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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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