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Diploma in Business
Unit Number and Title
Unit 18 Global Business Environment
Global market reflects production and selling capacities of all the Industries of the Countries throughout the world. Global Business environment refers to the various business environment issues i.e. economical, political, socio-ecological, environmental issues etc. that affects the industries throughout the world. The Business Environment is subject to constant change, Industries need to cope and keep pace with this rapidly changing environment.
The Various factors which are seen as responsible for changing business environment are Growing urban population, Global Warming, Demographic changes, Advances in technology etc (Walsh, 2011).
SeverStal is one of the leading steel producing organizations throughout the world. It is largest steel and mining organization in the Russia. It started off with the regional enterprise and soon turned into International steel producing organization. It now started off its business in America with the motive of bringing the steel production closer to its automotive customer and strengthens its IT infrastructure in order to cope with the global business challenges.
PESTLE is one of the popular techniques of the Marketing sector for tracking the business environment from the perspective view of a particular industry. It basically includes analysis of the entire external factor which primarily affects or can affect any particular industry (Walsh, 2011). The PESTLE consists of P- Political, E- Economic, S- Social, T- Technological, L- Legal, and lastly E- Environmental. These all comprises the factors which directly or indirectly affects the Industries.
Steel Industry is one of the fastest growing industries throughout the world. This Industry has been recognized as one of the crucial industry by many countries. The major steel producing countries are China, European Union, Russia, and United states etc. these countries are excessively producing steels in exceed of the current requirements and this is somewhere causing imbalance in the demand and supply criterion and leading to decrease in the profitability of the steel industry. And somewhere this has made the steel industry less attractive among the industrialists.
(Malanichev & Vorobyev, 2011)
Political Analysis- With the increase in the number of the steel producing countries through the world, the excessive production of steel has led to massive issues in various industries. Various industries in many parts of the world, has to close down their industries, or have to lay-offs etc. Excessive production of steel has put various issues in front of various steel industries. For e.g. - China’s excessive steel production has imposed a global issues for all the industries on the globe.
Excessive steel production is an alarming issue for all the political parties and a need for all to reduce or cut down the production capacity or otherwise it would create a bad impact over the steel industries and lead to imbalance economic fluctuations in the industry (Malanichev & Vorobyev, 2011). In fact at present many industries are suffering huge losses due to excessive steel production and are at the verge of the close down of these industries and ultimately will lead to imbalance the political factor of the steel industry.
In this scenario, the Severstal needs to limit its steel production capacity and to focus on the other working area in order to avoid losses and to maintain its working strategies. And to protect the industry from the political imbalance.
Economic Analysis- In the last few decades, the Steel industry has shown immense growth and huge economic benefits for various countries throughout the world. It is one of the most profitable industries and offers huge employment opportunities.
China alone has contributed for about 50% of the total output of the steel industry and also is a huge consumption of steel products (Middelbeek, 2014). Other countries such as India, Taiwan, Iran, Japan, Mexico, and South Korea etc. are also emerging as a strong competitor in the Steel production and exporter.
The Steel industry for the last few decades has shown immense growth and now has eventually reached to the maturity level of the Growth cycle. With the excessive production throughout the world of steel, the supply has increased multiple times than the requirement of Steel. This has eventually led to close down of the various steel industries, lay-offs, huge losses and bankruptcy of several steelmakers. Now Steel production will take some years to come back on the track again and to again become huge giant in the industry sector.
Social Analysis- With the increasing urban population, there remains an ever increasing need of the Steel and steel products (Madar, 2014). And the related industries with urbanization such as Construction steel market, Oil & gas steel market, Domestic steel appliances steel market, automotive market etc. are the major consumers of steel and steel products.
Therefore with the changing social pattern of the people and inclination towards modernization, the Steel industries requirements are increasing rapidly. The behaviour pattern is analysed to be remain same for next coming years and till next few decades until changes come among the social behaviour (Madar, 2014). The social analysis of the steel industry has been really favourable and thereby leads to increase in the needs and preferences of the steel products.
Ever increasing demand of the steel products has lead to increase in the number of steel manufacturer, and with this supply of steel has increased substantially leading to reduction in the prices of steel and manufacture of cheap steel to increase the profitability of the steel manufacturer.
Technological Analysis- Technology has played huge role in advancement of and innovation in the working pattern of various industries. Obsolete technology has to be replaced with the advanced technology in order to keep pace with the modernization and to maximize the production level of various Industries. Steel industry is also subject to constant updation and up gradation in the perspective of technology (Mashayekhi, 2014). Therefore this industry must be in pace with the innovation and newer technology to keep in pace with the ever increasing demand of steel.
Technologies nowadays have been use to analysis and cure the various environmental issues which occur due to Steel making industries. The main key areas are healthy and accident free environment for the workers at steel workshop, environmental issues such as contamination of water, rivers, endanger to wildlife animals, deforestation due to construction of big steel plants, contamination in air etc.
Various workshops at international level occur in order to improve the working pattern of the labours of the steel industry and to share the health and safety techniques with each other to improvise the condition of the workers (Mashayekhi, 2014). This leads to better technological aid for all the enterprises of the steel industry.
Legal Analysis: - Legal environment refers to the various laws and enactment of various policies and guidelines for any matter. In the global steel industry, there are numerous worldwide organizations and agencies which make reports on the current and future scenario of the Global Steel Market. These reports are very important for all the steel making manufacturers.
There are numerous guidelines for the safety and health of the labours who work in the Steel manufacturing organization. These guidelines need to carefully analyse in order to secure the health of the workers as well as to implement the laws and order in the Steel Industry. Other laws and regulations relates to environmental concerns which gets degraded due to establishment of Steel manufacturing industries (Robertson, 2010). These laws have gained huge concern as the global environmental issues are becoming major concern for all the Political parties of the world.
Environmental: - Protection of Environment has now become one of the major concerns for all the International agencies and Organizations. And almost, for all sector of Industries, guidelines and rules are formed for improvising the conditions of the environment and for protecting the natural environment.
Similarly, in the steel industry too, positive and innovative ways are taken for reducing the harsh impacts of the steel industries over the Environment (Robertson, 2010). The main environmental concerns are recycling of the by- products of the steel products, implementation of the various water management techniques for improving water condition and for protecting the wildlife.
Time to time various international agencies keep on working and publishes data related to impact of the industries over the environmental scenario. This data ultimately helps in addressing the environment issues and implementation of numerous environment protection activities for the overall benefit of the entire globe.
The Porter’s Five Forces Analysis is a model to judge the vulnerability and sustainability of a particular industry in the competitive scenario. This model is one of the most popular methods to know the intensity of the competition in relation to any industry.
This model let the manager to judge various factors in terms of the increasing competitive environment (Robertson, 2010). This model helps in the analysing the profitability and competitive intensity in any industry.
These are the basic five forces which largely affects the business of an enterprise. An detailed study through the model of Michael Porter Five Forces Analysis helps in pre-analysing of the possible threats and opportunities for the Industry.
Bargaining power of Supplier: - Supplier of power primarily means the main supplier of the components of the raw materials or any input which is primarily required by the industries to work for. In the steel industry there are various essential inputs or raw materials required for manufacturing steel and steel products.
Manufacturing of steel primarily and majorly requires iron-ore and carbon and certain other elements are also required such as manganese, nickel etc but very low amount (Prentice, 2012).
Large Steel manufacturer normally own their mining sites of iron ore, therefore reducing the supplier power in the industry. These big organizations own their mining assets and thereby do not rely on the suppliers or anyone else and therefore gain a competitive situation in the industry.
But still various Steel industries still depends on various sellers of inputs, and with the large scale increase in the Steel manufacturing organizations, the number of suppliers of raw materials have also increased, leading to increment in the bargaining power of the suppliers (Prentice, 2012).
So in, all it can be concluded that bargaining power of the suppliers is increasing day by day leading to intense competition among the steel enterprises.
Bargaining power of Buyers: - Steel is one of the most common and useful component used in various industries such as Mechanical engineering, domestic steel appliances, oil and gas industry, automobile industry etc. the need of the steel is ever increasing and still continues to be so in future. With the ever increasing demand of steel, the bargaining power of buyers is quite low. As still no other product has been able to replace steel and the ever increasing need of the steel has placed the bargaining buyer’s position quite low in the industry.
Indeed, Aluminium has replaced steel in various areas such as Automobile industry and domestic appliances industry etc (Ngai, 2013). This has posed serious threats in front of steel industry and has ultimately increased the bargaining power of buyers due to availability of cheap substitute for the steel.
Threats of New Entrants: - With the increase in attractiveness in any sort of industry it automatically attracts various new entrants in the industry. The increase in the new entries, leads to decrease in the profitability of that particular industry.
Steel industry with its ever demanding nature and profitable industry attracted millions of new enterprise throughout the globe, this lead to excessive supply of steel products and emergence of low pricing of steel products (Ngai, 2013). This has led to downfall in the profitability in the steel industry. Therefore it can be said that the threats of new entrants was quite high in the past years.
But today, with the excessive supply and low profitability, the threat of new entrant has gone down. Also there are numerous other factors which make it low in terms of threats of new entrant such as rigid government norms, large capital requirements, high labour requirements, implementation of numerous environmental concerns etc.
Threats of substitutes: - Threats of substitutes refer to the switching of the customers to other similar products which are most possibly alike. Possibility or vulnerability of a product to be substituted by another are majorly concerned about threat of substitute.
The threat of substitute for the steel industry is quite low as its utilization and its importance cannot be substituted by any other product and therefore it continues to be invariably in the demand of the customers (Gordon, 2010).
Steel is undoubtedly an important component utilized by numerous industries but still it has various substitute components such as Aluminium. Aluminium is basically a cheap product as compared to steel and is gaining importance steadily and it has even replaced steel in few industries such as domestic appliances and automobile industry.
Industry Rivalry: - Industry rivalry refers to the intensity of competition in an industry. Today Competition is evident in nearly all the industries; one cannot imagine an industry without Competition. With the globalization, more and more individuals are entering in the industries and creating intense completion.
Steel industry, is in fact one of the competitive industries, throughout the globe. The intensity of competition even increased with the increase in the new entrants in the Steel industry (Popova, 2013). Today, mostly countries are stressing on increasing the steel manufacturing for its own consumption as well as for export of steel, especially, China has emerged as one of the fastest and largest manufacturer of Steel, which in fact has slowed down the manufacturer of steel in other parts of the world.
Due to increased steel industry rivalry, it has put an adverse impact over the pricing policy of steel and also has led to decrease in the profitability of steel manufacturer and also led to shut down of various steel enterprises (Popova, 2013).
This sort of rivalry has also led to increase in the need of innovation and improvisation in the steel making techniques. As with the intense competition, the need for making better steel products with reasonable cost is present requirement.
After the thorough analysis of the Steel Industry, it’s been concluded that steel is undoubtedly the most important and essential component for the Industries. And that the use of steel is infinite. Therefore due to extreme demand, Steel industry is one of the most attractive and profitable industry (Popova, 2013). After conducting the PESTLE analysis of the Steel industry, we learnt the various aspects of the business environment that affects the Steel organization, the various political, economical, social, Technological, legal and environmental has huge impact over the business of the Global Steel industry. These factors basically analyses the possible the threats and opportunities in the steel industry. The porter five forces analysis made an analysis regarding the vulnerability of the business environment of the steel industry. Through five forces analyses, which are, substantial bargaining power of the suppliers, bargaining powers of the buyers, threats due to new entrants, threats of substitutes and industrial rivalry of the steel industry, in depth study of the steel industry business environment and chances of sustainability of the industry are evaluated (Popova, 2013).
Gordon, L. 2010, Union, Severstal NA extend labor pact, Euromoney Trading Limited.
Madar, D. 2014;2009;, Big Steel: Technology, Trade, and Survival in a Global Market, UBC Press.
Malanichev, A.G. & Vorobyev, P.V. 2011, "Forecast of global steel prices", Studies on Russian Economic Development, vol. 22, no. 3, pp. 304-311.
Mashayekhi, R. 2014, Severstal closes sale of N. American assets to SDI, AK Steel, Euromoney Trading Limited.
Middelbeek, E. 2014, Steel to retain dominant role in autos: Severstal, Euromoney Trading Limited.
Ngai, C. 2013, Severstal NA CEO sees pickup in 3d or 4th qtr, Euromoney Trading Limited.
Popova, N. 2013, Severstal to exit iron ore project in Brazil, Euromoney Trading Limited.
Prentice, C. 2012, Severstal expects 'challenging' year-end, Euromoney Trading Limited.
Robertson, S. 2010, S&P bearish on Severstal Columbus, Euromoney Trading Limited.
Walsh, D. 2011, "1B plant upgrade steels Severstal for the future", Crain's Detroit Business,vol. 27, no. 15, pp. 3.