Project #79987 - marketing 1

 

 

 

 

 

 

Read Case 1.1 Zhang National Steel Company and answer the following questions in an essay format.

  1. What arguments should Liu Hong offer the company chairman in favor of internationalization? What are the business environment internationalization drivers and the firm drivers that are likely to lead to the internationalization of the firm?

     

  2. What product life-cycle stage is the steel industry in worldwide? Should Zhang National Steel Company move its labor force overseas to China’s neighboring countries? Why? Why not?

Your answers must include content and cite reference materials where appropriate. To assist in this requirement, a good rule of thumb is that each answer should be approximately 200 to 250 words in length.

 

 

 

Chapter 1 Scope, Concepts, and Drivers of International Marketing 21

 

22 Part One Introduction to International Marketing

 

 

Case 1-1 Zhang National Steel Company

 

Liu Hong, Director of International Accounts at

 

the Zhang National Steel Company, has just been

 

summoned by the new company chairman. He is

 

expected to provide viable solutions for the company

 

that will enable it to compete effectively in

 

an increasingly saturated international steel market.

 

China’s steel production is growing at breakneck

 

pace. Its rapid growth is posing serious threats to

 

the industry, and Zhang National, one of the larger

 

recently privatized steel companies, is part of the

 

problem. When Mao Tse Tung ordered an increase

 

in the steel production as part of the Great Leap

 

Forward, people left their fields, abandoned their

 

work in agriculture, and fled to the large steel

 

mills that produced millions of tons of useless substandard

 

steel. Today, an enterprising China is taking

 

another great leap, investing in industrial

 

establishments, especially in the steel industry.

 

The old, large steel mills have been privatized,

 

becoming more efficient and producing highquality

 

steel, and investors are keen on banking

 

on new and profitable steel mills.

 

According to industry reports, China produced

 

419 million metric tons of crude steel in 2006.

 

This represents an increase of 314 percent from

 

101.2 million metric tons produced in 1996,

 

when it became the largest steel producing country

 

in the world for the first time. Today, China

 

accounts for almost 34 percent of world steel production.

 

The Asia region accounted for almost

 

54 percent of world crude steel production in

 

2006, up from 38 percent a decade earlier. The

 

world total production of steel increased from

 

847.5 million metric tons in the year 2000 to

 

1,239.50 million metric tons in 2006. And with

 

steel production in the Asian region growing at

 

breakneck rates, it is predicted that there will be

 

an enormous glut of steel, which will ultimately

 

lead to mass layoffs from Pittsburgh to Beijing.

 

In 2007, China imposed duties of 5 to 10 percent

 

on exports of more than 80 Chinese-made

 

steel products, as well as other products containing

 

steel, to trim its trade surplus. Under these circumstances,

 

the Zhang National Steel Company would

 

eventually have to cut its workforce—most of it

 

recently hired—by two thirds. Such a move would

 

displace many workers and their dependent families

 

and could very likely lead to political unrest in the

 

region, as elsewhere in China. In fact, China’s

 

State Council, its cabinet, is starting to discourage

 

investment in new steel mills by making such

 

investments less attractive for investors. However,

 

such efforts at the national level are countered by

 

local officials whose goals are to increase local job

 

opportunities and taxes. Locally, there is a strong

 

push for establishing new steel mills, with local governments

 

offering incentives for such investments.

 

Liu Hong gazed at the steel mill’s dock on the

 

Yangtze River. Many of China’s steel mills are

 

located on the banks of this river. River access facilitates

 

barge access of ore imports, and the Yangtze

 

is a magnet for competitors. The steel Zhang

 

National produces is used primarily to meet domestic

 

demand and feed the building boom in China’s

 

large cities. Cement-and-steel structures line up the

 

large avenues in Shanghai’s Pudong district, and

 

along many of Beijing’s boulevards, massive structures

 

line up against the hazy sky (see Figure 1-7).

 

However, even China’s economy appears to be

 

slowing down, and after the 2008 Olympics,

 

there is not as much incentive for the national government

 

to push construction to showcase the new

 

China to the world. The investors in the newly privatized

 

Zhang National Steel Company are starting

 

to ask questions about the viability of the company

 

in the near future.

 

In spite of the recently imposed export duties on

 

Chinese steel, Liu Hong believes that going international

 

is the best strategy for the company.

 

Investors need to understand the importance of

 

going international to be profitable in the long

 

term. Undoubtedly, going international will be a

 

challenge in an environment that is fraught with

 

unpredictability and protectionist measures. The

 

world’s largest steel consumer, the United States,

 

is an important target market in Liu Hong’s view,

 

even though dozens of U.S. steel producers are

 

going bankrupt because they cannot compete

 

with imports that benefit from state subsidies. In

 

an effort to protect the U.S. steel industry, the

 

U.S. government took a step that challenged

 

the entire world trade establishment, charging tariffs

 

on steel imports. Furthermore, the European

 

 

FIGURE 1-7

 

 

 

Steel and cement dominate Beijing’s landscape.

 

 

 

Chapter 1 Scope, Concepts, and Drivers of International Marketing 23

 

 

 

Union is contemplating measures to block a flood

 

of steel imports from Asian countries—imports

 

that normally would have had the United States

 

as their destination. However, even though the

 

United States and the European Union may raise

 

some barriers to trade with China, Chinese steel

 

will continue to remain more affordable than U.S.

 

or European steel. Moreover, India’s steel consumption

 

is rapidly increasing, and with large revenues

 

from outsourcing, India has the hard currency

 

to purchase this commodity to meet local demand.

 

Liu Hong realizes that he must present a balanced

 

perspective on going international. The challenge

 

is convincing the chairman and the investors

 

that going international is essential for Zhang

 

National Steel Company. As a first step, he examines

 

the data on steel production in Table 1-2.

 

 

The Major Steel-Producing Countries

 

 

 

Major Steel Producers in 2001 and 2006, million metric tons crude steel production

 

 

2001 2001 2006

 

Country Rank Tonnage Tonnage

 

 

China 1 150.9 442.7

 

Japan 2 102.9 116.2

 

United States 3 90.1 98.6

 

Russia 4 59.0 70.8

 

South Korea 6 43.9 48.5

 

 

Note: World total production was 1,244.2 million metric tons in 2006.

 

 

Source: World Steel in Figures 2001–2006, International Iron and Steel Institute, June 15, 2007; www.worldsteel.org.

 

 

Regional World Steel Production (annual, million metric tons)

 

 

Year 2000 2001 2002 2003 2004 2005 2006

 

 

Europe 308.9 304.8 308.7 320.3 339.7 333.7 354.4

 

North America 135.4 119.9 122.9 126.2 134 127.6 131.5

 

South America 39.1 37.4 40.9 45 45.9 45.3 45.3

 

Africa 13.8 14.9 15.8 16.3 16.7 17.9 18.5

 

Middle East 10.8 11.7 12.5 13.4 14.3 15.3 15.4

 

Asia 331.9 353.9 394.9 442.4 510.1 591.1 665.7

 

Australia/New Zealand 7.8 7.9 8.3 8.4 8.3 8.6 8.7

 

World 847.7 850.5 904 970 1,068.90 1,139.60 1,239.50

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