First Industrial Revolution

General features of the business environment and key issues in the case

Since the First Industrial Revolution, steel is the most used metal in the world. It is used in every domain of the society from infrastructure at the beginning it is now used in a lot of consumers good. The industrial process implies a permanent activity of the factory. As a consequence, there is a constant need for energy and mining products supply. Usually, relationship between suppliers and the steel companies are based on long-term contracts in order to secure the supply and stable prices. At the end of the process, steel could be sold as three different products: pipe products (slabs, sheets, plates), flat products (beams, profiles, rails, rods…), and long products.

Growth of steel industry was first based on Westerner's countries demand; especially after the World War II. But after the late 70's crisis, European and American demand collapse, provoking a decline of companies production although production capacity was at it highest capacity ever. At the same time, Westerner's governments set up a protectionist policy in order to restructure the sector. In order to face this situation, we assist to wave of merges and acquisitions, leading to a concentration of the market. Moreover Asian companies could develop among this crisis, and become major actor of the market.

Now the most important market is based in the developing countries such as India or China. The huge need of these economies leads to tension in the market. In the same time we assist to a rise of steel prices from (100% to 200%) not only because of an increasing demand of developing countries but much more because of speculation.

In spite of the growth, market is still threatened. Indeed, the sector is such based on Chinese development that a single slowing down is this market will have terrible impact in the market in a context of increasing of the production capacity.

Porter's five forces

First we will present what consist on Porter's five forces.

1. Threat of new entrants : low

First, we can notice that potential entrants need a large capital to build up the factory process. Moreover benefits for economy of scales are derived from long-term contract an R&D. It need a large investment to face with major actors of the sector.

Then, we can notice that companies try to integrate their own mines to the process in order to lock on their mining products supply, reducing possibilities for newcomers.

But on the other hand we can say that there are only few possibilities of product differentiation.

2. Rivalry among existing competitors : high

Competitors