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Corporate strategy of Arcelor: how to penetrate the Chinese market?Second world largest steel maker, Arcelor is the result of the merger between three European steelmaking companies in 2002.

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Introduction

Table Of Contents 1) COMPANY DESCRIPTION 2 1.1) Outlook of the steel market 2 1.2) Corporate strategy of Arcelor: how to penetrate the Chinese market? 3 1.3)Current financial performances 5 1.4)Specific advantages of Arcelor 6 2) ARCELOR AND CHINA 7 2.1) General political and economic environment in China 7 2.2) Economic conditions in the Chinese steel industry 9 2.3) Main competitors and customers 11 2.4) Customers in China 12 2.5) Competitive advantages of Arcelor in China 13 3) CULTURAL DIFFERENCES BETWEEN CHINA AND EUROPE 14 4) WHY CHINA? 15 4.1) Arcelor in China: long term and short term objectives 15 4.2) Arcelor in China: tools to achieve long term and short term objectives 16 4.3) Arcelor in China: strategies to achieve long term and short term objectives 17 4.4) Arcelor in China: A cascade model 19 5) CONCLUSION 20 5.1) What are the challenges for Arcelor? What does the company should expect from the Chinese market? 20 APPENDIX............................................................................................................................. .22 REFERENCES........................................................................................................................27 1) COMPANY DESCRIPTION 1.1) Outlook of the steel market The market of commodities has experienced dramatic upheavals during the last years. The outstanding growth in China is soaking up every commodity available and therefore is pushing up the prices on every market. The steel market experienced a huge soaring in prices in 2004 due to a shortage, consuming almost a third of the global steel output (730 million Tonnes), China is the main cause of this trend. Because it is still a low concentrated market, the supply is facing many difficulties and is reengineering all over the supply chain. Proactively, steelmakers have increased their production, multiplied the mergers and acquisitions, and developed some cartels to keep control of the prices. 2004 was an exceptional year as the prices literally skyrockets. However, the increasing competitive China's companies begin to jeopardize this balance. Developing the steel output, China is forecasted to be self-sufficient on steel in 2006. ...read more.

Middle

To meet their needs, Chinese steelmakers have been concluding increasing numbers of agreements, partnerships, and even acquisitions. Signature of long-term contracts with suppliers has provided them with supply guarantees even if that may imply sacrificing negotiating leverage on basic metal prices in case of a trend reversal. 2.3) Main competitors and customers Competitors on the Chinese steel market are numerous but very different. First there are Chinese steelmakers whose size can vary widely. There are between 100 and 800 steelmakers in China. Most of them are local state-owned companies but concentration makes them bigger and bigger. For example, in Hebei Province, six state-owned steel companies will merge into two steel companies, Tangshan Iron & Steel and Handan Iron & Steel, each with an annual capacity of over 10 million tons9. Besides those, China has three emerging national champions: Baosteel, Angang and Wuhan. Baosteel is the mot promising. 6th world producer with 22 million tons in 2004, the group has become a major player in China where it is an attractive partner. Proofs are the partnerships created with big companies like Arcelor, Nippon Steel and ThyssenKrupp that each has a joint venture with it10. Like many of China's other national champions, Baosteel is ready to take its place on the global stage. That means more partnerships and it is looking for investment in Brazil. But at heart Baosteel is still an SOE, with all the inefficiencies, social obligations and political constraints this implies. The government is reluctant to let leave such a big company and is still really committed to Baosteel strategy. Angang and Wuhan (respectively 11.3 and 9.3 million tons11) encounter exactly the same problem except that they are on a lower scale. Other competitors on the Chinese steel market are foreigners. Huge conglomerates have been built for the last decade and they now enter China, looking for potential markets and new alliances and acquisitions. ...read more.

Conclusion

This will further increase the capacity of an industry in which the market growth is still present, but it is decreasing, since the product is living going through its maturity stage (Product Life Cycle Theory). To conclude we can say that this tool can be very useful to the company, but Arcelor must use it carefully and without pushing it over the limits; in the latter case it can carry a lot of risks with him. 5) CONCLUSION 5.1) What are the challenges for Arcelor? What does the company should expect from the Chinese market? The transition of the Chinese economy from a Totalitarian to a Command one is today a core issue. China maintained its Totalitarian govenment while started to liberalize its economic market. This transition was embraced by most of the Multinational companies operating on today's market, and involved all the industries, including the steel one. Arcelor is one of them, but the knowledge advantages on the competitors, the strong brand name, the relationship with the Chinese Government and the leading position in the world market, make the company one of the possible winners in the Chinese market. The following actions might allow the company to succeed: - Set up JVs with the major players of the market; the advantages are much bigger compared to the advantages that smaller players can bring to the company, especially in a market like steel; - Set up JVs with their own JVs (cascade model); - Acquire companies as soon as the state allows them to do that. The Chinese steel industry can be dominated by Arcelor if they will use the right strategy. APPENDIX Appendix 1 - Consolidated Income Statement Appendix 2 - Consolidated Balance Sheet Appendix 3 - World crude steel production:1950 to 2004 (million metric tons) Appendix 4 - Top steel-producing companies We must add that Mittal is the first steelmaker in production value. That means that its output is more value-added. ...read more.

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