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8/8/2019 Project Market

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EVALUATION OF MARKETING FUNCTION OF SAIL

Marketing is like rowing a boat upstream. You will have to row strongly against the current

or you will be swept away by it. This represents the true current scenario of the Indian Steel

Industry and SAIL in particular. The Steel Industry was delicensed and decontrolled in 1991

and 1992 respectively. Number of players added the capacity in a market where growth waslow. The past inertia of monopolistic market of SAIL got shattered in no time. Marketing

existed in SAIL earlier was performing more of distribution function only. The openness to

competition and withdrawal of government support has drawn SAIL into fierce competitive

ground with ever increasing competition. This is clearly visible from the loss in SAILs

market capitalization.

Product SAILs Market Share

1992 1998

Flats 61 % 33 %

Finished Steel 38 % 26 %Longs 21 % 19 %

This perspective very well describes marketing needs of SAIL. The basic of marketing

remains the same in any product area. The marketer needs to have following knowledge and

functions:

Product knowledge

Market / Demand awareness and sensitivity

Quick response to market situation

Innovation strategy

Attractive and competitive policy

Resource utilization

Customer contact and satisfaction

Assured delivery

Prompt after sales-service

Sales realization

ENVIRONMENTAL ANALYSIS

The Indian steel market was liberalized in 1992; this removed entry barriers and converted a

sellers into a buyers market. This was accompanied by sustained demand growth of 8% till1996, led by 11 % growth in the flat markets. The production of finished steel increased from

14.33 mt in 1991-92 to 23.84 mt in 1998-99. India is the 10thlargest producer of steel. The

finished steel market grew from 14.2 mt in 1990 to 22.2 mt in 1996 (High growth), 22.9 mt in

1998 ( Flattening out). In anticipation of continued growth in the flat markets, a number of

new players (such as Essar, Jindal and Ispat) entered the market and setup large capacity. The

market flattened out in 1996-1998. The flat market was particularly affected. The setting up

of new capacity created large over capacity, amounting to 20% in HRC, and 45% in semis for

longs. This has led to intense domestic competition. Accompanied by falling import barriers,

and depressed international price, this, in turn, has led to a fall in prices by 3% with cost

rising at 6% players are faced with a price-cost squeeze of 3% per annum. Most Indian

players have shown a consequent large drop in profitability. Global steel prices have shown asteep decision in recent year due to the crash of Southeast Asia money market and fall of


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value of yen. The one of the largest producer of steel, CIS nations have dumped huge stock of

unsold steel in Indian market. These global and national changes have increased the

competitiveness in steel market.

The steel consumption in India is mere 22 Kg per person per year compared to 450 Kg per

person per year in America. Thus Indian steel market is characteristic by high supply- low

demand market.

SWOT

To lead the market, the very first requirement of SAIL is to know its strengths and

weaknesses along with opportunities and threats.

Strengths

Wide Product Range

SAIL produces vast range of products. This gives SAIL an edge over other suppliers in

Total package deal or project supply. SAIL can supply full range of requirement of any

project. The other players are specialized supplier in either flat product or long product or

even cater to a small segment.

Large Network:

SAIL has very large marketing and supply network. SAIL is present in nearly all market be it

small or big. This gives SAIL an omnipresent status.

Long Association

SAIL is supplying steel to its customer from a long time and has a long association with the

customer.

Modernisation

SAIL has modernized its plant at BSL, RSP, DSP and BSP. The product quality has

improved and now matches with the market demand.

R&D Facility

SAIL has Asias largest research and development facility at RDCIS, Ranchi. It has

developed many new products and cost saving process which gives SAIL an edge over other

suppliers.

Largest Supplier

SAIL is the largest supplier of steel in India. It has nearly major market share in every

segment.

Weakness

Government Control

SAIL comes under public sector and has government control. SAIL needs to take all major

decisions from government, which is highly bureaucratic, and these delays many decisions.

In the fiercely competitive market this is a tied-end situation for SAIL.

Production Location

SAIL has its production capacity concentrated in eastern India whereas steel demand is

concentrated mainly in west, north and south India. The cost of steel supplying is more

compared to new plants production located in east and north.For example ESSar has freight

cost of Rs 300/ton while SAIL freight is Rs.1700 /ton.

Large Manpower


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Due to the government legacy SAIL has enormous manpower compared to new producers.

This definitely increases cost of production. SAIL has 1,70,000 employees at present (15.3

employees/1000 tons of crude steel) compare to 5.7 employee/1000 tons for RINL and 0.8

employee/1000 tons for NIPPON steel. TISCO has reduced its manpower as per its schedule

plan but SAIL being a public sector organization cannot forcibly reduce the manpower and

secondly it is facing high cost burden of modernization. Quality

The product quality of some of the SAIL product is not matching with the market

expectations. For example CRM of RSP is 20 years old and BSL is 10 years old, whereas,

TISCO CRM is new. There is bound to have difference in quality.

Social Obligation

SAIL being a public sector has to bear a huge social cost, which is burdensome and in the

squeezed and fiercely competitive market. SAIL spends Rs 450 crore a year on township

services, hospitals, schools etc. It can well be imagined that this is a huge burden on SAIL

and increases product cost.

Non Performing and Non Core Units

SAIL has political imperative to keep unviable assets like VISL and IISCO. SAIL is not able

to close other non-viable units like ASP, MEL and RSPs fertilizer plant This is very big

drain on SAILs bottom line.

High operating cost

Some of SAIL plants have high operating cost (ex. 2700/ton in RSP for HSC) because of

poor operational practices and old equipment.

Opportunity

Expected growth in Indian market

The Indian market is poised to grow by 6-8% and there is special thrust in infrastructural

area. This will definitely improve market demand.

Urban Development

The Indian society is increasingly becoming nucleus family oriented and urban oriented. This

has led to ever increasing pressure on dwelling units. The growth in construction sector is

good sign for steel industry.

National highway scheme and Power plants.

The India is poised to grow and there are plans for big infrastructural projects like national

highway and Power Plants. This will give boom to steel industry.

Global demand increaseThe global market is limping back with the stabilization of South East Asian economy. The

export potential for India is tremendous.

Threat

Cheap import from CIS and Korea

CIS has huge production capacity and with shattered condition of CIS nations, CIS has

dumped huge stockpiles of steels in Indian Industry at throwaway prices. Korea has also

dumped huge stockpile of steel in Indian market. The already oversupplied Indian market is

glut with cheap imports.

New capacity addition

There are new capacity additions in steel industry like MESCO, Kalinga, JVISL etc.


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Use of reinforced plastic materials in industry

There are material substitutes for many varieties of steels. This will surely effect future of

steel Industry.

COMPETITIVE ANALYSIS

Overall Strategy


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SAILs first need is to decide on a product mix, based on the analysis of the attractiveness of

its product segments and its strength and weakness. This marketing strategy then needs to be

align with production and capital investment strategy with this product mix.

The marketing is required to define the long-term product-market strategy, determine variouscustomer segments, their growth potential and SAILs positioning.

Refocused Product Market Strategy

Currently 88% of the Indian steel mar is in the low to middle end segments. (Exhibit 1.1)

The low-end demand (14.5 million tons) includes large customer segments such as tubes,

construction and wire drawing. The middle end demand 95.75bmillion tons) include

segments such as heavy machinery and LPG cylinders, and the high demand includes

segments like automobiles, white goods, and boiler and pressure vessels (2.8 million tons).

Though the high end segment is likely to grow about 2% faster than the low-end middle end

segments, it would constitute only 13% of the market by 2001. The 20 million tons low endand middle-end segments would still constitutes 87% of the market by 2001. Consequently,

the preferred strategy for SAIL would be as follows:

In flat protect bread and butter segments and selectively move towards high-end segments

In longs, invest to meet quality requirements and increase finishing mill capacity and

continue selling semis.

Product market strategy for flats.

Currently SAIL is presently mainly in the low-end and middle-end of the flat market, which

accounts for 90-95% of its sales and contributions. It has a limited presence in the top-end

segments (exhibit 1.2 and 1.3). Its current capabilities are well matched to the demand of thelow and middle-end segments. For instance, SAIL is well placed in the tubes (HR),

construction (TMT/TOR, GC Plates), wire drawings, drums and barrels (CR), fasteners 9bars

and rods) segments. Its favourable position in this segments results from its low cost position,

large distribution reach and large production range. These therefore are its bread and butter

segments and SAIL should defend and increase market share here before rushing into higher

value-added segments that need large capital investments.

SAIL should particularly defend its share of the tube making and construction segments and

aggressively grow share in the cold reduced HR segments, taking advantage of improved

product quality due to modernization in BSL and RSP. At this point it should avoid investing

scarce funds in pursuing the auto-body segment, which is quit small, and already TISCO has

enough capacity to supply the same. SAIL should selectively target the white goods segment

with carefully planned incremental investments.

The marketing strategy for different segments is underlined below:

Flat Product segment: SAIL is hard pressed to protect its share in this segment as a number of

players like ISPAT (HR) and TISCO (CR) have entered in this market. This requires SAIL to

improve the product quality and improve marketing function.

White goods: These segments are likely to grow faster than the low and middle-end

segments. Though its size is only two lakh tons, the rationale for targeting this segment is that

white goods requirements are similar to those of high-end segments. Investing in white good

will allow SAIL to enter other high end segments and protect it from any qualityimprovements in its bread and butter segments.


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To target white goods sector SAIL has to improve its quality as well as improve marketing

functions, as service demand is very high.

Auto body: In the next 3-4 years SAIL should not plan to invest in the auto-body segments.

The segment size is less than 1.5 lakh tons (Exhibit 1.4). It constitutes only 16% of total

automotive flats demand (9.7 lakh tons) and only 1% of total flat demand. Instead SAIL

should target the remaining 84 % of the automotive demand. The entrance to auto-body

market calls for an investment of at least 150 crores 9RH degassing, Hydrogen annealing)

and further 100 crores in gauge control. The market requires very stringent quality

requirement and secondly most of the carmakers have strong tie-up with global suppliers

making it difficult to capture share. For example Maruti sources its entire requirements of

70,000 tons from Posco and Nippon steel.

Exhibit 1.5 and 1.6 provide segment-wise growth prospects and recommendation.

Product market strategy for Longs:

As shown in exhibit 1.6, no new capacity is slated to enter longs and hence the segment is

likely to be more attractive than flats. To illustrate, in semis (used for longs), while demandwill grow by 5 million tons, capacity will not increase. Thus over capacity will rise in flats

and decrease in Longs. SAIL is well positioned in the TMT/TOR; wire rods and structural

segments of the longs market. Though quality in some segments like wire rod is lower than

that of RINL and TISCO, it surpasses that of the small rerollers. SAIL is able to sell its 100%

output and all mills are running at 100% capacity. With this scenario it would not be a

problem of maintaining the same pace in wire rode, TMT and structurals. Since this segment

is low quality conscious no imperative need is to invest in quality improvement rather SAIL

should invest in increasing finishing mill capacity.

SAIL has monopoly in rails. The Indian railway is SAILs single largest customer and buys

about 5 lakh tons of SAIL material. SAIL should invest in RAIL mill at BSP to meet theRailways requirement. Exhibit 1.7 and 1.8 summaries the segment wise growth prospects and

recommendations for long products.

Product market strategy for semis

The semis (billets and blooms) sold by SAIL is converted into finished products and the same

competes with SAILs own finished steel. But this segment adds to Rs. 350 crore profit to

SAIL. Furthermore leaving this segment will not reduce competition, as alternate suppliers

are there to supply semis. The semis market in India is of more than 5 million tons. Important

players are MSP, DSP, RINL, TISCO and EAF/IF producers. The market is expected to grow

by 5-6 %. Most semis are converted into long products and SAIL and TISCO mills are

running at full capacity. So the growth of market will match the growth of long market.


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Tactical marketing Initiatative.

SAIL can add an additional Rs. 580 crore in profits through tactical marketing initiative. The

tactical marketing kevel fall into four areas: Quality improvement, Key account management,

sales force effectiveness and channel optimization.

Quality ImprovementThere is instances of high rejects by customers. Poor quality alone has led to loss of Rs. 275

crores in 1998-99. These losses occurred at multipl stages: high arising in the plant,

downgrading at the stockyard, customer rejects, lower price realization and loss in sales. This

situation can easily be reversed since substantial quality improvement can be achieved

through improvements in work practices and minor capital Investments.

Key account management

It is suggested that SAIL should introduce a comprehensive key account management (KAM)

programme for the 2% of its customers (165 of 7800 customers) who account for more than

50% of its sales. To protect these large customers from new competitors, SAIL needs to

correct current anomalies in its account manage,ent. There is anpmaly in number of times

spent with high yield customer vis-avis small customer.A comprehensive key account

management system will satisfy the quality and delivery requiremebnts of SAILs large

customers. Following strategy is required to be done:

Identifying key accounts and forming account teams:

Developing account plans

Turning aggregate individual account plan into accounts

Implementing and monitoring progress

Sales force effectivenessAt present only 6% of CMO personnel actually sell products and the average sales person

typically spend only about 10% of its time with customer. 50% of sales person time goes in

meeting, paper-work administration, follow up with plants. The SAIL also needs to upgrade

its manpower for effective selling.

Channel Optimisation;

The requirement of the hour is to develop its dealer network, to improve access in small

towns where SAIL is not present and to replace stockyards/branches in low consumption

centre. The dealer will improve access and reduce cost to serve.


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Exhibit 8.4

Demand for PASSANGER Car auto-body sheets

Total flat demand Total flat demand Total CR Automotive

demand

1005=608,000 tons 100%=11.8 million tons 100% =970,000 tons

Others

Automotive

Flats

25

92

8

17

6320 CR

HR

Car body is

only a 1.5 lakhton segment

It constitutes

only 16% oftotal autodemand and

1% of total flat

demand

Other automobile

2-3 wheelers

Car body

Car

com onents


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Exhibit 1.3

Quality-Customer Map for Flat products

SAIL

TISCO

Quality spectrum (Low to High)

LOW MEDIUM HIGH

Tube makers

-HR

Fasteners-

Bars & Rods

LPG

Cylinder-HR

Cold reducers

- HR

Construction

sector-GC

Low-end

furniture, drums

and barrels -Bicycle-CR

Auto

component-CRWhit

goods-CR

High end

furniture-CR

Existing SAIL

Position Likely TISCO

position

Investment=Rs 160 crores

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