PORTER 5 FACTOR ANALYSIS
Risk Legend:
5 -V High
4 - High
3- Medium
2- Low
1- V Low
Rivalry among
competitors
Threat of Substitute
#
Threat of New entrants
Remarks
Risk
1
Barriers to Entry
Huge barriers wrt Govt regulationin terms 2
of safety, land, quality and captial req
2
Economies of Scale
Need to set up org at scale tocompete in
market catering to big players. Any new
entrant will find it difficult to scale up to
Nucor's business level at entry level
2
3
Brand Loyalty
Difficult to break brand loyalty as Nucor
has a wide base of loyal customers eg it's
a preferred supplier for GM
2
4
Capital Requirements
Huge capital is required to compete at
Nucor's level for any new entrant
1
5
Cumulative Experience
This is very difficult to imbibe as Nucor
had its share of success anf failure
learning over a period of 45 yrs. Any new
entrant will take ample time to
accumulate industry and business exp
1
6
Government Policies
Govt policies are not detrimental to set up 3
new industries. Infact states like Texas,
New Jersey promote industry belts. Even
financial insitutions provide monetary
support for new entrants.
7
Access to Distribution
Channels
Nucor has established its own set of
2
distribution channels through its own
subsidiaries. These distribution channels
are located at prime locations near
customer sites. All the company’s low-end
steel products (50 percent of its total
output) were distributed through steel
service centers. Its high-end products (the
other 50 percent) were sold directly to
original equipment manufacturers
(OEMs), fabricators, or end-use
customers.
8
Switching Costs
Customers are highly unlikely to switch to 2
any new entrant easily as Nucor products
make a key component in customer's
product and reliability and quality are of
prime importance.
Risk
Value
15
Risk
Threat of New Entrant
15
Bargain Power - Supplier
14
Bargain Power - Buyer
14
Threat of Substitute
11
Rivalry among competitors 23
Risk
Threat of New
Entrant
25
20
15
Rivalry among
competitors
10
Bargain Power Supplier
5
0
Threat of Substitute
Bargain Power Buyer
Bargaining Power of Suppliers
Remarks
Risk
Number of Suppliers
Nucor has huge dependency on
3
suppliers for raw materials etc.
Though there is not enough
information on the number of
suppliers and key suppliers/Tiers, steel
industry usually relies on handfull of
suppliers for pig.cast iron. Assuming
Nucor has small number of suppliers
they will have some level of bargaining
power. However, this os offset as
Nucor itself had acquired facility to
convert scrap material to steel
through mini-mills thereby reducing
major dependency.
Size of Suppliers
There is no information on this aspect. 3
However, assuming that there will be
a mix of suppliersboth Large (Tier I)
and small (Tier II, Tier IIIs) they will
definintely bring someimpact on
bargaining power. This is offset with
the long standing relationship of
Nucor and established position in the
industry.
Uniqueness of each supplier's
product
This is dfficult to ascertain. However
since Nucor has a wide range of
products and has heterogeneous
portflio the components would be
supplied by unique suppliers.
3
Focal Company's ability to
substitute
Not much information here. However, 2
Nucor has the ability to replace
suppliersbased on performance as it is
driven by quality
Switching Cost of Supplier
This depends on multiple aspects:
3
i. Component for which supplier is
being replaced,
ii. whether that component is critical
or generic,
iii. whether that component plays the
role at up-strem or down-stream in
value chain
iv. Relationship with supplier (longstanding/new)
v.) Role of Supplier - Panorganization
or limited to handful of
subsidiaries/plants etc
vi.) Whether losing this supplier will
result is losing against competitor etc
14
Bargaining Power of Buyers
Remarks
Risk
Number of Customers
Nucor catered to multiple industries,
2
construction industry (60 percent), the
automotive and appliance industries,
(15 percent), and the oil and gas
industries (15
percent), with the remaining 10 percent
divided among miscellaneous users. So
overall it'd a huge customer base. Since
the number of customers were not few
the colective bargaining power did not
pose a serious challenge to Nucor
Size of each customer order
Nucor catered to some large
organizations eg GM. These customers
had their own purchasing targets and
guidelinesfor suppliers which increased
their barganing power.
3
Differences between
competitors
Since Nucor was involved in wide range 2
of industry segments the customers had
their own set of requirements.
Automotive didn't compete with
construtionand construtction industry
did not compete with home appliance
indsutry etc. These buyers acted
independently and had low influence in
terms of bargaining.
Price Sensitivity
Nucor prodcuts were not directly
2
cosnumed by end products and hence
they were not exposed to huge price
sensitivity.The industry Nucor catered to
had its own cycle of Price Highs and
Lows.
This is debatable as Nucor though
2
technologically superior in certain areas
still had tough competitors like
Bethelem, USX_US and LTV. Nucor
customers were not much likely to
replace it with customers asNucor
enjoyed distinct advantages in certain
product portfolios eg low-end steel for
use in commercial appl and high end
steel plate for automotive catalysts.
Moreover, for certain segment, eg nonflat steel Nucor had no competition as
Integrated Steel Companies were driven
out by Nucor due to technical
advancement and low costs.
Buyer's ability to substitute
Buyer's information
availability
How openly product information is
1
available to Nucor customers is not
clearly known. However, steelindustry is
verly unlike airline industry where prices
are openly available over websites and
products could be quickly bought.
Switching Cost
This is not clear though it depends how 2
customer assembly line, certification,
integration, transportation, design costs
wuld be impacted if a supplier is
switched
14
Threat of substitute products
Remarks
Number of substitute products
available
There are few
2
substitutesa available in
high end , high cost
product segments.
However, lower end steel
segment was dominated
by Nucor
Buyer's propensity to substitute Nucor enjoyed a huge
confience as a suppier
within its customer eg it
won BEST SUPPLIER
award fromGM for
straight 3 years.
Risk
1
Rivalry among Exiting
Competitors
Number of Competitors
Diversity of Competitors
Relative price performance of
substitute
This depends upon which 2
segment the subsitution
is done. For eg a
substitute in Automtive
Catalsyt Steel may impact
overall vehicle cost as CC
are usually costly
Industry Concentration
Perceived level of Product
differentitation
Nucor had a distinct
differentiation of its
product in certain
categories eg
reinforcement bars etc
Industry growth
Switching Costs
This depends upon the
3
product and segment.
Usually, the switching
cost would not be higher
for lower end products
3
Quality differences
Brand Loyalty
Barriers to Exit
Switching Costs
11
Remarks
Risk
Direct competion with USX-US,
Bethelem and LTV
4
Most of the competitors had
3
sameprodcut portfolio. Hower,
Nucor had the advantage of the
widest variety of prodcuts
Nucor has market share of
roughly 24.5% by volume in
2015
3
Average industry growth 2-4%
3
huge
2
Customers loyal to Nucor brand 2
due to quality and cost
Huge barriers due to socioeconomic impact
4
Switching costs of csutomers
between competitors is high
2
23