TATA Steel: UK Case Study

 

Tata steel UK is one of the largest and geographically most diversified steel producers of Europe which is operating in 26 countries and have its commercial offices in around 35 countries around the globe (Tata Steel, 2017). They have been serving different markets such as energy and power, automotive, lifting and excavating, packaging, aerospace, construction etc. with their innovative products. The success of their business lies in their operations being centered on benefiting the society on the whole and making collaborative relationships with customers. The main business values of Tata steel UK include excellence, understanding, responsibility, integrity and unity (Tata Steel, 2017).

The proposed strategy for Tata Steel at corporate level is market penetration while the proposed business strategy for penetrating in the market is the hybrid of cost leadership and product differentiation. Tata Steel has the capacity to penetrate into its market because it has a strong brand image and good customer base but due to increasing supply of steel from China and decreased demand, the revenue generated in the last period was a bit less than expected. In a dynamic environment, the foremost priority of a business is to keep an eye on the external environment. So, to cope with the changes taking place in the external environment, Tata Steel has to penetrate the market for increasing its market share. The cost leadership can be achieved by the capacity expansion and employment of new technology. The new technology would be used for differentiating its products from those of its competitors.

Tata steel UK is one of the largest and geographically most diversified steel producers of Europe which is operating in 26 countries and have its commercial offices in around 35 countries around the globe (Tata Steel, 2017). They have been serving different markets such as energy and power, automotive, lifting and excavating, packaging, aerospace, construction etc. with their innovative products. The success of their business lies in their operations being centered on benefiting the society on the whole and making collaborative relationships with customers. The main business values of Tata steel UK include excellence, understanding, responsibility, integrity and unity (Tata Steel, 2017).

This paper demonstrates the importance of understanding and in-depth knowledge that a firm must have for the formulation of its strategies from time to time. The environment in which the businesses have been operating currently has become dynamic and it is necessary for the businesses to adapt themselves with such environment by continuously updating their strategies to carry out the business (Hitt, Ireland and Hoskisson, 2003). The previous analysis conducted about Tata Steel suggested that it has strong brand equity and value-chain efficiency due to which it has expanded its operations overseas in the foreign markets. One of the main competitive advantages for Tata Steel UK is that there products are unique and innovative but there are also certain threats for the survival of business i.e. increasing competition, changing economy of UK and the fall in demand from China (Schram, 2015).

The first part of this paper discusses different strategic options that are available to Tata Steel UK or to propose a strategy at corporate level, second part deals with formulation of business strategy, while the third part deals with the evaluation of strategy on the basis of suitability, acceptability and feasibility. The main objective of this paper is to see the Tata Steel UK from strategic management perspective. Different models and frameworks from previous academic literature have been used for the purpose of analyzing the industry and proposing a relevant strategy for the selected firm.

Strategic options have been defined as the resourceful substitute action-oriented reactions to the major external trends faced by an organization. These options are exercised by taking into consideration the factors, trends, threats and opportunities in the external environment in which an organization is operating. These options are usually taken into consideration for the purpose of increasing the sales and profits of our business (Trigeorgis and Reuer, 2016). The main objective of Tata Steel UK is to become a global benchmark for creating value for the customers and corporate citizenship by offering innovative products and services.

Ansoff Matrix

Strategic options can be best explained with the help of Ansoff matrix that takes into account existing and new products and markets. There are four strategic options available to a particular firm (Jeyarathnam, 2008). These are explained as follows

1. Selling existing products to existing market which is known as market penetration
2. Developing new products and selling them to existing market which is known as product development
3. Taking existing products to new markets segments which is known as market development
4. Developing new products for newer markets segments also known as diversification

The strategic options or Ansoff matrix is presented in the figure as follows

Tata steel UK can expand its customer base with the help of market penetration strategy. This strategy is used for the purpose of growing our business. The current market share of Tata Steel UK is 60% sales to the manufacturers of different products in UK while 40% comes from sales to main Europe and 15% outside the Europe. The main products that contribute to the sales revenue of Tata Steel include automotive, construction, packaging, aerospace, and energy and power. The corporate strategy of Tata Steel UK is to become a global benchmark by creating value for the customers at global level.    

The rationale behind using the market penetration strategy is to sell existing products to existing consumers. According to the SWOT analysis conducted for the Tata Steel Europe and other sources suggest that it is losing the market because of various factors including decreased demand from China, changing economy of Europe, increasing international competition and steel available at cheaper prices. Tata Steel UK can penetrate the market by making its products unique from those of its competitors. It should increase its investments in the projects which helps in differentiation of its products by improving the overall marketing mix and getting closer to customers by forming collaborative relationships. The unique and innovative products as compared to competitors will give Tata Steel UK a competitive edge in gaining the largest market share. This product differentiation requires Tata Steel to develop cutting-edge manufacturing and production technology and to improve their business cycle to a greater extent to make the products sustainable for the customers as well as for the environment.

Tata Steel UK should strive to upgrade their manufacturing and distribution operations because it will help the firm in providing on time products and services to their consumers. An efficient supply chain and closer production plants help in increasing the effectiveness and optimization of services to customers. The presence of competitors cannot threat the existence of Tata Steel unless it is continuously striving to improve its business operations and differentiation of products and services. Overall, in improving the business operations and product differentiation of Tata Steel, it must not compromise the corporate responsibility it owes towards the environment and all its stakeholders (Jha and Arora, 2013).

The main point to be considered in the market penetration strategy is the cost-benefit ratio. Market penetration specifically deals with increasing already captured customer base. The fact sheet of Tata Steel UK represents that 25% of Tata sales revenue is generated by automotive industry, 30% by construction, and 10% by packaging. It also exports 80% of its energy and power products to big firms such as Shell, Chevron and Total etc. it also has 10% global market share for the supply of aerospace products (Kelsey, 2016). The main competitive advantage of Tata Steel UK is its brand identity i.e. it is a well-known brand for its quality products, so its customers have loyalty with its products. The factsheet about Tata Steel UK suggested that the demand for its automotive products is increasing in the mainland Europe as well as in other countries because the annual car production rate is increasing at a greater pace. So, this is an opportunity for Tata Steel UK to penetrate the market by using its world-class manufacturing and distribution facilities.

The market penetration strategy requires Tata Steel to strengthen its own manufacturing, production and distribution infrastructure to manufacture differentiated products as compared to its competitors. By using this strategy it will be able to increase its sales revenue in the existing market by strengthening the manufacturers of different products across Europe. Own manufacturing and production plants will be helpful for Tata Steel in reducing the cost of manufacturing and achieving the economies of scale.

Tata Steel has the capacity and resources to penetrate into its existing market e.g. it has a string brand loyalty, it is producing the products in an environmentally sustainable way, it has its own cutting-edge manufacturing and production plants that only need upgradation. The commitment of Tata Steel’s towards manufacturing unique and innovative products can help them conquer the market and increase their market share relative to their competitors.

After a successful scrutiny of internal factors affecting the business and a thorough scan of external business environment, the next stage is to formulate an ideal strategy for business which is capable of achieving the desired objectives. Business strategy is designed for the purpose of getting to the place where we want to see ourselves. Business strategy requires careful planning and implementation and it also requires a lot of resources that must be used handy to maintain the cost benefit ratio (Teece, 2010). According to a model proposed by McKinsey, it is necessary on the part of organization to have talented staff, an integrated system, proper structure, a unique style, skills, a perfect strategy and shared values to achieve the desired business goals. According to Johnson et. al (2011), strategy clock is a perfect framework that can be used to analyze the customer focus for the prices and differentiation among the products.

For Tata Steel UK, it is analyzed that the market penetration strategy could be used for increasing the market share of the company. And it has been already known that it has a strong brand name and also a very good customer base. But the recent statistics of financial times confirmed that the earnings and sales revenue of Tata Steel was not up to the mark and didn’t meet the forecasts set earlier (Markets.ft.com, 2017). This requires Tata steel to penetrate into its market with the help of hybrid strategies i.e. cost leadership and product differentiation.

Cost leadership is an intensive growth strategy in which the company tends to decrease the cost of its products for the purpose of increasing its sales. Tata Steel UK can exercise the cost leadership strategy either by reducing its costs to increase the profits and charging average industry price for its products or it can increase the market share by reducing the price of its products (Jha and Arora, 2013). For practicing this strategy, a firm must make sure that it will remain number one in terms of low-cost producer and won’t be easily attackable by other low cost producers. This requires the firm to have enough capital for making investment in the technology that reduces the overall cost of producing the products, have efficient logistics and being sustainable in terms of its resources and environment. For Tata Steel UK, all of these options are exercisable so they can easily penetrate their existing market with their existing products.

One of the main competitive advantages of Tata Steel is capacity expansion i.e. it can expand its capacity of manufacturing and production which will ultimately reduce its cost of producing the products. The quality and sources of raw materials are highly secured from various captive mines which can be used for the enhancement of production capacity. The manufacturing plants of Tata Steel are already located in many countries including USA, Canada, Sweden, Germany, France, and Belgium etc. These plants can be used for the purpose of increasing the global sales revenue and market share of Tata Steel by offering diversified products and services to the customers.

Technology and the manpower are two most essential resources that are required for increasing the innovation and uniqueness in products of Tata Steel. The up-to-the-minute technology can be used for producing larger numbers of steel and aluminum products differentiated from its competitors, available in various designs and colors and are sustainable for the community which is using the products. Recently in 2013, Tata Steel made an investment of 250 million pounds to set up two blast furnaces in Port Talbot, 25 million pounds investment at Hot Strip Mill, and 15 million pounds investment in Stockbridge plant in 2015 which will improve the operations of Tata Steel to a greater extent thereby reducing the overall costs of production (Kelsey, 2016).

Product differentiation is another strategy through which Tata Steel can penetrate its market. Customers switch products or brands only when they are not satisfied of the quality and prices of the products. A bit of value added to the products and services can increase the customer loyalty and improves the brand image (Anderson and Vincze, 2004). Tata Steel is providing a wide range of its products to the most renowned and big companies around the globe. Tata Steel can increase its market share by offering customized products to its customers e.g. for automotive industry it can provide customized products right from initial design to the fully manufactured vehicle or they can provide effective solutions related to steel in the construction projects. For consumer goods, customers prefer reliability and after sales services and it can also gain a good market share by offering sustainable packaging products to packaging firms. The bottom line is that Tata Steel can use its core competencies for gaining the market share. A summary of core competencies of Tata Steel is presented in the following table.

Core competencies	Cost leadership and product differentiation
Technology	Different manufacturing plants of Tata Steel UK located across the Europe must use the cutting edge technology for the production of high quality and low cost products. Installation of technology helps in the mass production which achieves the economies of scales hence making the firm low cost leader and technology also improve the quality of products by presenting more immaculate outlook and product design to the products.
Supply chain management	The supply chain of Tata Steel is very sophisticated because it has its own distribution and processing units across the Europe, USA, Middle East and many other parts of the world. This is the competitive edge for Tata Steel because they don’t have to make the customers wait longer for the products rather they provide on-time delivery of their products due to their numerous production hubs. Efficient supply chain also helps in making the products differentiated and low cost because there are no additional tariffs and raw material import costs incurred on the products.
Quality and customer focus	Quality and price of the products are the two essential elements that customers look for in the products. The research and marketing department of Tata Steel continuously tries to analyze the customer preferences for products and tries to invest in the projects which offer the best marketing mix i.e. best price for the products and differentiated products as compared to the customers (Tata Steel, 2017).

Based on the core competencies listed in the above table, the competitive advantage of Tata Steel i.e. capacity expansion, and the financial position of Tata Steel UK (SWOT analysis), it is evaluated that Tata Steel can competently reduce the cost of its operations for increasing its revenues and earnings as well as increasing its market share. Moreover, these strategies are also useful for Tata Steel to exist its penetrating market everywhere its operations are in process.

Evaluation of strategy is as important as the formulation of strategies because the strategic management process requires a lot of resources for implementation. So, it must be made certain that we are not wasting our resources or using them in a wrongful manner (Atkinson, 2013). Strategic evaluation is carried out in order to know whether the strategy that has been designed will be able to achieve the required objectives or not. Three criteria are used for the purpose of strategy evaluation i.e. suitability, acceptability and feasibility.

1.1. Suitability

Suitability refers to the overall objective and rationale of the proposed strategy i.e. whether the strategy proposed will be able to achieve the economies of scale or not or will it acquire the proposed strategic objectives to improve the overall position and outlook of business. For the purpose of measuring the suitability of market penetration for Tata Steel, it is important to analyze the trends and key drivers explained in the assignment 1.

Trends: The current trends for the Tata Steel are not good because there is an overall decrease in demand due to cheap supply from China. Another reason is stricter regulation changes on the part of European Union and lower wage laws as well as expensive cost of production in Europe (Islam, 2016).

Key drivers: The key drivers that prove to be helpful in boosting the sales revenue of Tata Steel include reduces costs of renewable energy, flexibility in emission regulations placed in by European Union and support provided to UK for numerous steel construction projects to increase the job market for people.

So based on the trends in the market and key drivers, it is evaluated that Tata Steel can overcome the cost of production in UK by employing the expatriate labor into its steel industries so that the cost of labor is reduced. The employment of technology in all of its production plants can improve the production rate as well as differentiate its products in terms of quality. The reduced cost of energy i.e. 30% reduction in electricity bills and in gas prices is also a favorable driver for employing the technology in UK plants. Government should also make its regulations flexible so that Tata Steel can invest into steel projects and provide jobs to numerous people. As a result of evaluation, it is suggested that the proposed strategy can work well with Tata Steel because it has enough capacity to expand its operations, have improved infrastructure to add value to its supply chain and have enough competencies to take the market as a cost leader.

1.2. Acceptability

Acceptability of strategy relates to the concern with which it meets and exceeds the expectations of its stakeholders. It is obvious that changing the cost of operations and prices of the products also affect the overall revenue of the business which in turn affect the dividend payment to its shareholders, flexibility in regulations involves government and increased production affects the environment (Atkinson, 2013). The key stakeholders of Tata Steel are presented as follows

infleuntial stakeholders	active particpants	Stakeholders that impose
The most influential shareholders of Tata Steel are its customers, competitors and the environment in which it is operating. The reduced costs of operations will reduce the prices of products which is beneficial for the customers. Competitors will have tough time imitating the strategy of Tata Steel. For environment, it is certain because Tata steel is producing environmentally sustainable steel.	Government and suppliers are the most active participants in the business operations of Tata Steel. It is good that UK has been provided flexibility to invest in steel projects and the supply chain management of Tata Steel is already better and sophisticated and will be enhanced with the help of capacity expansion.	The BODs, employees and shareholders of Tata Steel are better off with this strategy because increasing the markets share will eventually increase the market share and profits of the company. Shareholders, employees and BODs are the stakeholders who know the vision and mission of the company so at the end they are confident that market penetration strategy would pay something off to them.

The acceptability criteria of strategy evaluation suggests that market penetration strategy will be acceptable to all of the stakeholders of Tata Steel. It can be evaluated in more detail by using the stakeholder matrix of power and interest. The matrix is as follows

When the power and interest of stakeholders in an organization is high, it is necessary for them to be both engaged and influential while in case of low power and interest, they only need to monitor the company or keep an eye upon the company. While those stakeholders who impose the company strategy have both high power and high interest in the company. Tata steel UK is safe on all ends because the strategy is acceptable for the customers due to quality and price of products and for shareholders to receive the increased dividends. The most influential stakeholder in case of Tata Steel is environment because the production may impact the environment in an adverse way but it is operating in an environmentally and social sustainable and responsible manner. The strategy of market penetration is meeting the needs and expectations of all stakeholders of Tata Steel UK.

1.3. Feasibility

Feasibility means that the strategy is good in terms of resources available to the organizations for its implementation (Atkinson, 2013). It has been studied that the main competitive advantage of Tata Steel is its ability to expand or capital expansion. Different elements have been taken into account for the purpose of checking the feasibility of strategy.

The most important enabler affecting the implementation of market penetration is the cost and quality of products. The cost of products can only be reduced when a high cutting-edge technology is employed for the manufacturing and production of products. The R&D of Tata Steel continuously strives and works hard to know preferences of customers for newer and innovative steel products. Another important consideration is workforce of Tata Steel. Although the workforce is highly talented and able to boost the revenue generated by Tata Steel, Tata Steel should pay them a handsome amount of salaries to them. They should invest in their workforce to boost their confidence to increase the market share. The financial viability of this strategy is considerably favorable because Tata Steel have enough resource for capacity expansion and reducing the overall costs of operation. Capacity expansion will generate the increased outcome thereby leading to increased market share.

The new strategy proposed for Tata Steel is the market penetration using hybrid strategies of cost leadership and product differentiation. The analysis is conducted on the basis of thorough internal and external analysis of Tata Steel and it has been evaluated that the strategy is perfect in terms of its suitability, acceptability and feasibility. Tata Steel should adopt market penetration strategy for the purpose of boosting its market share because it has the capacity to expand its operations by using newer technology, the power of its labor and its efficient supply chain. Tata Steel UK has strong brand image and identity which will be very helpful to penetrate into its current market. It has to reduce the costs of its operations so that the products become a bit cheaper and attracts a new market share. This strategy will be helpful because China has been supplying the steel to the market at much lower price so for its survival and growth, Tata Steel has to adopt cost leadership along with product differentiation strategy.

Strategy formulation starts with the thorough analysis of internal and external factors affecting the business. The external analysis for Tata steel UK suggested market trends for steel industry and the key drivers that are helpful for boosting the industry. Formulation and implementation of strategy is based upon the environmental analysis of Tata Steel. Market penetration is the best alternative for Tata Steel to increase its market share. It can be done with the help of cost leadership and product differentiation. The cost leadership can be achieved with the help of expansion of business because capacity expansion is the main competitive advantage of Tata Steel.

References

Anderson, C. and Vincze, J. (2004). Strategic marketing management. 1st ed. Boston: Houghton Mifflin.

Atkinson, D. (2013). Dynamic capabilities: implications for marketing strategy formulation and implementation. International Journal of Business Environment, 5(3), p.252.

Hitt, M., Ireland, R. and Hoskisson, R. (2003). Strategic management. 4th ed. Australia: Thomson/South-Western.

Islam, F. (2016). Understanding The Steel Crisis: 10 Key Points. Sky news. [online] Available at: http://news.sky.com/story/understanding-the-steel-crisis-10-key-points-10223034  [Accessed 15 Jan. 2017].

Jeyarathnam, M. (2008). Strategic management. 1st ed. Mumbai: Himalaya Pub. House.

Jha, V. and Arora, S. (2013). Strategic leadership for corporate sustainable development at Tata Steel. International Journal of Indian Culture and Business Management, 7(3), p.283.

Johnson, G., Scholes, K., Whittington, R. and Johnson, G. (2011). Exploring strategy. 10th ed. Harlow: Financial Times Prentice Hall.

Kelsey, C. (2016). The facts and figures about Tata Steel UK. Wales Online. [online] Available at: http://www.walesonline.co.uk/business/business-news/facts-figures-tata-steel-uk-11258131  [Accessed 15 Jan. 2017].

Markets.ft.com. (2017). Tata Steel Ltd, TATASTEEL:NSI forecasts – FT.com. [online] Available at: https://markets.ft.com/data/equities/tearsheet/forecasts?s=TATASTEEL:NSI  [Accessed 15 Jan. 2017].

Schram, B. (2015). Redcar and Tata Steel: Four reasons why the UK steel industry is struggling to survive. International Business Times. [online] Available at: http://www.ibtimes.co.uk/redcar-tata-steel-four-reasons-why-uk-steel-industry-struggling-survive-1524375  [Accessed 14 Jan. 2017].

Tata Steel, (2017). At a glance | Tata Steel in Europe. [online] Tatasteeleurope.com. Available at: http://www.tatasteeleurope.com/en/about%E2%80%93us/at-a-glance [Accessed 14 Jan. 2017].

Tata Steel, (2017). Our values | Tata Steel in Europe. [online] Tatasteeleurope.com. Available at: http://www.tatasteeleurope.com/en/about%E2%80%93us/values  [Accessed 14 Jan. 2017].

Teece, D. (2010). Business Models, Business Strategy and Innovation. Long Range Planning, 43(2-3), pp.172-194.

Trigeorgis, L. and Reuer, J. (2016). Real options theory in strategic management. Strategic Management Journal, 38(1), pp.42-63.