U.S. Industry in 2000 Studies in Competitive Performance (1999) / Chapter Skim
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4 Steel
4 Steel
Pages 75-102
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From page 75... ...
Factors such as the effective management of R&D and technological resources; the acquisition of technology and innovative ideas from suppliers, customers, and competing steel producers; and collaborative research efforts have all created an environment that fosters improvements in production efficiency, technological developments, economic prosperity, and global competitiveness.
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From page 76... ...
steel industry has responded and restructured itself in terms of production, productivity, and financial performance during the last two decades. iAs evidenced by the recent explosion of electric arc furnace-thin slab casting plants, and other recent technological advances including massive coal injection in the blast furnace, and the large production of ultra clean and interstitial free steels (Albrandt et al., 1996)
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From page 77... ...
In steel product markets where m~nim~lls have competed with integrated producers, m~nim~lls have gained market share because their costs, and thus their prices, have been lower. Minimills' ability to produce many types of steel products efficiently still exerts a constant pressure on the integrated producers.
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From page 78... ...
minimill producers such as Nucor rank among the most efficient steelmakers in the world (Fruehan et al., 1997~. Recently, integrated steel firms in developing countries such as Korea have become leaders in production efficiency.
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From page 79... ...
For almost two decades after 1964, U.S. integrated firms' labor productivity remained stagnant.
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From page 80... ...
However, this dramatic increase is due in large part to the exclusion of workers who were dispatched to unconsolidated subsidiaries and the heavy outsourcing initiated by Japanese steel firms, both of which were common practices in Japan in the 1980s. 2Value-added is the difference between a firm's total sales and its purchases of raw materials and contracted services.
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From page 81... ...
In fact, no new integrated steel plants have been built in the United States in the last 35 years, and only recently has the industry invested in additional production capacity (Fruehan et al., 1997~. However, primarily because of the massive downsizing at U.S.
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From page 82... ...
_ $ 140 ~120 a Q Q if a 60 ,~ 40 100 80 20 Bethlehem -- -- - Republic Inland USX National Wheeling-Pittsburgh - Nucor FIGURE 6 Total factor productivity: U.S. steel firms.
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From page 83... ...
They demanded higher quality steels than were previously produced, and they also required extensive quality control within steel production plants. Once it became clear that these high-quality steels could be produced, U.S.
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From page 84... ...
· The financial performance of the integrated steel firms was worst from 1981-1986. 3RoA is determined from the product of asset turnover and profit margin.
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From page 85... ...
. 1 1 1 1 1 1 1 1 1 1 1 86 87 88 89 90 0.12 Nonintegrated firms 0.14 0.16 0.18 0.20 0.22 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 1 1 1 1 1 1 1 1 1 1
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From page 86... ...
integrated steel producers have been generating a persistently lower return on assets than non-integrated producers and other industrial firms, the integrated firms have recently improved in profitability compared with the 1980s (Table 2~. This dramatic turnaround has occurred primarily because the industry has reduced its costs, increased production efficiency, and increased overall sales.
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From page 87... ...
R&D Expenditures Most large North American integrated steel producers spend only about 0.5 percent of sales on R&D activities; a number of other producers spend little or nothing (Fruehan et al., 1995) (see Figure 11~.
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From page 88... ...
R&D Personnel As the steel industry grappled with economic decline in the early 1980s, the average number of R&D personnel in integrated steel companies fell sharply, from 498 personnel in 1980 to 282 for the five major integrated producers in 1985, a 43 percent decline. A few of the largest integrated firms displaced as many as 60 to 90 percent of their R&D personnel since 1980 (see Figure 12~.
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From page 89... ...
R&D Effort Even after the economic decline in the early 1980s and until the mid-199Os, R&D organizations at integrated firms concentrated on long-term, applied research, spending about three times more on that effort than on short-term research (see Figure 14~. That focus did not extend to fundamental research, however.
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From page 90... ...
Because of budget and personnel constraints, the R&D organizations at integrated firms had to focus primarily on the problems, requests, and requirements of the production plants and their suppliers and customers and spend less effort on risky and long-term research. R&D Structure and Operation As the steel industry has undergone substantial changes, so has the organization of R&D divisions within the steel industry (Vislosky, 1996; Vislosky,1998~.
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From page 91... ...
Integrated Steel Firms In the 1960s and 1970s, integrated producers dominated the worldwide marketplace for steel. Because of their large market share and control of prices, the integrated firms enjoyed large profit margins.
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From page 92... ...
They are also entering into partnerships with competing firms and end-users. An example is the ultralight steel auto body partnership between Porsche Engineering Services and 15 steel firms (Porsche Engineering Services, Inc., 1995~.
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From page 93... ...
In fact, the non-integrated producers actually contributed to the economic woes of the integrated producers by acquiring some of their market share in high-quality, complex steel products. Sources of Innovation The various internal sources of innovation that affect a firm's overall innovative process are examined below.
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From page 94... ...
The best example of general technology agreements is the GTA between Inland Steel and Nippon Steel. Nippon Steel had as many as 100 engineers teaching Inland Steel engineers how to improve the quality of their automotive steels.
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From page 95... ...
Preliminary results show that universityauthored articles accounted for close to 20 percent of article citations in patents issued for interstitial free steel and about 30 percent of article citations in patents relating to direct ironmaking (Cheij, 1997~. Future Directions of Innovation The gap between the steel industry's technical needs and its R&D resources remains an area of concern.
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From page 96... ...
Only two factors have had a high TABLE 4 Relative Impact of Factors other than R&D on Competitiveness and Innovation Competitiveness Innovation Minimills Customers Human resources Education and training Trade issues Foreign investment Regulatory policy Government support of R&D L Internationally funded R&D L H H H M H M H H H L H L M M Ha Mb aGovernment funded R&D has had a major effect in Japan and Europe, but a medium effect in the United States. bInternational funding has had a minor effect in the United States and Japan, but a high one in Europe.
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From page 97... ...
Spurred by the Japanese auto transplants, foreign and domestic auto producers placed a significant amount of competitive pressure on steelmakers to improve quality. At the same time, customers also became a source of innovation.
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From page 98... ...
In particular, Nippon Kokan owns much of National Steel, Nippon Steel has invested in Inland Steel, and much of AK Steel (Armco) was at one time largely owned by Kawasaki Steel.
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From page 99... ...
The American Iron and Steel Institute carries out research sponsored by U.S., Canadian, and Mexican companies, but the program is voluntary and much smaller than the EU program. One major international program has been launched in response to the "Partnership for a New Generation of Vehicles." More than 20 companies from Japan, Europe, and America are funding work to develop a more fuel-efficient, steelbased automobile, the Ultra Light Steel Body Program (Porsche Engineering Services, 1995~.
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From page 100... ...
Today, the R&D organizations of integrated producers remain relatively small and few. However, they are leading the integrated steel industry to sustain a competitive advantage through new process and product innovations that will provide highquality steel products at the lowest production costs.
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From page 101... ...
. Survey conducted as part of the steel project, 'Competitiveness in the Global Steel Industry,' sponsored by the Sloan Steel Industry Competitiveness Study, Carnegie Mellon University, January 1994.
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From page 102... ...
Steel Industry. Case studies conducted as part of the steel project, 'Competitiveness in the Global Steel Industry,' sponsored by the Sloan Steel Industry Competitiveness Study, Carnegie Mellon University.
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