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







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;



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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