XYZ Steel company Ramesh Bhai started the XYZ steel industry in 1947. It was created by acquiring an English steel manufacturer named Gerrard steels, preparing to leave India and return to Britain. The fact that there was only one major competitor helped XYZ grow very fast. Between 1947 and 1957, they grew by about ten times. During these years, the company made only raw carbon steel due to a lack of technological know-how to make value-added products. In 1957 they tied up with a German firm, Gunther steel, to make stainless steel, vastly increasing their market scope. In 1960 XYZ created a new entity by the name of 'Rashi' ores. The new company was into mining iron ore which was critical for the success of the parent organization. Rashi ore helped ensure a steady and cheap supply of ore to XYZ, vastly improving its profitability and output volumes. Such synergy prompted XYZ to expand into U.S. and Europe to sell raw carbon steel, which had massive demand due to their industrialization. The stainless steel output of XYZ was majorly used in the manufacture of kitchen equipment and utensils (80% of the production went into it), which prompted them to expand into the sector. In 1970, a new subsidiary, 'Reliable Appliances' was created. Reliable appliances could establish quickly due to their high quality and excellent design. In 1975 the company also started setting up a chain of retail stores to sell these appliances. As the steel industry was heavily power dependent, XYZ began a power generation company, 'Power Plus' in 1980. Power Plus generated more than XYZ needed and thus had to sell their excess genetaion in the open market to mostly the state electricity boards (SEBs). SEBs only had the transmission and distribution capacity needed to sell power to end consumers. However, the SEBs were poor customers and delayed bills, and caused significant transmission losses to its suppliers. So in 1990, when liberalization was ushered, power plus began its transmission company by the name PP Utilities and targeted the four metros in the country, which accounted for significant power consumption. However, PP Utilities faces a stiff challenge from the SEBs. By 2010 they had established a name for themselves in terms of service. However, growth was stagnant as they couldn't expand beyond the metros due to transmission network requirements, which were not a constraint for the SEBs. PP Utilities generated about 10% of the group's sales but only about 2% of the profits. However, Ramesh Bhai refused to wind up the division as it employed about 10000 people. A closure or divestment would have put the employee's future in jeopardy. He had seen tough times in life and decided against the closure. It was agreed that the division would continue until an opportunity for growth or a favorable sale would show up (suitable to the company and its employees). When Ramesh Bhai took stock of the situation at the end of the 2020 financial year, he was presented the following data. Rashi ore was operating as a captive supplier to XYZ as government policies were not favorable for open market operations by private players in the mining sector. Power Plus also sold mainly to XYZ only as open-market power trading was still dominated by SEBs, and the governments showed no intention of changing the power policies. Division Sale (Crores) Growth (%) Market leader Sale IFE/4 EFE/4 XYZ Steel 12000 11 200000 3.4 3.2 Rashi Ores 8000 12 40000 3.6 2.8 Reliable Appliances 2500 22 2500 3.7 3.6 Power Plus 3000 11 50000 3.2 2.5 PP Utilities 2800 6 50000 3.1 2.4 Consider growth above 10% as high What are the different corporate strategies adopted by XYZ during their 70 plus years of existence? Briefly explain each strategy with points from the case
XYZ Steel company
Ramesh Bhai started the XYZ steel industry in 1947. It was created by acquiring an English steel manufacturer named Gerrard steels, preparing to leave India and return to Britain. The fact that there was only one major competitor helped XYZ grow very fast. Between 1947 and 1957, they grew by about ten times. During these years, the company made only raw carbon steel due to a lack of technological know-how to make value-added products. In 1957 they tied up with a German firm, Gunther steel, to make stainless steel, vastly increasing their market scope. In 1960 XYZ created a new entity by the name of 'Rashi' ores. The new company was into mining iron ore which was critical for the success of the parent organization. Rashi ore helped ensure a steady and cheap supply of ore to XYZ, vastly improving its profitability and output volumes. Such synergy prompted XYZ to expand into U.S. and Europe to sell raw carbon steel, which had massive demand due to their industrialization.
The stainless steel output of XYZ was majorly used in the manufacture of kitchen equipment and utensils (80% of the production went into it), which prompted them to expand into the sector. In 1970, a new subsidiary, 'Reliable Appliances' was created. Reliable appliances could establish quickly due to their high quality and excellent design. In 1975 the company also started setting up a chain of retail stores to sell these appliances. As the steel industry was heavily power dependent, XYZ began a power generation company, 'Power Plus' in 1980. Power Plus generated more than XYZ needed and thus had to sell their excess genetaion in the open market to mostly the state electricity boards (SEBs). SEBs only had the transmission and distribution capacity needed to sell power to end consumers. However, the SEBs were poor customers and delayed bills, and caused significant transmission losses to its suppliers. So in 1990, when liberalization was ushered, power plus began its transmission company by the name PP Utilities and targeted the four metros in the country, which accounted for significant power consumption. However, PP Utilities faces a stiff challenge from the SEBs. By 2010 they had established a name for themselves in terms of service. However, growth was stagnant as they couldn't expand beyond the metros due to transmission network requirements, which were not a constraint for the SEBs. PP Utilities generated about 10% of the group's sales but only about 2% of the profits. However, Ramesh Bhai refused to wind up the division as it employed about 10000 people. A closure or divestment would have put the employee's future in jeopardy. He had seen tough times in life and decided against the closure. It was agreed that the division would continue until an opportunity for growth or a favorable sale would show up (suitable to the company and its employees). When Ramesh Bhai took stock of the situation at the end of the 2020 financial year, he was presented the following data. Rashi ore was operating as a captive supplier to XYZ as government policies were not favorable for open market operations by private players in the mining sector. Power Plus also sold mainly to XYZ only as open-market power trading was still dominated by SEBs, and the governments showed no intention of changing the power policies.
|
Division |
Sale (Crores) |
Growth (%) |
Market leader Sale |
IFE/4 |
EFE/4 |
|
XYZ Steel |
12000 |
11 |
200000 |
3.4 |
3.2 |
|
Rashi Ores |
8000 |
12 |
40000 |
3.6 |
2.8 |
|
Reliable Appliances |
2500 |
22 |
2500 |
3.7 |
3.6 |
|
Power Plus |
3000 |
11 |
50000 |
3.2 |
2.5 |
|
PP Utilities |
2800 |
6 |
50000 |
3.1 |
2.4 |
|
Consider growth above 10% as high |
What are the different corporate strategies adopted by XYZ during their 70 plus years of existence? Briefly explain each strategy with points from the case
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