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Cae Study: Tata Steel & Corus

Autor:   •  November 15, 2018  •  8,792 Words (36 Pages)  •  612 Views

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Corus’ organizational structure of the company was composed of four distinct product divisions, namely Strip Products, Long Products, Aluminum and Distribution and Building Systems. The internationally operating company possessed a wide product portfolio consisting of electrical steel, narrow strip, plates, packaging steel, plated steel strip, semi-finished steel, tube products, wire rod and rail products. Moreover, Corus also operated in the service market, providing a series of services closely interconnected and coordinated with its core manufacturing business. Furthermore, the company’s targeted customers ranged from private companies in the automotive, aerospace, construction industry to shipbuilding and engineering companies.

Between 2000 and 2003, Corus reported negative financial performances. Benchmarked against other European competitors, Corus was suffering a six-percentage point gap in EBITDA to sales, equivalent to approximately GBP 400 m. The company finally succeeded in becoming profitable only in 2004, being subsequently acquired by Tata Steel in 2006, although the acquisition only became effective in 2007.

Corus – Weaknesses

Corus’ main problems could be doubtlessly attributed to the inherited differences between Koninklijke Hoogovens and British Steel. Koninklijke Hoogovens was formed in 1918 from the joint collaboration of private investors, the Dutch State and the city of Amsterdam. At the time of the merger, the Dutch producer had already ventured into transnational mergers and alliances with the overall goal to improve its efficiency. Moreover, ultimately before the merger announcement with British Steel, Koninklijke Hoogovens decisively invested in plants and assets in order to modernize its operations. Those investments were comprehensively regarded as world-class industry standards.

Contrary, British Steel was founded in 1968, at a point of time when 90% of the companies operating in the steelmaking industry got expropriated. Since the former British government under Prime Minister Tony Blair considered the steelmaking industry a key business sector to secure employment of its citizens, obsolete plants running at backward capacity rates were still kept alive. It was only in the early ’80s that, particularly due to ever-increasing losses, and continuously losing international competitiveness, the government initiated a far-reaching turnaround of the company (e.g. work rationalization, closure of outdated plants). British Steel was ultimately privatized in 1987. Despite the fact that the company made significant improvements during the previous decade, it still had to cope with substantial structural/organizational inconsistencies when merging with Koninklijke Hoogovens.

In addition to the challenges caused by the inappropriateness of the plants and technologies utilized by British Steel, unrest among workers soon arose, since they anticipated further plants closures combined with a cultural mismatch between the English and Dutch managerial styles causing additional integration/coordination challenges. Labor unrest combined with the severe dependency of the company’s financial performance on raw material prices and economic cycles contributed to the disappointing results recorded between 2000 and 2003.

Corus – Strengths

Corus clearly benefitted from its inimitable geographical scope. By combining the network of British Steel and Koninklijke Hoogovens, the company could fully penetrate the European market, as well as establish a foothold in North America. The fact that the newly merged company was already active across multiple countries was considered an indispensable prerequisite to better serve customers expanding their operations abroad, especially since steelmakers’ customers increasingly intended to aggregate and consolidate their supplier base across market boundaries.

On top of that, with the combination of the companies’ R&D activities in the new merged organization, Corus would take an important step to create lighter, more resistant and adaptable legacies, implying the potential to get an edge over its competitors. With its then even more expanded portfolio of metal products and services, Corus would be even able to offer turnkey solutions to its customers. As a matter of fact, Corus could then perform several activities of the value chain, from product design to manufacturing.

Tata Steel

Tata Steel Limited (formerly Tata Iron and Steel Company Limited (TISCO)) is an Indian multinational steel-making company headquartered in Mumbai, Maharashtra, India, and a subsidiary of the Tata Group. Jamshedji Tata and Dorabji Tata established Tata Iron and Steel Company on 26 August 1907, as a part of Jamsetji's Tata Group. Thus, the company operated the largest steel plant in the British Empire by 1939. In the course of time, TISCO launched a major modernization- and expansion program in 1951, which was further upgraded to 2 m metric tones per annum (MTPA) project in 1958. Furthermore, the company employed around 40,000 people in Jamshedpur by 1970, with additional 20,000 workers in neighboring coalmines. The company changed its name from TISCO to Tata Steel in 2005.

Nowadays, Tata Steel Group belongs to the top-ten global steel companies with an annual crude steel capacity of more than 29 tones per annum. Moreover, Tata Steel is regarded the world’s second-most geographically diversified steel manufacturer, with production plants in 26 countries, and commercial presence in over 50 countries. The company’s larger production facilities are located in India, the UK, the Netherlands, Thailand, Singapore, China and Australia, whereas Tata Steel Limited (India), Tata Steel Europe Limited (formerly Corus), Tata Steel Singapore and Tata Steel Thailand used to make up the Group’s locally dispersed operating subdivisions. Thus, the Group’s product portfolio ranges from flat- and construction products, and agricultural implements to bearings.

Tata Steel – Weaknesses

Despite being the major player in India, Tata Steel was only ranked the 56th largest steel producer worldwide before the acquisition. According to that, Tata Steel used to be a company with preferably domestic presence, which explains one of its biggest drawbacks: since the company was primarily operating in India, it obviously lacked an international customer base. In an industry like steel, with a naturally high systematic risk (beta), missing international operations caused Tata Steel to be exposed to the cyclical nature of the (Indian) steel industry even more due to missing options to spread this risk over other

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