An Introduction to the Case

Ruosheng Zhang is president of Guangzhou Iron and Steel Enterprises Holding Limited (GISE). He has worked at Zhujiang Iron and Steel Company (ZISCo), an important strategic business unit (SBU) within GISE. Zhang had been ZISCos president between 2003 and 2006 and was promoted to GISE in early 2006. ZISCo is quite successful in achieving the goals. Founded in 1997 which is one of Chinas key national projects in the national Ninth Five-Year Plan2 first compact strip production (CSP)3 plant in China. ZISCos annual production capacity reached two million tons of steel sheet products. Company sing scrap steel converts it into different types of steel. Chemical composition and thickness tells there usages and price. CSP research center develop many new products. Plant can separate apart the different materials based on their composition automatically. Engineers have mastered in technical knowhow of producing steel sheets. ZISCos organizational structure was significantly different from that of a traditional stateowned enterprise. ZISCo had only two party secretaries at the companys top level. The party secretary at the company level also held the position of the chairman of the board of directors, and the deputy party secretary was in charge of all other daily traditional political affairs of the party, the Communist Youth League4 and the workers union. All functional heads at ZISCo also held the position of party secretary at their function. The total capital investment 5 billion, with 70% of the investment being financed by bank loans. The annual interest on loans amounted to about Rmb 300 million. it was found that problems existed in five areas: business strategy, production, sales, procurement and human resources. ZISCo pursued a differentiation strategy with a focus on domestic niche markets by manufacturing products. This strategy was, to a large degree, a result of its organizational context rather than a willful strategy. It had several limitations.1 this strategy made it difficult to achieve economies of scale 2 differentiation strategy also required a high level of production coordination. Idea of niche market was offset with cost associated with it. In developing new business strategy it was divided into three different stages. Stage one involved the establishment of short-term objectives to improve the production process, product quality and key functional performance. Stage Two related to the implementation of strategy to consolidate functional performance, and to improve cross-functional co-ordination and integration. Stage three involved continuous integration and capacity building. Company has set goals to reduce cost and reach 90% of design capacity along with improving quality and production. With new management company reach 80% production capacity, coordination improves a lot but quality remains a concern. All this also changes the incentive plans as well. A new functional department, product quality, was established and automation department was dissolved and its function was transferred to the IT and equipment departments.

The salaries of top and middle managers were linked to the financial performance of ZISCo on a monthly basis. Additionally, several special incentive schemes for front-line employees were launched to encourage the production of thin steel sheets. Procurement process was also changed. Supply department become more involved in order placement. And they reduce the number of suppliers i.e. take 80% procurement from 20% top suppliers. They reduce their inventory and were a win-win situation. Marketing strategy change from niche market to target selected large market. They targeted container manufacturer of China with one-stop-shop service. Zhang gave the new ideology of value creation because through this sustain growth was possible. It was prefer on differentiation and cost leadership. This was dealing with both customers and company. Customers will get new products, company will be cost effective and employee performance will be linked with overall financial performance of company. A complete performance appraisal system was develop and a cross competition was develop. In implementing new strategy a new team was establish who from different department will join together and will make coordinated decision by seeing all perspectives like inventory cost, profit, production etc. team was formed based on requirement with a team leader. Zhang with few organization departments could do it personally to make communication of new strategy more easy and effective. He personally involved with employs was available to them. Complete detailed requirement and vision etc was published and delivered to each one to properly communicate the strategy. There were charismatic and instrumental or transactional leadership styles being followed. Both of these had different roles in their jobs. Company initially was following the cost reduction strategy. ZISCO was thought to be technological leading firm due to its technology. With new strategy there was a shift from production to marketing concept. A cross department competition was established and these give rise to better performance in production and financial parts. With few suppliers more quality product was available due to supplier concern and involment. This reduces the cost. Inventory cost also lowered down. Thin steel production was improved. With flattening equipment which gives addition price was increased. There were different challenges associated with ZISCo some of them are as follows
The first challenge was the need to cultivate a new organizational culture to support value

creation at ZISCo. The second challenge was how to continuously discover, understand and exploit insights about value creation to create further competitive advantages. The third challenge was how to sustain the competitive advantage that had been achieved so far at ZISCo which had gained the first-mover advantage.
To leverage these core competences and develop them to sustain a long-term competitive

advantage was the biggest challenge facing ZISCo

The final challenge was to learn and develop organizational capability to manage the

organization strategically

Key Market Trends

Initially there was a common concept of production. In this there was a perception of producing the goods at large scale. Country as a whole was seen as a nation in which a fix price was settled down with a communism thought. Initially there was a gap between the local market and international for china. Now things are changing. But with increase diplomatic elation market is changing. ZISCo is being seen as technological driven organizations which have huge edge over its competitors. Now there is a requirement to be more diverse as well as cost efficient. Now a days its seemed that there is requirement to get change and adjust with new culture in industry. A different new thing needs to be adopted and some of them need to be left behind. Asustainable growth patern is required.

Environmental (DEEPLIST) Analysis

Demographical In the market there are large no of customers with different requirement and in different areas. Customers and suppliers in the china for steel industry are diverse in nature because of their use of material in different fields. Buyers are well informed and well educated. So social constrain were also involved in the daily life as well. People are hard to change due to overall social culture value of the country.

Economical
Economically there is tough competition in market as there are no of other suppliers available as well and market also has a diverse nature as far as demand is concern. There is tough competition being faced in market. In such tough competition company also have some problem about their target market selection. As they have selected out of market a niche market which is make the firm profitable and also creating burden of financial assets. But as a whole there is larger scope available in the market to grasp. There are some government rules as well which also makes it tough for company to follow the required level. For example there is a set price in the market for a product so no one can increase their price. Overall people view market as a command market. So they have to move from production concept to market concept.

Environmental/Ecological

There is no special information given in perceptive of environment context. Customers are concern about the product.

Political
As due to a communist country and due to perception and working of the country, its looks like that there is a stronger hold of the government in the economy and its also influence the behavior of the organization toward s the business. There are rules about the employees, price setting etc which are playing rule as a indicator of government or political involment in the business. See links below.

Legal
Political and legal issues about the overall environment of the country are co related to each other. There is legislation about price setting as well. Which only give an option about of cutting the cost rather than charging higher prices. There is a stronger legal pressure o china overall industry to be in limits. http://docs.google.com/viewer? a=v&q=cache:fmaogUG2w2AJ:www.eai.nus.edu.sg/BB501.pdf+legal+issues+in+chin a+about+steel+industry&hl=en&pid=bl&srcid=ADGEESiSbqTr8r4JTsUv9fVRmsaUf ZboIdY_nQ8qNNfNaOZ3Bo-i62ZkaXqjjhklU70ZCKPuzc3ApvzKKea9viJvKKqSusaxnxxVEax6R8FJsx61vkt7FoKifCYUKIFlXuUTRIwiaK1&sig=AHIEtb SAAZL6f-42PW4QyVV73h7aGONcsA&pli=1
A.

http://docs.google.com/viewer? a=v&q=cache:qbwoJSehKuIJ:www.americanmanufacturing.org/files/chinaenvironment al-report-march-2009_0.pdf+china: +legislation+for+steel+production+firms&hl=en&pid=bl&srcid=ADGEESgf1vVs1gcu nvOHLcrbcX46uoVhUWTSMIRDG6p56pIZNzfgSIXJLOmh5zeMs5erKd0xRBRBapYmY6P7I4tEAGaRBSHN4glIUz2bdqzgriEsbSSQWFV3RbtBBXW4lgXza3tAk&sig=AHIEtbRbKSMAuYHQV5wh1hIKIC3DMb5Gqw

B. C. http://www.metalmag.com/natural-metals/made-in-china.aspx

Information
People have now become more informed about the products they purchase and supplier and competitors as well. They have more access to information and are being seen as a strong hindrance in market.

Social
ZISCo is following the environment very well. They have well indentified wants and needs of the customers. Company is giving a whole new set of incentive to their employees.

Technological
Here ZISCo have a competitive edge over the others. There is ongoing struggle in technology advancement. Their competitors are copying ZISCo. Firms have adopted an ongoing value creation strategy. There is a requirement to be on toes to have technological edge.

THE PORTERS 5 FORCES MODEL

BARGAINING POWER
OF

BUYER.
Assess the power of Buyers Circle one of the following. 1 = low, 5 = high, or N/A if it doesnt apply to your industry. 1 4 5 2 3 N/A There are significant number of buyers both nation and international They provide one step shop at Govt set price Reason

Determinants

Defining Question

Concentration

Are buyer fragmented or highly concentrated ( i.e. do a few monopolize the market?) If they are few and concentrated, then buyer bargaining power is typically high. Does your product buyers purchase represent a significant fraction of the buyers cost? If so, buyer bargaining power is typically high.

Product Cost versus Total Purchases

1 5

3 N/A

Product Differentiatio n

Is the buyers product or serce a 1 commodity? Is there branding 4 5 critical to success? Is there any actual versus a perceived difference? If the product are standard or undifferentiated,

3 N/A

Now product is quit standardize with few issues

buyers typically have high bargaining power Switching Costs Are Switching cost low or high? If buyers face few switching costs, their bargaining power is typically high. 1 5 2 3 N/A Its hard to switch due to standard products and dispersed suppliers of product get standard product at a set price There are some who are copying ZISCo Providing standards product and all component at one place Information is assessable

Profits

Do buyers earn low profits? If 1 so they are typically more likely 4 5 to bargain hard Can they make what you make 1 themselves? Is there a threat of 4 5 backward integration? If so the threat is typically high Is the product you offer important to the quality of the buyers product or services? If not buyer power is typically high Does the buyer have complete information on the product he may purchase? If so buyer power is typically high 1 4 5

3 N/A

Backward Integration

3 N/A

Impact on Quality/ Performance

3 N/A

Buyers Information

1 4 5

3 N/A

Result: __As per score given the buyer power is typically low. it is not that much higher. .

BARGAINING
Determinants

POWER OF SUPPLIERS.

Defining Question

Assess the power of Buyers Circle one of the

following. 1 = low, 5 = high, or N/A if it doesnt apply to your industry. Concentratio n Are you supplier are fragmented or highly concentrated? (do a few monopolize the market)? If an industry is dominated by a few companies, the suppliers are typically powerful. Are there any substitutes for your supplier products? If not suppliers are typically powerful. Is your industry an important customer the supplier group? If not suppliers are typically powerful Is your supplier product essential to the quality or performance of your business? If so suppliers are typically powerful Is the suppliers product or service a commodity? Is branding critical for success? Is there an actual versus a perceived difference? Suppliers with differentiated products typically have more bargaining power then suppliers selling 1 4 5 2 3 N/A

Reasons

No much information given for monopolize suppliers

Presences of Substitute inputs

1 4 5

3 N/A

A fix scrap steel with fix attributes is required More standard input more standard output Its effect end product and quality control cost

Importance Relative to Customer.

1 4 5

3 N/A

Impact on Quality/ Performance

1 5

3 N/A

Product Differentiatio n

1 4 5

3 N/A

A set input required but with a standardize attributes

commodities. Switching Costs How costly is it for you to switch from suppliers product? If switching costs are high, suppliers are typically more powerful. Can the supplier produce the product you make? Is there a threat of forward integration? If so, suppliers are typically powerful 1 4 5 2 3 N/A Quality concerns are there

Forward Integration

1 4 5

3 N/A

Yes it is being done as more competitors are there in market

Result: industry

Bargaining power of supplier is high in this

INTENSITY

OF

RIVALRY

Determinant s

Defining Question

Assess the power Reasons of Buyers, Circle one of the following. 1 = low, 5 = high, or N/A if it doesnt apply to your industry. 1 4 5 N/A 2 3 Industr6y is growing at faster pace

Industry growth

How slowly or quickly is the industry growing? If it is a slow growth industry, there is likely to be more intense fights among rivals for market share.

Fixed Cost

Does your business have a high fixed cost? If so, rivals will typically be tempted to cut prices to ensure sales, thus posing a significant threat

1 4 5

3 N/A

As high cash involment and fix interest is there High production unit is there

Intermittent Overcapacit y

How frequently is there a problem of excess capacity in your industry? Are there periods when there is excess capacity? Overcapacity often leads to price cutting. If so, there is typically a threat.

1 4 5

3 N/A

Product Differentiati on

Is your product or service a commodity? Typically the closer the product is to being a commodity the fiercer the intensity of rivalry.

1 4 5

3 N/A

More large no of products are being produce

Brand Identity

Is branding critical for your Rivals success? Is there actual vs. perceived difference? Brand identification by buyer reduces the threat of rivals.

1 4 5

3 N/A

Switching Costs

How costly is it for your buyer to switch 1 between providers? Low switching costs 4 5 typically increase rivalry. When a customer can freely switch from one product o another, companies must struggle to capture and retain customers. Are there a large number of firms of equal size and power, all chasing after the same customer? If so rivalry is typically intense 1 5

3 N/A

There are more specialized supplier as well.

Concentratio n and balance

3 N/A

Not such large but more no of firms are

Result:

intensity of rivalry is quite significant

THREAT

OF

NEW ENTRANTS.
Assess the power of Buyers. Circle one of the following. 1 = low, 5 = high, or N/A if it doesnt apply to your industry. 1 4 5 2 3 N/A Its make harder to enter in new market

Reasons

Determinan ts

Defining Question

Economies of Scale and experience

Does successful entry require that companies have significant economies of scale or experience? Barriers to entry are typically high when a aspiring company must cut costs in order to compete in a large-scale and/or experienced market.

Product Differentiati on

Do new entrants need to 1 differentiate by spending heavily 4 5 on advertising, customer services or product differences to overcome existing customer loyalty? Product differentiation is typically a barrier to entry. Do new companies need to spend heavily on brand identification to gain customers loyalty? Brand identification is typically a barrier to entry Does the buyer have to pay to 1 4 5

3 N/A

Its also required as firm already providing different products. ` This required strongly so this also create barrier Quality

Brand Identity

3 N/A

Switching

Costs

switch from one suppliers product to another? High switching costs are typically a barrier to entry. Does the new company need to invest large financial resources (relative to market size) in order to compete? Huge capital requirements are typically a barrier to entry Do the new comers have access to distribution channel for product or services? Difficult access can typically be a high barrier to entry.

5 N/A

concern are main reason for this Huge capital required to achieve economy of scales Huge market need larger distribution with flexibility Economy osf scale or reducing cost in any way as there is fix price in market set by Govt

Capital Required

1 4 5

3 N/A

Access to Distribution

1 4 5

3 N/A

Cost advantage

Established companies have cost 1 advantages over new rivals 4 5 because they may have already obtained proprietary product technology, access to raw materials, favorable locations and government subsidies. In addition, established company may have passed a learning or experience curve. Such costs advantages are typically a barrier to entry for a new entrant. Government policies, such as antitrust regulations, can help to preserve or limit competition. Such policies can typically create a barrier to entry New entrants may decide not to enter a new market if existing firms are likely to retaliate. Established firms may have a history of retaliate, resources to fight back, a strong commitment to the industry, and illiquid 1 4 5

3 N/A

Governmen t policies

3 N/A

Social and organization al commitment I s there May be some

Expected Retaliation

1 4 5

3 N/A

assets employed in the industry. Also, if the industry is growing slowly, they may retaliate against new players who would threaten sales growth. Result: as threat of new entrant is low because there are stronger and larger barriers for entering into the market involved. THREAT
OF

SUBSTITUTION Assess the power of Buyers Reasons

Determinants

Defining Question

Circle one of the following. 1 = low, 5 = high, or N/A if it doesnt apply to your industry.

Price performance

Does the substitute offer a 1 better price or performance? A 4 5 substitute product or service is a threat to competition A when it offers a higher performance at a given price or the same performance at a lower price. Is it costly for buyer to switch to the substitute product? When buyers must pay more to switch to a substitute the threat of substitutes is low. 1 4 5

3 N/

Switching Cost

3 N/A

Result: _________________No significant substitute available