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Analysis of Corus' Strategy

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Introduction

Introduction. Corus, formally British Steel merged with the Dutch Steel group Hoogovens two years ago. It is now the fifth largest producer of steel behind LNN, Nippon Steel, POSCO and Usinor/Arbed/Acerlia, (assuming the merger goes ahead). My investigation is into the recent announcement by Corus, February 1st 2001, of its findings from a strategic review of its carbon steel activities in the UK. The Chairman and Chief Executive, Sir Brian Moffat, announced that the company was going to reduce the size of their workforce by around six thousand people, as well as two site closures, and the closure of some parts from another three plants. The details of these losses are given on Appendix 1. I will investigate why it is that Corus has felt it must make these drastic changes to its UK branches. I will analyse the main reasons given by the company for these changes and whether or not they justify the changes that are being made. Finally I will mention the likely impact of these changes at the local and national level. Analysis. In the announcement Corus revealed an operating loss of �301m in the nine months up to July 1st 2000 in its carbon steel operations. Since January its stock has been up to a high of 17.4p, to a low of 4.7p. ...read more.

Middle

If Corus were to keep prices high then it would find it hard to sell its products. The other problem with the pound is that it is fluctuating. Corus cannot predict the changes and it is therefore very difficult to use strategic management in planning for the future. These problems have also come at a time when the lack of demand in the UK market has meant that more steel needs to be exported. High transportation costs and aggressive price competition in the export markets have more than offset the benefits of the cost and efficiency changes in recent years. These combined costs have resulted in high losses and the need for drastic changes that is what Corus has done. It is not just a lack of demand that has caused problems for Corus. There is an over supply in the market. Supply exceeds demand and price therefore needs to be lowered if the company wants to sell their products, (see appendix 2). Corus is the fifth largest producer in the world, (see appendix 3). The actual branch closure at Ebbw Vale and Bryngwyn in Wales indicates that there is no longer enough demand in the UK and overseas for some types of steel. The oversupply in the market has meant that Corus cannot afford to produce steel that there is no demand for. ...read more.

Conclusion

The company has therefore been forced to cut costs. A drive for increased efficiency without decreasing the workforce would not work because costs would remain too high. As a result of decreasing the labour force the company is saving around �180 million per annum. The lack of demand has resulted in the closure of two plants at Ebbw Vale and Bryngwyn as well as the closure of other parts at Llanwern, Shotton and Teeside. These changes have been done in order to return the company to profitability. The changes will decrease total output in the steel market and will allow Corus to compete more easily. Without making these changes Corus would have been unable to compete with other companies who were able to keep their costs down. Corus needed to be able to compete more strongly with its competition in Europe in terms of price. However, these changes may not be the last for the company. Corus is a victim of the strong Pound against the Euro. It may not fully recover until the Pound weakens or if Britain joins a Single Currency. Until then, we can expect more structural changes and job loses from its UK branches. Europe is the largest buyer of Corus's steel, if Corus cannot solve its problems there, it may have to look elsewhere to sell its steel. This could mean further restructuring of its companies across Europe. A3 Nuffield Economics/Business Portfolio 1 Jack Gabb Page ...read more.

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