“How Should Posco-Ippc Increase Its Footprint in the Automobile Segment?

| Business Management IA| â€Å"How should POSCO-IPPC increase its footprint in the Automobile segment? | Candidate Name: Amrit Shah Session no. 002798011 School: Symbiosis International School Research Proposal: Executive Summary: 199 words Word Count: 1977| | Acknowledgements: I would like to acknowledge and thank: * Mrs. Vaishali Phatak for her support and assistance in helping me with this report * Mr. Bharat Indu Bhattacharya- Electric Steel Dept. Manager of POSCO-IPPC, Pvt. Limited, Pune – for his contribution to the report and his time for the interview. * Mr. Joseph Joe- Automobile Steel Dept. Manager of POSCO-IPPC, Pvt. Limited, Pune- for his contribution to the report and his time for the interview. * Mr. Jacy Kim- General Manager of POSCO-IPPC, Pvt. Limited, Pune- for allowing me to do this report on the company and for providing guidance and help throughout. Executive Summary POSCO-IPPC, a steel distributor for the Korean company POSCO have plans about establishing themselves firmly in the Indian Steel Industry given that they are facing consumer problems from their customers in the Automobile sector. As such this paper analyzes the question, â€Å"â€Å"How should POSCO-IPPC increase its footprint in the Automobile segment? † Primarily, a research question highlights the rationale, theoretical framework, action plan and methodology applied and possible constraints in answering the question. An Introduction enlightens us about the background and basic history related to the company itself and of relevance to the question. Findings and analysis is written on the basis of primary research inclusive of multiple interviews conducted with different managers and secondary research inclusive of mails concerning their expenses over the future prospects by the automobile sector manager that acted as a catalyst in evaluating using both financial (capacity utilization and decision tree) and non-financial methods(SWOT & PEST). The report mainly focuses on the problem of raw material which POSCO-IPPC is currently facing due to which they are not able to meet the increasing demand. Based on the research conducted, it is found that POSCO-IPPC has two options to overcome this problem. One that it could ask POSCO, Korea to supply them with greater raw material and the other that it could ask POSCO, Orissa, a manufacturing unit to supply them with raw material. These options have been evaluated keeping in mind the conditions to find out the most feasible option to give a strong conclusion. Possible solutions are discussed and the conclusion suggests that POSCO-IPPC in order to sustain itself in the Indian Steel Market needs to increase its output and using the financial and non-financial techniques discussed and the best viab1e option would be to increase its raw material supply from POSCO, Korea. Contents Acknowledgements†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦2 Executive Summary†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 3 Research Proposal†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦.. Introduction†¦Ã¢â‚¬ ¦Ã¢â ‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 8 Procedure/ Methodology†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 9 Main Results and Finding †¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦. †¦ 10 Analysis/Evaluation†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 12 Conclusions and Recommendations†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 16 Bibliogr aphy†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 17 Appendix†¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦Ã¢â‚¬ ¦ 18 Research Proposal Research Question How to increase POSCO-IPPC footprint in the Automobile segment? Rationale POSCO-IPPC, a distribution centre of Korea’s POSCO Steel Company, is a newbie in the Indian Steel market; they have a monopoly in the Electric steel market and they are undergoing problems in the Automobile sector so they should work on capturing more consumers in the Automobile sector so that they are able to stabilize themselves. The research question focuses on the ways POSCO-IPPC should apply to set its footprint in the automobile segment. Theoretical Framework My plan is to utilize both financial and non-financial techniques to evaluate the problems incurred by the management so that they are able to firmly establish themselves in the automobile sector. The report will analyse the problems faced, thus it will try to solve it using the financial techniques of Capacity Utilisation and Decision Tree and non-financial techniques of SWOT and PEST which will analyse the other problems, opportunities and threats. Key Areas of Syllabus Unit 4 – Operations management Decisions * Introducing Operations Management Improving operational efficiency: Capacity, Scale of production Unit 6 – Numerate techniques for business studies * Information for decision making Primary Research: * Interview with Electronic Steel manager Mr. Sharad Indu Bhattacharya regarding the company history, company status, market and other general aspects about the company’s working. * Interview with Automobile Steel manager Mr. Joseph Joe regarding the market stats in Automobile sector, drawbacks, problems and possible implications so as to understand their market in the Automobile sector. Secondary Research: * Some Information and the list of customers of POSCO-IPPC, Pune, India received through mail from Mr. Joseph. * Other background history of POSCO, Korea used and other facts and figures were taken from the internet. Possible Problems:| Solutions:| Managers were not able to understand the true purpose of the interview resulting in very compact answers. | Managers were asked questions in a very narrow perspective which narrowed down to minute details. | Responses from the managers were related to only their departments, unable to give a general view. Requested them to get information from other managers as well. Small interview with a employee and the production manager. | Limited access to detailed information on the customers and the company as the locations are very far and detail information is confidential. | Acknowledged in the conclusion. | Financial Data was limited to a great extent as it was a new company and Data was yet not published. | Estimates have b een taken and where estimates could not be taken, it has been described in words. | | | Action Plan: Date| Task | 18th August, 2008. | Talked on phone with Mr. Jacy Kim who agreed to let me do my project on the company. | 20th August, 2008. | Will take an Interview with Mr. Bharat Indu BhattacharyaWill take an interview of Mr. Joseph Joe Research Question formulated. | 22nd August, 2008. | Planning will be done as to the way this essay needs to go about. Introduction and Research Proposal will be written. | 30th August, 2008. | Data Collection should be done. | 5th September, 2009. | Main results and findings will be written down based on the information gathered from Mr. Bharat Indu Bhattacharya and Mr. Joseph Joe over the days. 13th September, 2009. | Analysis of the data will be done. | 14th September, 2009. | Techniques of Capacity Utilization and Decision Tree will be applied. Will make a SWOT and PEST analysis. Analysis to be completed. | 15th January, 2009. | Recommendations written. Appendices made and attached. | 16th January, 2009. | Executive summary, content page, Action plan| Introduction: POSCO-India Pune Processing Centre Co. Ltd. , established in August 2006 but started its commercial distribution in 2006, and is a highly recognized by all the major companies of India for its great quality of its steel. Although being a newcomer in the Indian Steel Market, it has set its footprint as a Quality and principle based company. POSCO-IPPC is a coil centre for the Korean Steel giant POSCO Steel Limited which is a global producer of crude steel and finished steel goods. POSCO-IPPC involved an investment of 15 million dollars. It is an independent company of its own as it is a joint venture of POSCO (holding 65% of shares. ) and LG (holding 35% of shares. ) POSCO-IPPC is a processing unit which is locally managed. It is a processor-cum-distributor of steel in the electronic and automobile segment. It only plays a small role of slitting and shearing of the raw material as a processor. Its output is 10,000 metric tons per month with an annual turnover of 320 Crores in the previous financial year. It employs 120 people as its working staff out of which 60 are employed as payroll workers and other 60 are in contract. With the import prices and duties of steel and being a newbie in the Indian Steel market, it is facing competition from other distributors like ESSAR, TATA STEEL, JINDAL and other Chinese and Russian companies. In the Automobile sector, there are many problems created due to its high price and lack of output compared to that in the electronic steel sector for it holds monopoly in the sector for many of its products. As the management is highly equipped in its factors of production, it is researching on ways to exploit the Automobile market in order to firmly establish itself in the country. Therefore this report focuses on- â€Å"How should POSCO-IPPC increase its footprint in the Automobile segment? † Procedure/Methodology The Initial research included a detailed interview about the company and its standings with Mr. Bhattacharya-Electronic Steel manager. Another interview was with the Automobile Steel manager- Mr. Joseph Joe about the Automobile sector inclusive of the discussion over the problem mentioned in the research question. Underlining the major aspects in the interview, the questions focused on POSCO-IPPC’s strength, standings in the market, internal and external factors involved for and against production (which created the PEST, SWOT analysis and information for the analysis), and financial status and estimations advising financial techniques to be applied ( Capacity utilization and Decision Tree. The secondary research resulted in analyzing of POSCO Steel’s information and accessing other reports, industry statistics, market information and data via numerous internet sites. This helped in the results and findings, in strengthening the information available and recommendations and conclusions. It should be noted however, that financial data collected is based upon both à ¢â‚¬Ëœactual’ and ‘estimates’, which need further validation. In addition, the validity of this report may be influenced by the apparent subjectivity of some financial data given confidentially issues. Main results and Findings POSCO-IPPC Private Limited is a subsidiary of POSCO, the world's  fourth largest steel producer and one of the most competitive steel companies (World Steel Dynamics 2006) whose products are shipped to over 60 countries around the globe. Aside from this unit, POSCO has also invested 12 billion USD in Orissa which is proposed to produce an output of 12 million ton per annum by 2010. Since 1990, more than Rs 19,000 crores (US$ 4470. 58 million) has been invested in the steel industry of India and there is an increasing trend in its production. See Figure 1) The auto component sector has also posted significant growth of 20 per cent in 2003-04, to achieve a sales turnover of Rs. 30,640 crore (US$ 6. 7 billion)(See Figure 2). Such opportunities in the automobile sector and the Indian economy can help POSCO-IPPC to establish itself firmly. In terms of current market position, POSCO-IPPC brands itself as a leading provider of electric steel in some of the areas in India for not many of the companies have explored the electric steel market. Being a newcomer, it plans to inhabit the automobile steel market, where it still hasn’t managed to set its foot firmly. The company is based upon certain policies and factors which many of the customers are unable to comply with. POSCO is a global player and it supplies and manufactures steel all over the world. It exports steel from South Korea at an international price which is comparatively high in Indian currency so this difference between the prices, leads to a high price charged by the company. Due to the high price, POSCO decided to put a special price (Rs 49000-cold rolled steel) to fit in the market but in exchange for lower supply of steel so this reduces the supply power of POSCO-IPPC. POSCO-IPPC is only a distribution centre and does not manufacture. It is a market-oriented firm and follows the concept of mass customization for it creates the output maintaining to different customers need. It slits and shears steel depending upon the customer’s want. Its main customers are Crompton, LG and Suzlon in the electrics sector and Tata and Bajaj in the automobile sector. It uses batch production to produce an output of 10,000 metric tons per year where 1. 5% of the raw-material is wasted in slitting and shearing. The demand for their steel is a lot higher than their output and their capacity is also higher (35,000 metric tons/year) but the lack of raw-material limits them, due to the special price-low supply factor. Instead of creating more output, their machines are doing job work for other competitors like JINDAL, ESSAR, etc. of 5000 metric tons monthly. Highlighting the difficulty suffered in the case of TATA MOTORS Pvt. Limited Total Requirement of TATA | 30,000 (Demand going up by 7-10% annually) | TATA’s demand from POSCO (for high quality steel)| 5000-7000| POSCO-IPPC’s Supply to TATA| 2000-2500 (Rest to be supplied to other customers. )| POSCO-IPPC’s Cold Rolled Steel Price at the market | Rs. 53-55000| TATA’s pay price to POSCO | Rs. 48000| | | | | (All figures are in metric tons/month) Analysis/Evaluation: The evaluation of different problems which cause hindrances in trade with other companies will be done with the help of certain financial and non-financial techniques. Financial Analysis: I. Capacity Utilization With the purpose of utilizing its capital to the fullest, POSCO-IPPC has two pathways in order to supply more in the steel market and set its foot strongly: a) acquiring more raw-materials from POSCO, Korea. b) Purchasing of raw-material from POSCO manufacturing unit at Orissa, India. Thus, we will analyze the present scenario of capacity utilization in compared with the two options mentioned above. Present Capacity Utilization scenario: The capital utilization is calculated in percentage and the formulae used for it is given below: OutputMaximum capacity? 00 Current Output: 10000 metric tons/ month. Maximum Capacity: 11250 metric tons/ month. Capacity Utilization = 1000011250? 100 = 88. 89% Option a): acquiring more raw-materials from POSCO, Korea: Estimated output: 11250 metric tons/ month Maximum capacity: 11250 metric tons/ month Capacity Utilization = 1125011250? 100 = 100% Option b): Purchasing of raw-material from POSCO manufacturing branch at Orissa in India: Estimated Output: 11250 metric tons/ month Maximum Capacity: 11250 metric tons/ month Capacity Utilization = 1125011250? 100 = 100% II. Decision Tree: Utilizing this approach for both the options and other decisions to be made by the company are evaluated and financially viable decisions are suggested. (Figure 1) (All money values are in Indian Rupees) Key: Decision square Chance node Calculations: (611. 105mn ? 0. 6) + (466. 07mn ? 0. 4) – 500mn = 53. 091mn INR (572. 88 ? 0. 3) + (491. 04 ? 0. 7) – 500mn = 15. 592mn INR Non-financial analysis: India has gone through a considerable change in the production and consumption of Steel in the past 10 years. Driven a booming economy and concomitant demand levels, consumption of steel has grown by 12. 5 per cent during the last three years it has been forecast that the apparent steel use point in India will increase by 11. 8 per cent in 2008. POSCO-IPPC has great opportunities to set their foot firmly in the Automobile sector. The POSCO steel plant is India’s single largest foreign investment project ever. For its part, the Indian government is eager to boost its steel production and attract more foreign investment through such a lucrative partnership. But it also may lead to limiting of foreign ownership and application of protectionism to prevent foreign investment from exceeding its levels. Technology level in POSCO-IPPC is of high standards and helps them with maintaining the quality. The machines brought in are imported but India is a developing county and it has certain problems of electricity which results in regular power-cuts causing hindrances in processing of steel. These load-shedding periods are often covered by the use of generators but these generators prove to be expensive. The steel being imported is affected by any change in the foreign exchange policies and any government/fiscal policies which may affect them. POSCO-IPPC being a new-comer may feel threatened by the presence of multi-national companies as it leads to greater competition and more exploitation of resources. Conclusions and Recommendations: Available management’s perception on the opportunities to establish themselves in the Steel Industry, it does appear that the management should research this further by the help of a market research and research on all of the customer needs. Analysing the written report on the basis of the data supplied, it appears that POSCO-IPPC’s only hindrance is its limitation of supply which if solved will solve many of their other problems. Using Capacity Utilisation and Decision tree, it was understood that if maximum capacity utilisation takes place, it will reduce the price; increase the output; increasing the output will lead to long term relationships with the customers; it will involve maximum utilisation of resources. Maximum capacity utilisation is only possible with the increase in output which can be only done by increase in the supply of steel. There had been two options discussed with the help of decision tree to look for the best and cheapest way to increase the supply by deciding upon the source. The analysis showed that purchasing from POSCO, Korea at the special price is more profitable (53. 091mn INR) but this is only possible if POSCO, Korea agrees to supply them at the special price. The second possible option was from purchasing steel from the other branch of POSCO at Orissa, India but this would prove less profitable (15. 592mn INR) as they would sell it at the selling price in order to save their profits. Other factors which tend to support POSCO-IPPC to set its foot in the Automobile sector include in the non-financial analysis: growing Indian economy and its Steel Industry; Government support; Great Quality Steel; modern technology used with strict disciplinary issues which makes them a good supplier. Recommendations: As such, my recommendations would be: * Undertake further research in terms of specific of customer requirements and problems, by performing a market research and research on the clients, as many of my findings are generic to the company’s knowledge. More accurately determine the precise nature of the costs and profits upon purchasing steel from the sources analyzed in the written report. * Embark upon extensive research as to search other ways to increase the output and also request POSCO, Korea to supply more at the special price. However, my analysis is limited; it does not cover all the aspects of this topic due to the restraints of the data supplied. The re search was not more extensive because the unit was far away and many meetings were not possible with the officials as this would interrupt in their work . With only two personnel interviewed, a wider perspective from other departments must also be obtained . The report is a reference material, the research can be more extensive and proper results can be achieved if access to more data was possible. The Report is still in progress; there are many issues which need to be solved which can be done with the help of the recommendations and more access. Bibliography Books: AS Level and A level Business Studies, Peter Simpson, Cambridge University Press, Cambridge, 2002, Websites: http://www. stratfor. com/analysis/india_poscos_steel_investment_challenge Steel, India Brand Equity Fund, http://www. bef. org/industry/steel. aspx India Steel Industry, Economy Watch, http://www. economywatch. com/india-steel-industry/ India Automobile Industry, Economy Watch, http://www. economywatch. com/business-and-economy/automobile-industry. html Corporate overview, POSCO-INDIA, http://posco-india. com/website/company/corporate-overview. htm APPENDIX: * Appen dix 1: Interview Transcript with Mr. Bharat Indu BhattaCharya * Appendix 1: Interview Transcript with Mr. Joseph Joe * Appendix 3: SWOT Analysis * Appendix 4: PEST Analysis * Appendix 5: Graphs * Appendix 6: Mail from Mr. Joseph Joe Appendix 1: Interview Transcript with Mr. Bharat Indu Bhatta Charya, Electric Steel Dept. Manager of POSCO-IPPC, Pvt. Limited, Pune 1) Good Afternoon, Could you please enlighten us about your company? * Good Afternoon, POSCO-IPPC stands for POSCO – India Pune Processing Unit. We are situated in the Talegaon Horticulture and Industrial Park in the dist. Of Pune. POSCO-IPPC is a coil centre as known by its parent company POSCO, which is a steel manufacturer giant in South Korea. It is the fourth largest producer of steel in the world and its distributors and manufacturing units are spread all over the world. From the start of this company to the present date, POSCO has led to massive advancements in the socio-economic status of South Korea. Coming back to POSCO’s investment in India, this is POSCO’s third investment, the other two being in Delhi and Orissa. Although POSCO is POSCO-IPPC’s main investor but it is an independent company which is locally managed. POSCO entering in a new market planned to establish this processing unit as a joint venture with LG International, where POSCO has 65% of shares and LG international owns the rest 35%. A total 15 million $ was invested in this project and it commercial processing started in 2006. 2) Can you emphasize more on your commercial processing and the working of this unit? * POSCO-IPPC processes the raw material which comes from POSCO, South Korea and distributes it to the customers. By processing, we mean the steel which comes from POSCO is slatted and sheared according to the customers need. We receive our steel in the form of coils, this is one reason for our being known as coil centre, then the coil is put in a machine which slits and shears it based on the dimensions set. This is then packed and sent to the respective customers. Our major customers are Crompton, LG, Suzlon, TATA and Bajaj. Our company produces output for electric steel as well as automobile steel. Although in the electric steel market, we hold a monopoly but in automobile, we are yet to expand our approach. These are the different types of steel we produce: Electric Steel * CRGNO- Cold Rolled Grain Oriented Steel * CRNO- Cold Rolled Non-Grained Steel Automobile Steel * HR ; PO- Hot Rolled and Pickled ; Oiled Steel Cold Rolled Steel * Stainless Steel White Goods * Electro-Galvanised Steel We have 120 people as staff, out of which 60 are on payroll and 60 are on contract. We follow the batch production for our processing unit. Our output is 10,000 metric tons / month with an annual turnover of 320 Crores as of last year. The raw material which comes to us, we add a value addition of 10% and sell it in the market. Our capacity to produce is 135,000 metric tons per annum where as its outp ut is low because of the lack of raw material so the capacity utilization is not up to the mark. So to involve our other machinery, we do job work for other companies of 5000 metric tons. 3) Can you please tell me about the managers of this company? * The managers at all the leading posts in the company are all from South Korea and they have been assigned by POSCO for a fixed period of years for a perfect start in the Indian Steel market. These are very experienced and are strict followers of discipline and quality. The work at POSCO-IPPC is efficient and advancing due to these managers. These are: * Gil Ho Bang – Managing Director Jongyeol Her – General Manager * Jung Chule Kim – General Manager * Woon Tae Jung – General Manager 4) Can you please tell us about the difficulties you are facing as a new company in the Indian Steel market? * We have a monopoly many in the market for Electric steel so we don’t have any problems in that sector but in the automobile sector, our competitors are well established and they have a far greater market share than POSCO-IPPC in the market so it creates pressure on us to create our product better than theirs to stay in the market. Our competitors: TATA STEEL, JINDAL, ESSAR, ISPAT and other Chinese and Russian companies. The two main difficulties which our company is facing are: * There has been a Star Rating which the Indian Government has started on the electric appliances. This effect of BAE Star Rating on the consumption of Electric Steel. * The Automobile sector in India is booming and has a lot of scope so POSCO-IPPC is trying to increase its footprint in the Automobile steel segment. There is a lot of demand for POSCO’s quality steel in the Automobile sector. 5) What is your SWOT? SWOT Strength * Any downfalls can be supported by POSCO-Distribution of quality steel – Inherits a quality name in the market from POSCO- Maintains strict disciplinary levels- Market leader in Electric Steel- Demand for its quality steel in the Automobile sector-Machinery is very advanced and the labour employed are few but skilled. Weaknesses * Not enough raw materials-Is not yet able to firm its stand in the Ste el market-The high price of their product due to the currency of Korea being more powerful – Language/ Cultural gap between India and Korea. Opportunities To increase its output and meet the high demand – Lack of high quality steel in the Automobile market gives them a big opportunity – India encouraging foreign investments- Increasing International trade between the countries- Rate of high economic and the country's economy gradually increasing- Special Reduced Price for the steel. Threats * Price of the raw material is highly dependent on the foreign exchange – POSCO holding a small share in the market is comparatively smaller than its multi-national counterparts -Low output due to lack of raw materials which may result in the loss of customers and a long term relationship. Appendix 2: Interview Transcript with Mr. Joseph Joe, Automobile Steel Dept. Manager of POSCO-IPPC, Pvt. Limited, Pune 1) Good Afternoon, What can you tell me about POSCO-IPPC in relevance to the Automobile market? Good Afternoon, POSCO-IPPC is a subsidiary of POSCO which as you know is a global producer and distributor of high quality steel. So as its parent company, POSCO-IPPC is also known for its high quality in the Indian Steel market. Automobile Company requires high quality steel for the chassis parts of the automobile, usually such parts are imported or substitute quality steel is bought so due to the lack of high quality steel producers in India, there is a lot of demand for the emerging POSCO-IPPC’s Steel. Though POSCO-IPPC has so many opportunities to set itself firmly in the market, it has many hindrances preventing it from doing so. 2) Can you pleases talk about the hindrances in little more detail? * There are many factors which sum up to conclude as a hindrance for POSCO-IPPC. The major ones are: * High cost of POSCO-IPPC’s Steel leads to a discouragement to the Indian customers. * POSCO-IPPC is looking for big customers so they are able to establish themselves by directly targeting at the higher end. * POSCO-IPPC is strict in its payment dates which are not favoured by all its customers for they need a margin to settle their accounts. * Although the main problem is the lack of raw material from POSCO. Due to the Special price-low supply condition between POSCO and POSCO-IPPC, there is low supply of raw materials. The demand is high for POSCO-IPPC’s steel but due to low output, it cannot adhere to every customer’s needs. POSCO-IPPC is capable to produce more output than its current production but due to the lack of raw material, it has to restrain itself and do job production. * POSCO-IPPC’s customers expect a same price and supply surety for three months which is not possible for POSCO-IPPC as it imports its raw material and it is subject to foreign exchange policies and other government policies which affects its price. The supply surety cannot be given due to lack of supply of raw material. * Also the defaulting of POSCO-IPPC’s price and bargaining to pay less price by the customers is discouraging POSCO-IPPC to expand itself so quickly as they are losing on their profits. * But overall, the lack of raw material is a big issue and solving that issue can solve many other problems related and in the course of time, brisk movements of trade will solve other problems too. 3) What can you tell about the special price-low supply condition? POSCO is a global player and it distributes its steel at a common international price (Rs 59000) to the world but as that rate is very high in terms of Indian currency, it would not settle down in the Indian market so in order to satisfy its Indian customers, it reduced the price and this is known as special price (Rs 45000). But as POSCO reduced the rate for POSCO-IPPC, it only did this for a condition and this condition was that POSCO-IPPC will receive only a limited supply from POSCO, Korea. ) Since TATA is one of your major customers in the automobile segment, can you please put light on the company’s relationship with TATA? * Sure, TATA Motors is a major customer of ours and there is a considerable amount of dealings with TATA. Tata itself produces steel but is partly dependent on POSCO-IPPC for high quality steel for the chassis of their automobiles. They need good quality for the outer body of the car for it to be firm and more attractive for which they take the support of POSCO-IPPC. Tata requires 30,000 metric tons/month and the demand is going up by 7-10% / year. Tata demands 5000-7000 metric tons/month from POSCO-IPPC but it can only supply 2000-2500 metric tons/month to TATA for out of its total output, it also needs to supply to other customers in order to remain in the market and also to stabilize it. The customers in the market are also asking for POSCO-IPPC’s steel like General Motors, Volkswagen and Fiat. For which TATA has supported POSCO-IPPC in sending a petition to POSCO to supply more steel. POSCO-IPPC distributes cold rolled steel in the open market at Rs 53-55000; the price keeps on fluctuating, whereas TATA gets it at Rs 48,000 (maximum. ) Thus, such factors are creating hindrances in transaction between TATA and POSCO-IPPC. 5) What is your PEST? * PEST POLITICAL & LEGAL * Central Government encourages the foreign investment- Change in the central Government may result in change in different trade policies – Indian Economy has shown relatively high levels of development, stability and potential growth. -Korea having a high level of percentage of investment in the Indian market Economical * Indian Economy is booming-Growth in its GDP and economic growth-Fluctuations in the exchange rates -Social ties and contacts between India and China is increasing-Expansion of a basic industry is always favoured- Company also gives importance to maximum exploitation of resources. Social * Opened a school for the children of its workers- Helped to develop the village Talegaon -Increase in the capacity of the unit, there will be more employment in the area-Adapt the Indian Culture-It believes in job satisfaction and motivation of its staff Technical * POSCO-IPPC uses advance technology to process its raw material-High dependency on technology-India is a developing country where there is a great problem with electricity so load shedding takes place-Alternative method to use generators during the time of load shedding proves expensive-Supply of diesel in such large quality proves to be a negative factor. Appendix 3: POSCO-IPPC SWOT Analysis Appendix 5 – Graphs Figure 1: Figure 2: Appendix 6: Mail from Joseph Joe This was a mail from Mr. Joseph Joe giving out some information. Investment: 500 mn INR | | | | | | | | | | | | | Probability | | Difference| | Source Company | | Cost Price/ metric ton | | Selling Price/ metric ton| | Quantity Purchased and sold| | Total Revenue| | | | | | | | | | | | | | 0. 6| | Special Price| POSCO, Korea| | Rs 45000| | Rs 55000| | 11111| | 611. 105 mn INR| 0. 4| | No Special Price| POSCO, Korea| | Rs 59000| | Rs 55000| | 8474| | 466. 07 mn INR| 0. 3| | Wihtout O. H. E| POSCO, Orissa| | Rs 48,000| | Rs 55000| | 10416| | 572. 88 mn INR| 0. | | With O. H. E| | POSCO, Orissa| | Rs 56000| | Rs 55000| | 8928| | 491. 04 mn INR| ——————————————– [ 2 ]. Refer to Appendix 1 – Interview with Mr. Bhattacharya [ 3 ]. Refer to Appendix 1 – Interview with Mr. Bhattacharya [ 4 ]. Refer to Appendix 1 – Interview with Mr. Bhattacharya [ 5 ]. POSCO-INDIA, â€Å"corporate overviewâ⠂¬ , http://posco-india. com/website/company/corporate-overview. htm. (20th September, 2008. ) [ 6 ]. Refer to Appendix 5- Graphs [ 7 ]. Economy Watch, â€Å"India Steel Industry,† http://www. conomywatch. com/india-steel-industry/, (20th September, 2008. ) [ 8 ]. Economy Watch, â€Å"India Automobile Industry,† http://www. economywatch. com/business-and-economy/automobile-industry. html, (23rd September, 2008. ) [ 9 ]. Refer to Appendix 5- Graphs [ 10 ]. Refer to Appendix 2 – Interview with Mr. Joseph Joe [ 11 ]. Refer to Appendix 1 – Interview with Mr. Bharat Indu Bhattacharya [ 12 ]. Refer to Appendix 2 – Interview with Mr. Joseph Joe [ 13 ]. Refer to Appendix 1 – Interview with Mr. Bharat Indu Bhattacharya [ 14 ]. Refer to Appendix 6 – Mail received from Mr. Joseph Joe [ 15 ]. India Brand Equity Fund, â€Å"Steel,† http://www. ibef. org/industry/steel. aspx (3rd August, 2008. ) [ 16 ]. SWOT Analysis [ 17 ]. PEST Analysis [ 18 ]. http://www. stratfor. com/analysis/india_poscos_steel_investment_challenge [ 19 ]. PEST Analysis [ 20 ]. SWOT Analysis [ 21 ]. PEST Analysis [ 22 ]. SWOT Analysis [ 23 ]. PEST Analysis [ 24 ]. http://www. economywatch. com/business-and-economy/steel-industry. html [ 25 ]. http://www. economywatch. com/business-and-economy/automobile-industry. html