Ruosheng Zhang

8/3/2019 Ruosheng Zhang

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An Introduction to the Case

Ruosheng Zhang is president of Guangzhou Iron and Steel Enterprises Holding Limited

(GISE). He has worked at Zhujiang Iron and Steel Company (ZISCo), an important strategic

business unit (SBU) within GISE. Zhang had been ZISCos president between 2003 and 2006

and was promoted to GISE in early 2006. ZISCo is quite successful in achieving the goals.

Founded in 1997 which is one of Chinas key national projects in the national Ninth Five-Year

Plan2 first compact strip production (CSP)3 plant in China. ZISCos annual production

capacity reached two million tons of steel sheet products. Company sing scrap steel converts it

into different types of steel. Chemical composition and thickness tells there usages and price.

CSP research center develop many new products. Plant can separate apart the different materials

based on their composition automatically. Engineers have mastered in technical knowhow of

producing steel sheets.

ZISCos organizational structure was significantly different from that of a traditional state-owned enterprise. ZISCo had only two party secretaries at the companys top level. The party

secretary at the company level also held the position of the chairman of the board of directors,

and the deputy party secretary was in charge of all other daily traditional political affairs of the

party, the Communist Youth League4 and the workers union. All functional heads at ZISCo also

held the position of party secretary at their function.

The total capital investment 5 billion, with 70% of the investment being financed by bank loans.

The annual interest on loans amounted to about Rmb 300 million. it was found that problems

existed in five areas: business strategy, production, sales, procurement and human resources.

ZISCo pursued a differentiation strategy with a focus on domestic niche markets bymanufacturing products. This strategy was, to a large degree, a result of its organizational

context rather than a willful strategy. It had several limitations.1 this strategy made it difficult to

achieve economies of scale 2 differentiation strategy also required a high level of production co-

ordination. Idea of niche market was offset with cost associated with it.

In developing new business strategy it was divided into three different stages. Stage one involved

the establishment of short-term objectives to improve the production process, product quality and

key functional performance. Stage Two related to the implementation of strategy to consolidate

functional performance, and to improve cross-functional co-ordination and integration. Stage

three involved continuous integration and capacity building. Company has set goals to reducecost and reach 90% of design capacity along with improving quality and production. With new

management company reach 80% production capacity, coordination improves a lot but quality

remains a concern. All this also changes the incentive plans as well. A new functional

department, product quality, was established and automation department was dissolved and its

function was transferred to the IT and equipment departments.


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The salaries of top and middle managers were linked to the financial performance of ZISCo on a

monthly basis. Additionally, several special incentive schemes for front-line employees were

launched to encourage the production of thin steel sheets. Procurement process was also

changed. Supply department become more involved in order placement. And they reduce the

number of suppliers i.e. take 80% procurement from 20% top suppliers. They reduce their

inventory and were a win-win situation. Marketing strategy change from niche market to target

selected large market. They targeted container manufacturer of China with one-stop-shop

service. Zhang gave the new ideology of value creation because through this sustain growth was

possible. It was prefer on differentiation and cost leadership. This was dealing with both

customers and company. Customers will get new products, company will be cost effective and

employee performance will be linked with overall financial performance of company. A

complete performance appraisal system was develop and a cross competition was develop.

In implementing new strategy a new team was establish who from different department will join

together and will make coordinated decision by seeing all perspectives like inventory cost, profit,

production etc. team was formed based on requirement with a team leader. Zhang with few

organization departments could do it personally to make communication of new strategy more

easy and effective. He personally involved with employs was available to them. Complete

detailed requirement and vision etc was published and delivered to each one to properly

communicate the strategy. There were charismatic and instrumental or transactional leadership

styles being followed. Both of these had different roles in their jobs. Company initially was

following the cost reduction strategy. ZISCO was thought to be technological leading firm due to

its technology. With new strategy there was a shift from production to marketing concept. A

cross department competition was established and these give rise to better performance in

production and financial parts. With few suppliers more quality product was available due tosupplier concern and involment. This reduces the cost. Inventory cost also lowered down. Thin

steel production was improved. With flattening equipment which gives addition price was

increased. There were different challenges associated with ZISCo some of them are as follows

The first challenge was the need to cultivate a new organizational culture to support valuecreation at ZISCo.

The second challenge was how to continuously discover, understand and exploit insightsabout value creation to create further competitive advantages.

The third challenge was how to sustain the competitive advantage that had been achievedso far at ZISCo which had gained the first-mover advantage.

To leverage these core competences and develop them to sustain a long-term competitiveadvantage was the biggest challenge facing ZISCo

The final challenge was to learn and develop organizational capability to manage theorganization strategically


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Key Market Trends

Initially there was a common concept of production. In this there was a perception of producing

the goods at large scale. Country as a whole was seen as a nation in which a fix price was settleddown with a communism thought. Initially there was a gap between the local market and

international for china.

Now things are changing. But with increase diplomatic elation market is changing. ZISCo is

being seen as technological driven organizations which have huge edge over its competitors.

Now there is a requirement to be more diverse as well as cost efficient.

Now a days its seemed that there is requirement to get change and adjust with new culture in

industry. A different new thing needs to be adopted and some of them need to be left behind.

Asustainable growth patern is required.

Environmental (DEEPLIST) Analysis

Demographical

In the market there are large no of customers with different requirement and in different areas.

Customers and suppliers in the china for steel industry are diverse in nature because of their use

of material in different fields. Buyers are well informed and well educated. So social constrainwere also involved in the daily life as well. People are hard to change due to overall social

culture value of the country.

Economical

Economically there is tough competition in market as there are no of other suppliers available as

well and market also has a diverse nature as far as demand is concern. There is tough

competition being faced in market. In such tough competition company also have some problem

about their target market selection. As they have selected out of market a niche market which is

make the firm profitable and also creating burden of financial assets. But as a whole there islarger scope available in the market to grasp. There are some government rules as well which

also makes it tough for company to follow the required level. For example there is a set price in

the market for a product so no one can increase their price. Overall people view market as a

command market. So they have to move from production concept to market concept.

Environmental/Ecological


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Social

ZISCo is following the environment very well. They have well indentified wants and needs of

the customers. Company is giving a whole new set of incentive to their employees.

Technological

Here ZISCo have a competitive edge over the others. There is ongoing struggle in technology

advancement. Their competitors are copying ZISCo. Firms have adopted an ongoing value

creation strategy. There is a requirement to be on toes to have technological edge.


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THE PORTERS 5 FORCES MODEL

BARGAINING POWEROF BUYER.

Determinants Defining Question

Assess the

power of

Buyers Circle

one of thefollowing.

1 = low, 5 =

high, or N/A if it

doesnt apply

to your

industry.

Reason

Concentration Are buyer fragmented or highly

concentrated ( i.e. do a few

monopolize the market?) Ifthey are few and concentrated,

then buyer bargaining power is

typically high.

1 2 3

4 5

N/A

There are

significant

number ofbuyers both

nation and

international

Product Cost

versus Total

Purchases

Does your product buyers

purchase represent a

significant fraction of the

buyers cost? If so, buyer

bargaining power is typically

high.

1 2 3

4 5

N/A

They provide

one step shop

at Govt set

price

Product

Differentiatio

n

Is the buyers product or serce a

commodity? Is there branding

critical to success? Is there any

actual versus a perceived

difference? If the product are

standard or undifferentiated,

1 2 3

4 5

N/A

Now product is

quit standardize

with few issues


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buyers typically have high

bargaining power

Switching

Costs

Are Switching cost low or high?

If buyers face few switching

costs, their bargaining power is

typically high.

1 2 3

4 5

N/A

Its hard to

switch due to

standard

products and

dispersed

suppliers of

product

Profits Do buyers earn low profits? If

so they are typically more likely

to bargain hard

1 2 3

4 5

N/A

get standard

product at a set

price

BackwardIntegration

Can they make what you makethemselves? Is there a threat of

backward integration? If so the

threat is typically high

1 2 34 5

N/A

There are somewho are

copying ZISCo

Impact on

Quality/

Performance

Is the product you offer

important to the quality of the

buyers product or services? If

not buyer power is typically

high

1 2 3

4 5

N/A

Providing

standards

product and all

component at

one place

Buyers

Information

Does the buyer have complete

information on the product he

may purchase? If so buyer

power is typically high

1 2 3

4 5

N/A

Information is

assessable

Result: __As per score given the buyer power is typically low. it is not

that much higher. .

BARGAININGPOWEROFSUPPLIERS.

Determinants Defining Question Assess the power

of Buyers Circle

one of the


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following.

1 = low, 5 =

high, or N/A if it

doesnt apply to

your industry.

Reasons

Concentratio

n

Are you supplier are

fragmented or highly

concentrated? (do a few

monopolize the market)? If

an industry is dominated by

a few companies, the

suppliers are typically

powerful.

1 2 3

4 5

N/A

No much

information

given for

monopolize

suppliers

Presences ofSubstitute

inputs

Are there any substitutesfor your supplier products?

If not suppliers are typically

powerful.

1 2 34 5

N/A

A fix scrapsteel with fix

attributes is

required

Importance

Relative to

Customer.

Is your industry an

important customer the

supplier group? If not

suppliers are typically

powerful

1 2 3

4 5

N/A

More standard

input more

standard

output

Impact on

Quality/

Performance

Is your supplier product

essential to the quality or

performance of your

business? If so suppliers are

typically powerful

1 2 3

4 5

N/A

Its effect end

product and

quality control

cost

Product

Differentiatio

n

Is the suppliers product or

service a commodity? Is

branding critical for

success? Is there an actualversus a perceived

difference? Suppliers with

differentiated products

typically have more

bargaining power then

suppliers selling

1 2 3

4 5

N/A

A set input

required but

with a

standardizeattributes


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commodities.

Switching

Costs

How costly is it for you to

switch from suppliers

product? If switching costs

are high, suppliers aretypically more powerful.

1 2 3

4 5

N/A

Quality

concerns are

there

Forward

Integration

Can the supplier produce

the product you make? Is

there a threat of forward

integration? If so, suppliers

are typically powerful

1 2 3

4 5

N/A

Yes it is being

done as more

competitors

are there in

market

Result: Bargaining power of supplier is high in thisindustry

INTENSITYOF RIVALRY


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Determinant

sDefining Question

Assess the power

of Buyers, Circle

one of the

following.

1 = low, 5 =

high, or N/A if it

doesnt apply to

your industry.

Reasons

Industrygrowth

How slowly or quickly is the industrygrowing? If it is a slow growth industry, there

is likely to be more intense fights among

rivals for market share.

1 2 34 5

N/A

Industr6yis growing

at faster

pace

Fixed Cost Does your business have a high fixed cost? If

so, rivals will typically be tempted to cut

prices to ensure sales, thus posing a

significant threat

1 2 3

4 5

N/A

As high

cash

involment

and fix

interest isthere

Intermittent

Overcapacit

y

How frequently is there a problem of excess

capacity in your industry? Are there periods

when there is excess capacity? Overcapacity

often leads to price cutting. If so, there is

typically a threat.

1 2 3

4 5

N/A

High

production

unit is

there

Product

Differentiation

Is your product or service a commodity?

Typically the closer the product is to being acommodity the fiercer the intensity of rivalry.

1 2 3

4 5

N/A

More large

no ofproducts

are being

produce

Brand

Identity

Is branding critical for your Rivals success?

Is there actual vs. perceived difference?

Brand identification by buyer reduces the

threat of rivals.

1 2 3

4 5

N/A

Switching

Costs

How costly is it for your buyer to switch

between providers? Low switching costs

typically increase rivalry. When a customer

can freely switch from one product o another,

companies must struggle to capture and

retain customers.

1 2 3

4 5

N/A

There are

more

specialized

supplier as

well.

Concentratio

n and

balance

Are there a large number of firms of equal

size and power, all chasing after the same

customer? If so rivalry is typically intense

1 2 3

4 5

N/A

Not such

large but

more no offirms are


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Result: intensity of rivalry is quite significant

THREATOF NEW ENTRANTS.

Determinan

tsDefining Question

Assess the

power of

Buyers. Circle

one of the

following.

1 = low, 5 =

high, or N/A if itdoesnt apply

to your

industry.

Reasons

Economies

of Scale

and

experience

Does successful entry require

that companies have significant

economies of scale or

experience? Barriers to entry are

typically high when a aspiring

company must cut costs in orderto compete in a large-scale

and/or experienced market.

1 2 3

4 5

N/A

Its make

harder to

enter in new

market

Product

Differentiati

on

Do new entrants need to

differentiate by spending heavily

on advertising, customer services

or product differences to

overcome existing customer

loyalty? Product differentiation is

typically a barrier to entry.

1 2 3

4 5

N/A

Its also

required as

firm already

providing

different

products. `

Brand

Identity

Do new companies need to

spend heavily on brand

identification to gain customers

loyalty? Brand identification is

typically a barrier to entry

1 2 3

4 5

N/A

This required

strongly so

this also

create

barrier

Switching Does the buyer have to pay to 1 2 3 Quality


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Costs switch from one suppliers

product to another? High

switching costs are typically a

barrier to entry.

4 5

N/A

concern are

main reason

for this

CapitalRequired

Does the new company need toinvest large financial resources

(relative to market size) in order

to compete? Huge capital

requirements are typically a

barrier to entry

1 2 34 5

N/A

Huge capitalrequired to

achieve

economy of

scales

Access to

Distribution

Do the new comers have access

to distribution channel for

product or services? Difficult

access can typically be a high

barrier to entry.

1 2 3

4 5

N/A

Huge market

need larger

distribution

with

flexibility

Cost

advantage

Established companies have cost

advantages over new rivals

because they may have already

obtained proprietary product

technology, access to raw

materials, favorable locations

and government subsidies. In

addition, established company

may have passed a learning orexperience curve. Such costs

advantages are typically a barrier

to entry for a new entrant.

1 2 3

4 5

N/A

Economy osf

scale or

reducing

cost in any

way as there

is fix price in

market set

by Govt

Governmen

t policies

Government policies, such as

antitrust regulations, can help to

preserve or limit competition.

Such policies can typically create

a barrier to entry

1 2 3

4 5

N/A

Social and

organization

al

commitment

I s there

ExpectedRetaliation

New entrants may decide not toenter a new market if existing

firms are likely to retaliate.

Established firms may have a

history of retaliate, resources to

fight back, a strong commitment

to the industry, and illiquid

1 2 34 5

N/A

May be some


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assets employed in the industry.

Also, if the industry is growing

slowly, they may retaliate

against new players who would

threaten sales growth.

Result: as threat of new entrant is low because there are stronger and

larger barriers for entering into the market involved.

THREATOF SUBSTITUTION

Determinants Defining Question

Assess the

power of

Buyers

Circle one ofthe following.

1 = low, 5 =

high, or N/A if it

doesnt apply to

your industry.

Reasons

Price

performance

Does the substitute offer a

better price or performance? A

substitute product or service

is a threat to competition

when it offers a higher

performance at a given price

or the same performance at a

lower price.

1 2 3

4 5

N/A

Switching

Cost

Is it costly for buyer to switch

to the substitute product?

When buyers must pay more

to switch to a substitute the

threat of substitutes is low.

1 2 3

4 5

N/A

Result: _________________No significant substitute available


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Ruosheng Zhang

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