Why is Indian Steel Industry So Powerful?

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The Indian steel industry has many global giants like TATA within it and thus gives enormous advantages to the country in the manufacturing sector. In the steel industry 70% share is commanded by the top five companies and rest are just the followers and price takers. The industry is quiet much concentrated and business houses compete on the following factors:

  • Quantum of production
  • Access to raw materials
  • Economies of scale
  • Cost leadership
  • Relations with suppliers and distributors etc…

TATA Steels has been a brand in its work for always and this success can attributed to its capabilities to exploit its resources fully and hence gain competitive advantage by matching its business strengths with that of the industry attractiveness. Having said about industry attractiveness, it is vital for any business to understand the industry its working in act accordingly. Every industry has few key success factors which dictate the success probability. For the steel industry, the following have been identified:

  • Access to raw materials at low cost

    : Iron ore ,coke and coal are the main raw materials that are required in steel industry , which during 2004-05 and 2007-08 saw a significant increase in costs. Hence players in market need to be having proper sources for these so as to least affected by the price hikes.

  • Technologically sound and advanced

    : Disruptive technologies and new products write the success story in any industry and are very important. Players in the market should focus upon creating differentiated products.

  • Reach to markets and inputs

    : This can be gained through having good relations with suppliers and distributors so as to have an easy access to the market and reach the customers more effectively.

  • Finances, sources and its cash generation and requirement:

    The financial structure of a company is very important to succeed. This requires right debt to equity ratio (which ideally should not be more than 2).

  • Value proposition and value added:

    Willingness to pay and the price charged plays an important role. A business house must be able to deliver the highest value to the customer.

  • Ideal product mix
  • Exports
  • Management system

    : Managerial efficiency, labour utilization, proper integration of activities is a must for succeeding.

A problem that the industry faces is related to coal. Coal, which is one of the most important elements in the production of steel is a depleting resource and required extensively. Also, there has been an upward trend of coal prices in the recent year which becomes an issue. To be abreast with new technologies and have disruptive ways is also important to stay ahead in competition. The international markets are also giving high competition to the domestic markets. Also, government has made many laws and statuary rules to be followed by various business houses depending upon the industry they are working in. This involves a greater part of attention and focus towards the employee benefits and health aspects, thereby focusing on the most important factor of production-human work force.

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