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Term Paper
Report
On
International Manufacturing Strategy
The reason behind TATA Steels acquisition of Corus steel using a
manufacturing strategy framework


Under the guidance of
Prof. D.K. Banwet
Department of Management Studies, IIT-Delhi


Presented by:
Amit Kumar Jaura (2010SMF6835)
Sanjeev Priyam chandran H (2010SMF6670)
D.Tej Kiran (2010SMF6633)
Rohit kumar (2010smf6635)
Sasank Tanikella (2010SMT6710)
Shreyans Baid (2010SMF6708)


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Abstract:
This term paper identifies a model for manufacturing strategies from literature, and takes the example
of TATA steel an Indian manufacturing firm, and analyzes its acquisition of Corus steel on the basis of
building an international manufacturing strategy.
Introduction:
There are many vantage points from which to view manufacturing strategy. Manufacturing strategy is
one of several functional strategies in a hierarchy of industrial, corporate, business, and functional
strategies (Gupta and Lonial 1998). Manufacturing strategy is how a company uses its assets and
prioritises its activities to achieve its business goals (Miller and Roth 1994). Manufacturing strategy
depends on a companys industry and geographic location and is a pattern of competition that tries to
generate competitive advantage (Chen 1999).
Manufacturing strategy is implemented in a sequence of actions that begins with strategy formulation
and ends at business performance. The first action, strategy formulation, is sometimes described as
intended strategy because it is what a company intends to do. However, what is formulated is not
necessarily what gets done. So intended strategy is followed by deliberate strategy which is the
actions a company takes to achieve its intended strategy (Quezada et al. 1999). Emergent strategy
follows, which is the actions not originally intended but performed nevertheless because of changing
circumstances. Next are realized strategy, which is the outcomes that occur (Boyer 1998), and
unrealized strategy, which is the desired outcomes that do not occur.
Finally there is company performance. Ahmed et al. (1996), Devaraj et al. (2004), and others verify
empirically a positive correlation between strategy formulation (the first action in this sequence), and
company performance (the last action). The view of manufacturing strategy as a sequence of actions
highlights the distinction between the process of formulating manufacturing strategy and the content of
manufacturing strategy (Barnes 2002, Platts et al. 1998). Pun (2004) gives an excellent review and
synthesis of different processes for formulating manufacturing strategy. He reports that no particular
process is best for all companies. Minor et al. (1994) and Dangayach and Deshmukh (2001) also give
good reviews of manufacturing strategy.


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Formulating the best strategy is not easy. Companies face both a variety of choices, because of rapidly
changing product and process technologies, and a variety of challenges, because of a global competitive
environment, informed customers, demanding owners, and environmental and political factors.
Frameworks or models of manufacturing strategy are helpful because they organize the important
objects in manufacturing strategy into a structure that enables companies to understand and use them.
Many models are possible and there is no particular model that is best for all companies.

Models for manufacturing strategy in the literature
So-called process models for manufacturing strategy are well known in the literature. Among
the earliest are three-object models such as the ones in Wheelwright (1984) and Vickery (1991).
The following three objects, which we label W1, W2 and W3, comprise these models.
W1 Business strategy
This object sets business strategy and fixes the basis of competitive advantage (e.g. low price, product
differentiation, narrow versus broad market scope).
W2 Manufacturing competitive priorities
This object specifies manufacturings competitive priorities (e.g. cost, quality, flexibility, delivery). These
priorities support the basis of competitive advantage in W1.
W3 Structural and infrastructural systems in manufacturing
This object makes adjustments or decisions in the structural and infrastructural systems, which
comprise manufacturing, so that these systems generate the competitive priorities in W2.
Kim and Arnold 1996 extend the three-object model to a four-object model. Here we label their
objects K1 to K4. K1 and K2 are the same as W1 and W2.
K3 Manufacturing objectives
This object sets measurable performance targets for the competitive priorities (e.g. labour cost, material
cost, defect rate, leadtime) in K2.


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K4 Action plans
This object specifies the action plans that managers take in order to achieve the performance targets in
K3.
Platts et al. (1998) extends the three-object model to a five-object model. Here we label their
objects H1 to H5. H1 is the same as W1 (and K1) and H3 is the same as K3.
H2 Market requirements
This object specifies the price, quality, delivery, etc. requirements for each product in each market that
follow from the business strategy in H1.
H4 Manufacturing capabilities
This object specifies the capabilities that manufacturing possesses in the areas of cost, quality, lead
time, etc.
H5 Structural and infrastructural systems in manufacturing (same as W3)
This object makes adjustments or decisions in the structural and infrastructural systems, which comprise
manufacturing, in order to change the capabilities in H4 so that the objectives in H3 are achieved.

New model for manufacturing strategy in an international manufacturing network
Nowadays a companys sources of competitive advantage are rarely found solely within its immediate
boundaries; rather they are usually found within the boundaries of a network of facilities and
companies. Gulati et al. (2000, p. 204) find that neglecting the strategic networks in which firms are
embedded can lead to an incomplete understanding of firm behavior and performance. Heightened
awareness of the strategic networks in which firms are situated becomes a central, rather than a
peripheral, exercise toward understanding firm strategy and performance.
This section outlines a model of manufacturing strategy for a companys international manufacturing
network. Like the models reviewed in Section 2, business strategy is the first object in this model. Six


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objects follow: generic international manufacturing strategies, manufacturing networks, network
manufacturing outputs, network levers, network capability, and factory types. These objects are firmly
grounded in the literature.
The objects do not follow one after the other in a sequential pattern. Rather, the linkages among them
are more sophisticated.
Competitive features for international manufacturing strategy:
Pressure for globalization
Pressure for globalization is the necessity that exists for a company to design, manufacture, and market
products on a worldwide basis. This pressure comes from five forces (Porter 1985, Thompson and
Strickland 2001) within a companys industry: actions of competitors, bargaining power of customers,
bargaining power of suppliers, threat of new competitors, and threat of substitute products. For
example, foreign competitors may challenge a domestic company in its local markets by introducing
higher quality products. Powerful customers may force a company to reduce prices and increase
frequency of delivery. Powerful suppliers may raise the prices of raw materials and purchased
components. When pressure for globalization is low, a company may decide to operate only in its home
country. When this pressure increases, a company may need to export to foreign countries. When
pressure for globalization is medium, a company may need to partner, acquire, or build operations in a
few foreign countries. When pressure is high, a company may need to operate a worldwide network of
manufacturing facilities.
Pressure for local responsiveness
Pressure for local responsiveness is the necessity that exists for a company to adapt its practices to meet
the varying requirements of customers, employees, and governments. When pressure for local
responsiveness is low, a company can produce and market a standard product. Standard products may
even be regulated by international standards (e.g. some chemicals, electronic components, and foods).
When pressure for local responsiveness is low, a company can employ standard practices in its facilities
and follow standard procedures for dealing with government requirements (e.g. currency regulations,
environmental regulations, and business practices). When pressure for local responsiveness is high,
customer requirements, employee requirements, and government regulations vary in the different


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markets and countries where a company operates. In this case the company needs to disperse its
activities in order to be close to customers, employees, and regulatory agencies, and give its facilities
autonomy so that they can respond to local conditions.

Generic manufacturing strategies:




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Figure shows the relationship between pressure for globalization and pressure for local responsiveness
and seven generic strategies for international manufacturing. Pressure for globalization is shown on the
vertical axis. Movement up the axis represents increasing pressure for globalization. Pressure for local
responsiveness is shown on the horizontal axis. Decreasing pressure for local responsiveness is
represented by movement to the right.
Then, for example, a company uses a global strategy when pressure for globalization ranges from high to
very high, and pressure for local responsiveness is low. Many companies in the computer industry use a
global product network. Many mining companies and some steel companies use a global function
network. Many companies in the consumer electronics industry use a global mixed network.

Manufacturing networks

Manufacturing networks are composed of inter organizational ties that are enduring and include
strategic alliances, joint ventures, long-term buyer-supplier partnerships, and a host of similar ties
.There are nine well-known manufacturing networks: domestic, domestic export, international, multi
domestic, multinational, global product, global function, global mixed, and transnational.

Facilities in a manufacturing network are dispersed in one of four ways: national, regional, multinational,
and worldwide. Networks that disperse facilities to national and regional locations are called simple
networks. The simple networks are: domestic, domestic export, international, and multi domestic. They
are appropriate when pressure for globalization is low to medium. A domestic network manufactures in
the national (i.e. domestic) area for customers in that domestic market. A domestic export network also
manufactures in one national area for customers in its domestic market and for a small number of
customers in export (i.e. foreign) markets. A multi domestic network and an international network
manufacture in one geographical region (e.g. the European Union). In the multi domestic network
customer, employee, and government requirements differ across the region (i.e. pressure for local
responsiveness is high). In the international network these requirements are relatively homogeneous
(i.e. pressure for local responsiveness is low).





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Network outputs

Strategic networks potentially provide a firm with access to information, resources, markets, and
technologies: with advantages from learning, scale, and scope economies; and allow firms to achieve
strategic objectives, such as sharing risks and outsourcing value-chain stages and organizational
functions. It is useful to separate the benefits produced by a manufacturing network from the benefits
produced by each particular facility in the network. Miltenburg (2005) reports that each focused factory
in a manufacturing network provides six strategic outputs: cost, quality, delivery, Performance,
flexibility, and innovativeness for each product family produced in each focused factory. A
manufacturing network provides four additional strategic outputs: accessibility, thriftiness, mobility, and
learning. These are called network manufacturing outputs. Accessibility to new markets, low cost factors
of production, sources of supply, and so on, and the thriftiness gained by economies of scale and the
avoidance of the duplication of activities are well-known strategic objectives. Buckley and Casson (1998)
argue that in the late 1990s mobility, which they define as the ability to reallocate resources quickly and
smoothly in response to change (p. 23), was a strategic output that multinational companies needed to
use more in order to cope with volatility in the international business environment. Rangan (1998)
examines the ability of multinational companies to relocate manufacturing easily when changes in
exchange rates or other financial factors make this attractive. Zander (1999) studied one aspect of the
learning output (i.e. learning about technology) at 23 Swedish multinational companies. Consider, for
example, the global product network. This network provides very good levels of accessibility and
learning (about cultures and needs), and a good level of mobility primarily because of its multinational
dispersion of facilities. It also provides very good levels of thriftiness and learning (about technology)
primarily because its facilities are tightly coordinated. It is difficult for a manufacturing network to
provide all four network outputs at the highest possible levels. In any network trade-offs must be made
in many elements of the six strategy objects. Tradeoffs affect the levels at which the network outputs
can be provided. Research into trade-offs has a long and rich literature. Da Silveira (2005) divides this
literature into three stages. In the early research, trade-offs were seen to be static. Manufacturing
focused on a small set of tasks with the objective of performing these tasks well. If manufacturing tried
to perform too many tasks it ended up performing them poorly. In the next stage of research, trade-offs
were seen to be dynamic. Trade-offs can be improved and even over-come by implementing bundles of


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improvements called best practices. The third and most recent stage of research on trade-offs integrates
the dynamic view of trade-offs from the second stage with the process models of manufacturing
strategy examined in Section 2. In the three-object model, for example, business strategy (W1) drives
manufacturing competitive priorities (W2) which drives improvement activities in the structural and
infrastructural systems (W3) that comprise manufacturing and this, therefore, improves trade-offs.



Network levers

A manufacturing network can be divided into areas. Any division of a network into areas should produce
areas that are comprehensive (i.e. all network decisions fall within the areas), discriminating (i.e.
network decisions can be broken into analyzable pieces and each piece falls within one area), and
reflective (i.e. the areas are consistent with the networks view of itself). Following Shi and Gregory
(1998, p. 201) we divide the areas in a manufacturing network into structural and infrastructural groups.
There are four structural areas: facility characteristics, geographic dispersion, vertical integration, and
organization structure; and four infrastructural areas: coordination mechanisms, knowledge transfer
mechanisms, response mechanisms, and capability building mechanisms (Figure 6). Zander (1999)
examines linkages between facility characteristics and coordination mechanisms, Dyer and Singh (1998)
examines linkages between coordination mechanisms and knowledge transfer mechanisms.

Network capability

In an empirical analysis of 170 US manufacturing companies, Choe et al. (1997) found a positive
correlation between capability, which they call production competence, and company performance.
Now suppose two companies use the same type of manufacturing network. The first companys network
is new and has moderate capabilities. The second companys network is older and has outstanding
capabilities because of numerous improvements the company has made to its network over a long
period of time. Then the second companys network will provide higher levels of the network outputs
than the first companys network.


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The overall level of capability of a network depends on the level of capability of each lever in the
network. A company assesses the level of capability of each lever and the overall level of capability of its
network by benchmarking against the levers and networks of other companies. The lowest possible level
of capability is called an infant level. This is the level of capability of a new manufacturing network.
Next is an industry average level of capability. Generally speaking this level of capability is the result of
five to 10 years of experience and improvement activities. Since this level of capability is average, we
expect about half of the networks in an industry to have less capability and half to have more capability.
Next is an adult level of capability. This is achieved by a companys determined effort to improve and
become an industry leader. The highest level of capability is world class. A network with this level of
capability is among the best in the world.























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Explaining the acquisition of Corus steel by TATA steel:

Pressure for globalization: High
Tata steel:
Competition: SAIL, ISPAT, JINDAL, ESSAR steel
New entrants: POSCO, Arcelor-mittal

Pressure for local responsiveness: high
Variety of steel products: for automotive, engineering, construction, aerospace, energy etc.

Generic strategy mapping: multi-national strategy

Manufacturing network: multinational, because customer, employee, and government requirements
differ around the world (i.e. pressure for local responsiveness is high), so facilities have a great deal of
autonomy to respond to local conditions.

Network outputs:
Time reliability: Time between order taking and delivery to the customer. How often are orders late and
when they are late how late are they?


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Performance: Products features and the extent to which the features permit the product to do things
that other product cannot do.
Flexibility: Extent to which volumes of existing products can be increased or decreased to respond
quickly to the needs of customers.
Accessibility: The ease of access a company has to present and future market segments, factors of
production, and government agencies.


Network levers:

Before Corus acquisition:
Facility characteristics: Small size and domestic focus.
Geographic distribution: limited only to India
Vertical integration: focus on B2B
Organization structure: under Tata group, less independence
Coordination mechanisms: grey area
Knowledge transfer mechanism: grey area
Response mechanism: grey area
Capacity building mechanism: good backing from TATA group

Network capability: Infant to Average


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Factory type: Domestic

Manufacturing Strategy Framework:


(Miltenburg, 2005)





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References:
www.tatasteel.com
www.steel.nic.in
John mintzberg, 2005, Setting manufacturing strategy for a companys international manufacturing
network, International Journal of Production Research Vol. 47, No. 22, 15 November 2009, 61796203

Minor, E., Hensley, R., and Wood, D., 1994. A review of empirical manufacturing strategy studies.
International Journal of Operations and Production Management, 15 (1), 525.

Papke-Shields, K., Malhotra, M., and Grover, V., 2002. Strategic manufacturing planning systems
and their linkage to planning system success. Decision Sciences, 33 (1), 130.

Platts, K., et al., 1998. Testing manufacturing strategy formulation process. International Journal of
Production Economics, 56 (7), 517523.

Shi, Y. and Gregory, M., 1998. International manufacturing networks to develop global competitive
capabilities. Journal of Operations Management, 16, 195214.

Standard and Poor, 2006. Industry surveys metals: Industrial. 174 (3), Section 2, 19 January.
New York: The McGraw-Hill Companies.

Swink, M. and Hegarty, W., 1998. Core manufacturing capabilities and their links to product
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374396.