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Analysis of the metallic creation company POSCO

1. Introduction

The job that started with a few people at the city of Pohang at the East shoreline of Korea has today produced to the company that almost all of us recognizes as POSCO. Today POSCO isn't just among the top steelmakers on the globe in terms production, but also in conditions of technology gets the company captured one of the leading positions. More specifically the business is today the 3rd biggest steelmaker in terms of production, and has earlier figured as quantity before different mergers and acquisitions modified this position. POSCO has been successful by constantly buying new creation facilities and new systems. That is underlined by their slogan: "Resources are limited; Creativeness is unlimited".

POSCO was founded in assistance with the Korean federal government, which wanted to create a local supply of material. Thus, POSCO has always been highly dependant on the Korean market and the Korean government. Even today this dependence is maintained, emphasized by POSCO having 72% of these sales in Korea (Business and Company Tool Middle, 2010). However POSCO is also starting to position themselves at the global market, where the habits of competition is completely different than the methods at their house market. This newspaper will examine the position of POSCO at the Korean market as well as the global market, and what kind of prospects and challenges they may be facing to be able to prosper.

The role of technology development performs an essential role in this matter. Despite as an old and founded industry, steel development is highly determined by the development of technology, especially in terms of new techniques of creation. The paper should therefore also consider how POSCO will succeed in further enhancing their technological competencies to be able to remain competitive.

The composition of the newspaper will be the following: Following the launch some theoretical concerns with regards to the newspaper will be provided. Second, a display of POSCO, including its historical development as well as a short demonstration of steelmaking will be provided. Third, the competitive market of the metallic industry that POSCO are operating in will be analysed through the model, Porter's five pushes. Following this, the technical development within POSCO will be explained and analysed. At last, the future issues in conditions of technology strategy and the options increasing their position on the market will be analysed. These will be complemented by some specific tips how to prosper.

2. Theoretical Considerations

This study will consist of a business tactical part as well as a technology strategic part. The purpose of the newspaper is to explain how the technology strategy of POSCO can be utilized in order to carry out the business enterprise strategy of the company, ultimately resulting in a sustainable competitive edge.

At the business strategy level this newspaper seeks to incorporate the market-based view (Porter, 1980) and the resource-based view (Barney, 1991; Prahalad & Hamel, 1990). The newspaper adopts an outward-in perspective, getting started by analysing the existing market situation of POSCO. For this purpose a Porter's five forces model is used. By causeing this to be evaluation it becomes noticeable the type of position POSCO holds in their current competitive environment, and how they can eventually use their interior resources, more specifically technologies, to obtain a more favourable position relative to their nearest competition. The resource-based view is not applied in the same organized way, but instead as a mean to understanding the importance of technology development for the overall resources of the business.

When evaluating technology development in the metallic industry both product and process development can be viewed as. Getting started with product improvements; steel is not simply steel, but can in fact be sectioned off into a number of different product specifications, that may be applied for different purposes. Which means that new steel types can in fact be developed to fulfil a fresh purpose, or maybe act as a more efficient replacement for another metal type. Growing one type of steel into being thinner, more powerful or lighter can mean a big difference to steel users. A good example could be to create a lighter kind of metallic for the automotive industry, assuming all other capabilities to unchanged. Taking an current issues, this might enable to automotive company to change the gasoline suggestions in a more environmental friendly route. Such changes will primarily be considered as incremental innovations, since the technology is often an improvement associated with an already existent product. Within the grab industry the separation of product and process invention is however not always straight forward. A fresh steel product does indeed often occur because of new production methods. Said in another way; the new process leads to the new product.

Process inventions can have different purposes. As stated before one can be to set-up new operations that enable the improvement of existing products or eventually facilitate the creation of new products. A different type of process creativity can be the one that really helps to make the development of an already existing product better and in doing so increasing the entire success of the creation. Getting a higher end result with the same suggestions or getting the same end result with a lesser input will directly help to increase the competitiveness of the business in general, and can in so doing be seen as a combination of business and technology strategy. The development of new functions can moreover be looked at as both a disruptive (Christensen) or architectural creativity (Henderson and Clark). An example on the disruptive strategy can be the example of before, where a new process technology changes the levels of competition completely within the industry. An architectural development can be seen when one part of a process substituted for another, thus making the production more efficient, and therefore changing the competitors.

This newspaper will consider both worried about process enhancements since they are the most obvious within the improvements discovered for POSCO, and that have contributed to the competitiveness of the business.

3. Presenting POSCO

POSCO is set up in 1968 and was originally known as Pohang Iron and Steel Company, later improved to abbreviation POSCO. Today the business is continuing to grow to being the quantity three on earth producer determined by output. When Recreation area Chung-Hee took electric power in 1961 he emphasized the importance of creating a national material production. Park Tae-Joon was chosen to lead the establishment of POSCO. Park Tae-Joon acquired good relations to japan industry and these contacts exhibited to be highly useful in the establishment procedure for POSCO.

Even though the Korean government served as the key catalyser in the beginning up period POSCO was nevertheless proven as an exclusive company. It is presumed that the status as an exclusive company guaranteed a strict managerial focus right away, putting emphasis profitability and cost savings.

When the engineering started out in Pohang in 1970 it was with huge assistance from Japanese technology, and the plant were finished in July 1973. Right after finishing the initial construction POSCO began the second stage of their building, and the routine of constantly increasing development has been a characteristic for the business, which have empowered them to place leverage their bargaining power with suppliers. In 2001 their total annual production amounted to 12. 7 million loads annually (Hogan, 2001). POSCO has later developed their creation facilities in Pohang even further and has additionally opened up production in other parts of the world. An extremely debated current job is POSCO's strategies to open up huge development facilities in India.

Even through significant monetary crises POSCO has made huge ventures, an option that is available partly due to the tight relationship between your company and the Korean government. These frequent heavy investment and long-term target throughout the annals of the business has enabled the business to remain competitive over a longer period.

The record of the company clearly implies that POSCO are strongly linked to the Korean contemporary society and as mentioned in the benefits the Korean market take into account 72% of the company's yearly production. The clients is primarily Korea's shipbuilding industry, motor vehicle industry, and home device industries. All of those other production comes on some of the 60 market segments where POSCO is symbolized, through numerous subsidiaries or joint ventures. POSCO has since the Asian financial crises, where the company struggled barely, focussed on building partnerships, surrounding the world. One of the most remarkable has been former arch-rival, japan giants, Nippon Metallic Company. These partnerships has allowed POSCO to get into market segments easier, while at exactly the same time being able to develop and show knowledge as well as their partner (Business and Company Reference Center, 2010). A excellent example on common technology development will be shown down the road.

The company is divided into four main areas: Metallic, E&C (contracting), Energy, and IT. Where in fact the steel division works as the engine of the organization with the other business areas being more or less related. Because of limitations this paper will focus entirely on the process of metal making alternatively than including the other business areas too much. The metal production can in addition be divided into a variety of sub-groups.

Iron making: where iron ore, coke and a flux (limestone) are merged in a blast furnace to create molten iron made up of about 4% carbon

Steel making: where excess carbon is removed in a basic oxygen steel making vessel and required alloys are added. The molten material is then cast into billets, blooms or slabs

Shaping: where metallic is rolled to various shapes and sizes in a rolling mill. A simplified process of steel production is seen in the field below:

Source: www. hsc. csu. edu. au

4. Determining the metallic market

4. 1. Standard Patterns

Today metal is one of the most important products for the industrialized overall economy and in the foreseeable future the utilization of metallic is expected to increase even more as economies continue steadily to develop. Especially the development in Asia is likely to boost the use of grab on a worldwide scale. There has however been a significant slowdown due to the financial crises, which includes especially had a significant effect on the demand in 2008 and 2009. The market is however expected to bounce back the short-run, in that way continuing to grow. In the long run the market is however likely to go back to more moderate development rates. Such a big change might claim that the future will not allow for the same amount of metal providers as seen currently, thereby making it highly possible that the marketplace will be consolidate at that time.

The role of federal regulation serves a significant factor at the steel market influencing almost all parts of the worthiness string. In Korea the federal government performed an important role in the development of POSCO as has been stated earlier, and also have continued to participate in the introduction of the metallic industry. In other countries the governments do not take the same role in directly promoting businesses, but today most countries are highly focussed on environmental concerns, such as greenhouse gas emissions. This means that to avoid confrontation with local governments the metallic manufacturers should take environmental concerns into consideration. Said in another way; metallic producers are not only contending on efficiency and output, but also on their ability to build up environmental friendly processes.

4. 2. Porter's Five Forces

In general the competitive market situation of POSCO can be separated into two separate habits. First of all you have the global market competition, where POSCO have a large share of their sales. However as mentioned earlier POSCO gather around 72% of their revenues at their Korean home market. The forex market is to a certain degree much different from the global market, where the degree of competitiveness is considered much higher. When contemplating the different guidelines of competition below, a separation of the Korean market and the global market will be made when considered relevant.

4. 2. 1. Bargaining vitality of suppliers

POSCO's suppliers are generally located at a foreign market, which is therefore extremely hard to differentiate between your Korean and the global market. The flat iron ore mining industry is characterised at relatively low margins, while at the same time requiring massive opportunities in infrastructure and equipment. This has acquired the effect of the industry being highly consolidated in the modern times, now made up of of only three dominating players in order to reach the specific scale advantages (Bles, 2009). The world's major manufacturer is the Brazilian mining company, Vale. Followed by both Australian companies BHP Billiton and Rio Tinto Group. Because of the significant increase in the demand of steel during the modern times, the flat iron ore mining companies have liked strong bargaining electric power towards the steel producing companies. Additionally during the modern times the raw materials prices in this sector has been highly volatile placing an even higher strain on the steel designers for coordination.

4. 2. 2. Bargaining electric power of customers

The customer bottom for steel makers is wide-ranging, meaning that steel is utilized in several companies. Most noticeable is customers including the automotive industry, dispatch building industry and structure work generally. Generally the material users can be considered as more consolidated at a global level in accordance with steel suppliers, which somewhat give them an upper palm. At the Korean market POSCO do however carry a strong position in accordance with its customers, because of the lack of rivals. Which means that the overall meaning of bargaining electricity can be sectioned off into two different levels. The bargaining electricity of customers at the Korean market is considered as low relative to POSCO, due to the lack of alternative steel producers. On the global market the bargaining electricity of customers will be considered as medium, since most the market for metal customers is well consolidated, with the clients often being big players in the motor vehicle, shipbuilding or structure industry. However the demand reaches such a higher level that POSCO still supports a relatively good bargaining vitality.

4. 2. 3. Hazards of new entrants

If a newcomer desires to enter the steel development market it requires quite a lot of capital. Establishing creation is extremely costly. This is highlighted by the costs of POSCO's new task in India, where to costs are anticipated to total around $12bn (Kazmin & Fontanella-Khan, 2010). Only already highly set up industrial players or countrywide governments might contain the resources to type in the forex market. Industrial players with these resources available do however not tend to invest in industry areas that are unrelated with their current businesses or are eventually considered as emerging industries. The identical contains for governments, which plays an active role in businesses. Their role is often from the set up of emerging establishments, and not old and already established establishments such as steel creation. Additional to the high capital requirements steel creation do also often require different varieties of administration approvals. Taking these different factors into consideration the threat of new entrants in the metal production industry must be looked at as low.

4. 2. 4. Threat of substitute products

As mentioned early on metallic is one of the most essential materials in the industrialized market, and the creation is moreover expected to upsurge in the approaching years. Both in Korea with a global level no products seem to be able to substitute for material. Thus, the risk of substitute products should be considered extremely low and almost non-existing. An extreme upsurge in the price tag on steel, due to certain reasons, might however lead some consumers to find substitute products. However a rise at this scale does not appear plausible, and additionally such an activity of change like this would be long-term.

4. 2. 5. Intensity of competition

Within Korea POSCO supports an exceptionally strong competitive position. Korea works as a online importer of metal, which stresses the popular for metallic at POSCO's main market. Until just lately POSCO has acted almost entirely as the key actor on the market. However by the establishment of Hyundai Steel a large rival has appeared. In addition there's been a rise of Chinese metallic producers, which may also be expected to take a area of the Korean market. POSCO is however likely to continue their dominance at the market, since the main goal of Hyundai Material is to provide steel to Hyundai's automotive part. With regards to the Chinese suppliers they would be expected to focus on their own house market, since you will see plenty of requests at this market. It could however not be excluded that the Chinese language producers will take some of the market talk about within Korea. However the level at the Korean market is highly recommended as relatively low, because of the popular from domestic steel users. At the global level the situation is quite different. No companies appears to keep more than 10% of the marketplace even though some really big players, including POSCO, can be found at the market (BNP Paribas, 2009). A lot of the dominant players are located within the spot of Asia. Most dominant is the worlds biggest metallic company ArcelorMittal located in India. The business is however due to the original company Mittal acquiring the other prominent player, Luxembourgian Arcelor. It could therefore be argued that the business is actually globally prepared. Next to the comes Chinese language Baosteel as the next biggest producer and POSCO as number 3 in conditions of production. Other remarkable makers which is also well established on the market is Japanese Nippon Steel, which is currently the 4th biggest manufacturer, upcoming Tata Steel, which is the 7th biggest manufacturer in the market, and US Material, which holds a solid position at the American market, but which is today only the 11th biggest company. At a worldwide level your competition the competition is highly recommended as medium high, but since there has been a massive demand for metal during the recent years several players have been allowed to stay in the market, while at the same time a few new players have surfaced as well.

It is difficult to determine the variables of competition, but within a long time different celebrities has been competing on development efficiency and cost reductions. Moreover since steel is not highly mobile in conditions of weight and high carry costs the location of the steel mills is however an important factor. Nevertheless, when deciding the location of a metal mill there is a range of factors that should be taken into account. Included in these are the ease of access of factors such as: labour, recycleables, energy, drinking water, and toned land. These should of course be driven with regards to their costs. Furthermore societal or governmental factors such as infrastructure, subsidies, charges, and scientific development within the united states plays an important role. Previous and maybe most crucial the length to key marketplaces should be taken into consideration (hsc. csu. edu. au). These factors can of course change as time passes, and a spot that may once have been strategically important may not contain the same role in the foreseeable future. Thus, companies should consider their long- and short-term perspectives carefully before committing to an investment of such level.

5. Technology Development within POSCO

Throughout their record POSCO has constantly remained impressive. Focussing on producing new products, but especially by bettering cost efficiency and efficiency through process inventions. Some of the most noticeable task will be identified further below. In addition POSCO has engaged in more preliminary research throughout their record.

In 1986 POSCO participated in the establishment of Pohang School of Knowledge and Technology (POSTECH), which is today regarded as one of the leading research companies in Asia. The university works as an unbiased and autonomous establishment, however they do however engage in joint research programs with POSCO. POSTECH is involved in several different kinds of technology and engineering, and do both offer undergraduate and graduate programs. Currently 2500-3000 students are enrolled at the university. Despite the fact that the POSCO and POSTECH aren't directly related the partnership offers great advantages for POSCO. First, the college or university is situated in Pohang supplying it a natural relation to POSCO, which operates as the dominating corporation in the region. Second, the joint projects between POSCO and POSTECH provide opportunities both to gain important knowledge, but also to identify eventual future employees. Another job that POSCO has been involved with is the establishment of the study institute of knowledge and technology (RIST). RIST is set up in 1977 and it is a specialist research establishment. The institution provides a joint purpose because they are likely to develop new solutions for POSCO, but also acts as a mean for Korea to become more self-reliant in science and technology. RIST currently employs around 450 scientists and designers (Hogan, 2001). The role of RIST is thus not the same as POSTECH because they are more straight related to POSCO. Thus, the knowledge produced is consequently also more applied to the products made available from POSCO. The issue about these preliminary research facilities, and especially POSTECH, is of course that they somewhat are relatively open up. Combined with the dynamics of basic knowledge this helps it be highly difficult to protect the knowledge created.

5. 1. FINEX

FINEX was has been developed by POSCO and Siemens through assistance and it is to day the most efficient way of producing iron, which is then used in the creation of steel. Compared to earlier development methods the new technology retains several advangates. In short these can be summarized as: Flexibility in recycleables; easy and adaptable operation; environmental friendliness; and cost competitiveness (posco. com, 2010). In show 2 you can see the way the FINEX technology has improved the techniques on POSCO newly constructed aircraft in Pohang. As POSCO became better at handling the process the herb has lowered the type of coal exceptional as time passes. The production output has however been increasing in the beginning of the period and stable in the last part of the period proved at the graph. This can help not and then enhance the cost efficiency of the development, but also to help make the process more environmental friendly. In addition POSCO has already been successful in marketing their technology when they exposed their new development service in Pohang in 2007, a development process that were only available in 2004 (POSCO-India, 2010). The development seed, which is believed to cost around $1. 1, can make a huge impact on the competitiveness of POSCO. Throughout record steel makers have used non-environmental friendly ovens to turn the powdered coal and flat iron ore into masses called coke and sinter, these are then melted with air at extreme temperatures to make iron. What FINEX will is basically to take out some of the processes, in so doing reducing the environmental damages significantly. More specifically it reduces the emissions of sulphur- and nitrogen oxides by 92% and 96% respectively. An illustration of the process can be seen in appendix 3. Another last point that increases the attractiveness of FINEX, besides from the lower development costs and the being more environmental friendly, is the fact that the costs of establishing a new production facility with FINEX technology approximated to be 8% less than setting up a service with the old blast furnace technology (AZ materials, 2010).

In basic the FINEX technology offers great benefits to POSCO. The clear cost lowering is a huge advantage that can help them in their current market situation, but at exactly the same time it gives them an enormous advantage with setting up productions. Producing countries tend to be interesting in getting steel producers, since they have typically provided large job choices for local populations with a minimal educational level. I such situations POSCO contains an advantage since they can also offer an environmental friendly product.

5. 2. Ventures in information technology

In order to aid more smooth businesses within the business, POSCO has spent heavily in information technology. In 2004 POSCO invested $179 million to make a network between the, at that time, 80 plants so that they could take requests online and coordinate creation and deliveries (Business Week, 2004). Such information systems are essential for a firm like several reasons. First of all, the company is heavily determined by the deliveries of recycleables, and a blunder in the coordination of these materials can result in huge costs. Moreover POSCO does indeed often acquire highly specialized requests off their different customers within individual industries. In order to improve the efficiency of the orders a high degree of coordination is necessary. At POSCO's two major steelworks in Pohang and at Gwangyang, each is pressed to a mentioned weight and width dependent on the sole customer's requests. This mill-level customization facilitates POSCO to thrust steel out the door faster, which includes enabled POSCO to lower the delivery time with 50% and reduce stocks by 60% (Business Week, 2004).

Part of the focus on it can be from the launch of the management strategy six-sigma. This technique looks for to smoothen the procedure with customer through the use of statistical tools, which really helps to identify and eliminate mistakes or failures within the business processes that are critical to romantic relationship between POSCO and their customers. The advantages of six-sigma has revealed such a great success that POSCO has decided to integrate the technique further in to the company. This might help them to minimize costs even more, and in that way improve competitiveness.

6. Future Difficulties for POSCO

In general POSCO seems to hold a comparatively good position for obtaining a better position within the metal processing industry. Especially the development of FINEX will help act as a competitive range for creating further productions at a global scale, while at exactly the same time improving development efficiency at already existing production facilities. In addition their concentrate on different degrees of research, ranging from preliminary research to highly specific research, will permit them to continue being innovative in the foreseeable future. Providing incremental technology of already existing products and techniques, as well as more cutting edge and radical enhancements that will change degree of competition in a more significant way. Global expansion does however also put certain difficulties on the skills to coordination of different units.

A second problem is the relationship with resources for production. The highly oligopolistic mining industry sets POSCO ready with low bargaining vitality. This marriage should be stabilized in order for POSCO to diminish creation risk. One option is always to spend money on the industry either through the start up of mining businesses themselves or through mergers or acquisitions with one of the set up players in the market. However an acquisition will not seem possible due to the size of the respected companies, on the other palm the strong rings to Korea might also serve as a barrier for a merger between POSCO and one of the three big players. The dependence towards raw materials suppliers should however seek to be decreased.

A third obstacle appears when the market growth starts off to stabilize because of the fact that the immediate progress in especially some Asian economies can most likely not be maintained. At this point you will see an increasing pressure on prices, and the importance of economies of range will increase further. In this situation it's important for POSCO to prepare yourself. One option is always to invest closely in new development facilities around the world, in order to be ready to exploit the economies of level. Another option would be to monitor the market carefully for future investment opportunities.

6. 1. Recommendations

In order for POSCO to stay competitive and conquer the challenges referred to above the next advice should be used:

POSCO should invest further in communication technology. As global creation becomes significantly important, so does the coordination between the models. A communication system matching to the main one unveiled for the Korean systems should therefore be created at a worldwide level.

POSCO should invest in mining functions themselves to minimize their dependence towards established players on the market. Moreover this would provide them with useful information about this step of the value chain for steel making, which might benefit them in their primary business area as well.

POSCO should continue to stay aggressive on the market by buying new production facilities. It will however be aware of future investment choices through acquiring other competing companies that might hold strategic important market segments or important systems.

7. Conclusion

Throughout the paper we saw that POSCO were possessing an extremely strong position at the Korean market, while at the same time being relatively good situated at the global market. The close romantic relationship with Korea is sophisticated, not only being a one-way romance. POSCO serves as an workplace for a large number of people, while at the same being a supplier of technology and riches to the united states. The Korean authorities does indeed therefore have strong bonuses to produce favourable conditions for POSCO. At exactly the same time POSCO do however need to increase their global businesses.

POSCO has achieved their position within the market when you are constantly innovative to be able to boost their business. This has been done through a number of projects ranging from basic research at independent research corporations to complicated process development in assistance with other commercial players. Most noticeable has been the invention and commercialization of the FINEX industry, which has allowed POSCO to lower their productions costs with one fifth, while at the same time making their production more environmental friendly. Environmentally friendly advantages can show to be a key point when setting up production in new countries. Today, almost all governments take environmental concerns into consideration, and POSCO might thus hold a competitive benefits to be allowed to get started on production in accordance with their rivals. Another program that is successful for POSCO is the six-sigma program, which includes allowed them to achieve great cost savings in their process. Thus making their overall development process more efficient and much more profitable.

Overall POSCO seems to be strong placed within the industry because of its strong technology position. If indeed they company succeeds in working with the future challenges, by implementing the recommendations suggested above they will stand with huge opportunity for repositioning themselves into an improved market position.

8. Bibliography

Academic Articles

Barney, J. 1991. Company resources and suffered competitive gain. Journal of Management, 17: 99-120

Christensen, HOW DO We Conquer Our MOST EFFECTIVE Challengers (Burgelman et al. , pp.


Henderson and Clark, Architectural Technology: The Reconfiguration of Existing Product

Technologies and the Inability of Established Businesses (Burgelman et al. , pp. 496-508)

Porter, Michael. 1980. Competitive Strategy

Pralahad, C. K. & Hamel, Gary. 1990. The Central Competence of the organization. Harvard Business Review

Internet Resources

AZ Materials

http://www. azom. com/details. asp?ArticleID=2597

Bloomberg Business Week, 2004

http://www. businessweek. com/magazine/content/04_35/b3897060. htm

Business and Company Source Center, 2010

http://galenet. galegroup. com. esc-web. lib. cbs. dk/servlet/BCRC?vrsn=unknown&locID=cbs&srchtp=glbc&cc=1&c=1&setting=c&ste=74&tbst=tsCM&tab=4&ccmp=POSCO&mst=POSCO&n=25&docNum=I2501308282&bConts=13117

POSCO Official homepage

www. posco. com

POSCO India Formal homepage

http://posco-india. com/website/press-room/posco-completes-commercialization-of-finex-technology. htm

Hsc. csu. edu. au, 2010

http://www. hsc. csu. edu. au/geography/activity/global/global_steel/global_BHP. html#outcomes

Worldsteel. org, 2010

http://www. worldsteel. org/?action=programs&id=53

Other Material

BNP Paribas 2009

Bles, Javier. 2009. Flat iron ore pricing war. Financial Times. 14 October 2009

Kazmin, Amir and Fontanella-Khan, James. 2010. Setback for Posco Indian Task. Financial Times. 19 October 2010.

9. Appendices

Appendix 1

Source: worldsteel. org

Appendix 2

Source: www. posco. com

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