DEPARTMENT OF ECONOMICS

COMPETITIVENESS OF THE FIRMS IN INDIAN IRON AND STEEL INDUSTRY

BY

L. G. Burange Shruti Yamini

WORKING PAPER UDE33/2/2010 FEBRUARY 2010

DEPARTMENT OF ECONOMICS UNIVERSITY OF MUMBAI Vidyanagari, Mumbai 400 098.

Documentation Sheet

Title:

COMPETITIVENESS OF THE FIRMS IN INDIAN IRON AND STEEL INDUSTRY

Author(s): External Participation:

L. G. Burange ----- Shruti Yamini

WP. No.: UDE33/2/2010 Contents: T 29, F 23, R 35 Date of Issue: February 2010 No. of Copies: 100

Abstract

The paper examines the performance of Indian iron and steel industry in the pre and post-liberalisation periods in terms of primary indicators such as production, consumption and foreign trade. It also studies growth in capacity utilisation, prices and employment. It is deduced that the industry has grown manifold in all the aspects, especially after the liberalisation of the economy except employment, which shows a substantial fall during post-liberalisation when competition among the Indian manufacturing firms has increased. Therefore, that leads us to investigate the competitiveness of the sample firms in the industry through composite competitiveness indices. On the basis of overall competitiveness, as well as financial and non-financial aspects of competitiveness, the industry is mostly dominated by Tata Steel Ltd., even though SAIL has a greater market share and proves to be superior with respect to non- financial indicators. JSW Steel Ltd. stands tall on the index for ‘major producers’, whereas Bhushan Power & Steel Ltd. leads the ‘other secondary producers’ index of competitiveness.

Key Words: Competitiveness, Indices, Financial and Non-financial Indicators.

JEL Code(s): L61 THE PERFORMANCE OF INDIAN IRON AND STEEL INDUSTRY AND COMPETITIVENESS OF THE FIRMS*

L. G. Burange Shruti Yamini

1. INTRODUCTION

It can apparently be stated that iron and steel has little or no competition because of its ideal combination of strength, rigidity and workability and the relatively high cost of alternative materials. Moreover, the steel industry has very strong forward and backward linkages in terms of material flow, income generation and employment creation; hence the economic prosperity and growth of an economy is very closely related to the quantity of steel consumed by it.

The Indian iron and steel industry has traversed a long path since the first steel plant went into operation in 1907. Starting at 1 million tonne (m. t.) capacity at the time of independence, India has now risen to be the fifth largest crude steel producer in the world and the largest producer of sponge iron. Moreover, India is expected to become second largest producer of steel in the world by the year 2015. That the industry has started to mark its presence world-wide is also evident from the fact that its share in world production of crude steel has been constantly on a rise since the industry‟s liberalisation, at a healthy compound annual growth rate (CAGR) of 2.86 percent between the period 1991 to 2007 and at astounding 14.44 percent in the last eight years (World Steel Association 2008). As per an official estimate, the industry contributes around 2 percent of the Gross Domestic Product and its weight in the Index of Industrial Production is 6.20 percent (GOI 2008a, p.10). Further, with a share of approximately 10 percent, the industry is amongst the largest contributors to the central excise duty.

* The inputs of an anonymous reviewer are greatly acknowledged. However, the authors are solely responsible for any remaining errors.

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The first large scale production of iron and steel in India was made in 1829, when Josiah Heath ventured on his famous enterprise of mining and smelting iron ore at Salem and Porto Novo. However, due to high capital requirement the works was wound up in 1867. Therefore, the credit of finally initiating the iron and steel industry in India on a full-fledged scale goes to late Jamshedji Tata who in 1907 organised the Tata Iron and Steel Company (TISCO, now Tata Steel Ltd.). The iron and steel production increased quite rapidly following Independence as India attempted to strategically invest in this core sector to bring about national industrial transformation (D‟Costa 2006, p.8). According to the first Industrial Policy Resolution adopted in 1948, new production units of iron and steel were to be started exclusively by the government in the public sector without disturbing the existing ones in the private sector. Therefore, state ownership of steel plants in independent India began in the 1950s as some integrated steel plants were set up in the public sector and few steel units in the private sector. The first push to this industry came during the first three five year plans (1952-1970). Massive injections of investment in the public sector coupled with a protected market environment laid the foundations of a viable and competitive indigenous iron and steel industry. Unfortunately, India's steel capacity was not augmented to any appreciable extent over the next two decades as the economic slowdown adversely affected the pace of growth. Many factors contributed to the slowdown. Most important were related to structural deficiencies, such as the need for institutional changes in agriculture and the inefficiency of most of the industrial sector. Wars with China in 1962 and with Pakistan in 1965 and 1971; a flood of refugees from East Pakistan in 1971; droughts in 1965, 1966, 1971, and 1972; currency devaluation in 1966; and the first world oil crisis, in 1973-74, all jolted the economy. However, this phase was reversed from 1991-92, when the country replaced the control regime by liberalisation and deregulation in the context of the New Economic Policy.

The Indian iron and steel industry was freed from the shackles of control and liberalised in July 1991, which led it to grow in several dimensions. The main policy measures taken with regard to the industry include (GOI 2007):

1. The industry was removed from the list of industries reserved for the public sector and also exempted from the provisions of compulsory licensing. 3

2. The industry was included in the list of „high priority‟ industries for automatic approval for foreign equity investment up to 51 percent. This limit has recently been increased to 100 percent. 3. Price and distribution of steel were deregulated from January 1992. 4. The trade policy was liberalised where import and export was freely allowed. 5. Levy on account of Steel Development Fund was discontinued from April 1994, thereby providing greater flexibility to main producers to respond to the market.

After passing through the initial phase of stabilisation following the economic reforms and liberalisation, the steel industry experienced a growth of 22 percent and 14 percent during 1994-95 and 1995-96, respectively (Mazumder and Ghoshal 2003, p.65). The industry however experienced a difficult phase between 1997 and 2001. This was due to the severe recession in the global economy which led to demand- supply mismatch with potential production capacity being much higher than demand. Prices of a few types of steel during this period touched a 20-year low and most producers in India made heavy losses. Many firms were forced to shut down leading to loss of jobs. New capacities became uneconomical and surplus (Joshi 2006, p.2). As noted by Muthuraman (2006), the industrial recovery in India really began to be seen in 2002-03; was consolidated during 2003-04; gathered momentum during 2004- 05; and scaled new heights during 2005-06 and 2006-07. Consequently, the competition between the firms within the industry has increased. This is mainly on account of the better performance of the existing firms in all the fields of competence and the resultant surge in competition for market share. Furthermore, due to the expectant prospects of the industry in the near future, newer secondary producers have entered the market making competition even more intense down the line. The accompanying outcome is worth examining through the analysis of the current scenario of competitiveness among the firms in the industry in the following sections.

The paper is organised as follows: Following the introduction, the second Section deals with the performance of the industry in terms of some key indicators. The third Section discusses the concept and measurement of competitiveness along with the methodology and the data. Section four analyses the results of the study 4 while Section five examines the competitiveness of the firms in different segments of the industry. The last Section concludes the paper.

2. PERFORMANCE OF THE INDUSTRY

The performance of the industry in key indicators such as production, consumption, export, import, employment etc. has been studied by analysing their growth rates. For the purpose, compound annual growth rates (CAGR) are computed for the 32 years, from 1975-76 to 2006-07, as per the semi-log method (Appendix table 2). Besides, the CAGR is estimated for two sub-periods, i.e. pre-liberalisation period (1975-76 to 1991-92) and post-liberalisation period (1991-92 to 2006-07), using the kinked exponential growth model (Boyce 1986, Goldar and Seth 1989, Burange 2000). The main data sources used here are SAIL (2008), Joint Plant Committee (2007) and Government of India (2009).

2.1. Production

The finished steel production in India has grown from a mere 1.1 m. t. in 1951 to 50.20 m. t. in 2006-07. During the first two decades of planned economic development, i.e., 1950-60 and 1960-70, the average annual growth rate of steel production exceeded 8 percent. However, this growth rate could not be sustained in the following decades due to lack of demand. During 1970-80, the growth rate in steel production came down to 5.7 percent p.a. and picked up marginally to 6.4 percent p.a. during 1980-90 (GOI 2005a), which further increased to 8.61 percent p.a. during 1990-2000. The addition in production is all the more significant after recovery of the industry on domestic as well as the global clues, i.e., after 2001-02. When CAGR is estimated for the pre-liberalisation (1975-76 to 1991-92) and post-liberalisation (1991-92 to 2006-07) periods, it is noted that growth rate is understandably higher in the later period at 8.11 percent compared to 4.96 percent for the earlier period (table 1). After liberalisation, there have been no shortages of iron and steel materials in the country as production has augmented. India's rapid economic growth and soaring demand by sectors like infrastructure, real estate and automobiles, at home and abroad, has put Indian steel industry on the global map.

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2.2. Apparent Consumption

The apparent consumption (as commonly referred to) of steel is arrived at by subtracting export of steel from the total domestic production and adding the import of steel. Change in stock is also adjusted in getting the consumption figures. It is treated as the actual domestic demand of steel in the country. Apparent consumption of finished steel kept pace with production as it increased from 14.84 m. t. in 1991-92 to 44.33 m. t. in 2006-07 with the CAGR of 6.26 percent p.a. over the post- liberalisation period as against 5.53 percent in the pre-liberalisation period (figure 1). The CAGR for the entire period is 6.19 percent. However, the potential demand for steel in India is still vast, as the present per capita consumption in the country is only around 46 kg (GOI 2008a, p.10) against the world average of 150 kg and that of 400 kg in the developed countries. The consumption of iron and steel is primarily driven by the manufacturing, construction and infrastructure sectors, which have witnessed impressive growth in India in the past few years. The prospects for the market might get brighter, if supported by government initiatives in the infrastructure sector, and an expected early revival in the manufacturing sector.

2.3. Foreign Trade

Liberalisation of the foreign trade regime has had a favourable effect on Indian exports. Exports, in volume terms, grew fast- at a rate exceeding 30.7 percent p.a. between 1991-92 and 2006-07 (post-liberalisation period). This was in contrast to the declining trend, at (-) 1.15 percent in the pre-liberalisation period of 1975-76 to 1991- 92 (table 1). During the post-liberalisation period, the country‟s export basket also changed in favour of more value added and sophisticated products. The major steel items of export include hot rolled (HR) coils, plates, cold rolled (CR) and galvanised products, pipes, stainless steel, wire rods and wires. The export destinations also got widened with Indian steel reaching very large number of countries in all the continents of the world. India‟s major markets for steel items include USA, Canada, Indonesia, Italy, West Asia, Nepal, Taiwan, Thailand, Japan, Sri Lanka and Belgium.

Import of steel, on the other hand, followed a different growth path. Contrary to the declining trend in exports, it remained stable at around 4.1 percent (CAGR) in 6 the pre-liberalisation period. And, unlike exports, it increased only marginally at around 6.3 percent CAGR in the post-liberalisation period. Most dramatic increase in imports can be seen between 2003-04 and 2006-07, doubling itself from 1.45 m. t. to 4.39 m. t. in over just four years. As a result, for a major part of the post-deregulation years India enjoyed the status of a net exporter of steel, even though the net export levels varied widely. As noted by the Report of the Working Group on Steel Industry for the Eleventh Five-Year Plan (GOI 2006), an association observed between the growth in domestic demand and relative movements in imports and exports (i.e., net exports) shows that the industry is ready to operate in an open economy where exports and imports respond to increases or decreases in domestic demand driven primarily by market signals (i.e., relative domestic and international price and relative realisation on domestic versus international sales) and appropriate fiscal adjustments (i.e., changes in tax rate) .

Table 1: Growth Trend in Primary Performance Indicators (Percent)

Year Production Apparent Consumption Export Import (Production + Import) - Export

Total Period CAGR 6.85 6.19 14.16 5.45 (1975-76 to 2006-07)

Pre- Liberalisation Period CAGR 4.96 5.53 -1.15 4.10 (1975-76 to 1991-92)

Post- Liberalisation Period CAGR 8.11 6.26 30.70 6.30 (1991-92 to 2006-07)

8.11 Production 4.96 6.85

6.26 Apparent Consumption 5.53 6.19

30.70 -1.15 Export 14.16

6.30 Import 4.10 5.45

-5 0 5 10 15 20 25 30 35 Post- Liberalization Period Pre- Liberalization Period Total Period Figure 1: Comparison of CAGR of Key Performance Indicators 7

2.4. Capacity Utilisation

Capacity underutilisation, as in other industrial sectors, presents a major drawback in the Indian iron and steel industry. Capacity utilisation, as measured by total output divided by installed capacity multiplied by 100, has historically been fluctuating. From a low start in 1970-71 of 67 percent average capacity utilisation, it increased to 75 percent in 1980-81 and declined again thereafter to around 65 percent in 1990-91. In 2000-01, however, it improved again to 79 percent (table 2). It needs to be mentioned that the range of capacity utilisations amongst the plants is considerable. In 1970-71 it ranged between 40 percent and 86 percent, and in 1977-78 two plants even registered capacity utilisation of over 94 percent (Schumacher and Sathaye 1998). However, the capacity utilisation in mini steel plants is usually low largely due to inadequate supply of scrap and power.

Table 2: Capacity Utilisation of Crude Steel

100 91 91 89 91 86 88 Capacity Utilisation 90 82 Years 79 of Crude Steel (%) 80 75 67 1970-71 67 70 65 1980-81 75 60 1990-91 65 50 2000-01 79 40 2001-02 82 30 2002-03 86 20 2003-04 88 10 2004-05 91 0 2005-06 91 2006-07 89 2007-08 91 Source: JPC (2007) and Other Sources Figure 2: Trends in Capacity Utilisation of Crude Steel

Capacity underutilisation in the pre-liberalisation period inevitably resulted in high costs of production and losses. It was due to inadequate supply of coal and power, transport bottlenecks and other infrastructural constraints, absence of proper maintenance, poor management (e.g., caused by frequent changes in top management of public sector plants), extensive labour unrests and in more recent years due to lack of demand by engineering industries like railway wagons etc. (Datt and Sundharam 1998). Furthermore, public sector units seemed to be particularly inefficient. They showed continuous losses since they were set up, additionally due to heavy investments on social overheads and administered prices and controlled distribution that did not allow these units to receive reasonable returns for their products. 8

However, in the post reform period, there has been significant improvement in the capacity utilisation levels, as a result of expansionary phase in the general economy and the consequent accelerated growth in demand for steel by the user sectors (GOI

2006), better export performance of the sector and high prices of steel .

2.5. Pricing Trends

The domestic prices of iron and steel have been market-determined ever since the de-regulation of prices for integrated steel plants in 1991-92. Market prices remain closely related to international prices, though generally lower. The main policy instrument available to influence prices is the adjustment of the customs and excise duty structure. An important feature of the de-regulated era is that prices of both finished steel and its inputs have risen at a much faster rate and with a lot of volatility, compared to the past. Table 3 below gives the trend in WPI (with base year 1993- 94=100) for iron and steel between 1990-91 and 2007-08. The Indian steel industry experienced a significant slump in prices during the period 1998-99 to 2001-02 in line with global trend, which adversely affected the profitability of domestic steel firms. However, certain steel mills remained profitable during this period due to price

Table 3: Wholesale Price Index of Indian Iron and Steel

300 Year WPI

1990-91 94.86 250 1991-92 91.85 1992-93 92.09 1993-94 100.00 200 1994-95 106.00 1995-96 116.60 1996-97 124.10 150 1997-98 129.80 1998-99 132.80 1999-00 134.50 100 2000-01 136.80 2001-02 136.60 50 2002-03 143.50 2003-04 181.10 2004-05 232.90 0 2005-06 250.10 2006-07 254.40 2007-08 278.10

CAGR (%) 6.69 Source: GOI (2008b) Figure 3: Trend in Wholesale Price Index of Iron and Steel (Base Year: 1993-94=100) 9 control over key inputs such as coal, value addition in the production chain and product diversity by introducing new types of steel meant for specialised usage. Nonetheless the prices have recovered significantly after 2003-04.

2.6. Employment

The trend in employment (number of workers) in the iron and steel industry is studied in the post- and pre-liberalisation periods with the help of ASI database (Government of India 2009). The results are distinct in the sense that it is the only performance indicator which has recorded negative growth during the total period of 1975-76 to 2005-06. The estimated CAGR in employment in the period between 1975-76 and 2005-06 is (-) 1.01 percent. However, the rate was a little better at 0.35 percent in the pre-liberalisation period (1975-76 to 1991-92). The figures indicate that the level of employment was worst in the post-liberalisation period (1991-92 to 2005-06) where it declined at a rate of (-) 2.41 percent CAGR (table 4). After deregulation of the industry, through the schemes such as voluntary retirement and golden hands-shakes, industry tried to rationalise labour cost in the iron and steel production. This led to decline in employment in the Indian iron and steel industry during post-liberalisation period. The declining employment in the industry led to improvement in labour productivity, although it is still low compared to most of the steel producing countries. This phenomenon can be attributed to increased mechanisation and technological advancement in the industry following decontrol, which led to the substitution of labour with capital in iron and steel production.

Nevertheless, after stagnating in the years 2001-03, the number of workers in the

Table 4: Employment in Indian Iron and Steel Industry

500000 Time Period CAGR (%) 450000

400000 Overall Period -1.01 350000 (1975-76 to 2005-06) 300000

Pre-liberalisation 250000 Period 0.35 200000 Pre-liberalisation Post-liberalisation (1975-76 to 1991-92) 150000 100000

Post-liberalisation

76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06

------

Period -2.41 -

1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 (1991-92 to 2005-06) 1975 Number of Workers Figure 4: Trend of Employment in the Industry 10 industry has increased from 268459 in 2003-04 to 294974 in 2004-05 and to 323051 in 2005-06, indicating a positive signal for the employment in the industry. This recent growth in employment is primarily due to the growth in the number of producing units in the industry, especially in the private sector, as well as the growth in the size of individual units.

2.7. Pig and Sponge Iron Industry

Pig iron is one of the basic raw materials required by the foundry and casting industry for manufacture of various types of castings for the engineering industries. In 2006-07, the share of production of pig iron by secondary (smaller) producers was 82.8 percent, whereas primary producers produced only 17.2 percent. Along with the production of steel, the production of pig iron in the country has also increased at a modest rate of 6.3 percent in the post liberalisation period (table 5) due to positive global demand, India being a major exporter. However, to help the industry, the government should invest more on the development of the infrastructure sectors, such as road and transport, so that the derived investment demand could flow into the industry. Also, the foundries in India, particularly the smaller ones, are using obsolete

Table 5: Production in Indian Pig and Sponge Iron Industry (Million Tonnes)

Pig Sponge Years 18.00 Iron Iron

1991-92 1.59 1.31 16.00

1992-93 1.84 1.44 14.00 1993-94 2.25 2.40 1994-95 2.79 3.39 12.00 1995-96 2.80 4.40 1996-97 3.29 5.01 10.00 1997-98 3.45 5.35 1998-99 3.00 5.11 8.00 1999-00 3.15 5.18 6.00 2000-01 3.40 5.44 2001-02 4.07 5.66 4.00 2002-03 5.29 6.91 2003-04 3.76 8.09 2.00 2004-05 3.23 10.27 0.00 2005-06 4.70 12.65 2006-07 4.99 16.27 CAGR (%) 6.30 14.77 Pig Iron Sponge Iron

Source: JPC (2007, Various Issues) Figure 5: Trend in Production in Indian Pig and Sponge Iron Industry 11 technology and need modernisation with better technology so that the cost of production can come down. Although this might mean substitution of labour and result in decline in employment in such units.

India is the world‟s largest producer of sponge iron. Production of sponge iron in the country as an alternative feed material to steel melting scrap (re-usable steel waste), which was being imported hitherto in large quantities by the Electric Arc Furnace units and the Induction Furnace Units, has resulted in considerable savings in foreign exchange. The growth of sponge iron especially during last 5 years in terms of capacity and production has been substantial. The installed capacity of sponge iron increased from 1.52 m. t. p.a. in 1990-91 to 26.39 m. t. in 2004-05. The production has increased from 1.31 m. t. in 1991-92 to 16.27 m. t. in 2006-07 (table 5) at 14.77 percent CAGR mainly due to de-licensing of the industry. Moreover, growth in production in sponge iron in the last 5 years has been at an impressive 24.11 percent.

It may be summed up that the industry performance has definitely improved in the post-liberalisation period in terms of production, consumption, trade, etc., the only exception being employment. Furthermore, according to Pushpangandan and Shanta (2009), the competition among the firms has also increased in the Indian manufacturing industries after the economic liberalisation. This leads us to examine the competitiveness among the firms in the industry.

3. CONCEPT AND MEASUREMENT OF COMPETITIVENESS OF THE FIRMS

It is presumed that because of superior iron and steel industry performance initiated by various factors such as favourable government policies, desirable external environment, increased competition, etc., the competitiveness of the firms has improved. The present study moves on to examine this issue of competitiveness of the firms within the industry with the help of empirical data.

In the existing literature, mainly two scientific approaches to measure and analyze competitiveness, namely models and indices, are encountered. Models are complex, usually custom-built to answer specific questions and require relatively large investment in data collection and analysis. The principal alternative to models is 12 indices, designed to measure and compare specific phenomenon, encompassing several variables. Therefore, to achieve our objective of measuring competitiveness of firms in the Indian iron and steel industry, a composite competitiveness index for the firms has been constructed. Typically, it is a weighted linear (mathematical) combination of individual indicators that represent different dimensions of a concept whose description is the objective of the analysis (Saisana and Tarantola 2002). Therefore, the competitiveness index evaluates the sample firms‟ relative competitive performance, represented by a number of indicators.

Typically, the first step towards construction of composite indices involves defining the concept that is to be measured through it. Therefore, the concept of „competitiveness‟ is introduced concisely. Most simply put, competitiveness is a relative term, which means „willingness and ability to profitably compete with competitors’. Due to the fact that competitiveness is a relative measure, one always has to make the comparison with a base value. Nonetheless, the meaning remains vague and ambiguous, until its application on the level of aggregation of an economy (such as regions, nations, industries, firms and products) is ascertained. There is a distinct divergence in definitions, as competitiveness at the different levels of the economy is analysed, as each entity‟s competitiveness is sought to be examined according to the factors most vital to the survival of the entity in its specific competitive environment (Reiljan et al. 2000).

Following Porter‟s (2002) viewpoint, where he maintains that wealth is actually created in an economy at the microeconomic level, in the ability of the firms to create valuable goods and services using efficient methods, we concern ourselves with the firm-level competitiveness in the industry. However, it may be noted that there is a complete lack of empirical research on the subject, as most of the studies attempt to analyse and measure region, country or industry competitiveness. This guides us to examine the definitions and theoretical models discussed by some of the main studies initially, and thereafter identify the main variables explaining the competitiveness of a firm following them.

According to Buckley et al. (1988, p.176), the most complete definition to describe competitiveness at the firm level, as given by the Aldington Report (1985) is 13 as follows; “a firm is competitive if it can produce products and services of superior quality and lower costs than its domestic and international competitors. Competitiveness is synonymous with a firm’s long-term profit performance and its ability to compensate its employees and provide superior returns to its owners”. This comprehensive definition highlights the importance of quality of the product which is dependent on the technology used by the firm, its financial and stock market performance and investment on human resource by the firm.

In the same line of thinking, the Department of Trade and Industry (1994, p.9) of U. K. states that; “for a firm, competitiveness is the ability to produce the right goods and services, at the right price, at the right time. It means meeting customers' needs more efficiently and more effectively than other firms.” Apart from stressing on the productivity, quality and price aspects, the stated definition sheds some light on importance of consumer satisfaction too.

D'Cruz and Rugman (1992, p.13) argue that the firm level competitiveness can be defined as “…….the ability to design, produce and market goods and services, the price and non-price characteristics of which form a more attractive package than those of competitors”. A distinction is often made between the price and non-price competitiveness, the first representing a firm‟s capacity to succeed in price competition (for a given product quality) profitably, while non-price competitiveness encompasses a host of other factors that account for a firm‟s success such as product technology, diversity, novelty or sales and marketing services.

Gelei (2003, p.43) has used the definition of firm competitiveness as “the basic capability of perceiving changes in both the external and internal environment and the capability of adapting to these changes in a way that the profit flow generated guarantees the long term operation of the firm”. This definition interprets competitiveness of firms as an ongoing struggle for survival, which is one of the most complex phenomena of firm‟s operation. She maintains that firm competitiveness is basically a function of two factors. First, it is determined by the extent a firm can identify the value dimensions that their customers expect and offer them those through product and service package. In the long run a firm can be competitive only when it is able to create value for their customers. The second factor of firm 14 competitiveness is the sum of resources and capabilities that makes a firm capable to create and deliver the identified important value dimensions for the customer. Prahalad and Hamel (1990) call the second set „core competences‟. It may be noted that Gelei (2003) has placed a well-defined stress on the long term goals of the firm, when competitiveness is implicated.

Krugman (1994, p.31) rightly states that the competitiveness of firms has a clearly defined bottom line: “if a corporation cannot afford to pay its workers, suppliers and bondholders, it will go out of business. So when we say that a corporation is uncompetitive, we mean that its market position is unsustainable- that unless it improves its performance, it will cease to exist.” By this, he certainly gives an emphasis to the significance of financial stability of a firm in its existence in market. Moreover, human resource development and profitable returns to the shareholders are also considered crucial. Altenburg et al. (1998, p.2), elaborates this view further by maintaining that firm competitiveness is “the ability to sustain a market position. This ability requires the simultaneous achievement of several targets. The firm must supply products of adequate quality on time and at competitive prices. Moreover, as a rule it must be in a position to provide sufficiently diversified products to meet a differentiated demand, and it must respond quickly to changes in demand behaviour. Beyond this, success is contingent on a firm's innovative capacity, its ability to build up an effective marketing system, to establish a brand name, and so on.” The given definition exaggerates the criticality of the firm to sustain the competitive position in the industry over a longer term, and not only focus on its current performance. This objective can be attained through proper investment in technology and marketing of the products.

Moving on to the application of the concept, since a firm does not produce in a vacuum, its competitiveness can only be measured within various types of market territories at the sub-national, national and supra-national levels (UNCTAD 2002, Sinner 2002). Hence at least three general types of competitiveness have been identified or implied in various contexts: 1. Economy Competitiveness: The ability of all the firms in the economy to compete, via price or other product attributes, with businesses located in other 15

countries. This is sometimes referred to as the competitiveness of a country the as combined firm performance of two or more countries is compared. 2. International Competitiveness of Firms: The ability of specific firms or industries to compete for market share with the same businesses located in other countries, which affects the location of production across countries. 3. Domestic Competitiveness of Firms: The ability of specific firms or industries to compete for market share with other firms or industries in the same country.

Problems with defining competitiveness and confusion in terminology are the two most critical factors that limit its practical analysis. As the first issue has already been addressed, a brief differentiation between the terms competition and competitiveness maybe helpful in understanding the concept better. Most simply put, there seem to be a causal link from competition to competitiveness, such that increasing competition promotes internal and allocative efficiencies, which in turn raises competitiveness. Competition signifies contradicting interests of economic entities, whereas competitiveness reflects a position of one economic entity in relation to others by comparing the qualities or results of activities reflecting superiority or inferiority (Reiljan et al. 2000). Therefore, it may be said that competitiveness is a much broader long term phenomenon than competition, implying overall comparative standings of the firms determined by various aspects of performance and potential. In contrast to this, competition is generally ascertained in only one or few aspects of performance for a shorter term.

Grounded on the review of the concept, we identified the major factors of competiveness and competitiveness of the firms in an industry has been defined for as „a multidimensional concept involving relative competitive performance and potential of firms in an industry, for greater domestic market share and penetration in the international market through foreign trade, with the help of financial as well as non- financial factors such as sales and marketing tools, human resource, customer orientation and technological up gradation.’ It is maintained therefore that the short term goal of a firm relating to profit maximization and maximization of shareholder‟s wealth is not suffice for its long term competitiveness. The firm must also focus adequately on the other developmental and welfare-based ends, which are non- financial in nature, to remain competitive in the market and sustain its position. 16

3.1. Choice of Indicators and Sub-indicators

When it comes to measuring competitiveness of firms in an industry, as mentioned earlier, there is a dearth of empirical studies. Therefore, for the first step of identifying the indicators of competitiveness, the famous Buckley‟s model of three Ps (1988) - Potential, Process and Performance is adopted. The underlying argument of interlinking the three is that measuring only a potential does not reveal anything about the actual performance. Moreover, a single measure of performance can raise the question of the sustainability of that performance. Consequently, measuring the management process also investigates the vital link that can turn potential into performance. Thus, the suggested approach conceives the factors of potential, process and performance as a framework of three interacting determinants that would together explain sustainable competitiveness (Flanagan 2004, p.9).

We identified ten main indicators of competitiveness from the review of available literature as well as from our perception of the concept and blended them into the following model, which explains all the aspects of firm‟s competitiveness at a point of time. The three Ps interact together to establish the competitiveness of the firm. Each indicator is then explained by a number of other sub-indicators. The indicators of competitiveness for the firms in the Indian iron and steel industry, weaved with the Buckley‟s Model, are exhibited in figure 6.

Competitive Performance Competitive Potential

Productive Performance Technological and Financial Performance Environmental Factors Foreign Trade Measure Growth Performance and Cost Effectiveness Potential Stock Market Performance

Competitive Process Sales and Marketing Strategy Consumer Satisfaction Human Resource Development and Social Responsibility

Figure 6: Model of Competitiveness Indicators Interrelation Source: Adapted from Buckley et al. (1988, p.184) 17

Competitiveness is concerned with the ability of firms to perform better than rivals, where performance is dependent on both financial and non-financial conditions of the firm. Therefore, for the purpose of advance analysis, the ten indicators are re- grouped into financial indicators which include financial performance, cost effectiveness, stock market performance and foreign trade indicators and non- financial indicators comprising productive performance, sales and marketing strategy, consumer satisfaction, technological issues, human resource and growth variables.

Total number of sub-indicators (variables) employed for the competitiveness index are 66 out of which 49 are taken from PROWESS database (CMIE 2007) and 17 from other data sources. Other data sources mainly include various reports of the Joint Plant Committee (JPC) for steel, company websites and annual reports of the firms. Besides, a field survey was carried out for all sample firms to collect few of the qualitative data. The 66 sub-indicators, which are used to construct the competitiveness index of the firms in the industry with their appropriate definitions and adjustments, are listed in Appendix table 4. The data has been taken for the year 2006-07, so that the index represents the current competitive position of the firms in the industry. However, as a firms‟ operation is affected by short term fluctuations, especially with respect to financial performance, we have used average values for the last three years, for those sub-indicators.

After the conceptual foundation is made, the competitiveness index is constructed by selecting the sample firms, normalising and weighting the selected indicators and finally aggregating them to arrive at the competitiveness scores of the firms. This computation ranks the firms not only in accordance with their overall competitiveness but also in the various groups of main indicators. The details of the specified methodology have been discussed in the following sub-sections.

3.2. Sample Selection

The sample of firms has been chosen on the basis of their market shares for the year 2006-07. The market share of each of the firm is arrived at by dividing their respective sales (Rs. Cr.) by industry‟s total sales and then multiplying it by 100. The data used is given by CMIE (2007). All efforts have been made to include a 18 representative sample of firms having more than 1 percent of the market share. With this, 14 firms were selected as the sample of the study, which covered more than 75 percent of the industry‟s total market share. The precise market share of the selected 14 sample firms are given in table 6.

Table 6: Market Share of Sample Firms in Iron and Steel Industry in 2006-07

Firm Market Share (Percent) 1. Steel Authority of India Ltd. 25.27 2. Tata Steel Ltd. 12.71 3. J S W Steel Ltd. 6.00 4. Rashtriya Ispat Nigam Ltd. 5.89 5. Essar Steel Ltd. 5.79 6. Ispat Industries Ltd. 5.42 7. Jindal Stainless Ltd. 3.39 8. Bhushan Steel Ltd. 2.70 9. Bhushan Power & Steel Ltd. 1.94 10. Uttam Galva Steels Ltd. 1.72 11. Mukand Ltd. 1.35 12. National Steel & Agro Inds. Ltd. 1.23 13. Lloyds Steel Inds. Ltd. 1.23 14. Shree Precoated Steels Ltd. 1.16 Total Market Share 75.80 Source: CMIE (2007)

3.3. Building the Index: Normalisation, Weighting and Aggregation

The differing units of measurement of the sub-indicators make normalisation of the data inevitable, thus the „Range Equalisation Method‟ is used for the purpose. It stood out to be most suitable for the study as it yields positive values, which is simple for readers. Also, this method of re-scaling the data widens the range of indicators, which makes the differences of raw data more distinct. It alters the data to standardise into values between 0 and 100 with the help of equation 1.

Different factors of competitiveness have different impact on the competitiveness index, both negative and positive. For this reciprocal of the value i.e. „100 - index value‟ is calculated after normalising the sub-indicators, which solves the issue of directionality. 19

As importance of different indicators in the index is not equal, the weights for the indicators are calculated using the Budget Allocation Method. For this, a field survey has been carried out, where a number of experts (from varied level of hierarchy) from the industry, working in the sample firms, were asked to assign relative importance (weights) to the ten main indicators. Effort was to include as many responses as possible so that the weights would be representative of the overall industry sentiment. However, the number of responses varied with firms due to reluctance of the employees to respond on account of various reasons such as shortage of time, inability to comprehend the issue, fear that their opinion would be considered as that of the organization, etc.. These apprehensions of a few respondents could not be sorted out in spite of explanation of the purpose of the exercise. In most cases, the employees were interviewed individually in their offices, whereas in other cases, responses were received through e-mail and post. While determining the weights of the indicators of competitiveness, understanding of the sub-indicators which it is composed of is essential. Therefore a reference sheet listing all the sub-indicators with their explanations was attached with the questionnaire. The responses on the weights of the ten indicators were finally averaged. However, the sub- indicators have been given equal weights as the asking relative importance of 66 sub-indicators to the respondents was not possible due to their unwillingness on account of much time involved and stressful mental exercise. Table 7 shows the average weights of each of the ten main indicators, which constitute the competitiveness index for Indian Iron and Steel industry.

Since the industry is resource based, maximum weights have been assigned to productive performance (14.50) of the firms. Moreover, cost effectiveness (13.40) is considered important too by the experts for determining firms‟ competitiveness as it determines the profit indirectly. Sales and marketing performance (10.60) is crucial too in any industry today as customer awareness has increased over time; hence it is on the fourth position in the list of importance. It is visible that least weight is given to stock market performance (6.50) maybe because the customers of the firms are somehow limited and are not guided by it. Also, major firms are government undertakings; therefore need no investors from the open market to operate efficiently.

20

Table 7: Weights of the Indicators

Indicators Average Weights 16.00 Productive Performance 14.50 14.00 Financial Performance 12.85 12.00 Cost Effectiveness 13.40 10.00

Sales and Marketing Strategy 10.60 8.00 Stock Market Performance 6.50 6.00 4.00 Consumer Satisfaction 8.05 Technological and Environmental 2.00 Indicators 8.20 0.00

Human Resource Development and Social Responsibility 9.32 Foreign Trade 7.10 Growth Performance and Potential 9.48

Total Weight 100.00

Figure 7: Relative Weights of the Indicators

The next step in constructing the competitiveness index for Indian iron and steel industry is aggregating the sub-indicators and the main indicators (10) by applying the linear aggregation rule (equation 2).

where, indicator, sub-indicator, and = 1, 2, ………….., n

The last step is of aggregating these ten weighted indicator indices into one competitiveness index for a firm in an industry. This is done in the same manner as in equation 2.

where, is the competitiveness index of firm and j = 1, 2, …………..t (where t is the total number of sample firms), W is the weight of the indicator, V is the indicator and = 1, 2, ….………., m. Finally, in addition to the overall competitiveness index, 21 two separate competitiveness indices have also been constructed, namely the financial index and the non-financial index for the industry.

4. RESULTS AND ANALYSIS

The industry average score of the competitiveness index for the Indian iron and steel industry has been calculated at 39.07 as seen in table 8, which is used to examine the relative competitive performance of firms. Only five firms from the sample of fourteen firms i.e. around 36 percent of the total sample size, show above industry average competitive performance whereas the remaining nine are below this average. The firms which are above the average score are Tata Steel Ltd., Steel Authority of India Ltd., JSW Steel Ltd., Rashtriya Ispat Nigam Ltd., and Essar Steel Ltd.. All of these firms belong to the „major‟ and „other major producers‟ category as classified by the Ministry of Steel based on the production route they follow (a detailed description of the classification of producers by Ministry of Steel is given in section 6). The lone firm belonging to the „other major producers‟ group, which is below the industry average, is Ispat Industries Ltd. at the eighth position. The other firms that are below the industry average in 2006-07 such as Jindal Stainless, Uttam Galva Steels Ltd., National Steel & Agro Ltd., Bhushan Steel Ltd., Shree Precoated

Table 8: Ranks and Scores of Firms in Overall Competitiveness Index

Rank Firm Score 1 Tata Steel Ltd. 55.16 2 Steel Authority of India Ltd. 50.28 3 J S W Steel Ltd. 47.76 4 Rashtriya Ispat Nigam Ltd. 45.15 5 Essar Steel Ltd. 39.86 Industry Average 39.07 6 Jindal Stainless Ltd. 38.87 7 Uttam Galva Steels Ltd. 37.60 8 Ispat Industries Ltd. 37.28 9 National Steel & Agro Inds. Ltd. 37.24 10 Bhushan Steel Ltd. 34.47 11 Shree Precoated Steels Ltd. 34.39 12 Bhushan Power & Steel Ltd. 34.23 13 Mukand Ltd. 30.75 14 Lloyds Steel Inds. Ltd. 24.00 22

Tata Steel Ltd. 55.16 Steel Authority of India Ltd. 50.28

J S W Steel Ltd. 47.76

Rashtriya Ispat Nigam Ltd. 45.15 Essar Steel Ltd. 39.86 Industry Average 39.07 Jindal Stainless Ltd. 38.87 Uttam Galva Steels Ltd. 37.60 Ispat Industries Ltd. 37.28 National Steel & Agro Inds. Ltd. 37.24 Bhushan Steel Ltd. 34.47

Shree Precoated Steels Ltd. 34.39

Bhushan Power & Steel Ltd. 34.23 Mukand Ltd. 30.75 Lloyds Steel Inds. Ltd. 24.00

0.00 10.00 20.00 30.00 40.00 50.00 60.00

Figure 8: Position of Firms in Overall Competitiveness Index

Steels Ltd., Bhushan Power & Steel Ltd., Mukand Ltd. and Lloyds Steel Inds. Ltd. represent the „other secondary producers‟ group and are comparatively smaller in size.

4.1. Overall Competitiveness of the Firms

As stated earlier, the overall competitiveness index is nothing but a sum total of the ten main weighted indicator scores it constitutes. Therefore, the ten indicator scores aggregate to form a firm‟s overall competitiveness score. A few general observations regarding the indicator indices are made. The cost effectiveness may be noted to be a high scoring index because of very little difference of performance between the firms. In the said case where there are no outliers, when the data is normalised using range equalisation technique, it yields more contiguous scores. However, the case with the stock market performance index is different where it registers very low scores. This character of the index is a result of the low weight attached to it with regard to its importance in the overall competitiveness of the firms in the steel industry. Furthermore, the consumer satisfaction index shows identical scores of a few firms. This is mainly on account of two reasons, the first being lesser number of sub-indicators in the index and the second being the qualitative nature of all the sub-indicators which necessitated common ordinal observations. The 23 competitive ranks and scores of the individual firms in each of the indicators are interesting to examine in order to interpret the overall competitiveness of the industry.

4.1.1. Tata Steel Ltd.

Tata Steel Ltd., the world‟s sixth largest steel company, earlier known as TISCO, is the oldest private sector steel producer in India with an existing annual crude steel production capacity of 30 million tonne per annum (m.t. p.a.). Established in 1907, it is the first integrated steel plant in Asia and is now the world`s second most geographically diversified steel producer and a Fortune 500 Company. The company's steel plant having a capacity of around 5 m.t. p.a. is located at Jamshedpur and additionally, it has a production facility there which manufactures welded steel tubes too. The company also has a ferro chrome plant in Orissa, bearings plant in West Bengal and wire manufacturing facilities in Maharashtra and Karnataka. Its marketing network spans 24 cities in India and 15 countries across the globe in North America, Europe, Southern Africa and Asia. The company is setting up three more Greenfield steel plants in eastern India in Chhattisgarh, Jharkhand and Orissa for a combined capacity of 23 m.t. p.a.. The company is also aggressively expanding through the acquisition route.

In the light of above discussion, it may be noted that Tata Steel Ltd. comes first with 55.16 score in the overall competitiveness rankings. This excellence is mainly because of its first rank in five out of ten main indicators of competitiveness such as cost effectiveness, sales and marketing, stock market performance, consumer satisfaction and technological indicators (table 9). The firm has the lowest cost incurred as percentage of its sales in raw material, stores etc. and in some other miscellaneous expenses too. Also, sales and marketing are its strengths with good expenditure (5.53 percent of the total expenditure) on distribution of its products and second best market share in the industry. When stock market performance is considered, it has the best yield i.e. 1.93 percent and good earnings per share of Rs. 66.62 in the reference year. Moreover, the firm has the best technical know-how expenditure among its competitors and good R&D efforts. This is well supported by a strong production base of 9 plants as well as appropriate product differentiation with good mix of different kinds of steel. However, its weakness lies in the productive 24 performance on account of low labour productivity and foreign trade with minimal exports, where it has secured twelfth and eleventh ranks respectively with poor scores. It is evident from figure 9, that the firm is below the industry average scores in the same indicators.

Table 9: Competitive Performance of Tata Steel Ltd.

Weighted Indicator Rank 12.00 Score Productive Performance 4.14 12 10.00 Financial Performance 7.41 3 8.00 Cost Effectiveness 10.31 1 Sales and Marketing 6.00 5.43 1 Strategy 4.00 Stock Market Performance 4.18 1

Consumer Satisfaction 6.04 1 2.00

Technology and 6.39 1 0.00 Environment Human Resource 3.79 3 Development

Foreign Trade 2.99 11 Growth Variables and 4.47 4 Potential

Overall Competitiveness 55.16 1 Firm Score Industry Average Score Figure 9: Performance in Competitiveness Indicators

4.1.2. Steel Authority of India Ltd.

Steel Authority of India Ltd. (SAIL), a public sector enterprise, is the largest steel producer in India with greatest market share. The firm has a strong foothold in the industry because of its heavy dependence on the state in times of difficulty. It is a fully integrated iron and steel maker, producing both basic and special steels for domestic construction, engineering, power, railway, automotive and defence industries and for sale in export markets. It was incorporated in the year 1973 and is one of the „Navratnas‟ enjoying significant operational and financial autonomy. SAIL produces iron and steel at five integrated plants and three special steel plants, located principally in the eastern and central regions of India and situated close to domestic sources of raw materials. The firm has the distinction of being India‟s second largest producer of iron ore and of having the country‟s second largest mines network. This gives SAIL a competitive edge in terms of captive availability of iron ore, limestone, and dolomite which are inputs for steel making. 25

Steel Authority of India Ltd. follows the competitiveness index at the second position with a score of 50.28 (table 10). The difference of 4.89 points between the scores of two firms is noteworthy as it clearly reflects the unchallengeable and dominant competitive position of Tata Steel in the industry. However, it may be remarked here that SAIL, a profit making public enterprise, has better market share. It has proved to be one of the most successful government undertakings in recent years. SAIL has good overall score mainly due to sound investment in human resource development where it has received first rank in 4 sub-indicators out of 8. Most noteworthy among these is its expenditure on staff training as no other competitor has spent even a rupee on it in the year 2006-07. Also as it is the largest firm in the industry, it generates maximum employment. Similarly this firm also performs relatively better in terms of consumer satisfaction acquiring first rank there. Moreover, the firm exhibits effectual performance in sales and marketing (second rank) with broad distribution base of 5 manufacturing plants and best R&D efforts in technology indicators (second rank). Its stock market performance is also exceptional with a score of 3.06 and second rank as its yield percentage is 1.92 which is comparatively high. The firm has the same weaknesses as Tata Steel, i.e. productive performance and foreign trade where it has secured last positions and below industry average scores (figure 10), the exception being it‟s below average performance in the cost effectiveness index (eighth position).

Table 10: Competitive Performance of SAIL

Weighted Indicator Rank 10.00 Score 9.00 Productive Performance 2.31 14 8.00

Financial Performance 7.48 2 7.00 6.00 Cost Effectiveness 8.90 8 5.00 Sales and Marketing 4.00 5.13 2 Strategy 3.00 Stock Market Performance 3.06 2 2.00 1.00 Consumer Satisfaction 6.04 1 0.00 Technology and 5.07 2 Environment

Human Resource 7.50 1 Development Foreign Trade 0.00 14 Growth Variables and 4.77 4 Potential

Overall Competitiveness 50.28 2 Firm Score Industry Average Score

Figure 10: Performance in Competitiveness Indicators 26

4.1.3. JSW Steel Ltd.

JSW Steel Ltd. belonging to the Jindal Group was incorporated in the year 1994. Jindal Iron & Steel Co Ltd. (JISCO), promoted Jindal Vijayanagar Steel Ltd., was renamed JSW Steel Ltd.. The firm today has a fully integrated steel plant producing pellets to colour coated steel with a capacity of 7.8 m.t. p.a.. The registered office of JSW Steel is at Mumbai. The plants are located at Vasind and Tarapur in Maharashtra and Toranagallu in Karnataka. The facilities are well connected with major ports and rail heads. Based in the rich iron ore belt of Bellary-Hospet, Karnataka, the company is engaged in the manufacture of galvanised steel products. JSW Steel Ltd. consists of the most modern, eco-friendly steel plants with the latest technologies for both upstream and downstream processes. It has received all the three certificates; ISO: 9001 for Quality Management System, ISO: 14001 for Environment Management System and OHSAS: 18001 for Occupational Health & Safety Management System.

The third position of the index is occupied by JSW Steel Ltd. with overall competitiveness score of 47.76. The firm has distinctly established its performance in growth variables and potential as it has the third rank there (table 11). Over the last

Table 11: Competitive Performance of JSW Steel Ltd.

Weighted Indicator Rank 12.00 Score Productive Performance 6.34 8 10.00

Financial Performance 5.68 4 8.00 Cost Effectiveness 9.88 4 6.00 Sales and Marketing 2.57 5 Strategy 4.00 Stock Market Performance 2.59 4 Consumer Satisfaction 5.53 2 2.00 Technology and 3.91 3 0.00 Environment Human Resource 1.76 6 Development Foreign Trade 4.90 6 Growth Variables and 4.59 3 Potential

Overall Competitiveness 47.76 3 Firm Score Industry Average Score

Figure 11: Performance in Competitiveness Indicators 27 three years, its sales have grown at 37 percent and net worth at around 70 percent p. a.. The other indicator where the firm has performed well (third rank) is related to technology mainly because of its power efficiency and environmental protection efforts. It has fared well in consumer satisfaction index too as the firm tries to evaluate consumer related problems and solutions efficiently. Except for the productive performance, where it has a 6.34 score, and is at a low eighth position because of merely 70 percent of capacity utilisation; the firm has fared reasonably well in other competitiveness indicators too.

4.1.4. Rashtriya Ispat Nigam Ltd. (RINL)

RINL, the other central government-commercial enterprise in the industry, today is one of the emerging companies in Indian steel industry. It is basically a holding company of Vishakhapatnam Steel Plant. The plant located in the city of Vishakhapatnam, started its operations way back in 1971 with a capacity of 2.66 m. t. p. a. of saleable steel and was commissioned in 1992 with a capacity to produce 3 m. t. p. a. of liquid steel. The plant has been built in keeping with the international standards in design and engineering with the state-of-the art technology, incorporating extensive energy saving and pollution control measures. The company also has a blast furnace grade limestone captive mine at Jaggayapeta, a captive mine for dolomite at Madharam, a manganese ore captive mine at Cheepurupalli. All the captive mines are located in the state of Andhra Pradesh. It has also got a mining lease for river sand in river Champavathi. The company has always taken recourse to science and technology for up gradation and is striving hard to reduce energy consumption by 1 percent p. a.. With the availability of the positive growth environment, the company is registering a steady and consistent up trend in performance.

It may be noticed that RINL at fourth overall position has contrasting competitive performances in most of the ten indicators of competitiveness (table 12). This is evident as the firm has achieved the first rank in financial and consumer satisfaction indicators, the second rank in human resource development, and on the contrary managed only the twelfth rank in growth indicator and the thirteenth rank in stock market and foreign trade performance. To start with, the firm has the strongest financial indicators such as liquidity and turnover ratios, although its stock market 28

Table 12: Competitive Performance of Rashtriya Ispat Nigam Ltd.

Weighted Indicator Rank 12.00 Score Productive Performance 4.39 11 10.00

Financial Performance 10.40 1 8.00 Cost Effectiveness 7.97 11

Sales and Marketing 6.00 3.84 3 Strategy 4.00 Stock Market Performance 0.27 13 Consumer Satisfaction 6.04 1 2.00 Technology and 3.83 4 0.00 Environment Human Resource 4.06 2 Development Foreign Trade 2.18 13 Growth Variables and 2.17 12 Potential Overall Competitiveness 45.15 4 Firm Score Industry Average Score

Figure 12: Performance in Competitiveness Indicators performance is miserable with lowest yield and price to earnings ratio. Noteworthy is its human resource initiatives (second rank) where it spends most among its rivals on staff welfare schemes. It is observed that the public enterprises spend more on employees‟ welfare as compared to other firms in the industry. When sales and marketing strategy is considered, it is noted that at the third position there, it has remarkable expenditure on advertising. In the technology and environmental indicators, the firm has performed well at the fourth rank with good expenditure on research and development. One of the indicator indices, where RINL has performed exceptionally badly is foreign trade reflected in negative forex earnings.

4.1.5. Essar Steel Ltd.

Essar Steel, owned by the Essar group, incorporated in 1976, is a global producer of steel as it exports to the USA and European markets, and to the growing markets of South East Asia and the Middle East. It is a fully integrated flat carbon steel manufacturer, from iron ore to ready-to-market products. Its products find wide acceptance in highly discerning consumer sectors, such as automotive, white goods, construction, engineering and shipbuilding. The firm is India‟s largest exporter of flat steel products and aims to reach a capacity of 25 m. t. p. a., regardless of the current 29 capacity of 9 m. t. p. a. only. Essar Steel has registered office at Surat in Gujarat. One of its plants located at Hazira, Gujarat produces HBI and HR Coils. The steel goliath also has an iron pelletisation plant at Vishakapatnam to meet the requirements of its HBI plant. Essar Steel is the first steel company to set up the only retail chain for steel products under the brand name Essar Steel Hypermart. It has a strong network of over 60 Steel Hypermarts. The outlets are conveniently located across the length and breadth of the country to cater to the customised requirements of enterprises.

The fifth position, just above the industry average is held by Essar Steel Ltd. (table 13), a private „other major‟ producer, as classified by the Ministry of Steel. The difference of score with RINL is a vast 5.30, testifying to a divide between the first four firms in the industry and the following firms. Essar Steel heads the consumer satisfaction index (along with three other rivals) as it puts good efforts in the direction in spite of the lesser weight of the indicator for competitiveness in the iron and steel industry. Similarly, the firm performs reasonably well in productive performance, sales and marketing strategy and foreign trade, standing at the fourth position in all the three indices. It has the second best labour productivity in the industry, and on the other hand it spends comparatively well on the marketing of the products. Noteworthy is its performance in trade as it has recorded the best net forex earnings for the year.

Table 13: Competitive Performance of Essar Steel Ltd.

Weighted 10.00 Indicator Rank Score 9.00 Productive Performance 7.96 4 8.00 7.00 Financial Performance 3.48 9 6.00 Cost Effectiveness 8.86 9 5.00

Sales and Marketing 4.00 2.71 4 Strategy 3.00 Stock Market Performance 0.86 10 2.00 1.00 Consumer Satisfaction 6.04 1 0.00 Technology and 1.38 12 Environment Human Resource 0.51 8 Development Foreign Trade 4.97 4 Growth Variables and 2.74 11 Potential Firm Score Industry Average Score Overall Competitiveness 39.52 5

Figure 13: Performance in Competitiveness Indicators 30

The weakness of the firm lies in its unsatisfactory financial performance due to inadequate liquidity and asset utilisation, lesser attention on technological up gradation and poor growth trends in some of the key variables in the last few years.

4.1.6. Jindal Stainless Ltd.

Jindal Stainless Limited (JSL) was established in 1970 in the form of a single unit plant at Hisar (Haryana). However, now one more plant has been added at Vizag (Andhra Pradesh). JSL, a ISO: 9001 and ISO: 14001 company, is also setting up a greenfield integrated stainless steel project in the state of Orissa with capacity of 1.6 m. t. p. a.. Formally incorporated in 1980, the firm fulfils the country's demand of stainless steel and manufactures continuous cast slabs and blooms, hot rolled stainless steel coils, hot rolled annealed pickled coils, hot rolled annealed pickled plates, cold rolled stainless steel coils, chequered plates, customised products for crucial applications like nuclear applications and applications in turbines. The R&D division at Hisar plays a pivotal role in retaining and consolidating company's leadership role in stainless steel business by continuous up gradation of quality, process and services, and innovating development strategies to come up with new products with cost competitiveness. The R&D division closely interacts with reputed national and international laboratories to avail of expert services for critical investigation.

The sixth position in the overall competitiveness in the iron and steel industry, just below the industry average, is occupied by Jindal Stainless Ltd. with a total score of 38.87. As can be seen from table 14, Jindal Stainless Ltd. has its strength in consumer satisfaction and foreign trade with good net foreign exchange earnings and export as a percentage of sales. Also the firm has performed fairly well in technological and environmental performance (fifth rank) as it has balanced its energy usage and paid attention to environmental issues. However, its poor performance due to low productivity (tenth rank) and indifference to human resource development (tenth rank) has led to its comparatively lower overall score. Its stock market performance at the eighth position is also one of the weaknesses, as the yield (dividend divided by the current market price) and EPS are very low. The firm has scored below industry average scores in 6 out of ten main indicators of competitiveness (figure 14). 31

Table 14: Competitive Performance of Jindal Stainless Ltd.

10.00 Weighted Indicator Rank 9.00 Score 8.00 Productive Performance 4.70 10 7.00 Financial Performance 4.11 7 6.00 Cost Effectiveness 9.16 7 5.00

Sales and Marketing 4.00 2.56 6 Strategy 3.00 Stock Market Performance 1.15 8 2.00 Consumer Satisfaction 5.53 2 1.00 Technology and 0.00 3.13 5 Environment Human Resource 0.26 10 Development Foreign Trade 5.47 3 Growth Variables and 2.79 10 Potential Firm Score Industry Average Score Overall Competitiveness 38.87 6

Figure 14: Performance in Competitiveness Indicators

4.1.7. Uttam Galva Steels Ltd.

Uttam Galva Steels Ltd., an ISO 9001- 2000 and TS 16949/2002 accredited company, is one of the largest manufacturers of cold rolled steel and galvanised steel in Western India. It has also been awarded the highest exporter award by the Engineering Export Promotion Council of India for the past 11 years in succession. More than 70 percent of the company's products are currently exported to over 138 countries worldwide and it has a strong customer base in many advanced markets such as Australia, France, Germany, Greece, UK and the USA to name a few. The company's manufacturing facilities are located at Khopoli, in Maharashtra, which are close to Nhava Sheva and Mumbai ports. This provides the company with easy access to imports of HR coils and also for exporting its products. A close proximity to the ports gives the company the advantage of lowering its transportation costs too. The company's domestic sales are also within the radius of 500 kms from its manufacturing facilities. The firm has expanded and modernised its operations at Khopoli which have increased its cold rolling capacity. The firm has also increased its Galvanised Plate (GP) capacity to 750000 metric tonne p. a. and added a new colour coated line as of March 2008.

32

Uttam Galva Steels Ltd. is the second firm below the steel industry average score (39.07) at seventh position with a score of 37.60 (table 15). However, when its performance is examined in the individual indicator indices, it is noticed that the firm seems to be promising in foreign trade and cost effectiveness, where it stands in second and third positions respectively. This is mainly on account of good exports by the firm and cost efficiency in terms of miscellaneous expenditures. It is worth mentioning that Uttam Galva has ensured the last position in the sales and marketing strategy index because of very low market share, no expenditure on advertising and minimal expenditure on distribution in the year 2006-07. Human resource development and stock market performance also needs to be improved by the firm for a better overall competitive position in the industry.

Table 15: Competitive Performance of Uttam Galva Steels Ltd.

Weighted Indicator Rank 12.00 Score Productive Performance 6.36 7 10.00

Financial Performance 4.83 5 8.00 Cost Effectiveness 9.99 3

Sales and Marketing 6.00 1.59 14 Strategy 4.00 Stock Market Performance 0.55 11 Consumer Satisfaction 3.02 4 2.00 Technology and 2.13 8 0.00 Environment Human Resource 0.23 11 Development Foreign Trade 6.08 2 Growth Variables and 2.83 9 Potential Overall Competitiveness 37.60 7 Firm Score Industry Average Score

Figure 15: Performance in Competitiveness Indicators

4.1.8. Ispat Industries Ltd.

Ispat Industries is the flagship company of Ispat Group, and was incorporated in 1984 as Mittal Galvazinc Ltd.. The company started operations at Kalmeshwar in Maharashtra for the manufacturing of thin gauge galvanised steel sheets in technical collaboration with Japan-based Nippon Denro manufacturing company in 1985. Subsequently, its name was changed to Nippon Denro Ispat Limited and in 1996 to 33

Ispat Industries, as the company started to produce primary steel products. It operates a 3 m. t. hot rolled coils plant at Dolvi in Maharashtra. It has flexibility in the choice of steel making route, be it the conventional blast furnace route or the gas-based electric arc furnace route. The dual technology process gives it the flexibility to choose different combinations of raw materials for its production. It also operates a direct reduced iron plant of 1.6 m. t. and a pig iron plant with an annual capacity of 2 m. t.. The pig iron plant was added to Ispat Industries on account of amalgamation of Ispat Metallics, a loss making company of the group in 2005. The company in recent times has expanded its capacities as well as taken steps to integrate its manufacturing operations. Production capacity for HR coil was increased from 2.4 m. t. to 3 m. t.. It also added a 2.3 m. t. sinter plant and an oxygen plant with a daily capacity of 1260 tonnes for its captive consumption during 2005-06.

Ispat Industries Ltd., a major steel producer, holds the eighth position on the competitiveness index with a 37.28 score (table 16). To start with the strong points, its high labour productivity has ensured third position on the productivity index. The firm also performs well on the growth index (fifth rank) and the stock market (sixth rank) because of good insurance expenditure and highest price to earnings ratio. However, it has proven to be less cost competitive and shown poor comparative

Table 16: Competitive Performance of Ispat Industries Ltd.

Weighted Indicator Rank 10.00 Score 9.00 Productive Performance 8.90 3 8.00 Financial Performance 1.55 14 7.00 Cost Effectiveness 8.37 10 6.00

Sales and Marketing 5.00 2.54 7 Strategy 4.00 Stock Market Performance 2.25 6 3.00 Consumer Satisfaction 3.02 4 2.00 Technology and 1.00 3.05 6 0.00 Environment Human Resource 0.61 7 Development Foreign Trade 3.55 10 Growth Variables and 3.43 5 Potential Overall Competitiveness 37.28 8 Firm Score Industry Average Score Figure 16: Performance in Competitiveness Indicators 34 performance with the last rank in the financial indicators such as return on net worth, debt to equity ratio and asset utilisation ratio. The firm also needs to improve its foreign trade and cost effectiveness to remain competitive in the industry.

4.1.9. National Steel & Agro Inds. Ltd.

National Steel & Agro Inds. Ltd., incorporated in 1985, was formerly known as National Steel Industries Ltd.. It was set up in technical collaboration with CMI, Belgium; Phoenix Works, Belgium; and Stein Heurtey, France. It belongs to Ruchi Group and is engaged in the manufacture of secondary steel products and trading of agro products. The company's plant is located at village Sejwaya, in Madhya Pradesh. It manufactures galvanised plain steel coils and sheets and galvanised corrugated steel sheets. The products manufactured by the company have applications in agricultural implements, electrical appliances, automobiles, air conditioning ducts, consumer durables, construction, electrical panels, rolling shutters, engineering fabrications, packaging, storage, roofing, furniture, ducting and slide walls. Its Agro Trading Division started in 1990, deals in raw and processed pulses, beans and other agricultural products. The company exports its produce in the markets of South East Asia, African Countries, Middle East and other neighbouring countries.

The firm, National Steel & Agro Inds. Ltd., stands ninth on the overall competitiveness index, with a 37.24 score as seen in table 17. Remarkably, it has highest capacity utilisation levels of 130 percent, which has helped it to secure a second position on the productivity index. Its productive superiority is also evident from the fact that its score (9.87) in the index is far above the industry average score (6.16) (figure 17). Furthermore, the firm has proved to be cost effective too as it has a 10.10 score and second position on the index mainly because of lesser financial and extraordinary charges. However, barring the consumer satisfaction index (third rank); it has not proved itself on any other index, getting last ranks in technology and environment and human resource development. The firm has literally no expenditure on either research or on technology imports. Its indifference to HRD is also visible with little or no expenditure on various employee compensation schemes as well as their training for betterment of skills. The firm‟s stock market, sales and marketing and growth performance also needs attention in order to be competitive in the 35 industry. Notably, all this has pulled its overall score down. It may therefore be concluded that being competitive in the industry implicates overall performance in all the indicators, since conducting well in only a few of them does not help.

Table 17: Competitive Performance of National Steel & Agro Inds. Ltd.

Weighted Indicator Rank 12.00 Score Productive Performance 9.87 2 10.00 Financial Performance 3.81 8 8.00 Cost Effectiveness 10.10 2

Sales and Marketing 6.00 1.75 11 Strategy 4.00 Stock Market Performance 0.49 12 Consumer Satisfaction 3.52 3 2.00 Technology and 1.23 14 0.00 Environment Human Resource 0.07 14 Development Foreign Trade 4.81 7 Growth Variables and 1.60 13 Potential Overall Competitiveness 37.24 9 Firm Score Industry Average Score

Figure 17: Performance in Competitiveness Indicators

4.1.10. Bhushan Steel Ltd.

Bhushan Steel Ltd. was promoted by a takeover of Jawahar Metal Industries in 1987. The name of the company was changed in the year 1992 to Bhushan Steel & Strips Ltd. and again in June 2007 to Bhushan Steel Ltd. The firm has consistently over the years expanded capacities and added new products to its portfolio. Cold rolled steel and galvanised steel remain its major products. However, it also produces value-added products like pre-painted galvanised steel, tubes, wire rods, steel strapping and high tensile strapping. It operates two plants located at Sahibabad in Uttar Pradesh and at Khopoli in Maharashtra. The company is also planning backward integration by setting up a hot rolled steel manufacturing plant in Orissa. This will transform the company into a fully integrated steel manufacturer, having operations ranging from iron ore mining to steel products. Its technical collaboration with Sumitomo Metals helped it to become a significant supplier to almost all original equipment manufacturers. 36

Bhushan Steel Ltd. has secured the tenth position (34.47 score) on the overall competitiveness index in a sample of 14 firms. The firm has an average performance in most of the indicator indices (table 18), although it excels in stock market performance at third rank (2.60 score) with a good earnings per share. It has managed the fifth rank in two of the indices, i.e. consumer satisfaction and foreign trade with around Rs. 362 cr. foreign exchange earned for the year. In the growth variables (eighth rank), the firm has exhibited ample sales (34.03 percent) and assets (40.90 percent) growth in the last three years. However, its rank and score on the cost effectiveness and human resource development indices are dismal as it stands on the twelfth position in both the indices. The high financial and procurement costs incurred by the firm and minimal expenditure on staff welfare and training have led to this poor performance.

Table 18: Competitive Performance of Bhushan Steel Ltd.

Weighted Indicator Rank 10.00 Score 9.00 Productive Performance 6.65 6 8.00 Financial Performance 3.51 10 7.00 Cost Effectiveness 7.88 12 6.00 Sales and Marketing 5.00 2.26 8 4.00 Strategy Stock Market Performance 2.60 3 3.00 2.00 Consumer Satisfaction 1.51 5 1.00 Technology and 1.90 9 0.00 Environment Human Resource 0.16 12 Development Foreign Trade 5.16 5 Growth Variables and 2.85 8 Potential Overall Competitiveness 34.47 10 Firm Score Industry Average Score Figure 18: Performance in Competitiveness Indicators

4.1.11. Shree Precoated Steels Ltd.

Incorporated in 1985, Shree Precoated Steels Ltd. (SPSL) is part of the Ajmera Group of Companies. The company manufactures clad, plated or coated flat rolled steel products, aluminium plates, sheets and strips and doors, windows and their frames, etc.. As a direct corollary to its commitment to quality standards, SPSL has already been accredited with the ISO: 9001 Certificate by DNV Netherlands. The 37 registered office of the firm is at Mumbai and its manufacturing facility is at Sanaswadi in Maharashtra. The products of the company are exported to Europe, the Far East, and the North American markets. Its products are marketed with the brand names of Metacor, Metagalva and Metacolor. Metacolor plant is installed with technical collaboration from Cockerill Mechanical Industries, Belgium. This plant uses equipment like coating-laminating-embossing-printing stations, ovens combined with reverse roller coating technology for organic coating to produce Metacolor.

There are some interesting observations when the competitive performance of Shree Precoated Steels Ltd. is analysed. The firm has secured eleventh position and 34.39 score on the overall competitiveness index making contrasting competitive performances in all the ten indicators. Shree Precoated has shown excellent performance in foreign trade (first rank) as it has the highest (approximately 58 percent) exports earnings as a percentage of total sales in 2006-07. Besides, with first rank on the growth index, the firm is expected to grow at a reasonable pace in the coming years. It showcased more than 50 percent growth rate in the last three years (2004-06) in terms of sales and net worth, whereas the same figures for investments was 181.40 percent. Also it is well insured for the future contingencies. However, the good performances in the above mentioned indicators of competitiveness could not

Table 19: Competitive Performance of Shree Precoated Steels Ltd.

Weighted Indicator Rank 10.00 Score 9.00 Productive Performance 2.50 13 8.00 Financial Performance 4.48 6 7.00 6.00 Cost Effectiveness 9.46 5 5.00 Sales and Marketing 1.88 10 4.00 Strategy 3.00 Stock Market Performance 1.58 7 2.00 Consumer Satisfaction 1.01 6 1.00 0.00 Technology and 1.73 10 Environment Human Resource 0.14 13 Development Foreign Trade 6.63 1 Growth Variables and 4.99 1 Potential Overall Competitiveness 34.39 11 Firm Score Industry Average Score

Figure 19: Performance in Competitiveness Indicators 38 offset its especially poor performance in four of the indicator indices, namely productive performance (thirteenth rank), sales and marketing strategy (tenth rank), technology and environment (tenth rank) and human resource development (thirteenth rank).

4.1.12. Bhushan Power & Steel Ltd.

Incorporated in 1999, Bhushan Power & Steel Ltd., is a fully integrated 1.5 m. t. p. a. steel making company with turnover of Rs. 3873 crores with 7 world class ISO: 9000 certified state of the art manufacturing facilities in India and 2 overseas (1 in Nigeria and another in Nepal). It is a leading manufacturer of flat, rounds and long products including value added products. It also produces steel wire rods and special alloy steels. It successfully commissioned a 1.5 m. t. p. a. greenfield steel and power plant in Orissa with HR Coil making facility, the first in the private sector in Orissa recently. For the Orissa plant, technology and equipments are procured from world- renowned companies like Lurgi from Germany, ABB Ltd., SMS Demag, Siemens etc. The firm is selling its value added range of products in secondary steel through a large distribution network in India (comprising more than 35 sales offices) and abroad.

Bhushan Power & Steel Ltd. is in the twelfth position of the overall competitiveness index with a score of 34.23 (table 20). The most outstanding competitive performance of the firm is in terms of its productivity, where it has secured first position with 10.26 score, mainly due to the highest labour productivity. Also its HRD initiatives are about average as it is in the fourth position on the index with health and safety of the employees‟ certifications to the plants of the firm. The areas where the firm needs great improvement in order to strengthen its overall competitive position relates mainly to the financial indicators such as debtors turnover ratio, finished goods turnover ratio and asset utilisation ratio, cost effectiveness, sales and marketing strategy and stock market performance.

4.1.13. Mukand Ltd.

Mukand Ltd. was originally incorporated as Mukand Iron and Steel Works Ltd. in 1937, but in 1939 it was taken over by Bajaj Group. In 1989, it was renamed Mukand Ltd. and the registered office setup in Mumbai. The company functions 39

Table 20: Competitive Performance of Bhushan Power & Steel Ltd.

Weighted Indicator Rank 12.00 Score Productive Performance 10.26 1 10.00 Financial Performance 3.06 11 8.00

Cost Effectiveness 6.10 14 6.00 Sales and Marketing 1.70 13 4.00 Strategy Stock Market Performance 0.72 9 2.00 Consumer Satisfaction 1.01 6 0.00 Technology and 2.56 7 Environment Human Resource 2.15 4 Development Foreign Trade 3.58 9 Growth Variables and 3.09 7 Potential Overall Competitiveness 34.23 12 Firm Score Industry Average Score

Figure 20: Performance in Competitiveness Indicators

through two steel plants at Kalwa near Mumbai and Ginigera in Karnataka. The activities of the company include manufacture of steel, machine building, turn-key projects and highway construction. The steel division produces alloy, special and stainless steel long products in a variety of grades and sections. Mukand Ltd. is engaged in highway construction projects funded by the World Bank and has signed a Joint Venture Agreement with Vini Iron & Steel Udyog Ltd. for captive mining of coal block in Jharkhand as per the letter for allocation of coal block issued by Government of India, Ministry of Coal. The joint venture company will accomplish mining operations and allocate the production from the mine to Mukand Ltd. and Vini Iron & Steel Udyog in the proportion of 58.81 percent and 41.19 percent respectively.

The firm, Mukand Ltd., is in the thirteenth position, i.e. the second last in all the sample firms, with a score of only 30.75. It has performed reasonably well on the productive performance index (fifth position) with 83 percent capacity utilisation and HRD index (fifth position) with decent expenditure on staff welfare and some other such expenses and stock market index (fifth position) (table 21). Moreover, the firm has reported the highest growth in profits in the last three years which has secured it a sixth rank on the growth index. However, in all the other eight indicators of competitiveness, the firm has shown disappointing performance. Special mention can 40 be made of its foreign trade performance, as it is in twelfth rank there due to negative net foreign exchange earned as well as minimal exports in the total sales. Furthermore, the firm has little market share and spends least on advertising, which has resulted in low score on the sales and marketing index of competitiveness.

Table 21: Competitive Performance of Mukand Ltd.

Weighted 10.00 Indicator Rank Score 9.00 Productive Performance 6.93 5 8.00 Financial Performance 2.16 12 7.00 6.00 Cost Effectiveness 7.39 13 5.00 Sales and Marketing 4.00 1.75 12 Strategy 3.00

Stock Market Performance 2.30 5 2.00 1.00 Consumer Satisfaction 0.50 7 0.00 Technology and 1.61 11 Environment Human Resource 2.03 5 Development Foreign Trade 2.94 12 Growth Variables and 3.13 6 Potential Overall Competitiveness 30.75 13 Firm Score Industry Average Score

Figure 21: Performance in Competitiveness Indicators

4.1.14. Lloyds Steel Inds. Ltd.

Lloyds Steel Industries Ltd., a flagship company of the Lloyds Group was incorporated in 1970 under the name Gupta Tubes & Pipes Pvt. Ltd.. It was renamed Lloyds Steel Industries Ltd. in 1985. The firm is mainly engaged in the manufacture and marketing of sponge iron, hot rolled and cold rolled coils, galvanised sheets and coils. It also undertakes designing and fabrication of various chemicals, pharmaceutical and other machinery coupled with manufacture of steel pipes, tubes and steel castings. Presently the company has three manufacturing units situated in Maharashtra. Two units are located at Wardha, manufacturing hot rolled, cold rolled, galvanised plain and corrugated coils of steel. The third unit located at Thane manufactures silos, steel pipes and tubes and fabricates chemical and pharmaceutical machinery. Since its inception the company has entered into various technical collaborations and tie-ups with national and international engineering companies. 41

However, due to poor performance in all spheres, the company has filed references with BIFR for four consecutive years since 2001, for consideration of its sickness.

Lloyds Steel Inds. Ltd. show especially dismal competitive performance having largest the difference of score of 6.75 with the previous firm, i.e. Mukand Ltd.. Mainly because of poor performances at the stock exchange and all the growth variables, the firm is in the last position of the overall competitiveness index. It has also displayed poor comparative performance in the financial indicators (thirteenth rank) and technological and environmental indicators (thirteenth rank). It can be seen in table 22 that the firm has scored zero in two of the indicator indices (stock market performance and consumer satisfaction), which is suggestive of minimum scores among rivals in all the sub-indicators of that particular indicator. As far as consumer satisfaction index is concerned, the firm ranked eighth there, despite zero score because few of the other firms, up the order, are on same ranks.

Table 22: Competitive Performance of Lloyds Steel Inds. Ltd.

Weighted 10.00 Indicator Rank Score 9.00 Productive Performance 4.98 9 8.00 Financial Performance 1.70 13 7.00 6.00 Cost Effectiveness 9.23 6 5.00 Sales and Marketing 1.95 9 4.00 Strategy 3.00 Stock Market Performance 0.00 14 2.00 Consumer Satisfaction 0.00 8 1.00 Technology and 0.00 1.27 13 Environment Human Resource 0.29 9 Development Foreign Trade 3.59 8 Growth Variables and 0.98 14 Potential

Overall Competitiveness 24.00 14 Firm Score Industry Average Score

Figure 22: Performance in Competitiveness Indicators

5. FINANCIAL AND NON-FINANCIAL COMPETITIVENESS OF THE FIRMS

The financial and non-financial performance of a firm is complementary to each other, as anyone cannot be sacrificed at the expense of the other. However, in the 42 short term, financial performance may take more prominence in determining the competitiveness of a firm, whereas to sustain it in the long run, a firm must pay enough attention to the non-financial aspects of competitiveness. When we look at the financial and non-financial indices separately, it is found that the financial index has only 39.85 percent of the total weights of 100 whereas the non-financial index has the remaining 60.15 percent. This indicates more importance to non-financial factors given by the industry experts in the survey of sample firms. The weighted average scores of the indicator indices are summed up into financial and non-financial indices for further analysis. As already mentioned, financial performance, cost effectiveness, stock market performance and foreign trade indicators comprise the financial index whereas the non-financial indicators incorporate productive performance, sales and marketing strategy, consumer satisfaction, technological issues, human resource and growth variables.

The industry average for the financial index is 19.08, whereas that of the non- financial index is 20.00 (table 23). It is marked that while nine firms on the financial index show above industry average performance, only seven of them are above the same in the case of the non-financial index. This supports the observation that firms in the Indian iron and steel industry needs to perform better in the non-financial indicators of competitiveness. It may be noted here that the industry averages of both the indices are very close; however the actual performance of the firms in the non financial index is lower than that on the financial index. This can be reasoned as relatively higher weight is attached to the non-financial indicators of competitiveness, because of which the scores of the firms are bound to be higher. Therefore, the total index scores should be analyzed independently and not comparatively. Furthermore, what can be compared to examine the relative competitive performance are the ranks of the firms.

A general industry analysis shows that eight firms such as Tata Steel Ltd., JSW Steel Ltd., Jindal Stainless Ltd., Uttam Galva Steels Ltd., Bhushan Steel Ltd., Shree Precoated Steels Ltd., National Steel & Agro Inds. Ltd. and Lloyds Steel Inds. Ltd. have better competitive positions in the financial indicators of competitiveness (figure 23). Further, only the remaining six firms perform better in non-financial indicators in terms of ranks. However, in terms of scores, only six firms show 43 superior performance in the financial indicators, while eight of them have better non- financial scores. This once again evidences the higher scores in the non financial index on account thehigher weights attached.

Table 23: Scores and Ranks in Financial and Non-financial Indices

Financial Non Financial Overall Firms Index Index Competitiveness Index Score Rank Score Rank Score Rank Tata Steel Ltd. 24.90 1 30.26 2 55.16 1 Steel Authority of India Ltd. 19.45 7 30.83 1 50.28 2 J S W Steel Ltd. 23.05 2 24.70 3 47.76 3 Rashtriya Ispat Nigam Ltd. 20.82 5 24.34 4 45.15 4 Essar Steel Ltd. 18.54 10 21.32 6 39.86 5 Jindal Stainless Ltd. 19.89 6 18.98 8 38.87 6 Uttam Galva Steels Ltd. 21.44 4 16.16 10 37.60 7 Ispat Industries Ltd. 15.73 11 21.55 5 37.28 8 National Steel & Agro Inds. Ltd. 19.21 8 18.04 9 37.24 9 Bhushan Steel Ltd. 19.15 9 15.32 12 34.47 10 Shree Precoated Steels Ltd. 22.15 3 12.24 13 34.39 11 Bhushan Power & Steel Ltd. 13.45 14 20.77 7 34.23 12 Mukand Ltd. 14.79 12 15.96 11 30.75 13 Lloyds Steel Inds. Ltd. 14.52 13 9.48 14 24.00 14 Industry Average Score 19.08 -- 20.00 -- 39.07 --

35.00

30.00

25.00

20.00

15.00

10.00

5.00

0.00 Bhushan Bhushan Essar Ispat J S W Jindal Lloyds Mukand National Rashtriya Shree Steel Tata Steel Uttam Power & Steel Ltd. Steel Ltd. Industries Steel Ltd. Stainless Steel Inds. Ltd. Steel & Ispat Precoated Authority Ltd. Galva Steel Ltd. Ltd. Ltd. Ltd. Agro Inds. Nigam Steels Ltd. of India Steels Ltd. Ltd. Ltd. Ltd.

Financial Index Non Financial Index

Figure 23: Comparison of Financial and Non-financial Index

44

When firms‟ competitive standing is examined in both the indices, the objective is to figure out whether financial factors or non-financial factors have a greater contribution to the overall competitiveness. Furthermore, it will reflect the specific areas on which a firm should focus, while formulating targets and policies. Tata Steel stands at the top in both the financial and the overall indices, whereas in the second position on the non-financial index. Its superiority is established in all the spheres of competitiveness, although the non-financial index contributes more (30.26 score) to its overall score. This is mainly because of its superior performance in technological issues, consumer satisfaction and sales and marketing strategies. SAIL, the second firm in the overall index shows comparatively mediocre performance in the financial index, with seventh rank (19.45 score) mainly because of the lowest score foreign trade index. However it has first rank on the non-financial index due to best consumer satisfaction and superior human resource development efforts.

The other firm which has striking differences in financial and non-financial performances is Uttam Galva Steels Ltd., which stands in the fourth rank in terms of the former index, whereas tenth in the later index. The opposite is the case with Ispat Industries Ltd. whose non-financial performance (fifth rank) is much superior then the financial performance (eleventh rank). Another prominent observation is that in spite of below average overall competitive position (eleventh rank) of Shree Precoated Steels Ltd., it is on the third rank in the financial index due to the highest score in foreign trade measures and a good cost performance. In sharp contrast to this, is its non-financial performance at the thirteenth (11.83 score) rank despite the fact that it shows great growth potential in future. Remarkably, Bhushan Power & Steel Ltd. is on the last position on the financial index, whereas it performs satisfactorily on the non-financial index. The difference of scores is also notable in its case as out of a 34.23 overall score, only 13.45 comes from the financial indicators, which lays stress on the requirement of more attention on the financial factors of competitiveness. All the other sample firms have obtained more or less similar ranks and close scores in both the financial and non-financial indices.

Therefore, it may be concluded here that practically even if a firm has great performance in financial indicators of competitiveness, it might not be very competitive in the industry if it does not pay adequate attention to the non-financial 45 aspects of competitiveness. This fact is substantially supported by the distribution of weights between both the aspects of competitiveness, where the industry has given understandingly more importance to the non-financial indicators. Also the firms must strengthen its non-financial performance more in order to remain competitive.

6. COMPETITIVENESS OF FIRMS IN SEGMENTS OF THE INDUSTRY

When competition is concerned, the competitors should be comparable. Therefore, in addition to the overall competitiveness situation in the iron and steel industry, we try to analyse the competitiveness of the firms when the industry is divided into segments into which the Ministry of Steel has divided the firms. This is done on the basis of scale of operations, route of production and level of backward integration. The broad classification of the Indian steel makers used by the Ministry of Steel (GOI 2006) is as follows: Main Producers: This category includes the public sector plants of SAIL (4 plants of its own and its subsidiaries), RINL and the lone private sector plant– Tata Steel. These producers produce steel using the basic oxygen furnace route that uses iron ore, coal/coke as the basic input mix for producing finished steel. Major Producers: This category includes the integrated steel plants (other than Main Producers) with crude steel capacity 0.5 million tonnes and above, irrespective of the technology route. The Major Producers segment comprises ESSAR, ISPAT and JSW Steel Ltd.. While Essar Steel and Ispat Industries employ Electric Arc Furnace (EAF) route, JSW uses Corex, a revolutionary technology for making steel using iron-ore and coal. Other Secondary Producers: Eight of the sample firms studied fall under this group. The category comprises: o The mini steel plants with EAF and IF with capacity below 0.5 million tonne. o Numerous standalone processors making pig iron and sponge iron (other than those of main/major producers) without any backward integration. o Re-rolling Units, Cold Rolling Units, Galvanised Sheets Units producing small quantities of steel from materials procured from the market or through their own backward integration system. o Small producers using scrap-sponge iron-pig iron combination to produce steel ingots (for long products) using the EAF route. 46

Traditionally, the Indian steel industry was classified into Primary Producers (SAIL plants, Tata Steel and RINL) and Secondary Producers. However, with the coming up of larger capacity steel making units of different process routes, the classification has been characterised as Main Producers, Major Producers and Other Secondary Producers. The last two categories, namely the „major producers‟ and the „other secondary producers‟ together form the consolidated category of Secondary Producers. This category is highly heterogeneous in terms of scale of production and capacity, technology in use, integration of production processes and vintage of the plants. The „secondary producers‟ segment accounted for nearly 56.40 percent of India‟s crude steel, 76.20 percent of finished steel and 82.80 percent of pig iron production in 2006-07 (JPC 2007). This segment produces the majority of the long products being produced in the country and some of the high grade value added flat steel products to meet the specific requirements of the industry. There are 4315 units in the secondary producers‟ segment producing iron and steel through various technology routes as against only 10 units in the main producers segment (JPC 2007).

Adhering to the Ministry of Steel classification, a distinct competitiveness analysis for each segment of the industry might be appropriate. For the purpose, separate indices have been constructed using the suitable database, adopting the same methodology as used for industry competitiveness index. Adhering to the previous sample selection, there are three firms in each, the main and major producers‟ segments, whereas eight in the other secondary producers segment. However, the segment-wise competitiveness scores would be different from the industry scores on account of reduced sample size for each segment. It may be observed that the small number of firms in the first two segments of the industry poses problems in normalisation of the data, prior to aggregation.

The competitiveness index of Main Producers is headed by Tata Steel Ltd. with a score of 68.67 as seen in table 24. The position is mainly because of its superior performance in all the main indicators except productivity, HRD and foreign trade. The firm has low labour productivity, no expenditure on staff welfare and training and meagre exports. The second position is held by RINL with a score of 50.50; however it is far behind Tata Steel reflecting the commanding position of the latter in the Indian iron and steel industry. It may be noted that the firm is in the fourth 47 position on the overall competitiveness index of the industry but improved its position here on account of the reduced sample. RINL scores well in the financial variables whereas its poor stock market performance and the growth prospects have pulled the overall score down. Very close, the last firm in the main producers segment, SAIL, stands third on the index with a 43.70 score, hence reflecting close competition with RINL. Notably the firm has the last position here in spite of it having the greatest market share of the industry. Although it has the best HRD initiatives and good comparative positions in technological and sales and marketing indicators, the firm has the lowest scores in most of the other indicators such as productive performance and foreign trade.

Table 24: Competitive Positions of Steel Producers in Segments of the Industry

Rank Firms Score Main Producers 1 Tata Steel Ltd. 68.67 2 Rashtriya Ispat Nigam Ltd. 50.50 3 Steel Authority Of India Ltd. 43.70 Major Producers 1 J S W Steel Ltd. 56.31 2 Ispat Industries Ltd. 39.14 3 Essar Steel Ltd. 38.26 Other Secondary Producers 1 Jindal Stainless Ltd. 49.36 2 Uttam Galva Steels Ltd. 45.16 3 Bhushan Steel Ltd. 41.88 4 Shree Precoated Steels Ltd. 40.46 5 National Steel & Agro Inds. Ltd. 39.91 6 Bhushan Power & Steel Ltd. 39.07 7 Mukand Ltd. 35.85 8 Lloyds Steel Inds. Ltd. 26.13

The competitiveness index of Major Producers is similar to that of the main producers in a way that the difference of score between the first firm and the other two is vast, again reflecting unchallengeable superiority of the former. JSW Steel Ltd. is at the first position (56.31 score) as it has highest score in growth variables and shows great potential for maturity. Also it has highest scores in eight out of ten indicators. Remarkably, Ispat Industries Ltd. at second position (39.84 score) has the best productive and stock market performance in the group. Lastly, Essar Steel Ltd. (38.26 score) takes the third position, in spite of its superior performance in foreign trade.

48

The competitiveness index of Other Secondary Producers is headed by Jindal Stainless Ltd. with a 49.36 score. The firm has the best comparative performance in sales and marketing, consumer satisfaction and technological indicators. However, its productivity in terms of capacity utilisation and labour productivity is not up to the mark. Also, it has low ranks in cost effectiveness and growth variables. Uttam Galva Steels Ltd. stands on the second rank with a score of 45.16, but the difference of performance with Jindal Stainless Ltd. is substantial. Still, the firm is most cost effective among its competitors, maintains its financials and is good in foreign trade too, whereas it has scored poorly in the sales and marketing index and the stock market index. Bhushan Steel Ltd., (41.88) at the third position excels in stock market and sales and marketing strategies. Not far behind, at fourth position is Shree Precoated Steels Ltd. with 40.46 score, where it scores highest ranks in two out of ten indicators of competitiveness namely foreign trade and growth variables. However, the lowest scores in productive performance and seventh rank in sales and marketing and human development have pulled down the overall score. The fifth and sixth positions are taken by National Steel & Agro Inds. and Bhushan Power. Outstandingly, Bhushan Power has scored highest points in productivity, whereas National Steel has lowest ranks in two indicators namely technology and human development. Mukand Ltd. and Lloyds Steel Inds. Ltd. takes up seventh and eighth positions with inferior performance in most of the indicators of competitiveness. Notwithstanding, Mukand Ltd. has managed highest ranks in stock market and human development.

7. CONCLUSIONS

It might be concluded that the performance of the Indian iron and steel industry with respect to key indicators such as production, consumption, foreign trade, prices etc. has certainly improved over the past years, especially after its liberalisation. The growth in production and consumption during the post- liberalisation period of 1991-92 to 2006-07 was estimated to be at a rate of 8.11 percent and 6.26 percent per annum. Furthermore, the trade performance of this industry is excellent especially in terms of exports with 30.70 percent growth during the post-liberalisation, which was negative during the pre-liberalisation period (1975- 76 to 1991-92). Therefore, the industry has positive prospects for the future too. The 49

Table 25: Summary of Results of Competitiveness of Firms in Different Segments of the Industry

Technology Sales and Foreign Growth Productive Financial Cost Stock Market Consumer and HRD/ Social Overall Segments/ Marketing Trade Variables and Performance Performance Effectiveness Performance Satisfaction Environmental Indicators Competitiveness Firms Strategy Measure Potential Indicators Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Main Producers Tata Steel Ltd. 12.60 2 3.97 3 7.84 1 7.11 1 6.50 1 6.04 1 6.55 1 3.03 2 7.10 1 7.94 1 68.67 1 Rashtriya Ispat Nigam Ltd. 14.50 1 8.30 1 7.48 2 2.90 3 0.00 3 6.04 1 2.46 3 2.66 3 3.74 2 2.41 3 50.50 2 Steel Authority of India Ltd. 0.00 3 5.18 2 5.25 3 4.97 2 4.51 2 6.04 1 4.10 2 8.18 1 0.00 3 5.47 2 43.70 3 Major Producers J S W Steel Ltd. 0.79 3 11.27 1 11.17 1 4.24 1 2.17 1 6.04 1 6.15 1 3.99 1 4.21 2 6.29 1 56.31 1 Ispat Industries Ltd. 12.37 1 2.41 3 3.48 3 2.80 3 2.17 1 3.02 3 4.15 2 3.59 2 0.00 3 5.16 2 39.14 2 Essar Steel Ltd. 7.25 2 5.55 2 5.13 2 3.47 2 0.13 2 4.03 2 1.38 3 1.83 3 6.49 1 3.00 3 38.26 3 Other Secondary Producers Jindal Stainless Ltd. 3.20 7 8.68 3 8.20 5 6.38 1 2.08 4 6.04 1 3.91 1 2.98 3 5.07 4 2.82 5 49.36 1 Uttam Galva Steels Ltd. 5.92 3 9.60 1 10.46 1 2.50 8 0.98 6 3.35 3 2.14 5 1.35 6 5.99 2 2.87 4 45.16 2 Bhushan Steel Ltd. 5.44 5 7.35 4 7.65 6 3.59 2 3.87 2 2.01 4 2.34 4 1.59 5 5.23 3 2.81 6 41.88 3 Shree Precoated Steels Ltd. 0.10 8 8.78 2 9.45 3 2.33 7 2.94 3 1.34 5 2.01 6 1.19 7 7.10 1 5.21 1 40.46 4 National Steel & Agro Inds. Ltd. 7.57 2 6.69 5 10.32 2 2.78 4 0.90 7 4.03 2 1.23 8 0.69 8 4.29 5 1.41 7 39.91 5 Bhushan Power & Steel Ltd. 10.26 1 6.35 6 5.32 8 3.34 3 1.03 5 1.34 5 3.03 2 3.69 2 0.98 8 3.74 2 39.07 6 Mukand Ltd. 5.71 4 4.38 7 6.61 7 2.64 5 4.52 1 0.67 6 2.46 3 4.00 1 1.50 7 3.37 3 35.85 7 Lloyds Steel Inds. Ltd. 3.53 6 3.30 8 9.17 4 2.48 6 0.00 8 0.00 7 1.77 7 1.99 4 2.83 6 1.06 8 26.13 8

N.B. Zero indicator scores is indicative of worst performance in all the sub-indicators of the index.

50 capacity utilisation has also improved to about 90 percent in the last few years. However, employment is the only indicator which has shown negative growth during the post-liberalisation period indicating jobless growth in the industry.

The industry is then examined in terms of increased competition between its firms in the wake of its liberalisation. The study reflects the relative competitive positions of the 14 sample firms for the year 2006-07, out of which, performance of five firms was above the industry average score of 39.07. After reviewing the first five positions of the firms in the competitiveness index, it may be concluded that as the difference of scores remain substantial between the firms, the competition is not that substantial at the top level, each firm having their own secured positions. The only exception is the third and fourth positions, i.e. JSW Steel Ltd. (47.76 score) and RINL (45.15 score) where the competition is tough. The firms which perform exceptionally well are Tata Steel Ltd. and SAIL mainly due to superior competitive performance in all the indicators except productivity and foreign trade. Below the industry average, Uttam Galva, Ispat Industries and National Steel seem to be in close competition whereas Bhushan Steel, Shree Precoated and Bhushan Power compete hard between themselves. Special mention needs to be made regarding the competitive performance of Mukand Steel and Lloyds Steel Indus. Ltd., which have performed poorly on the overall as well as indicator indices. These firms need to develop their technological base, improve foreign trade and maintain growth in key financial indicators in order to sustain in the industry.

Looking at the financial and non-financial index separately, it is seen that the competitive rankings differ slightly as some firms perform better in one than the other, whereas more sample firms have better non-financial positions on the index. Moreover, because of more weights to the non-financial indicators of competitiveness, those firms which perform better there ensured better competitive positions on the overall index. Segment wise analysis show no different competitiveness picture of the industry, as most of the firms maintain similar competitive positions on it as on the overall competitiveness index.

51

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Appendix Table 1: Summary of Results of Competitiveness Index for Indian Iron and Steel Industry

Sales and Stock Human Growth Productive Financial Cost Consumer Technology and Marketing Market Resource Foreign Variable and Overall Performance Performance Effectiveness Satisfaction Environmental Strategy Performance Development Trade Index Potential Competitiveness Firms Index Index Index Index Index Index Index Index Index Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Score Rank Bhushan Power 10.26 1 3.06 11 6.10 14 1.70 13 0.72 9 1.01 6 2.56 7 2.15 4 3.58 9 3.09 7 34.23 12 & Steel Ltd. Bhushan Steel 6.65 6 3.51 10 7.88 12 2.26 8 2.60 3 1.51 5 1.90 9 0.16 12 5.16 5 2.85 8 34.47 10 Ltd. Essar Steel Ltd. 7.96 4 3.61 9 8.86 9 2.71 4 0.63 10 6.04 1 1.38 12 0.48 8 5.44 4 2.74 11 39.86 5 Ispat Industries 8.90 3 1.55 14 8.37 10 2.54 7 2.25 6 3.02 4 3.05 6 0.61 7 3.55 10 3.43 5 37.28 8 Ltd. J S W Steel 6.34 8 5.68 4 9.88 4 2.57 5 2.59 4 5.53 2 3.91 3 1.76 6 4.90 6 4.59 3 47.76 3 Ltd. Jindal Stainless 4.70 10 4.11 7 9.16 7 2.56 6 1.15 8 5.53 2 3.13 5 0.26 10 5.47 3 2.79 10 38.87 6 Ltd. Lloyds Steel 4.98 9 1.70 13 9.23 6 1.95 9 0.00 14 0.00 8 1.27 13 0.29 9 3.59 8 0.98 14 24.00 14 Inds. Ltd. Mukand Ltd. 6.93 5 2.16 12 7.39 13 1.75 12 2.30 5 0.50 7 1.61 11 2.03 5 2.94 12 3.13 6 30.75 13 National Steel & Agro Inds. 9.87 2 3.81 8 10.10 2 1.75 11 0.49 12 3.52 3 1.23 14 0.07 14 4.81 7 1.60 13 37.24 9 Ltd. Rashtriya Ispat 4.39 11 10.40 1 7.97 11 3.84 3 0.27 13 6.04 1 3.83 4 4.06 2 2.18 13 2.17 12 45.15 4 Nigam Ltd. Shree Precoated 2.50 13 4.48 6 9.46 5 1.88 10 1.58 7 1.01 6 1.73 10 0.14 13 6.63 1 4.99 1 34.39 11 Steels Ltd. Steel Authority 2.31 14 7.48 2 8.90 8 5.13 2 3.06 2 6.04 1 5.07 2 7.50 1 0.00 14 4.77 4 50.28 2 of India Ltd. Tata Steel Ltd. 4.14 12 7.41 3 10.31 1 5.43 1 4.18 1 6.04 1 6.39 1 3.79 3 2.99 11 4.47 4 55.16 1 Uttam Galva 6.36 7 4.83 5 9.99 3 1.59 14 0.55 11 3.02 4 2.13 8 0.23 11 6.08 2 2.83 9 37.60 7 Steels Ltd. Industry 6.16 4.56 8.83 2.69 1.60 3.49 2.80 1.68 4.09 3.17 39.07 Average N.B. Zero indicator scores is indicative of worst performance of the firm in all the sub-indicators of that particular indicator index. 55

Appendix Table 2: Performance of Key Indicators of the Industry Production Apparent Consumption Export Import Number Years for Sale of Non- Alloy Finished Steel of Non- Alloy Finished Steel (Million (Million of (Million Tonnes) (Million Tonne s) Tonnes) Tonnes) Workers 1975-76 5.75 5.47 0.51 0.23 335804 1976-77 6.80 5.64 1.41 0.25 328917 1977-78 6.97 6.22 1.10 0.35 334751 1978-79 7.65 7.91 0.52 0.78 363751 1979-80 7.64 8.97 0.06 1.39 375490 1980-81 7.90 8.86 0.05 1.01 398600 1981-82 9.38 10.39 0.04 1.05 406279 1982-83 9.13 9.93 0.07* 0.98* 415549 1983-84 8.50 9.30 0.07* 0.98* 425080 1984-85 8.78 9.33 0.15 0.70 458917 1985-86 10.03 11.16 0.02 1.15 417495 1986-87 10.54 11.34 0.03 0.83 443311 1987-88 11.95 12.82 0.04 0.92 437781 1988-89 13.36 14.03 0.12 0.78 426859 1989-90 13.83 14.18 0.25 0.59 321119 1990-91 13.53 13.71 0.33 0.51 346573 1991-92 14.33 14.84 0.37 0.97 311623 1992-93 15.20 15.00 0.74 1.08 366854 1993-94 15.20 15.32 1.02 1.06 349626 1994-95 17.82 18.66 0.87 1.70 344161 1995-96 21.40 21.43 1.28 1.54 383340 1996-97 22.72 22.12 1.92 1.56 346889 1997-98 23.37 22.63 1.62 1.82 351957 1998-99 23.82 23.15 1.77 1.13 324007 1999-00 26.71 25.01 2.67 1.60 331011 2000-01 29.70 26.87 2.66 1.42 282910 2001-02 30.63 27.35 2.70 1.27 267636 2002-03 35.41 28.90 4.50 1.45 264535 2003-04 38.58 31.17 4.84 1.47 268459 2004-05 41.32 34.39 4.38 2.08 294974 2005-06 44.39 39.19 4.47 3.79 323051 2006-07 50.20 44.33 4.89 4.39 -- CAGR 6.85 6.19 14.16 5.45 -1.01 Source: SAIL (2008), JPC (2007) and Government of India (2009) * Estimated by using average of preceding two years and succeeding two years.

Appendix Table 3: Iron and Steel Industry Sample Firms‟ Websites Visited Firm Websites 1. Bhushan Power & Steel Ltd. www.bhushanltd.com/ 2. Bhushan Steel Ltd. www.bhushan-group.org/ 3. Essar Steel Ltd. www.essarsteel.com/ 4. Ispat Industries Ltd. www.ispatind.com/ 5. J S W Steel Ltd. www.jsw.in/ 6. Jindal Stainless Ltd. www.jindalstainless.com/ 7. Lloyds Steel Inds. Ltd. www.lloydsgroup.com/ 8. Mukand Ltd. www.mukand.com/ 9. National Steel & Agro Inds. Ltd. www.nsail.com/ 10. Rashtriya Ispat Nigam Ltd. www.vizagsteel.com/ 11. Shree Precoated Steels Ltd. www.spsl.com/ 12. Steel Authority of India Ltd. www.sail.co.in/ 13. Tata Steel Ltd. www.tatasteel.com/ 14. Uttam Galva Steels Ltd. www.uttamgalva.com/ 56

Appendix Table 4: Indicators and Sub-indicators of Competitiveness for Indian Iron and Steel Industry

Indicators Sub- Indicators Units Source Definitions and Adjustments Impact 1. Productive o Capacity Utilisation Percent PROWESS (Total Output/ Installed Capacity)*100 Positive Performance o Labour Productivity Ratio PROWESS Gross Sales/ Number of Employees Positive 2. Financial Liquidity Ratio: Performance Current Asset / Current Liabilities provision Where current asset = Receivables + Inventories + Cash and Bank o Current Ratio Times PROWESS Balance + Marketable Securities - Marketable Security group – Positive Receivable Loan group Companies – Receivable Loan other Companies – Housing Loans Application Money Quick Asset / Current Liabilities provision Where quick asset = Cash and Bank Balance + Sundry Debtors + o Quick Ratio Times PROWESS Positive Marketable Securities – Marketable Security group – Application Money – Debtors exceeding 6 months o Debt-Equity Ratio Times PROWESS Total Borrowings / Net Worth Negative PBIT (NNRT) / (Expenditure on Interest + Lease Rent + o Interest Coverage Ratio Times PROWESS Positive Expenditure on Other Financial Charges) Turnover Ratios: o Finished Goods Turnover Times PROWESS Cost of Goods Sold / Average Finished Goods Inventory Positive Ratio Gross Working Capital Cycle (Average Days Raw Material + o Net Working Capital Cycle Days PROWESS Average Days Finished Goods + Average Days wip Stock + Negative Average Days Debtors ) – Average Days Creditors o Debtors Turnover Ratio Times PROWESS Total Credit Sales / Average Accounts Receivable Positive Profit Ratios: o Net Profit Margin Ratio Percent PROWESS (PAT Net of PE&OI / Net Sales)*100 Positive o Profit Margin Over Total Percent PROWESS (PAT Net of P&E/Total Income Net of P&E)*100 Positive Income o Return on Assets Ratio Percent PROWESS (PAT (NNRT) / Average Total Assets)*100 Positive o Return on Net Worth Percent PROWESS (PAT (NNRT) / Average Net Worth)*100 Positive o Return on Capital Employed Percent PROWESS (PAT (NNRT) / Average Capital Employed)*100 Positive Other Financial Indicators: Equity Capital + Preference Capital + Reserves and Surplus – o Net Worth Rs. PROWESS Positive Revaluation Reserve – Misc Expense not written off o Asset Utilisation Ratio Ratio PROWESS Total Income / Average Total Assets Positive 3. Cost Effectiveness o Raw Materials, Stores etc. Percent PROWESS Percentage of Total Cost Negative o Indirect Taxes, Rents etc. Percent PROWESS Percentage of Total Cost Negative 57

o Other Miscellaneous Percent PROWESS Percentage of Total Cost Negative Expenditure o Financial Charges Percent PROWESS Percentage of Total Cost Negative o Prior Period & Extra-ordinary Percent PROWESS Percentage of Total Cost Negative Expenses 4. Sales and Marketing o Market Share Percent PROWESS (Sales/ Total Sales of the Industry)*100 Positive Strategy o Expenditure on Marketing Percent PROWESS Cost compared to Sales Positive o Expenditure on Advertising Percent PROWESS Cost compared to Sales Positive o Expenditure on Distribution Percent PROWESS Cost compared to Sales Positive o Number of Dealers Numbers Primary Positive 5. Stock Market PAT (NNRT ) in the most recent 12 month period/ Number of o Earnings Per Share Rs. PROWESS Positive Performance Shares Outstanding as on that date o Price- Earnings Ratio Times PROWESS Closing Price / EPS Positive o Yield Percent PROWESS ((Dividend Rate*Face value)/ Closing Price)*100 Positive 6. Consumer o Customer Satisfaction Studies Yes/No Primary Positive Satisfaction o Techniques for Measuring Primary Positive Customer Satisfaction o Award for Customer Yes/No Primary Positive Satisfaction 7. Technology and Technology Acquisition: Environmental o Technology Strategy: Import Scale Primary Positive Indicators or In-House Development o Foreign Exchange Spending Rs. PROWESS Expenditure /Gross Sales Positive on Capital Goods o Foreign Exchange Spending Rs. PROWESS Expenditure /Gross Sales Positive on Royalty/ Know How o Royalty, Know How Percent PROWESS Cost compared to Sales Positive Expenses o R & D Expenditure Rs. PROWESS Expenditure /Gross Sales Positive Technology Management: o Power and Fuel Expenses Percent PROWESS Cost compared to Sales Negative o Number of Production Plants Numbers PROWESS Positive o Product Differentiation Numbers Primary Positive Environmental Indicators: o Pollution Control and Solid Yes/No Primary Positive Waste Management o Energy Conservation Yes/No Primary Positive o Environmental Plantation Yes/No Primary Positive o Environmental Recognitions Yes/No Primary Positive o CSR Yes/No Primary Positive 58

o Certification to Plants Yes/No Primary Positive 8. Human Resource o Employment Generation Numbers PROWESS Number of Employees Positive Development and o Salaries and Wages Rs. PROWESS Expenditure /Gross Sales Positive Social Indicators o Other Expenses on Employees Rs. PROWESS Expenditure /Gross Sales Positive o Provident Fund Contribution Rs. PROWESS Expenditure /Gross Sales Positive o Staff Welfare Rs. PROWESS Expenditure /Gross Sales Positive o Staff Training Rs. PROWESS Expenditure /Gross Sales Positive o Certification to Plants (Health Yes/No Primary Positive And Safety) o Loss Due to Labour Unrest Yes/No Primary Negative 9. Foreign Trade o Net Foreign Exchange Earned Rs. PROWESS Total FOREX Earning- Total FOREX Spending Positive Measure o Export / Sales Percent PROWESS (Total Export / Sales)*100 Positive 10. Growth CAGR over 3 years: Performance and o Sales Percent PROWESS Positive Potential o PAT Percent PROWESS Positive o Investment Percent PROWESS Positive o Total Assets Percent PROWESS Positive o Net Worth Percent PROWESS Positive Future Plans: o Firm‟s Investment Plans over Scale Primary Positive the Next 2 Years o Plans to Produce any New Types of Steel in Next 2 Yes/No Primary Positive Years Contingency Planning: o Insurance Premium Expenses Percent PROWESS Cost compared to Sales Positive o Repairs and Maintenance Percent PROWESS Cost compared to Sales Positive Expense o Department for Disaster Yes/No Primary Positive Management