Case On Nucor by Ola Bednarek, Guangming Qi, Patrick Kosowski
Why has Nucor performed so well?
The steel industry has characteristics that create challenging environment for business. There's intense competition, a huge amount of capital required to start, buyers having high influence, etc. All of this contribute to cyclical character of the business where it is not easy to predict what may happen and, as a result, not easy to conduct the business.
Another problem of the steel industry of U.S was that companies had more production capacity than was needed to meet market requirements.
Is it the "mini-mill" effect?
The "mini-mill" was process innovation introduced in order to reduce the cost of raw materials. It was a product-market innovation witch put Nucor in a competition with all market players. The success was in the lower price compared to the other producers The leading U.S minimill companies in 1980 were Nucor, Florida Steel, Georgetown Steel, North Star Steel, and Chaparral Steel.
By using the minimill technology, Nucor expected to have half the labor cost of the integrated manufacturers plant and to provide minimill at cost of $ 50 to $ 75 per ton under the costs of the US manufacturer. However, minimill technology was too unsophisticated to produce more than reinforcing rods, structural bolts, angle iron and fasteners
Between the 70ies and 80ies, the share of total domestic shipment fell from 90% to about 80% in 1990 it was around 40%. The U.S companies which produced in the minimill technology faced some problems. Such as,
Twin shell furnace technology
Low Cost Provider Strategy of Nucor
Is it market power (scale economies) ?
In order to distribute the fixed cost thru the units produced, manufacturers were forsed to achieve economies of scale. If manufacturers produce more we have...