advantages Disadvantages
Exporting Ability to realize location
and experience curve
economies
High transport costs
Trade barriers
Problems with local
marketing agents
Turnkey contracts Ability to earn returns from
process technology skills in
countries where FDI is
restricted
Creating efficient
competitors
Lack of long term market
presence
Licensing Low development costs and
risks
Lack of control over
technology inability to
realize location and
experience curve economies
Inability to engage in global
strategic coordination
Franchising Low development costs and
risks
Lack of control over quality
Inability to engage in global
strategic coordination
Joint ventures Access to local partners Lack of control over
37
knowledge
Sharing development costs
and risks
Politically acceptable
technology
Inability to engage in global
strategic coordination
Inability to realize location
and experience economies
Wholly owned
subsidiaries
Protection of technology
Ability to engage in global
strategic coordination
Ability to realize location
and experience economies
High costs and risks
(Hill, C.W.L., Hwang, P. & Kim, W.C. 2006)
The magnitude of the advantages and disadvantages associated with each entry mode is
determined by number of factors, including transportation costs, trade barriers, political
risks, economic risks, costs and firm strategy. The optimal entry mode varies by situation,
depending on these factors. (Hill, C.W.L., Hwang, P. & Kim, W.C. 2002) Thus, whereas
some firms may best serve a given market by exporting, other firm may better serve the
market by setting up a new wholly owned subsidiary or by acquiring an established
enterprise. In the opening case Tesco has primarily entered foreign markets through
acquisition of established players in those markets. (John D. Daniels, et al, 2005)
Strategic alliances are cooperative agreements between actual or potential competitors.
The term strategic alliances is often used to embrace a variety of arrangements between
actual or potential competitors including cross-shareholding deals, licensing
arrangements, formal joint ventures, and informal cooperative arrangements. Strategic
alliances have advantages and disadvantages, and Tesco must weigh these carefully
before deciding danger is that the firm will give away more to its ally than it receives.
38
Deciding which markets top enter
In deciding to go abroad, the company needs to define its marketing objectives and
policies. What proportion of foreign to total sales will it seek? Most companies start
small when they venture abroad. Some plan to stay small; others have bigger plans.
“Going abroad” on the internet poses special challenges.
Product
Warren Keegan has distinguished five adaptation strategies of product and promotion to a
foreign market
Straight extension means introducing the product in the foreign market without any
change. Straight extension has been successful with cameras, consumer electronics, and
many machine tools. In other cases it has been a disaster. General foods introduced its
standard powered jell-O in the British market only to find that British consumers prefer
the solid wafer or cake form. Campbell Soup Company lost an estimated $30 million in
introducing its condensed soups in England; consumers saw expensive small-sized cans
and did not realize that water needed to be added. Straight extension is tempting because
it involves no additional R&D expense, manufacturing retooling, or promotional
modification; but it can be costly in the long run.
Product
39
Do Not Change Product
Adapt
Product
Develop New Product
Pro
mot
ion Do not Change
Promotion Straight extension Product
adaptation Product
inventionAdapt Promotion Communication
adaptation Dual adaptation
40
41
All types of steel products will be required to support the ongoing industrial growth in
the country. Because there is a little bit of steel in everybody’s life starting from pin to
construction, automobile, railways and engineering. In short, promotion of steel usage
today has gained so much of importance both at national and international levels. But
one needs to be very selective well in advance today in deciding the product mix that
should be able to meet users demand in domestic international market.
Successful operation of highly sophisticated iron and steel industry depends to a great
extent or technical and commercial information, particularly, the information in
respect of various options of plants and equipments, their availability, range of
investment, selection of sites, use or users of the product, availability and demand for
the product in market (present and future) prospective competitors, various tariff and
non tariff barriers, price trends in domestic and international markets are some of the
essential information which an entrepreneur must know at least broadly before
entering into steel industry.
However, India’s positioning in the global perspective will depend upon cost
competitiveness of the Indian. Besides the continuous emphasis is to given on new
technology/process/products developed, productivity improvement, quality
improvement. However, India’s positioning in the global perspective will depend
upon cost competitiveness of the Indian. Besides the continuous emphasis is to given
on new technology/process/products developed, productivity improvement, quality
improvement.
42
MAJOR DEMAND DRIVERS FOR STEEL INDUSTRY IN INDIA
Higher infrastructure spending - It is an unquestionable fact that the infrastructure
situation in India is poor. If the Indian economy has to maintain its growth rates, the
infrastructure situation has definitely got to improve. Spending on infrastructure will
definitely lead to a higher demand for steel. (Anthony P D'Costa, 2000)
Higher standard of living – The standard of living is expected to go up in the coming
decade. This will in turn push up the demand for consumer durable and automobiles.
Percentage of the demand for flat products comes from these industries. Hence, any
pickup in these sectors should lead to a higher demand for flat products. (Anthony P
D'Costa, 2000)
According to Sanjiv J Phansalkar (2003) Steel Products can be categorized as:
Semi-finished: These are intermediate products cast from liquid steel for further rolling
into finished products. These are often sold by Integrated Blast Furnace Producers
(IBFPs) to small mini mills and rolling mills to be rolled into finished steel. They include
billets, blooms, rods, which are rolled into long products or slabs which are rolled into
flat products. While some countries export semis (e.g. Russia), India uses them in the
domestic industry as inputs for higher value-added long and flat products.
Long products: These include bars, rounds, angles and structural and are mainly used in
construction, infrastructure and heavy engineering. These products require lesser
capacities. Long products are the largest steel category produced in India accounting for
around 50% of total production.
Flat products: These include sheets, coils and plates and are mainly used in automobiles
and consumer durable. The technology for the manufacture of flats is critical and it
43
requires larger capacities for manufacturing. These are high-value products and enjoy
higher margins. These can be hot rolled, cold rolled, galvanized or coated. This category,
usually the largest product category in developed countries is small in India accounting
for about 44%.
Pipes: These include seamless pipes and welded pipes.
Source: Anthony P D'Costa (2008)
Stainless steel is the generic name for a number of different steels used primarily for their
resistance to corrosion. The one key element they all share is a certain minimum
percentage (by mass) of chromium: 10.5%. Although other elements, particularly nickel
and molybdenum, are added to improve corrosion resistance, chromium is always the
deciding factor. The vast majority of steel produced in the world is carbon and alloy steel,
with the more expensive stainless steels representing a small, but valuable niche market.
44
ANALYSIS OF STEEL INDUSTRY
GLOBAL SCENARIO
According to recent estimates (Metal Bulletin, Feb. 17, 2004) the total world finished
steel consumption is expected to be of the order of 1120mt by the year 2007.
During the past decade, international trading of steel has been to the tune of 25-30%
of the total world production. On an average, around 180-190m tones of saleable steel
drawing (finished products and semis) is traded in the international market.
China remained the world’s largest Crude Steel producer in 2008 also (220.12 million
metric tons) followed by Japan (110.51 million metric tons) and USA (91.36 million
metric tons). India occupied the eighth position (31.78 million metric tons). EU27, USA,
S.korea, China, UAE and Germany were the largest importers of steel in 2008. China,
Japan, EU27 and Ukraine were the largest exporters of steel in 2008.
The Surplus capacity and prevalence of market distorting practices in the global steel
market have induced protectionist measures from a number of steel trading countries. In
the OECD meeting they suggests that there was a long-term solution to global steel over-
capacity, the proponents of the OECD steel deliberations are of the view that subsidies
and related government support have caused and are causing significant distortions in the
steel markets and these will be required to be reduced.
In retaliation to the US action EU countries, China, Canada and Thailand have
imposed provisional safeguard measures against import certain steel products.
45
Table 2: WORLD TOP STEEL EXPORTERS
(Million of tons of exports)
2007 2008 % change y-o-y
China 65.2 56.2 -14
JAPAN 35.1 37.1 4
EU25 32.2 34 6
Ukraine 29.9 28.4 -5
RUSSIA 29.2 28.2 -3
South Korea 18.1 19.7 9
Turkey 14.8 18.3 24
USA 10.3 12.6 23
Taiwan 10.9 9.8 -10
BRAZIL 10.4 9.1 -12
(World Steel Dynamics, April 2009)
46
MARKET SCENARIO
Liberalization, which started in 1991, changed the market scenario. There have been
no shortages of steel materials in the country after liberalization.
The opening up of the economy has brought in new dimensions in the demand analysis
for the steel sector, with the reduction in import duties and the partial abolition of the
freight equalization scheme being some of the changes. The implication of these changes
is that steel demand is no longer fully supply determined but is governed by market
forces. Carbon steel consumption increased from 14.84 million tones in 1991-92 to
33.370 million tones in 2004-05.
There was a recession in Steel industry for some time has staged a turnaround since the
beginning of 2002 and the efforts are being made to boost demand.
China has been the main export destination. The Indian steel industry is buoyant by the
reason of strong growth in demand mainly by the demand for steel in China. Domestic
prices have firmed up in the face of strong demand – both domestic and foreign.
Production
Steel production has gone up considerably during the last decade from 9.4 million tones
in 1985-86 to about 21 million tones in 1995-96, that is, a growth of about 125% within a
period of 10 years and planning to reach 49 million tones by the year 2006-07. In 2004-
05, production of finished carbon steel was 38.39 million tones and Pig iron production in
2004-05 was 3.17 million tones. The market share of main producers (i.e. SAIL, RINL,
and TISCO) was 39%
47
Table 3: Production Performance
(In million tones)
Item 2006-07 April – December 2007
Target Actual Fulfilment(%
)
Target Actual Fulfilment(%
)
Hot
Metal
14.10 14.60 104 10.96 11.31 103
Crude
Steel
13.03 13.50 104 10.26 10.37 101
Saleable
Steel
11.86 12.58 106 9.26 9.60 104
Prime Producers Secondary Producers Total
Pig Iron 11.00 (8.3) 41.50 (35.8) 52.50 (29.0)
Sponge Iron - 2.26 54.44
Finished Steel 143.00 (9.6) 185.50 (5.5) 32.85 (7.2)
(Steel Scenario, July 2008)
48
i.exe
Graph 1: Production of pig iron and finished carbon steel
(Source: Steel Scenario, July 2005)
The Race to Consolidate
Chinese mills now dominate the list of the world's biggest producers
In 2008 the top 15 steel producers accounted for 36% of world production - 10 years ago
the top 15 made just over 25% of world production. Arcelor-Mittal remains by far the
biggest producer but with output down 11% in 2008 its share of world output fell by 1%
to 8%. Nippon Steel remains the 2nd biggest producer but now only marginally ahead of
49
0
10
20
30
40
2001-02 2002-03 2003-04 2004-05 2005-06
Pig Iron
Finished Carbon Steel
Baosteel which, helped by the acquisition of Guangdong, increased its output 24% in
2008. Indeed 6 of the top 10 producers are now Chinese, helped by a spate of merger
and acquisition activity in 2008.
Global Steel Price Indicators
Main Regional Steel Trade Flows
50
International Steel Trade
Pricing and Distribution
Price regulation of Iron and steel was abolished on 16.1.1992.
The government removed the distribution controls on iron & steel except five priority
sectors i.e. Railways, Defense, Small Scale Industries Corporations, Engineering
Goods Exporters and North Eastern Region.
Government has no restriction over prices of iron and steel products
Price increases have taken place mainly in long products than flat products.
Imports of Iron and Steel
Least potential items are ERW and seamless pipes and tubes, since their imports are
controlled.
India has been importing around 1.5 Million Tones of steel yearly.
51
Graph 2: Import of Iron & Steel from 1997-98 to 2003-04
(Stainless Steel Review, Mar 2004)
In the case of unbridled imports of cheap/seconds and defective steel there are several
measures like:
a. The Government has fixed floor prices for 7 items of steel products - HR
coils, HR sheets, CR coils, tin plates, CRNO, Plates and Alloy Steel Rods
and Bars.
b. The customs duty on defective HR Coils has been lifted to the bound rate
of 40 per cent.
The imports of certain steel items have been depend to mandatory compliance of
quality standards certified by the Bureau of Indian Standards (BIS). Coalition to BIS
norms imply supplying information like name and address of the importer, generic or
common name of the commodity, net quantity, weights and measures, month and
year of packaging and maximum retail sale price. (www.steel.gov.in/annual.htm)
52
1.56 1.59
1.13
1.6
1.41
1.27
1.55
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1.8
1997-98 1998-99 1999-2000 2000-2001 2001-2002 2002-2003 2003-2004
Iron and Steel Exports
Advance Licensing Scheme allows duty free import of raw materials for exports.
Duty Exemption Pass Book Scheme also facilitates exports.
Indian steel exports have been subject to anti-dumping/anti-subsidy duties actions
by the stronger economies over the last few years.
China has imposed safeguard measures on import of various items of steel products by
fixing tariff quotas. However, these measures do not apply to India.
The rising trend in Indian steel exports that was being witnessed in the last couple of
years was halted due to these anti dumping actions initiated by the advanced, developed
nations of the world, which led to the loss of major markets for the Indian steel exporters.
Despite the initial setbacks Indian exports have recovered - largely due to the ability to
find out alternative export markets where selling steel has been profitable.
(www.steel.gov.in/annual.htm)
Table 4: Export of finished carbon steel
Years Exports
2001-02 1.622
2002-03 1.880
2003-04 1.771
2004-05 2.670
2005-06 2.664
2006-07 2.725
2007-08 4.20
(Iron & Steel Review, May 2008)
53
Duties & Levies
Custom Duties
Peak rate of Custom Duty has been reduced during last 5 years .In the Union
Budget 2003-04 it has been further reduced to 25%. This has compelled domestic
sector to become internationally competitive.
The custom duty on seconds and defective steel has also been retained at 40%,
which would increase the gap between the prime and the defective category and
make the import of seconds and defectives less attractive.
Custom Duty has been reduced on a wide range of inputs, which cause the cost of
production for the domestic steel industry.
In the Union Budget 2003-04 the Customs Duty on Met Coke has been
rationalized at 10%. However, the steel manufacturers have been given exemption
from paying 4% SAD. (www.steel.gov.in/annual.htm)
Excise Duty
Excise Duty on iron and steel has not been reduced in consecutive union budgets.
Currently excise duty on all iron and steel is 16% ad valor called CENVAT.
54
INDIAN STEEL INDUSTRY: AN OVERVIEW
India got into steel making in the early 20th century when JRD Tata set up the first steel
mill in the country in 1907 in Jamshedpur. Since then, the steel industry has undergone a
lot of changes but the TISCO continues to be the largest private steel maker in the
country. Tisco and SAIL dominated the steel industry in the 70s and 80s. With the price
control regime in place, the steel firms could turn in a profit without any major effort.
Structure of Indian Iron & Steel Industry
(Capacity in million tonnes)
Category Sector No. of Units
Working Units
Total Capacity
Working Capacity
Crude Steel Integrated Pelts
9 9 17.78 17.78
EAF 188 45 10.68 5.33
IF 934 661 9.41 7.23
Secondary Sector Iron making and Resolvable
Pig iron units 18 16 5.74 5.57
Sponge iron units
23 20 6.07 5.79
Rerolling/DownstreamRerolling units
2710 2080 27.44 22.81
HR Units 12 7 4.59 4.33
CR Units 75 60 2.93 2.7
GP/GC Units 16 13 1.04 0.96
Tinplates 2 1 0.15 0.09
(Source: Iron & Steel Review, 2004)
The Categorized Steel Products
55
Type End Product User Industries
Semi-finished Ingots, billets & slabEAF Units and mini-steel plants
Long Products Wire rods and bars Construction & wires
Flat Products Hot rolled (HR), cold Rolled (CR) and Galvanized coils (GC)
Consumer durable, industry machinery
Railway materials Railway tracks Railways
Special Tin plates and pipes Automobiles, aircraft & shipbuilding
(Source: World Steel Dynamics)
Production, Performance and Projections
(In million tones)
1999-00 2000-01 2002-03 2003-04 2004-05 2006-07 (P)
Pig Iron 3.29 3.39 3.00 3.16 3.11 4.65
Sponge Iron 5.00 5.32 5.11 5.34 5.44 6.18
Finished Steel 22.72 23.37 23.82 26.71 29.70 32.01
(Source: Iron & Steel Review)
Production
56
(In million tones)
Primary Producers
Secondary Producers
Total
Pig Iron 0.96.23
(- 22.58%)2.15 (11, 40%) 3.11 (-2.2%)
Sponge Iron - 12.51 (11.70%) 5.44 (1.87%)
Finished Steel 12.51 (11.70%) 17.19 (10.83%) 29.70 (11.19%)
* Figures in brackets indicate percentage increase over last year (Source: Iron & Steel Review)
India’s Export of Iron & Steel
(In million tones)
Year Total Pig Iron
Total Semis
Total Finished Carbon Steel
Total Steel
2000-01 451 300 1622 1922
2001-02 785 503 1880 2383
2002-03 281 174 1770 1944
2003-04 290 328 2670 2998
2004-05 230 195 2805 3000
2005-06 242 270 2730 3000
2006-07 275 300 2575 3150
2007-08 295 335 2850 3480
(World Steel Dynamics, 2004)
Future Prospects – Indian Stainless Steel Industry
57
The Indian steel industry has a bright future with 75% of market of stainless steel is in
kitchen segment. 95% of the gas stove market uses only stainless steel. India has emerged
as the largest manufacturer of 200 series low nickel stainless steel in the world. Railways
will used to manufacture of passenger coaches requiring 15 mt stainless steel per coach in
next 5 years. The Delhi Metro Rail Corporation tendered for 200 all stainless steel
coaches. The government of India is using ferric cold rolled stainless steel strips for
making coins. (www.steel.gov.in/annual.htm) The usage in industrial and other segments
is still very low which will be expected increase in future.
Global trends and its affect on Indian markets
The transport and automotive sector accounts for nearly 14% and the construction sector
takes around 12% stainless steel. In India at present consumption in these two segments
put together is just l%. This gives clear picture of future prospects in both building and
transport sectors in India. The automobile companies also will be demanding the use of
stainless steel in increasing amounts for the production of fume exhaust and catalytic
converter applications. The major international fast food joints are investing in India for
the consumption of stainless steel. Fast food joints using good quantity of stainless steel
for making kitchen equipments, service area and furniture.
The major steel exporting companies aimed on China because it still imports 70% of its
total demand of 1.5 million tons. The large potential exists in value added products like
pipes, tubes and kitchen utensils. Also India also good production environment for
stainless steel long products like bar, rod and wires which has good markets in Europe,
South East Asian region and USA.
NATIONAL STEEL POLICY
58
1. OBJECTIVE:
Strategic Goal :a) Diversified steel demand through modern and efficient steel policy.b) Global competitiveness in terms of cost, quality and product mix.c) 100(mT) by 2019-20 from the 2005 level of 38 mT.
IMPORTS:1. Imports duty rates brought down.2. Industry should be protected from unfair trade practices.3. Institutes mechanisms for import surveillance.4. To monitor export subsidies in other countries.
Production, Imports and Exports and Consumptions
(In Million Tones)
SWOT ANALYSIS OF THE INDUSTRY
59
Strength Availability of iron ore
and coal. Low labor wage rates. Abundance of quality
manpower. Mature Production base.
Weaknesses Unscientific mining. Low productivity. Coking coal import
dependence. Low R & D investments. High cost of debt. Inadequate infrastructure
Opportunities Unexplored rural market. Growing domestic
market. Exports. Consolidation.
Threats China becoming net
exporter. Protectionism in the
west. Dumping by competitors.
Technologies, Research & Development
Have synergy with the natural resources endowments with the country. Conducive to production of high-end and special steel required for sophisticated
industrial & scientific applications Minimize damage to the environment at various stage of steel making and mining. Optimize resource utilization Development of front end and strategic steel based material.
60
TRADE POLICY
EXPORTS :
1. 25% of total production in 2019-20 from 11% in 2004-05.2. 30% share of exports in global production3. Export credit, trade information.4. Cut transaction cost and progress of multi-lateral negotiations.5. Trade agreement to broaden the export base.6. Export of value-added steel through project exports.
INVESTMENT PROMOTION AND POLICY IMPLEMENTATION
Provide a single-window clearance for large projects. 110 mt of steel production by 2019-20. Prepare & implement road maps for technological & productivity improvement. Monitor the implementation of the national steel policy to global standard.
61
CASE STUDY
ORGANIZATION: THE JINDAL
When we talk about the business empire, the Jindal group is ranked sixth amongst the top
Indian Business Houses in terms of assets, the Group today is a US$2 billion
conglomerate.
Jindal Organization was set up in the year 1970. It has grown from an indigenous single-
unit steel plant in Hisar, Haryana to the presently one of the largest steel producer in
Asia. The organization is still expanding, integrating, amalgamating and growing. New
directions, new objectives, but the Industries’ motto remains the same- "We are the
Future of Steel". (www.jpcindiansteel.org/jindalprofile8.htm)
The Jindal group has been technology-driven and has a broad product portfolio. Yet, the
focus at Jindal has always been steel. From mining of iron-ore to the manufacturing of
value added steel products, Jindal has a preminent position in the flat steel segment in
India and is on its way to be a major global player, with its overseas manufacturing
facilities and strategic manufacturing and marketing alliances with other world leaders.
Jindal Organization aims to be a global player. In achievement of its objectives, it is
committed to maintain world class quality standards, efficient delivery schedules,
competitive price and excellent after sales service. US$2 billion Jindal Organisation has
expanded and diversified into core business areas ensuring synergy amongst its various
business ventures, spreading over 13 plants at 10 pivotal locations in India and two plants
in USA.
The Jindal team embodies one of the most popular talent pools of technological acumen
available in the country today. With experience that has enabled the organisation to put
up large scale projects within record time.
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Jindal Stainless Limited
India's largest integrated manufacturer of Stainless Steel catering to about 40 percent of
Indian demand.
Plant Location - Hisar, Haryana
Capacity - 500,000 tpa
High Carbon Ferro Chrome plant at Visakhapatnam, Andhra Pradesh
GROUP COMPANIES
Jindal Iron & Steel Company Limited Plant Locations - Vasind and Tarapur, Maharashtra
Saw Pipes LimitedPlant Location - Kosikalan, Uttar Pradesh, Gujarat
Jindal Vijayanagar Steel LimitedPlant Location - Toranagallu, Karnataka
Jindal Steel & Power LimitedPlant Location - Raigarh, Madhya Pradesh
Saw Pipes Usa IncLocation - Bay Town, Texas, USA
Jindal United Steel CorporationPlant Location - Bay Town, Texas, USA
Vijayanagar Minerals Private Limited Plant Location - 20 km from JVSL plant
Jindal Thermal Power Company LimitedPlant Location - Toranagallu, Karnataka
Jindal Praxair Oxygen Company LimitedLocation - Toranagallu, Karnataka
(www.jpcindiansteel.org/jindalprofile8.htm)
63
PROFILE OF JINDAL STAINLESS LTD
JINDAL is India's largest integrated stainless steel manufacturer, which is continuing
growth through positive measures, such as a construction project of a new Ferro-
chromium factory, as well as pursuing an expansion program of a new stainless steel
plant, and it expects the further development and has keenly requested cooperation from
Nisshin Steel which has many years' experience in actual performance of various
Technical Assistance projects.
JINDAL STRIPS LIMITED was incorporated to manufacture mild steel, HR plates and
coils. It started a mini steel mill at Hisar in 1971. As a strategy to counter low margins in
mild steel, JSL diversified into production of stainless steel in the late 70s. JSL was the
first company to produce stainless steel HR coils. . In 1977 stainless steel production
started. In 2003 the company was reorganized as JINDAL STAINLESS LIMITED.
(Annual Report, JSL)
In 1983, JSL forward integrated with a CR plant for stainless steels at a site adjacent to its
sister company Jindal Iron's plant at Vasind (near Mumbai). In 1990, JSL embarked upon
major backward integration-cum-expansion by commencing work on a sponge iron plant
at Raigad in Madhya Pradesh. JSL has over the years developed a number of
technologically new processes to save on capital and operational
costs. (www.jindalstainless.com)
The Company's indigenously designed rotary kilns, for sponge iron, had teething
problems and the setting up of the sponge iron plants was hence, considerably delayed. It
is the largest (around 40%) integrated producer of Stainless Steel in India.
At Hisar lies India’s only fully integrated Stainless Steel plant. With the expansion of the
unit, the production capacity has increased from 250,000 to 300,000 tonnes per annum.
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The main reason for the success of JSL is the fact that everything from the conversion of
raw material into billets and slabs to hot rolling of strips and plates and cold rolling is
done in-house. (www.jindalstainless.com)
The Hot Rolling Division at Hisar
At Hisar there are two major operational units’ namely hot rolling unit and cold rolling
unit. The hot rolling unit comprises of steel melting shops, hot rolling mills (steckel mill,
strip mill), finishing units, power plants and oxygen plant etc.
The cold rolling unit comprises of cold rolling, annealing and pickling lines and finishing
facilities. Maximum value addition takes place in cold rolling unit. During the Financial
year 2001-02, the division had produced 326,405mt of stainless steel that represents
around 130 per cent of the capacity utilization.
The higher capacity utilization has been feasible with increased focus of the company to
improve the operational efficiency, which has also supported the company's strategy to
reduce cost. During the year an additional 60,000 tones of cold rolling capacity was
commissioned which has now resulted in total cold rolling capacity of 90,000 tones per
annum. The additional capacity would be utilized for producing predominately value
added stainless steel products for both domestic and Exports markets.
(www.jindalstainless.com)
Highlights
Jindal Organization is a celebrity. Ranked sixth amongst the top Indian Business Houses.
New directions, new objectives... but the Jindal motto remains the same- "We are the
Future of Steel” (www.jindalstainless.com)
The last decade has been very challenging as the business environment was very
competitive, India was globalizing and there were multiple complex issues at play. But
65
we managed to surmount it all and emerge on the top adding new parameters to our
achievements and bringing in the kind of excellence that will make the industry and
country proud. The company’s net sales stood at Rs. 5,459 crore in 2007-08 as compared
to Rs. 377.15 crore in 1998-99 and Profit After Tax (PAT) at Rs.1,236.96 crore in 2007-
08, while it was Rs. 46.50 crore in the year 1998-99. JSPL’s compounded annual growth
rate in terms of net sales is 35% & PAT is 44%, a stupendous growth indeed and I am
thankful for that to our committed workforce.
It has been a decade gone well and we look forward to another challenging decade with
our determination to reach for the stars.
Milestones:
* Spreading out globally in steel production and mining.
* The largest private sector investor in the state of Chhattisgarh.
* An ISO 9002 & ISO 14001 certified Company.
* Manufactured 120 meters Rail, longest in the world.
* First to produce the 3.5 meters wide steel plates.
* Pioneered manufacturing of Hot Rolled Parallel Beam & Columns in medium and large
size.
* World’s largest coal based Sponge Iron manufacturing unit with its captive mines &
power plant.
Recognitions:
* JSPL was nominated as one of the emerging companies by Economic Times in 2001
* Among the top 20-investor friendly companies listed by Business Today in2004.
* One of the ten fastest growing large size companies listed by Dalal Street,2006.
* One of the ten most investor friendly companies listed by Dalal Street, 2006.
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* National Energy Conservation Award six times between 2001-07.
* Eight Environment Awards between 2003-08.
* Six Performance Awards between 2001-2005.
* Three Safety Awards and two HR Awards.
Growth story of the decade
67
68
Exports
Worldwide demand of stainless steel has shown an average growth of around 4-5 per cent
as compared to growth in domestic markets of around 5-7 per cent. The company started
developing new markets for its stainless steel products around 4-5 years back and has
been able to achieve compounded average growth of 234 per cent based on exports worth
Rs. 653.01 Crore during FY 2007-08 as compared to exports worth Rs. 592.84 Crore
during FY 2006-07. During the FY 2001-02 the company executed order worth US$ 55
million for export of 55,000mt of stainless steel slabs to leading stainless steel producers
in US in a short time span of around five months. The positioning of your company in
international markets has improved extensively with the execution of the above export
order.
As a result of rapid growth of economic development and increase in people's standard of
living in China, demand of stainless steel has climbed to a record high. China has become
the largest stainless steel consuming country with its stainless steel apparent consumption
exceeding that of USA. The stainless steel markets in China have shown average annual
growth rate of 17 per cent will consumption of 2,253,000mt in 2001 compared to
260,000mt in 1990.
The company has been able to successfully tap the increasing stainless steel demand in
China & other South East Asian countries and has established its office in China and
Vietnam to service the expanding customer base in these markets.
69
70
NET SALES & OTHER INCOME
71
PROJECTS
Investment in Chhattisgarh:An MoU was signed between JSPL and the Govt. of Chhattisgarh on 4th May 2007 for
additional projects worth Rs. 8,438 crore.
Total Project Cost:8,720Crore
Investment in Chhattisgarh:
An MoU was signed between JSPL and the Govt. of Chhattisgarh on 4th May 2007 for
additional projects worth Rs. 8,438 crore.
Further Expansion at Raigarh Plant:
* 2 MTPA Cement Plant
* Additional Power Generation of 270 MW
* Medium Structural Mill
* Pipe conveyor from mines to plant
* Mini Blast Furnace upgradation
* 1 MT SMS Bloom Caster and Oxygen Plant
* Fabrication Plant in Industrial Estate
Investment in Orissa:
JSPL is investing over Rs. 40,000 crore in Orissa in steel production and
power generation. It proposes to produce 12.5 MTPA steel in two phases
and generate 2500 MW of power over the next decade or so.
Highlights of Angul Project:
* The Project is proposed to be setup on 5750 acres of land, 93% of which is barren.
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* The technology to be adopted for this Integrated Steel Plant will be the DRI/BF/EAF
route. The DRI Plant has unique feature of using Syn Gas from the Coal Gasification
Plant as reluctant. The DRI/coal gasification route is being used for the first time in the
world and has the advantage of using high ash coal which is predominantly available in
the vicinity of the project site.
* Work on setting up of DRI plant of 2.0 MTPA capacity, plate mill of 1.5 MTPA
capacity and power plant has started.
* Plate Mill of 1.5 MTPA has already been ordered and Hot Strip mill is planned to be
finalized by August, 2008.
Investment in Jharkhand:
In Jharkhand the company plans to produce 11 MTPA of steel and 2600 MW of power in
phases at a combined investment of over Rs. 27,000 crore.
Highlights:
* JSPL has taken over the assets of closed Bihar Alloys & Steel Ltd. at Patratu,
About 40kms f rom Ranchi.
* Using the available land and adding some more, the company is setting up the new steel
and power plants, which would provide gainful employment to a large number of people
and will also help in the economic and infrastructure development of the region.
* Foundation Stone for the Plant was laid by Shri Madhu Koda, Hon’ble Chief Minister
of Jharkhand on 18th March, 2007.
* Feasibility Report and Detailed Project Report completed by MECON for the Steel
Plant.
* Complete plant layout frozen, site activities like leveling started, basic engineering
in progress.
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* Bar Mill of 1 MT and Wire Rod Mill of 0.6 MT capacity already ordered and
civil structural work has started.
* Jeraldaburu Iron Ore Mines, Jitpur Coal Block and Amrakonda-Murgadangal Coal
Block allocated.
Marketing
The continuing recessionary trend observed during the first half of the financial year
2005-06 got reversed during second half. The demand for stainless steel increased
substantially during later part of the year and there were chaotic activities by the service
centers trying to build inventories by placing larger orders to tile manufacturers. Jindal
also benefited by this trend and has resulted in surge of export volumes. There was
almost a three-fold increase in the export dispatches. This trend continued during the first
quarter of 2002-03 also and is likely to continue further. JSL, in addition to exports, has
increased its dispatches on the domestic front as well as some new areas got special
attention from the marketing team, this includes dispatches to auto industry, Govt of
India Mint and Railways. Jindal continues to be regular supplier to large and prestigious
corporate customers like BHEL, NITRO, and Dep’t. Of Atomic Energy, L&T, Nuclear
Fuel Complex etc. (www.jindalstainless.com)
Quality and Research & Development
JSL supplies quality products to a host of industries and customers. The consistency of
the product quality has ensured that stainless steel manufactured at Hisar is meeting
requirements for special applications such as nuclear power, atomic energy, railway
coaches and wagons, coinage, refineries, fertilizers, copper industry, surgical and razor
blades, utensils, etc. Besides the Quality Assurance Department is working independently
to operations so as to ensure strict compliance to the requirements of the customers. The
74
Company is upgrading ISO 9002 system to ISO 9000-2000 version, which will be more,
focused towards customers' feedback and hence will bring the company more closely and
responsive to meet the customers requirement. ISO 14001 systems is in place, which
shows the concern of the company towards environment protection. As a step forward the
company is now in process of implementing OHSAS-18001 which will ensure safe and
healthy working condition to the employees and people living in the vicinity of the
Company Research & Development unit in Hisar is further making rapid strides to
introduce more value-added products in the company's product portfolio, the
manufacturing of duplex stainless steel which finds applications in manufacturing of
pressure vessels, equipment for water treatment, digesters in pulp and paper industry etc.
has been stabilized by the R&D team. The company has also started manufacturing of
cupronickel material for coinage and high Nickel alloys such as 'Invar' utilized in
manufacturing of thermostats.
Information Technology
Today's most successful companies take advantage of new technology to refocus
attention on their relationships with stakeholder’s viz. customers and suppliers. In
focusing on complete relationships, rather than independent pieces of information, they
seize opportunities for new avenues of I increased business opportunities. These solutions
include IT Outsourcing, Business and IT Synchronization, Computer Operations
Services, Data base administration services, CBIT Solutions for Enterprise Internet
working, Business Continuity services, eBusiness solutions, Web application Services.
To keep pace with the technological advancement, JSL has been regularly updating itself
on this front. JSL is also in the process of state-of-the-art ERP systems tightly coupled
with supply chain management.
75
Subsidiary Companies
The company has 4 subsidiaries namely Jindal Holdings Limited, Jindal Steel & Alloys
Limited, Jindal Stainless (Mauritius) Limited and Massillon Stainless Inc., USA.
CATEGORIES OF SHAREHOLDERS (AS ON 31.03.2008)
Category No. of Shares % of Holding
Promoters 9,06,28,615 58.86
FIs/ Banks/MF/UTI 75,10,831 4.88
Corporate Bodies 36,17,765 2.35
NRIs/OCBs/FII 3,71,34,269 24.12
Public 1,50,69,860 9.79
Total 15,39,61,340 100.00
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Industry Structure and Development
Indian stainless steel industry witnessed a nominal growth of 5% to 7% during the year
2001-02, though the first half was relatively sluggish. The demand started picking up
during the second half. During the financial year 2007-08 the expected growth of the
stainless steel industry will be about 8 - 10%. This surge in growth is mainly fuelled by
industrial revival in Indian markets and demand for stainless steel is expected to grow
further. In international markets the prices of stainless steel have gone up, in Europe and
US mainly due to de-stocking of huge inventories and consequently fresh inventory built
up. In China domestic demand outstrips supply and hence prices are very firm and
attractive in those markets. Jindal Strips Limited has continued to manage its leadership
position by recording a turnover of Rs.6180.75 crore during financial year 2007-08 as
compared to Rs3948.76 crore during previous year. The increased sales are mainly on
account of rise in level of exports, improvements in domestic price realization and focus
on value added cold rolled stainless steel products.
Jindal’s export turnover has increased from Rs. 592.84 crore to Rs. 653.01 crore during
the financial year 2007-08 as compared to the financial year 2006-07. Exports now
comprise around 30% of company's total turnover. JSL strategy to combat perceived
threat in domestic markets by focusing on exports has started showing positive results.
Due to diversions of capacities from low value added domestic products to high value
products for exports has resulted in two fold benefits. Firstly this has resulted in firming
up of prices of these low value products in domestic market and increasing their
contribution and secondly better realization from products meant for exports. The focus
of JSL to develop 200 series products in South East Asian Markets has shown very good
results and these products have become a favorite with stainless steel users in these
markets. China has also exhibited a great potential as it has posted a growth of over
20% in stainless steel during the year 2006-07s. Realizing large potential for its products
in China and neighboring countries, JSL has opened a full fledged office in China.
Another high growth area will be other South East Asian markets and in view of the
same, an office of JSL is setup in Vietnam also. Plans are now afloat to open offices in
Europe and other areas to further strengthen overseas markets of JSL. (Annaul Report,
Jindal Steel Ltd.)
77
Segment wise and Product wise Performance
Jindal flat produces 2 categories of stainless steel – (a) hot rolled flat base products that
are used for manufacture of stainless steel utensils and (b) segment uses wider width hot
rolled and cold rolled products and includes coinage, razor blade manufacturing, atomic
energy, railways, pipe manufacturers and fabricators. Jindal Steel Ltd produces hot rolled
and cold rolled stainless steel flat products at Hisar and Ferro chrome at Kothavalasa
(AP). The addition Jindal produces cold rolled products in different finishes such as 2B,
2D, BA, No.3 and No.4 has helped a lot in increasing the market share in the Industrial
segment of domestic stainless steel industry like nuclear, space, railways, etc.
The congruous quality and variety of product mix has created a confidence with
customers and this effected in sustained domestic market share and has also given a
major export promotion.
Production and Sales of Jindal Strips Ltd
Sales Exports Sales Exports Sales Exports
2007-08(Rs in crores)
2007-08(Rs in crores)
2006-07(Rs in crores)
2006-07(Rs in crores)
2005-06(Rs in crores)
2005-06(Rs in crores)
6180.75 653.01 3948.76 592.84 2905.46 371.85
(ISSB)
Financial Performance
Jindal keeping its superiority in Indian stainless steel market and it caters to about 40% of
the stainless steel requirement. In the year 2007-08 sales were at Rs. 6180.75 crore,
during this year the company registered export turnover of Rs. 653.01 crore.
In Rs. Crores
Gross Profit 6089.42
Operational Profit 2162.61
Other Income 49.12
Interest Expenses 101.19
corporate tax liability 2.98
78
Provision for deferred tax 14.07
Net Profit 1236.96
Capital Expenditure 98.08
Equity share capital 15.40
EPS 80.34
INDIA – CHINA TRADE
Table 9: Exports from India to China
The major exports from India to China during January - December 2004 are given below:
Item description Value during January – December 2006 (US $ Million)
Value during January – December 2005 (US $ Million)
% Change
Minerals, slag and ash 626.1 548.5 14%
Plastics & articles thereof 262.1 166.4 57%
Iron & steel 262.0 200.1 31%
Organic Chemicals 234.8 141.5 67%
Cotton 188.5 156.7 -20%
Precious stones 104.7 83.4 26%
Salt, sulphur, earth, stone 104.3 96.2 8%
Inorganic Chemicals 72.6 26.8 168%
Electrical Machinery 62.5 24.1 158%
Fish & crustaceans 49.7 77.5 -54%
Raw hides and skins 43.5 38.9 11%
Paper & paperboard 40.6 9.8 305%
Machinery & Mech. appliances 31.8 25.0 56%
Prepared feathers and down 28.3 22.3 27%
Mineral fuel and oil 28.1 37.2 -32%
Total 2274.10 1699.97 33.7%
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In 2004, the export of Mineral Products from India to China increased by 14%,
compared to 2003. Exports of Cotton (-20%), marine and seafood (-54%) and mineral
fuels (-32%) recorded negative growth in 2004 compared with the previous years.
Exports of Plastics (57%), Iron & Steel (31%), Organic Chemicals (67%), and Minerals
(14%) registered significant increase. Other star performers that showed high growth
rates included Electrical Machinery (158%), Inorganic chemicals (168%) and Paper &
paperboard (305%). Another encouraging feature was the 56% increase in the exports of
machinery and mechanical appliances from India.
Table 10: India's imports from ChinaThe major items imported by India from China are given below:
Item description Value during January – December 2002 (US $ Million)
Value during January - December 2001 (US $ Million)
% Change
Electrical machinery & Equipment
564.6 250.3 125%
Organic Chemicals 543.3 378.8 57%
Silk 219.5 181.0 21%
Machinery & Mech. Appliances
199.6 157.3 27%
Mineral fuels and oils 189.1 268.6 -42%
Optical & Medical Instruments
82.66 48.9 69%
Impregnated fabrics, textiles
71.82 41.8 71%
Inorganic chemicals 70.8 63.1 13%
Man-made filaments 65.2 13.8 372%
Edible vegetables 44.9 14.1 221%
Salt, sulphur, stone 37.3 70.6 -90%
Precious stones 32.6 33.9 -5%
Total 2671.7 1896.3 40.8%
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Graph 3: Chinese monthly steel Imports, exports
(China Business, MARCH. 2009)
Imports of chemicals and allied products increased by 43% in 2002 compared to 2001.
Imports of silk increased by 21% while those of Machinery & Mechanical appliances
increased by 27%. Imports of electrical machinery (125%), man-made filaments (363%),
edible vegetable (221%) and Optical & Medical instruments (69%) increased
significantly in 2002.
Iron ore constitutes about 53% of India's total exports to China. Value added items like
machinery including electrical machinery dominate Chinese exports to India, which
together constitute about 36% of exports from that country. The top 15 Chinese exports
to India have recorded growth between 29% in organic chemicals and 219.89% in iron
and steel products.
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Investments
China, commodity and capacity known as the 3Cs of corporate India's investment plans.
Chinese demand for steel is fuelling a billion dollar investment cycle across the country's
steel producers. An association of domestic demand and the promotion of the export
market is seeing a host of auto majors planning to invest another $500-700 million in the
four-wheeler passenger segment. However, there is a quota of 1.3 million tonnes for
exports from India, Chinese demand presently accounts for 29% of Tata Steel's exports,
35-40% of SAIL's and 35% of Essar Steel's exports.
Major Company’s Investment Plans for next 2-3 years (In Rs crore)
Tisco 2,000
Jindal stainless 1600
Stemcor 250
SAIL 500
Hyundai 1,000
Toyota (two units) 600-700
Honda (possible) 1,000
General Motors 600
Gujarat Ambuja 1,000
(Source: World Steel Dynamics)
JINDAL STAINLESS EXPORTS TO CHINA MARKET
Indian stainless steel makers are resting their business hopes on steadily growing demand
from China, which is gearing up to boost imports following entry to the World Trade
Organisation. The anticipated growth in China's appetite for stainless steel has prompted
India's largest stainless steel maker Jindal Strips Limited to ponder "some kind of
strategic alliance" in China.
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India produces about 780,000 tonnes of stainless steel annually, out of which Jindal
Strips contributes about 325,000 tonnes. India exports about 100,000 tonnes of stainless
steel and the Chinese market accounts for about 25,000 tonnes of that.
China imports about 1.6 million tonnes of stainless steel annually, trade officials say.
Apart from China, jindal strips was also considering a strategic alliance in Indonesia in its
push to gain Southeast Asian markets. Vietnam's demand for stainless steel is growing
rapidly although the volumes are small. Jindal Stainless Ltd is also eyeing exports to the
United States, Middle East and Africa.
Jindal Stainless Ltd’s long term marketing agreement with Minmetals Steel Co. Ltd
suggests that Minmetals Steel Co., Ltd. will purchase around 50,000 M.T. of Hot Rolled /
Cold Rolled Stainless Steel Coils (more than US$ 60 million), from Jindal Stainless Ltd.
The agreement is the strategy of JSL to strengthen its foothold in the Chinese market.
This will be executed in 12 months time.
Jindal Stainless Ltd. has won an order worth US$60mn to supply 50,000 tons of steel to
Minerals Steel, a Chinese state-run steel-buying house. The 50,000 metric tons export
order would consolidate its foothold in the lucrative Chinese market. The order is valid
for a year and could be extended on mutual consent. This order will enable the company
to cross 2,00,000 tons export mark for the Chinese market, along with which the
company was aiming for an export growth of 20% for FY05.The order is part of efforts
by India's largest integrated stainless steel producer to tap the growing demand in China
which imported 28mn tons of stainless steel coils last year. Jindal Stainless exported 1.9
lakh tons of steel to China in FY04, accounting for nearly 90% of the company's 2.15
lakh tons of exports in 2003-04. Minmetals Steel would buy both hot-rolled and cold-
rolled stainless steel from Jindal Stainless which has a production capacity of more than
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5,00,000 tons a year. The company planned to increase its exports to 2,70,000 tons during
the year ending March 31, 2005 from 215,000 tons in the previous fiscal year. This year
the domestic markets are looking better as of now, but things are likely to improve from
the second quarter onwards for exports.
JSL Ponder CR plant in China
With China emerging as one the largest buyers of stainless steel products from Jindal
Strips Ltd (JSL) in 2004, the company is seriously evaluating possibilities to set up cold-
rolling manufacturing facilities in the country.
Besides, JSL is also evaluating option to relocate its US plant, Massillon Stainless, to
China. According to JSL CEO N.C.Mathur, with 80% of JSL’s exports to China, the
company is looking at opportunities to tap China’s booming construction market by
setting up production facilities there. The growing demand from this sector has also led
to firming up of stainless steel prices in the domestic market, said a dealer.
In 1993, the US and Japan were the two main markets for the commodity with a
combined volume of 3.7 MT. In 2002, China alone consumed 3.2 MT. According to
estimates, in 1993, usage of the top seven markets was 73%, which is down to 69% in
2002. This is largely because concentration of the top consumers has reduced as all other
markets managed to expand by 5.8%, while growth in China has been in excess of 17%.
JSL estimates its turnover to cross the Rs. 45,000-crore mark during the current fiscal as
compared to Rs. 3,600 crore during 2006.
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FINDINGS
With the completion of this study I am able to know various aspects of JSL and also
gained huge knowledge about stainless steel and its market situation. This research
enabled me to gain the following findings:
JSL, one of the top organizations in India, is a celebrity in the world of business.
The anticipated growth of stainless steel in China has prompted Jindal Stainless Ltd.
To strengthen relationship with China.
In the preparation of Olympics the Chinese has begun construction binge the demands
for steel.
As result, JSL has won an order worth US$60mn. To supply 50,000 tons of steel to
China over a period of one year.
JSL has announced a long term agreement with Mean metals Steel Co. Ltd. In china.
JSL is evaluating to set up cold rolling manufacturing facilities in China.
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CONCLUSIONS
The export potential of 141236 MT and 107741 MT for the years 2007-08 and 2006-
07 respectively, as forecast in the five-year plans, are only indicative. Factors like
capacity utilization, domestic price realization, international price movements,
exchange rate variations etc. would ultimately determine the level of actual export.
Infrastructural constraints like domestic movement, port facilities, etc. would have
important bearing on exports.
The tight demand scenario market is likely to increase the need to reduce cost of sell
material in both the domestic and the international markets at competitive prices.
Superior qualities, determined largely by the requirements of the cold reducers, who
produce cold-rolled sheets for the sophisticated automobile and white goods
industries, would have to be achieved which would imply attainment of high surface
finish, high degree of ductility. This would make focusing of technologies and
technical controls necessary.
Asia, as a whole, will continue to import steel, meaning Asian steel prices are likely
to remain higher than in China. India Integrated steel companies, being one of the
world's lowest cost producers are better placed in terms of exports to these high
growth Asian countries.
The huge need of basic steel froth essential infrastructural development of this vast
under-developed region they are concentrating on development of their backward
infrastructure for which steel is undoubtedly the primary material. "The growth of
infrastructure actives in the Asian region will open up a big steel market which is till
now not properly explored.
India’s exports to China are now growing at a much faster rate than imports, and balance
of trade is stabilizing. For instance, the growth in imports from China between 1997 to
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2000 stood at 70 per cent and went up to 171 per cent in the period 2001-2005. Growth in
exports to China meanwhile has jumped from 12 per cent in 1997 to 2000 to 258 per cent
in the period 2001-2005.
Inspire of the increase in demand from China this year, the steel industry is still worried
about the possibility of a slowdown in purchases by China by 2004-05. This could occur
on account of two reasons:
The infrastructure development work related to the 2008 Olympics may start slowing
by that year, and the coming on stream of additional steel producing capacities in that
country.
India's exports have also been marginally hit by trade actions initiated by, among
others, US, Canada and Thailand.
Since the steel market has just began to grow, if Indian products can establish
themselves right at the beginning, markets should not be neglected even if initially
absolute amounts are low. What is required is a constant presence.
At present, India has a significant presence tube, pipes and fittings. As industries
develop, demands for other products are bound to rise.
The initial spurt and the subsequent fall in imports of Kuwait can be explained due to
the boom in reconstruction of the economy after the war with Iraq slowing down.
In order to increase Indian steel exports, good quality material at the most competitive
prices is needs. Considering that more than 90% of steel produced in India is
consumed domestically, for a long time our producers have had nearly captive market.
With the near-removal of the tariff barriers, they care being forced to come to terms
with their uncompetitive producers to deliver goods at lowest operating costs.
In my opinion, unless the Government steps into lend to hand, Indian exports, not just
of steel, are bound to suffer. The additional burden put on the producers in terms of
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high freight due to poor infrastructure, various cases and taxes imposed by both State
and Central Governments, etc. cause the goods to become uncompetitive priced by the
time they reach the ports. What can be a bigger indictment of the conditions than the
acknowledged craft hat it costs three times as much to transport half-way across the
globe.
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RECOMMENDATIONS
After studying the market scenario of stainless steel in India and China, I would like to
recommend the following:
The production of stainless steel has to be regularly updated with new technology.
The stainless steel industry can help in creating more demand for stainless steel by
discovering its new uses.
High efficiency in mining and transportation of stainless steel has to be maintained.
Development of low nickel contents products should be given more priority.
The Indian market of stainless steel should understand the demand drivers and
explore new applications.
The Antidumping duties must be levied to overcome the injury caused by dumping.
Online customer relationship management has a very good scope in future as
predicted by the world Steel Dynamics. The internet and the intranet should be
exploited to the full extent.
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BIBLOGRAPHY
Jindal Steel Ltd. - Annual Report 2008-09
Kathuria, S and N. Taneja (1986) India’s Exports: The Challenge from China, ICRIER,
New Delhi.
Wolf, Martin (2002), India's Exports, Oxford University Press for the World Bank,
Washington, D.C.
R Amavis , Refractoriness’ for the Steel Industry, Springer, Google Books Partner
Program World Steel Statistics Monthly
William A. Johnson (2001), The Steel Industry of India. Harvard edition nfs UK &
British.
Liedholm, C. (1998) The Indian Iron and Steel industry: An Analysis of Comparative
Theory of Permanent Revolution, New Left Books, London
Sanjiv J Phansalkar (2002), Opportunities and Strategies for Indian Business: Preparing
for a Global India, Sage Publications Inc
Ramaswamy V.S and Namakumari S.,Marketing Mnagement 3RD Edition (2005)
Macmillan India.
Stainless Steel Review, Mar 2008, July 2008
Links we used are as follows:
ASSOCHAM
www.jindalstainless.com
www.steel.gov.in/annual.htm
www.tradeportalofindia.com
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