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C A S E T E A C H I N G N O T E S
Severstal and the global steel industry
Eustathios Sainidis
1. Introduction
This case describes how the Russian steel producer Severstal has built its global presence
2. Position of the case
The case is concerned with identifying the strategic position of the organisation and methods of
3. Learning objectives
The case will allow students to develop:
Their analytical skills by applying the relevant strategic analysis frameworks of PESTEL,
Porters Five Forces (Chapter 2), and Yips globalisation drivers (Chapter 8). This will
allow students to evaluate the strategic position of the organisation.
4. Teaching scheme
The case can be used over a two hour small group discussion session to practice the application
of strategic analysis frameworks and allow for debate on suitable strategic options in a dynamic
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5. Questions for discussion
The following questions can be used by students to work on the case and make links with the
relevant sections in Exploring Strategy:
1. Using suitable strategic analysis frameworks, critically evaluate the business environment of
the steel industry. What patterns do you see in the development of the steel industry, its
markets and key players? (Chapter 2)
6. Case analysis
1. Strategic position
Students should mainly refer to Sections 2.2 and 2.3 of Chapter 2 in Exploring Strategy. The
case however also lends itself to the application of Yips globalisation drivers as described in
Section 8.2 of Chapter 8.
PESTEL analysis:
Political
Relative political stability in Russia. Corruption and relationship with steel oligarchs is
an issue
Economic
Global economic recession following 20078. With the exception of China and
Australia, all other major steel markets in recession will take many years to reach pre-
recession levels of steel consumption
Social
Shortage of labour skills in developed markets accessible for steel producers.
Employment prospects in steel plants not appealing in developed markets
Technological
New production methods available for steel producers to increase efficiency, reduce
waste and energy consumption.
Environmental
Legal
Mainly environmental regulations (see Kyoto agreement) and health and safety
procedures at steel plants.
Porters Five Forces analysis:
Threat of entry
Economies of scale are essential especially, for hot-rolled and cold-rolled steel ( )
Overall: LOW (Moderate in emerging markets and downstream production)
Bargaining power of suppliers
Overall: MODERATE
Bargaining power of buyers
Consolidation of buyers, especially for service metal centres and construction industry (+)
Overall: HIGH
Threat of substitute products
Substitution of common grades by high-strength steel (+)
Overall: LOW
Competitive rivalry
Steel industry is relatively balanced although still highly fragmented, but ArcelorMittal
has begun to dominate (+)
Overall: HIGH
Yips globalisation drivers (see Figure 8.2):
Market (global)
Common customer needs (from automotive and engineering industries)
Cost (global)
Global economies of scale
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Competitive (global)
Global competition
Government (local)
Some technical standards are not in agreement
From the above analysis, students may conclude on the key drivers for change in the business
2. Motives for acquisitions
The question refers to Chapters 10 and 11 of Exploring Strategy on strategy methods and
evaluation frameworks. The choice for organisations to grow and develop is either organic
development or through mergers/acquisitions. This may depend on the structure of the industry,
Speed of entry into overseas markets which will support the companys international
expansion
A competitive move by Severstal against hostile acquisitions. The bigger and more
powerful you are, the less chances you offer competitors to plan for your acquisition
Severstal is under pressure from its shareholders in London and Moscow to deliver growth.
Acquisitions is a typical strategy to meet this stakeholder expectation
3. International strategy
The question refers to Chapter 8 in Exploring Strategy. Students should examine the sources of
competitive advantage of Severstal (generic strategy in Severstal is hybrid with cost leadership
in Russia and elements of differentiation in the US and Europe). The international strategy of