Research Paper on Globalization in the Steel Industry

Introduction

Globalization plays a vital role in virtually everything, from food to war, with many of the greatest companies worldwide gaining control overseas from diversification and revenue. The capacity of steel production is one measure of an economy. As such, the steel industry is one of the most significant sectors both in developed and developing nations. Globalization has advanced the steel industry in the last years with a substantial increase in production and reduced prices. Moreover, globalization has facilitated the production of steel on a multinational level meaning that production of steel can take place in one country and exported to another for creation into various forms. Globalization, therefore, has enabled steel to be exported and imported across the globe with ease thereby increasing production and decreasing cost.

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Steel production is a capital intensive business that requires massive capital for investment. The industry needs large resource allocation, raw materials, and energy as input. Additionally, the industry has more influenced compared to other sectors. Consequently, nations which could produce steel inexpensively are more competitive in the steel industries due to their raw materials. Indeed, the steel industry has a characteristic such that it has no control over the imbalance between supply and demand. In the case of an economic recession, steel producing companies cannot quickly reduce their supplies granting that steel demands decrease so that the product prices can fall suddenly. Also, in the case of an economic boom, steel prices rise rapidly since producers cannot expand their capacity within a short time. For that reason, this implies that there are significant economies of scale in the steel industry. Also, the entry barrier is high due to the huge initial investments needed. The choice of a production base in the steel industry is therefore very crucial since the flow of materials is a significant factor in securing competitiveness.

This literature review will mainly focus on the globalization of the steel industry in Asia, Northern America and parts of Europe. Currently, the world's largest steel producer is China with a total crude production of approximately 1691 million tons in 2017. In 2018, crude production reached about 928 million tons, an increase of roughly 6.6 percent from 2017 (Wordsteel Association, 2019).

Changes in the Global Steel Industry

Technology has been a significant aspect of the steel industry. For instance, countries that introduced innovative steel technologies have taken the lead in the global steel industry. The United Kingdom invented the Bessmer converter technology in the 18th century hence taking the lead in the world steel industry. The United States, on the other hand, took the lead in the early 20th century by inventing the open-hearth furnace and electric arc furnace technology. Until the early 1990s, Japan took the lead with its Big blast furnace technology and casting machines.

Currently, the global steel market is moving rapidly towards perfect competition with the growth of globalization and liberalization. With the acknowledgment of the significance of innovative steel technology, the speed of steel technology growing fast and the cycle of technology has reduced (World Steel Association, 2017). There is growth in the development of the steel industry primarily in the manufacturing process, finished products, and the manufacturing sector. Moreover, manufacturing processes have become more effective through technological advancements. Energy reduction has been made possible as new technologies enable the production of new products. Another noteworthy change is that steel producers can now operate their facilities with improved environmental conditions. Consequently, the global steel industry is set to undergo more dramatic changes due to new technological innovations.

The Changing System of Competition in the Global World Industry

The steel industry is becoming more competitive globally. As high competition levels have made the business more difficult. Some of the reasons for the competition include: First, the demand for steel is expected to increase. However, the possibility of imbalance is likely to rise due to the increase in steel production capacity for each nation. Secondly, China, South America, and East Asia are likely to be the leading regions as the steel industry develops. Thirdly, countries such as the United States, Germany, and Japan which lost their competitive advantage around the 1980s are recovering their influences by restructuring their steel industries (Hwang). Fourthly, the Thin Slab Casting and the Direct Arc Furnace Technology produces flat as well as long products. In this regard, it can be projected that future competition of the steel industry will be much more crucial in securing productivity and flexibility of manufacturing via minimization of globalization and diversification.

The steel industry was dominated by developed countries until the 1970s when it experienced two oil shocks and an ensuing economic slump. Nonetheless, after the recession, the developed nations such as the United States are now recovering their competitiveness thereby increasing their production and exports. As such, they achieved this success through rationalization and development of new technologies (Mitra & Roy, 2018). To regain competitiveness, Japan and America retired their old equipment hence improving their profitability. As a result, they developed their rates of operation from eighty to ninety percent.

Additionally, with the introduction of the independent facilities such as continuous casting, the ratio of casting significantly improved by ninety percent from below sixty percent. With the retirement of the old equipment, they could save on labor thus improving efficiency considerably from the 1980s to late 1990s. Japan and USA cut its steel industry personnel by about fifty and sixty-five percent respectively. For that reason, the average work-hour per ton needed to manufacture flat steel in Japan reduced to about four percent in 1996 to about nine percent in 1980, achieving the best level in the global steel industry.

One of the most significant reasons that the global steel industry is actively seeking globalization is the reasonably low strategic importance of the steel industry. This means that the influence of the steel industry as a national sector has been weakened by the development of the industry structure. This changed happened with the privatization of government-owned organizations. Companies within developing countries such as Brazil and Philippines also underwent privatization. In this regard, the ratio of privations in the steel industry particularly in the West increased considerably. The privatized firms pushed forward positively making strategic unions with other organizations in a bid to attract foreign capital. As such, liberalization of reserves and the financial markets quickly resulted in globalization within the steel industry worldwide.

Indeed, there were high entrance barriers historically for the steel industry since massive amounts of capital investment were needed. Nonetheless, as steel production became more developed, Mini-mill could come up with affordable, highly productive manufacturing systems through simplification of the work processes. Among all steel manufacturing firms worldwide, Japanese steel producers have globalized through strategic coalitions.

The technological movement has been quite vigorous among known world steel firms through licensing for several decades after WWI. As such, it was rare that a steel manufacturing company operated its production facilities in numerous countries. Each state nurtured its steel industry as its mainstay sector through industrial development. Nonetheless, globalization in the steel industry made a new start since the 1970s and this trend fast-tracked much more after the 1980s.

Summary

Overall, Japanese steel manufacturers were the earliest participants to take place in the globalization trend in the 1980s. They quickly took stakes in the United States steel companies such as National Steel forming unions with U.S Steel and Inland Steel among other organizations. The Japanese made this move to support domestic automotive clients with newly formed transplants in the American market. Another factor that motivated the Japanese to move into the U.S was to reduce the possibility of being shut out of the American market by trade sanctions. Facilitating Japanese movement into the U.S was the tremendously low-cost funding made available by the Japanese financial companies. Presently, very tight credit combined with highly leveraged balance sheets sternly limit the ability of Japanese steel firms to produce more consolidation moves globally.

Additionally, the demand for steel is expected to increase. However, the possibility of imbalance is likely to rise due to the increase in steel production capacity for each nation. As such, China, South America, and East Asia are likely to be the leading regions as the steel industry develops. Moreover, countries such as the U.S, Germany, and Japan which lost their competitive advantage around the are recovering by restructuring their steel industries. In this regard, it can be projected that future competition of the steel industry will be much more crucial in securing productivity and flexibility of manufacturing through minimization of globalization and diversification.

References

Gallagher, K. P. (n.d.). Economic Globalization. Retrieved from https://www.annualreviews.org/doi/pdf/10.1146/annurev.environ.33.021407.092325

Hwang, M.-H. (n.d.). Globalization of the Steel Industry. Retrieved from Globalization of the Steel Industry: https://www.kdevelopedia.org/download.do?timeFile=/mnt/idas/asset/2012/.

Mitra, P., & Roy, D. (2018, April 26). Global Competitiveness in the Steel Industry. Retrieved from https://www.researchgate.net/publication/258122452_Global_Competitiveness_in_the_Steel_Industry

Wordsteel Association. (2019, January 25). Global crude steel output increases by 4.6% in 2018. Retrieved from https://www.worldsteel.org/media-centre/press-releases/2019/Global-crude-steel-output-increases-by-4.6--in-2018.html

World Steel Association. (2017, April 20). Global steel industry: outlook, challenges, and opportunities. Retrieved from https://www.worldsteel.org/en/dam/jcr:d9e6a3df-ff19-47ff-9e8f-f8c136429fc4/International+Steel+Industry+and+Sector+Relations+Conference+Istanbul_170420.pdf