鋼鐵制造公司簡介
 

事務所 -  A在印度是領先的鋼鐵制造公司。這是一個完全集成的鋼鐵生產商，為國內建筑，工程，電力，鐵路，汽車及國防工業和出售的出口市場生產基本鋼和特種鋼。  
 

在印度，以成交額計算排名躋身公司的前十大公共部門，制造和銷售各種鋼鐵產品，包括熱軋和冷軋板卷，鍍鋅板，電工鋼，結構鋼，鐵制品，板材，棒材和線材，不銹鋼等合金鋼。事務所 - 一個生產鋼鐵的五個一體化工廠和三個特殊鋼廠，在印度的東部和中部地區主要位于靠近國內原料資源，包括本公司的鐵礦石，石灰石和白云石礦。公司擁有的是印度最大的和具有該國第二大礦山網鐵礦石生產商。 
 

印度政府持有約86％事務所-  A的股權和投票權保留對公司的控制權。不過，企業-  A，憑借其“Navratna”的地位，享有顯著經營和財務自主權。
 

Overview Of Steel Making Company Firm A Economics Essay

 

FIRM - A is the leading steel-making company in India. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defense industries and for sale in export markets.

 

Ranked amongst the top ten public sector companies in India in terms of turnover, FIRM - A manufactures and sells a broad range of steel products, including hot and cold rolled sheets and coils, galvanized sheets, electrical sheets, structural steel, railway products, plates, bars and rods, stainless steel and other alloy steels. FIRM - A produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials, including the Company's iron ore, limestone and dolomite mines. The company has the distinction of being India’s largest producer of iron ore and of having the country’s second largest mines network.

 

The Government of India owns about 86% of FIRM - A's equity and retains voting control of the Company. However, FIRM - A, by virtue of its ‘Navratna’ status, enjoys significant operational and financial autonomy.

 

THE ORIGIN OF FIRM - A

 

FIRM - A is a successor entity to the company that was set up to lay the infrastructure for rapid industrialization of an emerging nation – India. That company was Hindustan Steel Limited (HSL), set up on the 19th of January, 1954. The President of India held the shares on behalf of the nation.

 

The Formative Years (1959-1972)

 

HSL was initially designed to manage only one plant – the first integrated steel plant (ISP) of India at Rourkela under German Collaboration. The preliminary works of two other plants at Durgapur and Bhilai were done by the Iron and Steel Ministry. From April 1957, the supervision and control of these two steel plants were also transferred to HSL. The registered office was originally in New Delhi. It moved to Calcutta in July 1956 and ultimately to Ranchi in December 1959.

 

A new steel company, Bokaro Steel Limited (BSL), was incorporated in January 1964 to construct and operate the steel plant at Bokaro. The 1 MT phases of Bhilai and Rourkela Steel Plants were completed by the end of December 1961.

 

The 1 MTPA phase of Durgapur Steel Plant was completed in January 1962 after commissioning of the Wheel and Axle plant. The crude steel production of HSL went up from .158 MTPA (1959-60) to 1.6 MTPA.

 

The second phase of Bhilai Steel Plant was completed in September 1967 after commissioning of the Wire Rod Mill. The last unit of the 1.8 MTPA phase of Rourkela – the Tandem Mill – was commissioned in February 1968, and the 1.6 MTPA stage of Durgapur Steel Plant was completed in August 1969 after commissioning of the Furnace in SMS. Thus, with the completion of the 2.5 MTPA stage at Bhilai, 1.8 MTPA at Rourkela and 1.6 MTPA at Durgapur, the total crude steel production capacity of HSL was raised to 3.7 MT in 1968-69 and subsequently to 4MT in 1972-73.

 

Incorporation of FIRM - A (1972 – 1991)

 

Managing disperse ISPs with different work culture was becoming problematic for HSL – which had its forte primarily in project execution and completion. To overcome the problems of routine administrations, the Ministry of Steel and Mines drafted a policy statement to evolve a new model for managing industry. On the 2nd of December, 1972, a policy statement was presented mooting the idea of a “Holding Company” for the routine operations of the plant. Consequently FIRM - A was incorporated on January 24, 1973 with an authorized capital of Rs. 2000 Cr. FIRM - A was charged with the responsibility of running the 5 ISPs (IISCO was nationalized after it became sick) and two special alloy plants – ASP & SSP. In 1978, FIRM - A was reconstituted as an operating company.

 

The ISPs under FIRM - A were described as “Temples of Modern India” by Pt. Nehru and true to their salt had been instrumental in a wide variety of activities. Besides producing steel, they also catered to backward area development, triggering secondary and tertiary economic growths and to technical and managerial expertise.

 

However, the excessive reliance on Government Ministries has taken its toll also. Excepting BSP, none of the ISPs have consistently contributed to the bottom line of the company. The net result had been a consistent infusion of capital expenditure in BSP to the exclusion of the other plants. Considering the fact that FIRM - A was running on technologies which were of the 1940s vintage, an urgent need for modernization was felt.

 

However, the funds for the same were not made available in time leading to fall in production and efficiency due to technological obsolescence. Also, FIRM - A plants were geared for producing SEMIs or semi-finished steels with the value addition being done by the downstream secondary and tertiary units. These further lead to reduction in profit margin for FIRM - A as a whole. Investments from the Government were channelized to providing subsidies for the loss making units like RSP & DSP.

 

A Tryst with Environmental Discontinuity

 

Despite losses by most of its units, FIRM - A continued to make net profit till the fiscal 1997-98 albeit the same was progressively declining. Appendix A1 provides the required financial data with respect to FIRM - A’s profit margins. The environmental discontinuity with respect to FIRM - A manifested itself in the global recession of the steel industry in 1998-99 when the firm faced export constraints as well as import pressure in the domestic market. The price of the basic product of FIRM - A that is, H.R. Coils plummeted to their historic low at inflation adjusted cost. This sudden discontinuity was however a result of a build up that was triggered with the deregulation of the sector in 1991 following the economic liberalization of the nation.

 

Deregulation of the Steel Sector

 

The present steel industry in India is an outcome of the new Industry Policy (NIP) of 1990-91. NIP ’90-91 opened up the regulated steel sector first to domestic private capital and then to foreign participation. Licensing requirements for capacity creation were abolished in 1991 and steel was removed from the list of industries reserved for public sector in 1992.

 

Regulatory changes to enhance efficiency and competitiveness: The Government of India followed up the sectoral liberalization with automatic approval (for “high priority” industry) of foreign equity investment by up to 74% as well as removal of control over price and distributions (January, 1992). This was followed by removal of restrictions on import and export and reduction of rates of import duty making it at par with domestic excise duties.

 

Further to enhance the sectoral competitiveness, the Government resorted to encouragement of private capital investment through economic incentive schemes. These include, inter alia, reduction of import duty on capital goods, Rupee convertibility on trading account, permission to mobilize resources from overseas financial markets with softer interest rates and rationalization of the existing tax structure.

 

Tariff Equalization: An important legislative step taken by the Government under WTO stipulations was the near equalization of tariffs chargeable to domestic and imported items. As such, Government imposed excise duties, albeit at a reduced level, on domestic produce while imposed import duties and countervailing duties (CVD) on imports. The removal of import restrictions and equalization of tariffs meant that imported steel found its way into the Indian market and the demand for steel grew at 6.5% per annum. In absolute terms, consumption increased from 15MTPA in 1992 to 26.5 MTPA in 2001. This increased trend of consumption signalized all the incumbent firms to increase capacity as well as new entrants to come into the sector.

 

Anti – Dumping Regulation in US market: While the Indian Steel manufacturers were smarting under consecutive relaxation of protective tariffs, an unexpected development in the lucrative export market, created added consternation. In the later half of the Nineties, the United States market, which was the primary buyer of FIRM - A, was progressively being captured by cheap importers from the erstwhile Eastern Block countries. The local steel manufacturers faced uneven price competition and were progressively getting marginalized. Consequently, US Department of Commerce put high dumping duties on all imports including Indian Steel. The closure of the US market meant that the residual global market for steel exporters became all the more competitive. At an aggregate level, Indian steel export suffered decline from 2.38 MTPA (1998) to 1.9 MTPA in 1999 and then regained and remained steady at 3 MTPA for 3 years before taking an upward trend from 2003 onwards.

 

Enhanced Competitive Pressure in the Domestic Market

 

As a consequence of the deregulation coupled with incentives to encourage private equity, the steel sector in India witnessed growth that outpaced the aggregate economic growth of the nation. During the decade between 1991 and 2001, the steel industry registered a CAGR of 6.5% in terms of consumption of finished steel (from 14.84 to 27.35 MTPA). This was higher than the real GDP growth of 6.2% during the same period thereby providing further incentives for private capital investment. Also, New opportunities created in the environment as a consequence of deregulation created a demand supply gap which could not be bridged through the capacities of the incumbents. Appendix A2 captures the gap between the demand and supply. Therefore capital expenditure was the need of the industry and the same was not limited to the incumbents like FIRM - A and TATAs.

 

New Entrants in Integrated Steel Making Process: As a consequence to the need to add capacity, by 1997 – 98, the erstwhile re-rollers like Jindal, Ispat (Mittal), Essar (Ruia) and a variety of others like Lloyd Steel, Bhushan, Adhunik entered the integrated steel making process. The movement up the value chain by the former re-rollers implied emergence of still newer players who filled up the gap. These new re-rollers mainly focused on the white good industry and had the flat products of FIRM - A like HR Coils as their chief input. These new investments had a lower set up time and by 1996, were established in the business.

 

Incumbent Activities: While new comers had input cost advantage by leveraging on newer processes, old incumbent like Tata Steel resorted to a two pronged strategy to enhance price competitiveness. At the upstream, Tata Steel phased out the smaller capacity blast furnaces and installed two higher capacity blast furnace thereby achieving economies of scale. Simultaneously, in the downstream, it set up a hot strip mill and a cold rolling mill (CRM) to produce value added products. These changes were done through a five phase modernization and with the installation of CRM, Tata Steel, as a firm, became the most cost effective steel producer in the world.#p#分頁標題#e#

 

The entry of new players and the inability of FIRM - A to increase capacity commensurate to market demand implied a weakening of its market structure and consequently its power to influence the price of steel.

 

Demand Supply Gap in Flat Products: Another event that affected FIRM - A and contributed to the recession was the short availability of flat products for 3 consecutive years (1996 – 99) to the new re-rollers who had started their operations by 1995-96. Previously, the supply of flat products always outstripped demand and consequently, the steel majors resorted to obtaining firm export orders of HR coil which was their top line product. The trade off between export and domestic market, practiced by the Industry leaders, forced the new re-rollers to look for alternative sources of input. The demand supply mismatch is represented in Appendix A3.

 

New source of flat products: A cheap source of flat products mainly the HR coils was found from the erstwhile soviet republics of Kazakhstan and Russian Federation. After the fall of the Soviet Union, the demand for industry inputs (including steel) plummeted and there was an excess supply which the internal market could not absorb. The Kazakh steel that found its way into the Indian market was described by FIRM - A executives in the following terms

 

“…steel produced in a subsidized era, from a fully depreciated plant, that had a high cost of inventory holding” and which was subsequently “dumped into the world market…”.

 

In terms of pricing, none of the primary steel producers in India could match up to the prices of these cheap exports as subsidies were withdrawn by the Government.

 

Band Wagon Effect amongst Re-rollers: The discovery of the cheap source of HR Coils caused almost all the re-rollers to move away from the domestic producers to imported steel. The production of HR coils from the new integrated domestic players again changed the demand driven market with supply outstripping demand again. Consequently, FIRM - A faced a supply side shock with buyer attrition and the floor price of HR Coil, which was the top line product of FIRM - A, also plummeted in the domestic market.

 

Emergence of competing technologies in Steel Making

 

As a consequence of deregulation, the new entrants entering into the integrated steel making segments had the option of choosing alternative processes and more efficient way of making steel. Thus processes like Corex (Jindal), Hot Briquette Iron (Essar) or simple Direct Reduction (DR) processes (Ispat) emerged as an efficient alternative to the traditional Blast Furnace – Basic Oxygen Furnace Route of the incumbents. These new processes eliminate the intermediate forms of steel like ingot and produce flats and long products, by directly using a continuous caster and thereby save on energy and inventory costs.#p#分頁標題#e#

 

Consequently, these new entrants had a reduced input cost and superior bottom line performance which translates to higher resilience in a price war. The increasing popularity of DR process in steel making is presented in Appendix A4

 

THE INTERNAL PROBLEM

 

While FIRM - A was facing challenges in the competitive as well as the technological environment, its internal conditions too were not conducive to meet up with the challenge. In the words of a senior official of FIRM - A,

 

“…we are a public sector set up by the Government for backward area development. Therefore, job creation and employment became a mandate for us, rather than efficient production. Words on productivity enhancement were considered to be a taboo…”

 

Therefore, excess manpower was one of the key impediments that consumed what ever surplus FIRM - A could generate from its operations.

 

Delay in Modernization: Another factor that depleted the reserves and surpluses of FIRM - A was the delay in modernizing some of the energy inefficient processes that hindered its movement up the value chain. Two of its capital expansion projects at RSP and DSP ran behind schedule causing cost overrun and depletion of its reserves and surpluses by 2000. The depletion of its reserves and surpluses constrained the firm from adapting to the changes in the environment. Thus, FIRM - A faced loss of sale both at the domestic and export market with its top of the line product suffering price cuts and depletion of its reserves and surpluses. However, as pointed out by one of the senior respondents,

 

“…while delays in modernization and cost escalations were definitely worrisome, the option of not having them was not there. We survived, in spite of hardship, simply because we had modernized our plants and were back in black once the winds changed…”

 

Beset with a torrid of discontinuities the leadership of FIRM - A undertook a series of steps to turnaround the firm from red to black.

 

TURNAROUND INITIATIVES OF FIRM - A

 

The early years of economic reforms did not affect the sector and the firm to any significant extent. In the words of a Senior Respondent Manager;

 

“…nothing happened despite all the fears and speculations. We were doing good business and going our usual ways for about 4 to 5 years. This is due to the matured nature of the industry as a whole and inherent entry and exit barriers that exist due to capital intensive nature of the industry. Also, the changes were actually beneficial and encouraging for us and the industry as a whole. This was a gestation period for us. Had it not been there, we may not have been where we are today…”

 

The steel industry is a capital intensive industry and for any new entrant to start integrated production like FIRM - A, a minimum gestation period of 4 years was required from project inception to cold run. The other alternative of quick entry was through the acquisition route, however, with only FIRM - A, RINL and TISCO as significant integrated steel producers, that option was absent. There were significant numbers of smaller players in re-rolling and scrap smelting, but these were unlikely targets for major acquisition by a multinational player. Also in the initial years, the demand in the market was more than could be supplied by the major integrated steel plants (Refer Appendix A2) and thus there was an assured domestic market for FIRM - A. In fact, FIRM - A actually exported finished steel worth Rs 138 crores (which was 10% higher than previous year) leaving the domestic market to be catered to by secondary steel producers. Thus in the absence of the any foreign investor in the steel sector, the incumbents got sufficient gestation period to understand and adapt to the changes in the environment.

 

FIRM - A’s Activities in Early Years of Industry Deregulation

 

Taking advantage of the environmental munificence in the initial years of liberalization, FIRM - A’s management undertook a number of activities which are stated below.

 

Internal Sensitization: FIRM - A’s management sensitized and prepared its work force of the changed nature of business. The year 1991-92 was observed as “Suggestion Year” in FIRM - A with the management receiving about 21000 suggestions on ways and means to improve performance.

 

Also management started reorienting the workforce towards profit motive as a commercial enterprise from a producer of steel in a controlled regime. Thus management started stressing on “growth with profitability”.

 

Firm level Restructuring - Equity divestiture: The Government divested FIRM - A’s share by 5% in 1991 to FIs/Banks/MFs. This was ostensibly done to bring the firm under some sort of market discipline.

 

Capital Expansion: FIRM - A also initiated the long pending modernization activities of its RSP & DSP units from the savings and the funds generated from divestiture of government holdings. The changes initiated include setting up of value added Wheel and Axle plant at DSP and CRCA & CRNO plants at RSP.

 

Change in Focus: With divestiture and in keeping with management’s fiduciary responsibilities to increase shareholder’s value, FIRM - A unveiled its Corporate Plan for 2005 AD with the objective of “Growth with Profitability”. FIRM - A also formulated its corporate quality policy. FIRM - A and incumbent TISCO also lobbied with Government to end the contributions to the Steel Development Fund (SDF).#p#分頁標題#e#

 

Efficiency Enhancement: In line with its change in focus, FIRM - A stepped up its efforts on enhancing efficiencies in energy consumption and productivity. These efforts had begun 5 years back and FIRM - A continued on efficiency endeavour with a reduction in energy consumption by 3.2% and improving on man power productivity and reached 85 Ingot Tons/man/annum.

 

FIRM - A also planned to restructure its human resource by offering VRS in line with industry trend. However it received lukewarm responses with only 2181 employees seeking VRS.

 

Influencing the Regulators: With the loss of monopoly status in business, FIRM - A along with Tata Steel lobbied with the Government to discontinue their contribution to Steel Development Fund (SDF). This fund was created to provide incentives and hence encourage investments in the Industry.

 

Mobilizing Support from the Regulators

 

The Government responded to the sectoral down turn by a package of activities. It imposed special import duties of 5% and special CVD of 4% on imports in the budget of FY 1999. The special import duty was however removed in 2000. Moreover, Government relaxed acquisition policies by allowing global majors to acquire Indian steel companies, strengthen the Steel Export Forum to supervise cases of dumping and helping in restructuring and consolidation. It also set up small steel industry reconstruction fund to provide loans to industry for modernization. Government was about to promulgate the “Buy Indian Act” similar to the US act to protect the Indian producers.

 

Legacy Activities: FIRM - A continued its socialist era activities by encouraging sports activities, and providing employee welfares like medi-claim policies, development of townships and schools and so forth. It also continued its efforts on import substitution efforts, by substituting 722 items thus saving Rs. 25 Crores.

 

Responding to the Competitive Posturing

 

FIRM - A responded to competitive pressure by initiating a series of steps aimed at improving the operational effectiveness of the firm as well as through regulatory interventions.

 

Enhancing Operational Effectiveness

 

Higher process efficiency of the competitors (new entrants as well as incumbents) caused FIRM - A to continuously improve upon its own efficiency parameters within the existing production process. FIRM - A also reconfigured part of its production line (introducing sintering plant and cold rolling mills) to move up the value chain by producing value added products

 

Pre-empting Regulatory Intervention

 

Faced with competition in the hot rolled coil segment from the Kazakhstan steel producers, FIRM - A sought regulatory interventions in imposing countervailing duties which however was not necessary due to discontinuity in focus of international players. As a trade off to Government’s perceive support, FIRM - A conceded to the regulatory pressure to cut output price of steel (to restrain inflationary pressure) as well as trading off sales from profitable export market to domestic market.

 

Also in conjunction with Government’s developmental activities, FIRM - A began focussing on developing the fragmented semi-urban, rural areas through creation of Special Purpose Units (SPUs) in the rural/semi-urban areas. FIRM - A strengthened this endeavour by entering into a variety of Equity based JVs with raw material suppliers (KIOCL, CIL) and finished good buyers (Indian Railways) for input and output security against future competition.

 

Simultaneously, FIRM - A started diversifying to international market for better price realization when faced with low price realization in the domestic market. This strategy however was reversed when Government asked the Steel Makers to concentrate on the domestic market to contain the rising price of steel. FIRM - A reversed the trend to comply with the regulatory demands. At the same time it entered into integrity pact with vendors and suppliers to extend control over them.

 

RESPONDING TO TECHNOLOGICAL DISCONTINUITIES

 

FIRM - A responded to the technological discontinuities by adopting a two pronged strategy of modernizing itself along its traditional production process to dispense off redundant intermediate steps and adopting new technologies that brought transparency in the system and thereby optimized its operating costs. The same is presented below.

 

Reconfiguration of Production Line

 

FIRM - A’s high initial investment into the Blast Furnace – Basic Oxygen Furnace route resulted in path dependence to steel smelting process. Consequently, its steel smelting per charge remained lower than new entrants who adopted the DR process. FIRM - A’s inability to capitalize on the emergence of newer process technologies forced it to reconfigure its existing production line by eliminating and adding new units that reduces input cost. Thus FIRM - A added the continuous casting lines in place of Ingot Caster which was an energy inefficient process. FIRM - A also introduced Sintering Plants ahead of Blast Furnace so that it can charge higher percentage of iron ore and consequently, has higher hot-metal yield percentage per charge. FIRM - A’s reconfiguration exercise enabled it to move up the value chain in producing value added products.

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Unrelated Diversification into e-domain

 

FIRM - A extensively adopted the e-commerce business to reverse auction and thereby reduce cost and increase cost efficiency. FIRM - A also diversified into providing software based consultancy to Steel Manufacturers with technological collaboration from US Steel.

 

INTERNAL REORGANIZATION EXERCISES

 

FIRM - A’s attempt to respond to environmental discontinuities can be perceived to be a major exercise to reorganize and optimize its internal resources. This is intended to serve the dual purpose of eliminating the unwanted slack in the system at the same time create new efficient and leverageable resources to absorb future shock. The set of activities undertaken by FIRM - A to achieve internal reorganization are presented below.

 

Work Force Rationalization: FIRM - A undertook two rounds of VRS in 1999 and 2001 with relaxation of separation criteria to downsize some of excess man power. Despite man power reduction, FIRM - A still scores very high on the employee to hot metal produce or low in productivities.

 

Stress on efficiency increase: FIRM - A continued stressing on adoption of energy efficient methods and reduction of inputs of coking coal. FIRM - A instituted in house technological developments to increase its capacity output. Consequently, in 2002, FIRM - A first reached the theoretical limit of 100% capacity output of Continuous Caster

 

Value Chain Reconfiguration: FIRM - A stressed on producing finished steels from the Continuous Casting Lines thereby decrease the consumption of energy and saving on input cost. FIRM - A also progressively phased out low value add semi finished steel and focused on high value add saleable steel.

 

Organizational Restructuring: FIRM - A revived its Technical Directorate aimed at optimizing technological efficiency and Operational Flexibility and running in tandem with restructuring. FIRM - A also brought in various achievers from the different units to its corporate head quarter in a pooling of resource exercise.

 

FIRM - A also set up Key Accounts Management (KAM) cell in its marketing division to look after the key clients and customers of FIRM - A

 

FIRM - A also restructured its Stockyards making them into separate warehouse divisions with the added task of marketing and selling stockyard products

 

Divesting non core businesses: FIRM - A progressively divested its non core businesses like power generation and fertilizer manufacturing. The power generation business was divested to NTPC in a 50:50 JV called NSPCL. In the process FIRM - A obtained Rs. 287 Crores. FIRM - A also sold away idle properties and its townships to generate funds that could be ploughed back for future Capex activities#p#分頁標題#e#

 

Reconciliation of SDF Loan: FIRM - A having taken loans for capacity expansion from the SDF fund, strongly argued with the Government that the fund essentially was its own, kept in Government’s custody. The Government therefore reconciled FIRM - A’s SDF loan which was spent in CAPEX (rs. 5454 Crores) and in funding the VRS activities (Rs. 1500 Crores). The SDF amount was essentially pledged as a guarantee sum to borrow for funding the VRS

 

Diversification in Related Areas: FIRM - A entered into related diversification in the software business with launching of USIT software for consultancy in steel related technologies. The same software was developed in collaboration with USX Consultants in USA. Using this software, FIRM - A also provided consulting services to RINL worth Rs. 10 Crores. FIRM - A also launched e-commerce services with Kalyani Steel and Tata Steel under the brand name of e-Metaljunction.com. Through meant for providing steel related services and for selling purpose, it soon became a tool for reverse auction for input for FIRM - A saving 14% of previous cost of procurement.

 

Legal Steps: FIRM - A contemplated to fight a legal battle against US antidumping laws in the international court of WTO. FIRM - A eventually won the legal battle with US delisting FIRM - A from dumping items. FIRM - A also obtained stay order from Supreme Court of India regarding automatic absorption of contract workers in perennial but peripheral works.

 

Relocation and Brownfield expansion: FIRM - A relocated some of its obsolete units and set up a new railways finished complex at Bhilai. This complex was intended to make Railways a captive customer of FIRM - A.

 

Closure of sick units: FIRM - A took a policy decision to close down economically unviable and sick units within its folds rather than continue subsidizing the same. This way, FIRM - A’s balance sheet would be freed from loss making and unproductive activities.

 

Optimizing of Idle Capacities: Financial constraints forced the FIRM - A’s management to adopt technologies that removed bottlenecks within existing production lines and thereby increase the capacity output. FIRM - A did not invest to create extra capacity which became idle during economic downturn. On the contrary, the capacity increase was a result of optimizing operations level slack leading to higher efficiency of production.

 

Continued Stress on Process level efficiencies: FIRM - A continued its stress on low energy, low input and higher yield technologies. It further experimented with substituting coking coal with tar and LNG so that net volume of hot metal can be increased further and cycling time of steel smelting can be reduced. This is because tar/LNG has higher calorific values than coking coal and as such quicker reducing time. However, availability of LNG from Middle East could not be ensured and so FIRM - A’s dependence on Coking Coal continued.#p#分頁標題#e#

 

Securing Raw Material Sources: With the upsurge in demand for raw materials by the incumbent players adding to their capacities, FIRM - A perceived that non availability of raw materials would be the biggest hurdle to its future sustainability. FIRM - A attempted to secure the same by entering into equity based partnership with raw material suppliers of coking coal and limestone/flux. It has entered into firm contract with suppliers namely from the state owned sectors knowing that SOEs are likely to honour contracts better than private players.

 

Contracts to secure services: FIRM - A is a buyer and a supplier to Indian railways. While it is one of the largest suppliers of rails, wheels and axle to the Indian Railways, it also uses Indian Railways’ wagons for transportation of raw materials and finished products. Therefore FIRM - A has entered into firm contract with Railways to lease specific numbers of wagons for speedy transportation.

 

To this effect it has also entered into a contract to lease berth 4A at Haldia Dockyards for 30 years to ensure uninterrupted services.

 

Capacity Expansion: FIRM - A has embarked into an ambitious plan to expand its production capacity to 23 MTPA by 2012 which is through brown field expansion. Therefore, FIRM - A reopened its closed works like Kulti (IISCO) and invested in same to increase capacity. Brown field expansion appears to be the safest mode of expansion given the cyclical nature of the industry. FIRM - A is also implementing its expansion in a phased manner.

 

Value Added Products: FIRM - A continued its stress on value added products and improved product mix to remain relevant in a matured commoditized market. FIRM - A produces the entire range of value added products that its incumbent competitors produce. FIRM - A also supplements its domestic sales with exports as export markets fetch better prices.

 

Compliance with Ministry’s Directives: FIRM - A reaped a rich dividend from its cordial relationship with the concerned ministry like SDF reconciliation and so on. It therefore showed compliance with the ministry’s request to make foray into the rural areas by setting up Steel Processing Units (SPUs) in places where steel consumption is lower than national average. Thus far 10 SPUs are opened to popularize the consumption of steel.

 

This move, according to the management, is also a hedge against future economic down turn as FIRM - A will have an exclusive and loyal market to sell its products which had been developed by it.#p#分頁標題#e#

 

Execution of Turn Key Contracts: FIRM - A has also of late undertaken turnkey contracts to plan and execute projects using its own products in the process. Delhi Jal Board is one such contract successfully executed by FIRM - A.

 

Partnership with both buyers and sellers: FIRM - A has entered into equity partnership with its buyers and sellers to co-create values for all the parties concerned. Thus Indian railways, MMDC, BEL are some of the organizations with whom FIRM - A enjoys preferential equity relationship. This arrangement is done to ensure supply of raw material and secured market for its finished products.

 

Future Challenges to FIRM - A

 

The aforesaid initiatives started showing results with FIRM - A securing the 2nd position in the ‘World-Class Steel Makers’ Ranking’ by World Steel Dynamics, USA. The financial figures of FIRM - A are provided in Appendix A5. While FIRM - A appear to have completely turned around and transformed, the future appear to hold more challenges for the organization. FIRM - A’s future challenges are summarized by Chairman cum Managing Director, as under:

 

Necessity to secure continued supply of raw materials from any source within the country and outside

 

Continued process improvements to contain the risk of high input cost and low realized prices within the country

 

Competing on scale economies with the greatest threat coming from Chinese redundant capacities, the output from which cannot be absorbed within that country.

 

Another challenge posed to FIRM - A is its possible loss of position as the dominant player in the Steel Industry. It is estimated that by 2020, Indian domestic sector shall produce 160 MTPA of steel while FIRM - A’s capacities shall be restricted to 24MTPA. However, given the cyclical nature of the industry and possibly a fragmented rural market which is the next thrust area, FIRM - A is trading off position with profitability in the long run. FIRM - A prefers loss of market dominance to idle capacity and depleted bottom lines.

 

Against possible future dumping by China, FIRM - A plans to fight on cost, through an optimized production line and a portfolio of value added products higher up in the value chain. However, insiders within FIRM - A remain skeptical about the Chinese threat given China’s huge scale economies built over a period of time. To them the mute question is “How Long to Sustain the Growth” given the raw material constraints and the Chinese threat.