INBS562_03- International Experience

INTRODUCTION:

Laxmi steel Company is located in Fairfield, New Jersey. The company has recently decided to expand its operations overseas. After long deliberations, management has decided to conduct further research of 2 steel productions in India and United States of America.The worldwide Steel industry has seen a tremendous growth in last 8 years. The industry directly employs more than two million people worldwide, with a further two million contractors and four million people in supporting industries.Considering steels position as the key product supplier to industries such as automotive, construction, transport, power and machine goods, and using a multiplier of 25:1, the steel industry is at the source of employment for more than 50 million people.World crude steel production has increased from 851 megatons (Mt) in 2000 to 1,606 Mt for the year 2013. (It was 28.3 Mt in 1900).World average steel use per capita has steadily increased from 150kg in 2000 to 225 kg in 2013.India; Brazil, South Korea and Turkey have all entered the top ten steel producers list in the past 40 years.Considering the growth in the industry and the expansion plans of the U.S. based company, Laxmi Steel (made up the name of the company); I was tasked with analyzing possible growth strategies for Laxmi Steel including international expansion.INDIA:India is a huge country with an enormous market that significantly underperforms in the context of its commercial relationship with the United States. With a new government in charge, the timing may be right to materially improve our bilateral trade relationship, which could translate into greater opportunities for U.S. businesses. Despite all of the economic and commercial challenges we face in India, it is an important global partner and key player in the region.In 2010, President Obama said the United States-India relationship will be one of the defining partnerships of the 21st century and that the United States seeks[s] prosperity a strong and growing economy in an open international economic system.From 2000-2013, United States-India trade in goods and services has grown from $19 billion annually to $97 billion. Being a developing country, India is not as economically prosperous as the United States. In this case study, we will observe factors of economic growth that allow the United States to be more developed and are being implemented by India in an effort to achieve economic progress.India is currently the 4th largest producer of crude steel in the world and is expected to become the 2nd largest producer of crude steel in the world by 2015-16. The Iron and Steel Industry in India contributes around 2 percent of the Gross Domestic Product (GDP) and its weight in the Index of Industrial Production (IIP) is 6.2 percent. India is also a leading producer of sponge iron with a host of coal based units, located in the mineral-rich states of the country. Per capita consumption of steel in India is at 59kgs as against an average of 216kgs of the world. The country posted a 2.5 per cent growth in steel production to 39.63 MT in the six month period January-June 2013 against 38.68 MT in the same period in 2012. During the same period, world crude steel production was 789.8 MT, an increase of 2 per cent compared to the same period of 2012. The World Steel Association forecasted local steel demand to grow at 5.9 per cent and 7 per cent in 2013 and 2014 respectively.At a global level, supply would continue to be more than demand, as capacity additions continues, primarily in emerging economies. The trend is led by India.Indian steel industry comprises of several interlinked segments for value addition broadly classified as Integrated Producers and Non-Integrated or Secondary producers which are largely small scale units and are engaged in re-rolling and accounts for over 50 per cent of the total indigenous output. The Secondary Producers focus on the production of high grade steels and specialty products to meet the specific requirements of the industry and the development plans must include the strengthening of the secondary producers along with the major producers.The study assesses the current status, the opportunities, challenges and future prospects associated with the MSMEs operating in the Steel Industry.

India to play the key role in steel market dynamics

POPULATION AS MACRO VARIABLE:

The total population in India was last recorded at 1233.0 million people in 2013 from 359.0 million in 1950, changing 243 percent during the last 50 years. Population in India averaged 736.65 Million from 1950 until 2013, reaching an all-time high of 1233 Million in 2013 and a record low of 359 Million in 1950.Thus, population that signifies the growth of people residing in a particular country. Growth in population provides information to business and governmental bodies to make determination whether to invest in a particular region or not.

Based on information it is evident that growth in population is more in India as compared to USA. Population growth signifies more urbanization which propels companies to invest more on innovation resulting in increased economies of scale.

GDP AS MACRO VARIABLE:

The commercial importance of India to the United States is growing: it is the worlds third largest economy (after the United States and China) measured by GDP in terms of purchasing power parity ($6.78 trillion in 2013), the tenth largest in nominal GDP ($1.88 trillion), and the eighth largest consumer economy. It has an urban middle class forecasted to reach 400 million people and a significant "affluent class," both of which translate into high-potential markets for U.S. exporters.

Household final consumption expenditure (constant 2005 US$) As Macro variable:The latest value for Household final consumption expenditure, etc. (current US$) in India was $1,112,160,000,000 as of 2013. Over the past 51 years, the value for this indicator has fluctuated between $1,112,160,000,000 in 2013 and $21,244,800,000 in 1962. Household final consumption expenditure (formerly private consumption) is the market value of all goods and services, including durable products (such as cars, washing machines, and home computers), purchased by households. It excludes purchases of dwellings but includes imputed rent for owner-occupied dwellings. It also includes payments and fees to governments to obtain permits and licenses. Here, household consumption expenditure includes the expenditures of nonprofit institutions serving households, even when reported separately by the country. This item also includes any statistical discrepancy in the use of resources relative to the supply of resources.Inflation, consumer price (annual %):The inflation rate in India was recorded at 5 percent in December of 2014. Inflation Rate in India averaged 8.98 percent from 2012 until 2014, reaching an all-time high of 11.16 percent in November of 2013 and a record low of 4.38 percent in November of 2014.Inflation as measured by the consumer price index reflects the annual percentage change in the cost to the average consumer of acquiring a basket of goods and services that may be fixed or changed at specified intervals, such as yearly. The Laspeyres formula is generally used.Below chart shows the total four variables comparison from 2000-2013.

From above chart it clearly shows that in india GDP is increasing fast. It states that starting International expansion in india is profitable. The decision of starting international expansion in india is worth.United States of America:When founded in 1901, United States Steel Corporation was the largest business enterprise ever launched, with an authorized capitalization of $1.4 billion. Throughout the years, U. S. Steel responded to changing economic conditions and new market opportunities through diversification and periodic restructuring. Today, over a century after its founding, U. S. Steel remains the largest integrated steel producer headquartered in the United States.Steel Industry in USA:The U.S. steel industry is facing its worst import crisis in more than a decade. In the aftermath of the Great Recession, steelmakers in other countries, backed by aggressive government support, continued to add production capacity as demand stagnated. The open and large U.S. market became the prime target for the massive excess supply stemming from this excess capacity, and, since 2011, U.S. steel imports have surged and import unit values have plummeted.Excess capacity means that steel production facilities have the capacity to produce much more steel than the market demands. High fixed costs, capital intensity, and the large scale of steelmaking encourages state-backed producers with excess capacity to maintain production in excess of domestic demand, and export the surplus at below-market rates.The glut of exports from global excess steel supply is targeted in particular at the U.S. market. U.S. steel imports increased from 28.5 million net tons in 2011 to 32.0 million net tons in 2013, an increase of 12.3 percent. Imports have increased not only in absolute terms, but also relative to domestic production and consumption, seizing more of the U.S. market and thwarting the domestic industrys efforts to recover from the Great Recession.U.S. steel imports surged even more sharply in the first two months of 2014, hitting 6.4 million net tons, an increase of 24.5 percent over the same period in 2013. Domestic shipments declined 0.9 percent over the same period. Consequently, the import share of the domestic market increased 4.5 percentage points in JanuaryFebruary 2014 (an increase of 18.5 percent over the same period in 2013).Evidence that imported steel prices are falling, and falling unfairly, can be found in the declining sales price of imports (now underselling comparable domestic products) and the rapid growth in the number of unfair trade complaints filed in the past year. The average unit value of imported steel declined $259 per ton (23.1 percent) between 2011 and JanuaryFebruary 2014. U.S. steel producers filed 40 antidumping and countervailing duty petitions in 2013 and the first two months of 2014, the largest volume of trade cases in steel since 2001.Surging imports of unfairly traded steel are threatening U.S. steel production, which supports more than a half million U.S. jobs across every state of the nation. The import surge has depressed domestic steel production and revenues, leading to sharp declines in net income in the U.S. steel industry over the past two years (20122013), layoffs for thousands of workers, and reduced wages for many more.

Production of steel concrete reinforcing bars in the U.S. from 2000 to 2013 (in 1,000 metric tons)The statistic illustrates the volume of concrete reinforcing bars that were produced in the United States between 2000 and 2013. In 2000, some 6.3 million metric tons of such products were produced here.

U.S. direct investment position in India from 2000 to 2013 (in billion U.S. dollars, on a historical-cost basis)This graph shows U.S. direct investments in India from 2000 to 2013. In 2000, the U.S. investment position in India was valued at 2.38 billion U.S. dollars.

To understand better following Micro economic variables were analyzed.GDP:GDP of USA has shown even growth over the years on the other hand Indian GDP growth is uneven for instance GDP slowed in the year 2013 as compared to 2012 and then it shows increase again in 2014. Population:The US population is on track for its slowest decade of growth since the Great Depression .The Census Bureau estimates there will be 315.1 million people living in the country on New Year's Day, a 0.73% rise from last year's estimate and 2.05% more than the most recent census count in April 2010.At the current pace, the nation's population will grow by 7.3% during the decade, the lowest level since the 7.25% increase recorded between 1930 and 1940, according to data compiled by Bloomberg.Household final consumption expenditure (constant 2005 US$) As Macro variable:The United States has one of the worlds largest and most influential financial markets. The New York Stock Exchange is by far the world's largest stock exchange by market capitalization. Foreign investments made in the US total almost $2.4 trillion, while American investments in foreign countries total over $3.3 trillion. Consumer spending comprises 71% of the US economy in 2013. The United States has the largest consumer market in the world, with household final consumption expenditure five times larger than Japan's.Inflation, consumer price (annual %):The inflation rate is a measure of inflation, the rate of increase of a price index. It is the percentage rate of change in price level over time.The rate of decrease in the purchasing power of money is approximately equal. In 2012, prices went up by 2.1 percent compared to the previous year.

From the above chart it clearly shows that GDP slowed down in the year 2009 because of market recession. In 2010, Growth is increased steadily and it grows rapidly with Household final consumption.Crude steel production, 2000-2013 (In thousand tonnes)INDIA200026 924

200127 291

200228 814

200331 779

200432 626

200545 780

200649 450

200753 468

200857 791

200963 527

201068 976

201173 471

201277 264

201381 299

United States of America:2000101 824

200190 102

200291 587

200393 677

200499 681

200594 897

200698 188

200791 101

200891 895

200959 384

201080 495

201186 398

201288 695

201386 878

Role of GovernmentIn the pre reform era, the ministry of steel played the role of key regulator and was involved inDecision making related to pricing, allocation and distribution. With dismantling of the strictRegulatory regime, the role of Government in all sectors has changed to that of a facilitator. In the post-de-regulation period, the role of the Ministry of Steel is now considered that of a facilitator. This is how the government itself sees its role.Given the oligopolistic features of the steel industry, the role of Government in promoting competitive forces in the industry is of some importance. Government intervention may be calledfor, especially to protect larger consumer interests. But whether it is done via policy or throughsome regulatory/judicial mechanism is the question of interest. However, the governmentcontinues to intervene in ad-hoc ways through its administrative ministry on and off. For instance government's diktat to the steel producers to hold prices down in the face of rising domestic and global demand for steel is a clear example of government's undue intrusion in the market. In 2013 the world crude steel production reached 1606 million tones (met) and showed a growth of 3% over 2012. (Source: World Steel Association or WSA) China remained the worlds largest crude steel producer in 2013 (779 met) followed by Japan (111 mt), the USA (87 mt) and India (81 met) at the 4th position. WSA has projected Indian steel demand to grow by 3.3% in 2014 as compared to global steel use growth of 3% and Chinese growth of 3.1%.

INSTITUTIONS:

Institutions have been found to be a critical element in the economic performance of a country or a region. World Wide governance Indicators play a significant role in economic development. It provides measures of quality of governance that helps in designing policies. Worldwide governance indicators rank countries based on six aspects such as Voice and Accountability Political Stability and Absence of Violence, Government Effectiveness Regulatory Quality Rule of Law Control of Corruption. Thus, WGI shows perceptions of governance.WGI provides the tool that assists in decision making as it provides a qualitative and quantitative information to effectively understand the political and freedom of speech prevalent in a particular country.

Government Effectiveness:Government effectiveness is a general governance indicator providing a summary assessment of the quality of public administration in general, depending on its regulatory system, of its impartiality, and of the quality of the services it provides.

Rule of Law:In a nutshell, domestic OCTG producers and the Congressional Steel Caucus reminded Commerce that the antidumping regime was custom designed by the U.S. steel industry for the U.S. steel industry, and that administration of the law was shifted from the national-economic-interest-minded Treasury Department to the U.S.-industry-captured Commerce Department so that protection would be granted even in cases where evidence of dumping was weak.If you doubt how vested the steel industry is in the antidumping regime, consider that there are 245U.S. antidumping measuresin place, and more than half of them (127) restrict imports of steel products. Thats one industry, and it accounts for slightly more than 1 percent of GDP.Above two indicators are more important for steel production to start a international expansion. The Government effectiveness plays a major role in steel production. In steel industry there are two important indicators that play major role. They are 1. Government effectiveness and 2. Rule of law

Government effectiveness:The findings help preserve the ability of the United States to address unfair subsidization by foreign governments" by using anti-subsidy tariffs to level the playing field for U.S. manufacturers and workers.U.S. foreign trade and global economic policies have changed direction dramatically during the more than two centuries that the United States has been a country. In the early days of the nation's history, government and business mostly concentrated on developing the domestic economy irrespective of what went on abroad. But since the Great Depression of the 1930s and World War II, the country generally has sought to reduce trade barriers and coordinate the world economic system. This commitment to free trade has both economic and political roots; the United States increasingly has come to see open trade as a means not only of advancing its own economic interests but also as a key to building peaceful relations among nations.The United States dominated many export markets for much of the postwar period -- a result of its inherent economic strengths, the fact that its industrial machine was untouched by war, and American advances in technology and manufacturing techniques.Rule of Law:As a result, a year ago, U.S. Steel and other domestic OCTG producers filed a trade case against nine countries based on the enormous113-percentincrease of OCTG products dumped into this market from 2010 to 2012. South Korean companies are the main offenders, but companies from India, Vietnam, Turkey and several other countries also dump very significant volumes. Rule of law refers to an end state in which all individuals and institutions, public and private, and the state itself are held accountable to the law, which is supreme. Laws must be consistent with international human rights norms and standards, legally certain, legally transparent, drafted with procedural transparency, and publicly promulgated.190 This end state requires equal enforcement and equality before the law, independent adjudication of the law, fairness in the application of the law, and avoidance of arbitrariness. Access to justicethe ability of people to seek and obtain a remedy through informal or formal institutions of justiceis a mutually reinforcing component of rule of law. The rule of law requires the separation of powers and participation in decision-making. Rule of law is the ideal that states strive for; stabilization requires urgent focus toward this end.

TRADE:Trade generally reflects exchange of goods between countries. Proper trade policies and practices prevailing in a country will determine when it is suitable for business investments or not. India is currently a relatively small market for the United States, in terms of total U.S. exports, highlighting the potential opportunity for continued growth. Manufactured goods such as diamonds, gold, and jewelry; aircraft and aircraft parts; and machinery are among the leading products that the United States exports to India. (See table below.)

Top U.S. Goods Exports to India in 2013

ProductValue of Exports in $Share of Total U.S. Goods Exports to India

Diamonds, Gold, and Jewelry$5.8 billion26.4%

Aircraft and Parts$3.0 billion13.5%

Machinery$2.2 billion10.3%

Electrical Machinery$1.3 billion6.0%

Medical, Analytical and Measuring and Checking Instruments$1.3 billion5.9%

Carbon Black, Coal, Petroleum Coke, and Petroleum Oils$1.3 billion5.8%

India Total$21.8 billion1.4(Share of U.S. goods exports to the world)

World$1,579.6 billion--

Source: Census Bureau, Global Trade Atlas (accessed June 30, 2014)

Top U.S. Services Exports to India in 2013

ServiceValue of Exports in $Share of Total U.S. Services Exports to India

Travel (for all purposes including education)$7.3 billion54.4%

Transport$2.0 billion14.7%

Other business services$1.1 billion7.9%

Telecommunications, computer, and information services$961 million7.1%

Charges for the use of intellectual property not included elsewhere$890 million6.6%

Financial services$567 million4.2%

Maintenance and repair services not included elsewhere$332 million2.5%

Government goods and services not included elsewhere$270 million2.0%

Insurance services$88 million0.7%

India Total$13.5 billion2.0%(Share of U.S. services exports to the world)

World$687.4 billion--

*Source: U.S. Bureau of Economic Analysis,Table 1.3. U.S. International Transactions, Expanded Detail by Area and Country;andTable 1.1, U.S. International Transactions(for U.S. exports to world). Release date June 18, 2014 for both tables.

Export as a Macro variable

Exports depict goods that are produced in one country and it is shipped to another country for future sale or trade. In economy where export value is more than the imports that economy is normally stable.Along with Micro Variables a deep understanding of World Wide Governance Indicators is also essential to understand the economic environment of a country.

Top 5 Exporting Products from USA1. Live horses, asses, mules and hinnies 908291 2. Other live animals. 26033593. Meat of bovine animals, frozen. 1401434. Meat of swine, fresh, chilled or frozen 679345. Fish, fresh or chilled, excluding fish fillets and other fish meat of heading 03.04 20073Import as a Macro variable

Imports describe a good or a service that is brought into one country from another country. . Import and exports form backbone of any economy and an environment wherein value of imports is greater as compared to the value of exports signifies negative balance of trade. Ideal situation will be wherein exports are more than imports. India imports more goods and services as compared to USA. Higher imports states that there is increase in domestic consumption. Top 5 Importing Products to USA

Product Description1. Other live animals 46002. Live fish 301363. Fish, fresh or chilled, excluding fish fillets and other fish meat of heading 03.04 649564. Fish, frozen, excluding fish fillets and other fish meat of heading 03.04 86985715. Fish fillets and other fish meat (whether or not minced), fresh, chilled or frozen 6817401

In recent news American President and Indian Prime Minister it has been decided to increase trade another fivefold by affirming a long term vision based on resilient and ambitious partnership. It will be ideal to go ahead and invest in partner country and accordingly build a strong relationship which will result in good yield of capital.

CONCLUSION:After analyzing from Macroeconomics, Institutions and Trade prospects our company decided to start international expansion in India for the following strengths. Research organization McKinneys forecast that India will become the worlds third largest economy by 2025. As part of the BRIC (Brazil, Russia, India, and China) community, it is already the second largest growing economy behind China.What is fuelling much of this growth is the countrys leadership in IT and Business Process Outsourcing. Indias manufacturing base an important component of the countrys economy ensuring cheap labor for exported goods - is growing at 10% per year.Nowadays, the interest and awareness of Indias potential is on the rise and a second wave of companies is setting their eyes on the big subcontinent for their business expansion. It is a known fact that India will be playing a leading role in the coming global economic scenario. Some of Indias strengths rely on:Market of immense proportions:A promising future for a market of immense proportions, which is already profitable in sectors such as fast moving consumer goods, textile, pharmaceutical, construction, energy, automotive, information technology enabled services and capital goods.Gateway to countries in other developing regions:India is also a gateway to countries in other developing regions such as East Africa and Middle East, an intermediate platform to access East Asian markets, and a prime searching ground for suppliers among Global Sourcing Units from Western companies.Politically stable:As the world largest democracy, India has remained politically stable since its independence in 1947. In 1991 the country adopted a free market model backed by successive Parties in Government, which is giving now valuable returns.

Competitive Operations:In addition to this market potential, consolidating a production unit or a back office in India grants access to:A Low-cost manufacturing and/or outsourcing base A low-cost base to produce or outsource parts and services to compete in current markets.Talented professionals:A large pool of talented professionals and skilled/unskilled labor with whom to develop a sustainable competitive edge.

Biliography:http://www.worldsteel.org/dms/internetDocumentList/statistics-archive/production-archive/steel-archive/steel-annually/steel-annually-1980-2013/document/steel%20annually%201980-2013.pdfhttp://wits.worldbank.org/WITS/WITS/QuickQuery/ComtradeByCountry/ComtradeByCountry.aspx?Page=COMTRADEByCountryPeriodhttp://wits.worldbank.org/WITS/WITS/QuickQuery/ComtradeByCountry/ComtradeByCountry.aspx?Page=COMTRADEByCountryPeriod