Read Case 1.1 Zhang National Steel Company and answer the following questions in an essay format.
Your answers must include content and cite reference materials where appropriate. To assist in this requirement, a good rule of thumb is that each answer should be approximately 200 to 250 words in length.
Chapter 1 Scope, Concepts, and Drivers of International Marketing 21
22 Part One Introduction to International Marketing
Case 1-1 Zhang National Steel Company
Liu Hong, Director of International Accounts at
the Zhang National Steel Company, has just been
summoned by the new company chairman. He is
expected to provide viable solutions for the company
that will enable it to compete effectively in
an increasingly saturated international steel market.
China’s steel production is growing at breakneck
pace. Its rapid growth is posing serious threats to
the industry, and Zhang National, one of the larger
recently privatized steel companies, is part of the
problem. When Mao Tse Tung ordered an increase
in the steel production as part of the Great Leap
Forward, people left their fields, abandoned their
work in agriculture, and fled to the large steel
mills that produced millions of tons of useless substandard
steel. Today, an enterprising China is taking
another great leap, investing in industrial
establishments, especially in the steel industry.
The old, large steel mills have been privatized,
becoming more efficient and producing highquality
steel, and investors are keen on banking
on new and profitable steel mills.
According to industry reports, China produced
419 million metric tons of crude steel in 2006.
This represents an increase of 314 percent from
101.2 million metric tons produced in 1996,
when it became the largest steel producing country
in the world for the first time. Today, China
accounts for almost 34 percent of world steel production.
The Asia region accounted for almost
54 percent of world crude steel production in
2006, up from 38 percent a decade earlier. The
world total production of steel increased from
847.5 million metric tons in the year 2000 to
1,239.50 million metric tons in 2006. And with
steel production in the Asian region growing at
breakneck rates, it is predicted that there will be
an enormous glut of steel, which will ultimately
lead to mass layoffs from Pittsburgh to Beijing.
In 2007, China imposed duties of 5 to 10 percent
on exports of more than 80 Chinese-made
steel products, as well as other products containing
steel, to trim its trade surplus. Under these circumstances,
the Zhang National Steel Company would
eventually have to cut its workforce—most of it
recently hired—by two thirds. Such a move would
displace many workers and their dependent families
and could very likely lead to political unrest in the
region, as elsewhere in China. In fact, China’s
State Council, its cabinet, is starting to discourage
investment in new steel mills by making such
investments less attractive for investors. However,
such efforts at the national level are countered by
local officials whose goals are to increase local job
opportunities and taxes. Locally, there is a strong
push for establishing new steel mills, with local governments
offering incentives for such investments.
Liu Hong gazed at the steel mill’s dock on the
Yangtze River. Many of China’s steel mills are
located on the banks of this river. River access facilitates
barge access of ore imports, and the Yangtze
is a magnet for competitors. The steel Zhang
National produces is used primarily to meet domestic
demand and feed the building boom in China’s
large cities. Cement-and-steel structures line up the
large avenues in Shanghai’s Pudong district, and
along many of Beijing’s boulevards, massive structures
line up against the hazy sky (see Figure 1-7).
However, even China’s economy appears to be
slowing down, and after the 2008 Olympics,
there is not as much incentive for the national government
to push construction to showcase the new
China to the world. The investors in the newly privatized
Zhang National Steel Company are starting
to ask questions about the viability of the company
in the near future.
In spite of the recently imposed export duties on
Chinese steel, Liu Hong believes that going international
is the best strategy for the company.
Investors need to understand the importance of
going international to be profitable in the long
term. Undoubtedly, going international will be a
challenge in an environment that is fraught with
unpredictability and protectionist measures. The
world’s largest steel consumer, the United States,
is an important target market in Liu Hong’s view,
even though dozens of U.S. steel producers are
going bankrupt because they cannot compete
with imports that benefit from state subsidies. In
an effort to protect the U.S. steel industry, the
U.S. government took a step that challenged
the entire world trade establishment, charging tariffs
on steel imports. Furthermore, the European
Steel and cement dominate Beijing’s landscape.
Chapter 1 Scope, Concepts, and Drivers of International Marketing 23
Union is contemplating measures to block a flood
of steel imports from Asian countries—imports
that normally would have had the United States
as their destination. However, even though the
United States and the European Union may raise
some barriers to trade with China, Chinese steel
will continue to remain more affordable than U.S.
or European steel. Moreover, India’s steel consumption
is rapidly increasing, and with large revenues
from outsourcing, India has the hard currency
to purchase this commodity to meet local demand.
Liu Hong realizes that he must present a balanced
perspective on going international. The challenge
is convincing the chairman and the investors
that going international is essential for Zhang
National Steel Company. As a first step, he examines
the data on steel production in Table 1-2.
The Major Steel-Producing Countries
Major Steel Producers in 2001 and 2006, million metric tons crude steel production
2001 2001 2006
Country Rank Tonnage Tonnage
China 1 150.9 442.7
Japan 2 102.9 116.2
United States 3 90.1 98.6
Russia 4 59.0 70.8
South Korea 6 43.9 48.5
Note: World total production was 1,244.2 million metric tons in 2006.
Source: World Steel in Figures 2001–2006, International Iron and Steel Institute, June 15, 2007; www.worldsteel.org.
Regional World Steel Production (annual, million metric tons)
Year 2000 2001 2002 2003 2004 2005 2006
Europe 308.9 304.8 308.7 320.3 339.7 333.7 354.4
North America 135.4 119.9 122.9 126.2 134 127.6 131.5
South America 39.1 37.4 40.9 45 45.9 45.3 45.3
Africa 13.8 14.9 15.8 16.3 16.7 17.9 18.5
Middle East 10.8 11.7 12.5 13.4 14.3 15.3 15.4
Asia 331.9 353.9 394.9 442.4 510.1 591.1 665.7
Australia/New Zealand 7.8 7.9 8.3 8.4 8.3 8.6 8.7
World 847.7 850.5 904 970 1,068.90 1,139.60 1,239.50
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