Magazine article Management Review

Global Strategies: Foreign Firms' Resources Drive U.S. Steel Revival

Magazine article Management Review

Global Strategies: Foreign Firms' Resources Drive U.S. Steel Revival

Article excerpt

Global Strategies: Foreign Firms' Resources Drive U.S. Steel Revival

Rising from its rust like a mechanical phoenix, the American steel industry is using foreign technology and capital to resurrect itself and produce record profits. Under the rubric "If you can't beat 'em, join 'em," American and Japanese steel companies are constructing a unique network of relationships that is bringing together the biggest and the best of both worlds.

The focus of these relationships is on the automotive industry. While direct shipments of steel to car manufacturers accounted for only about 15 percent of U.S. steel mill tonnage in 1988, auto steel is the high end of the business. High performance automobile steel may account for as much as 22 percent of the U.S. steel industry's sales and more than 25 percent of its profits, steel industry analysts speculate. And those figures could escalate substantially if American steel companies continue to partner with their Japanese counterparts. Through joint ventures and technology transfer arrangements in the 1980s, several American companies have been able to create new steel processes and technologies that are wooing automobile manufacturer's hearts.

Cheap imports, a worldwide glut and a shrinking domestic automobile industry market--not to mention overdiversification and mismanagement--conspired to produce a depression in the domestic steel industry in the early '80s. By 1984, imports captured 26 percent of the domestic market, according to the American Iron and Steel Institute, a Washington, D.C.-based trade association. During the five-year period from 1982 through 1986, American steel makers lost an estimated $12 billion. And by the end of 1985, about 20 percent of the nation's steel-making capacity was operating under the bankruptcy protection of Chapter 11. In addition, steel employment fell to less than half its 1977 complement of 460,000.

The industry was on the verge of collapse until the U.S. government began the Voluntary Restraint Arrangement (VRA) in 1984 and the dollar-yen ratio reversed itself in the fall of 1985, changing the economic scenario. (The VRA is a steel import quota system.)

By the mid-'80s, in the face of these changes, the powerful Japanese steel producers realized that the future of their sales in the U.S. was limited. They also understood the sagacity of "If you can't beat 'em, join 'em" and began a massive program of technology transfer and investment in American steel firms. The most obvious evidence of this came in 1984 when N.K.K. Corporation, Japan's second largest steel company, bought 50 percent of National Steel, owned by National Intergroup Inc.

Actually, the Japanese have been selling American steel companies their state-of-the-art technology throughout the 1980s, and their involvement with the industry gathered momentum as the decade matured. (Editor's note: See box on page 54.) U.S. Steel (now reorganized and renamed U.S.X.), America's largest steel producer, formed a 50-50 joint venture with Kobe Steel to produce bar and pipe products in Lorain, Ohio, for the automotive market. It also utilized the technology of Nippon Steel and Sumitomo Metal Industries to renovate blast furnaces, construct a continuous annealing process line and upgrade large diameter steel pipe. U.S.X. also made an equally owned joint venture with Pohang Steel, South Korea's dominant steel company, to produce sheet steel in Pittsburg, Calif.

A 40 percent interest in Armco's Eastern Division, now called Armco Steel Co., L.P., has been bought by Kawasaki. LTV Corp. has initiated two joint ventures with Sumitomo--the first began operations in 1986, the second will go on stream in 1991. Wheeling-Pittsburgh Steel Corp. has made a joint venture with Nisshin Steel and called upon Nippon Steel to help engineer a rail mill. Bethlehem Steel Corp. utilized Nippon Steel's technology to modernize a coke oven operation; and Rouge Steel, the former Ford Motor Co. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.