Posted on 23 November 2006

 

Source: SEAISI

The 1^st conference was held at the Shanghai International Convention Centre, Shanghai from Nov 2 to 3.  The conference was organized by the IBG Group, a professional conference organizer, with support principally from Deloitte’s and several other companies.

The conference attracted about 60 delegates, mainly from China of course, with participants from India, the USA, and other Asian countries.  13 of the 14 papers published in the original program were presented, but only one of the 3 panel sessions was held as there were insufficient panelists for the second day.

There were three main themes discussed at the conference:

1) China.

• China expected to grow at the same rate for the next 5 years and will continue to grow over the next 20 years
• Urbanisation has fuelled the construction industry and hence the long product sector, hence great demand on long products
• More than 50% of production and consumption is in the long products sector.  Chinese steel industry finds it difficult to break into the higher quality grades such as that required for machinery, equipment and electrical applications.  MNC’s building plants in China usually import these machines for their factories (65-75% imported). 
• Because demand is high, there is less incentive to improve quality.  Although there are exceptions, quality generally is still an issue for the Chinese steel industry
• Restructuring in the Chinese steel industry is very slow, mainly because provincial and local governments still cannot decide how to apportion revenue and tax with mergers of plants owned by different provinces/local governments.  Moreover, they are concerned about possible strikes if there is a large scale lay off of workers
• Any merger tends to be in name only as there is no evidence of rationalization and consolidation of finance and other functions
• But there has been some success stories, such as Tanggang which was from the merger of 3 companies to produce about 16 millions tones in 2005, second only to Baosteel in China
• China exported about 45mt last year (direct export) plus another 30-35 indirect export
• Chinese steel companies are still not fully market driven, but rather driven by the central committee, i.e. profit not the only objective, employment is a key one
• Closing down of small capacity facilities postponed because of economic impact
• Above factors make restructuring to increase flat products difficult
• Export also becoming more difficult for all, not just the steel industries, because the advantage of low labour costs now is negated by the threat of antidumping in many countries

2)      The issue of projected growth in capacity, related topics on consolidation, merger and acquisition, and, both worldwide and also in China.

• Demand projected to reach 1.2 billion tones by 2010
• Concerns were expressed on the continuing announcement of capacity increases.  The total volume announced is in the order of 600 million tones by 2013 (green and brown fields).
• Consolidation is necessary to avoid overcapacity
• High profit in recent years means companies are looking at increasing value creation – capacity increase with either new facilities or acquiring existing facilities
• Price of raw materials will have to come down as they now far exceed the full cost of new expansions (Arcelor-Mittal)
• Consolidation of the Chinese steel industry has not happened at the pace planned by the central government. 
• M&A world wide will continue and companies need to be extremely careful before going into such ventures as more than 70% of M&As ( all industries) are deemed failures

3)      Performance improvements necessary to ahead of competition

• Tata Ryerson presented a paper on their benchmarking exercise which has led to improvements by orders of magnitude.  Benchmarking was seen as the way to go if organizations wish to achieve quantum leaps in performance rather than continuous improvements
                         

With benchmarking	Without benchmarking
Internally focused Changes are evolutionary Few alternatives Average of industry Based on history and gut feel Reactive Route of least response We are ok	Understanding of competition New ideas of proven practices & technologies Many options Business practice breakthroughs Based on reality Proactive Based on best industry practice Sense of urgenc

 

• Tata Metalliks presented a paper on Operating Excellence, the key message here, as is with the other Tata paper, is that management must lead from the front in implementing these programs.  Otherwise improvements will not be happen, and even if it did happen will not be sustained.  “If leaders are committed, they will be actively involved, if they are only interested, they will bring in consultants”
• There was a paper on the 6 sigma program and the same speaker presented a session on lean manufacturing,  These programs, together with others such as 5S, TPM, etc., are all similar and can lead to significant improvements in performance.

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