The Economic Explanation of Technical Change: The case of Nucor s Entry into US Strip  July 2003

The Economic Explanation of Technical Change: The case of Nucor s Entry into US Strip July 2003 PowerPoint PPT Presentation

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Nucor's Entry into Strip. Nucor's entry into strip productionEntry as a game"Why didn't big steel oppose the entry ?North American imitators European developments in thin slab casting and direct rollingLessons from this case study. Nucor's Innovations. Process innovation world's first commer

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The Economic Explanation of Technical Change: The case of Nucor s Entry into US Strip July 2003

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1. The Economic Explanation of Technical Change: The case of Nucor’s Entry into US Strip July 2003 Jonathan Aylen Centre for Manufacture University of Manchester Institute of Science and Technology

2. Nucor’s Entry into Strip Nucor’s entry into strip production Entry as a “game” Why didn’t big steel oppose the entry ? North American imitators European developments in thin slab casting and direct rolling Lessons from this case study

3. Nucor’s Innovations Process innovation – world’s first commercial thin slab – direct strip rolling plant in 1989 Business innovation – “flat” business organisation based on incentives

4. Republic Steel open hearth melting shop, Cleveland, Ohio Nucor versus “Big Steel” “Big steel” slow to innovate: Slow to adopt oxygen steelmaking Slow to adopt conventional continuous casting

5. Nucor’s Entry to US Strip Market Nucor used process innovation to enter strip market: New technology New business systems

6. Cost Advantage Strategy Standard product – low price/cost margin No sales promotion or price complications Capacity fully utilised and matched to demand Search for cost reducing innovation Strong emphasis on pay based on productivity No overheads, administration: tight cost control

7. Why didn’t Big Steel Oppose Nucor’s entry ? Big Steel “committed” to existing thick slab concast technology to make quality products: Bethlehem, USX, Inland, Armco, Weirton, National, Rouge, Wheeling-Pittsburgh

8. Nucor’s Entrepreneurship Firm Specific Issues Nucor keen to grow – strip their chance Suffered new entry into their own markets of rod and bar Joint venture with Yamato in sections Experience of new plants in steel and engineering (e.g. bolt manufacture) Developed new business model

9. Shouldn’t incumbents adopt first ? Established firms less incentive to innovate as it cannibalises existing profit – get profits from existing plant first (Kenneth Arrow) versus Rivals will steal the business, so pre-empt them – get there first ! (Fudenberg & Tirole)

10. “Big Steel” versus Entrant Is the innovation revolutionary or modest ? What sort of post-adoption competition? Price or output competition ? Will the technology succeed anyway?

11. “Big Steel” versus Entrant Thin slab casting: Likely to have major impact Likely to reinforce price competition Likely to succeed So why did “Big Steel” let it happen ?

12. Incumbent v. entrant thin slab production Fairly certain process, uncertainty was Nucor’s lack of familiarity with process; Strong engineering support from SMS keen to make it work; Many established components; Commercial scale pilot plant for continuous casting.

13. SMS thin slab pilot plant in their foundry Schloemann-Siemag a reliable partner Leading strip and continuous casting equipment supplier Extensive pilot testing Would not have chosen Nucor as a partner !

14. Incumbent v. entrant thin slab production On all counts, theory suggests the incumbent should aggressively adopt the new technology to prevent business stealing Why didn’t this happen ?

15. Thin-slab casting – rolling of strip Seen as non-threatening innovation Coordinate prices in “Big Steel” Quality problems of thin strip – an inferior technology Scale matters – Nucor small scale Nucor just more efficient “Puppy-dog ploy” – small, remote plant less provocation

16. Cost of Cold Rolled Coil – Nucor versus “Big Steel” 1995

17. Nucor built “Chinese Copies” Nucor, Hickman, 1992 Nucor, Berkeley, 1996

18. Nucor spawned Imitators Ten thin/medi slab plants in North America threatening big steel followed Crawfordsville Developments Worldwide European (and Mexican)Technical Advances: Ultra-thin strip Semi-endless rolling Ferritic strip

19. Nucor’s Imitators – not all successful ! Trico joint venture: British Steel Sumitomo LTV Went for higher quality Shut 2001 Sold to Nucor 2002 Innovation is risky !

20. North American Imitators

21. Nucor: lessons for innovation Inferior technologies often challenge the existing, conventional “trajectory” of development Inferior technologies are usually improved and applied more widely if they offer key advantages (e.g. cost savings) The technology paradigm changes infrequently, but sometimes dramatically

22. Corus IJmuiden under construction Generation V – the second stage of innovation KruppThyssenStahl & Corus IJmuiden BOS fed Semi-endless rolling Ferritic rolling potential Carousel coilers

23. Generation V emerges Motivation: Low cost route to range of strip products Pre-empt other entrants to European strip production - learn from Nucor in USA Challenge USINOR in strip – they bought Arvedi as part of Arcelor merger Extra capacity to supplement conventional thick slab mills at Thyssen, Krupp and Hoogovens So, innovation a strategic move by established firms

24. KruppThyssen, Bruckhausen and Corus IJmuiden – quality enhancements BOS feed, not arc – higher quality input Ladle steelmaking (temperature, calcium) Sophisticated continuous casters – submerged entry tundish/reduced mould turbulence Ultra-long tunnel furnaces for semi-endless rolling High pressure descalers for surface quality High power seven stand mills

25. Higher slab quality than the pioneers – electro magnetic braking Crucial to reduce mould turbulence But, Works better on narrower slabs Expensive, only justified in a quality market However, Familiar pattern, inferior technologies improve

26. KruppThyssen and Corus IJmuiden Corus IJmuiden: Transition to ferritic rolling (difficult) Carrousel coilers Short run-out table Thickness planned down to 0.7 mm Low carbon, HSLA and ferritic grades

27. Ipsco, Mobile, Alabama The Innovation spreads: New Generation Compact Plate Mills use thin slab continuous casting Compete with imports in USA Corus, coil plate Tuscaloosa IPSCO Montpelier, Iowa Mobile, Alabama Nucor Hertford

28. New Generation Plate Mills Embody lessons of thin slab for strip – low cost route to low quality product Wide, thin slab casters Markets in construction, bridges, barges, rail cars, storage tanks, agricultural machinery, pipework Often combination plate/Steckel mills making both discrete and coil plate Discrete plate rolled to 3 metres wide (120”) Plate thickness 5 mm to 50 mm

29. Ipsco Mobile, first slab Wide, thin plate slab casters

30. Implications of this case study for Technical Change Innovation can be a strategic move to out-flank competitors Inferior technologies may win out (and improve over time, e.g. EMBr on concast moulds); Established firms learn from newcomers; New technologies migrate across sectors; New technologies may destroy existing firms long after they first appeared (ten year lag between Nucor Crawfordsville and ThyssenKrupp, Bruckhausen)

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