TISCO - THE WORLD'S MOST COST-EFFECTIVE STEEL PLANT
BACKGROUND NOTE
IMPLEMENTING BEST PRACTICES
continued
from page 2
THE FUTURE
Analysts felt that TISCO's modernization program was very successful. The Steel
Authority of India Ltd. (SAIL) adopted a similar program with an investment of
Rs 70 billion. However, the program was not successful. In contrast, in spite
of the depressed market and lower margins, the decrease in the production costs
enabled TISCO to achieve a profit after tax of Rs 5.53 billion in 2000-2001,
and Rs 4.22 billion in 1999-2000 compared to Rs 2.82 billion during 1998-99.
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TISCO planned to enter new areas including
setting up of a 0.1 million-ton ferro chrome export oriented project. The
project was planned in Australia because of the lower power costs. TISCO
was to get power at a tariff of 1.8 cents for about 15 years that is about
one-fifth of the tariffs in India. Power accounted for 60% of the cost of ferro chrome manufacturing. TISCO was also planning to enter titanium
mining through alliances with major global companies. To provide
employment to the employees opting for VRS at over-manned units, TISCO
planned to enter the call center business in Jamshedpur. To develop this
business, TISCO entered into a marketing alliance with Tata International,
the trading arm of Tata Group. TISCO also planned to exit from some of its
non-core activities. |
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Critics felt that TISCO might face problems due to the
decrease in demand for steel in the global and local markets and increasing
competition from cheap imports, and anti-dumping duties imposed on the domestic
steel manufacturers by the US. They felt that it was doubtful whether steel,
even at the lowest cost, would deliver returns higher than the cost of capital
in India.
However, some analysts remarked that in the long run, TISCO's strategy to
export to Jordan, Iraq and the Southeast Asian countries might reduce
dependence on the US markets thus helping the company. They said that its entry
into value-added products was expected to safeguard the company from the
fluctuations in the steel prices.
QUESTIONS FOR DISCUSSION1. TOP was described as "maximum impact to the
bottomline, with minimum investment, in the minimum time. What was the rationale behind the implementation of TOP?
Briefly analyze the process and explain the advantages of TOP.
2. The cost-cutting measures seemed to have helped TISCO to a large extent.
Apart from TOP, what are the other steps taken by TISCO for reducing costs?
3. The lowered production costs enabled TISCO to record a profit during
1999-2000,despite a depressed market and low margins. Do you think the low costs would
help the company in the long run? Justify your answer.
ADDITIONAL READINGS & REFERENCES
1. Seno A Alexandra, Indian Steel's False Start, www.asiaweek.com, May 15,
1998.
2. Anmol Singh Archana, Steel Industry: TISCO, IUP,November,1998.
3. Dutta Anirudha, TOP at TISCO: TISCO's quest to become globally competitive,www.indiainfoline.com, September 13, 1999.
4. McKinsey and Booz-Allen to chart out course for Tata Steel's cost-cutting
plan,Financial Express, October 29, 1999.
5. India firm is world's top steel producer, www.globalsources.com, August 8,
2001.
6. Metre Anil, Quest for Modernisation, Advertising & Marketing, September 15,
2001.
7. SAP helps TISCO become globally competitive steel maker,www.expresscomputeronline.com, November 26, 2001.
8. www.karvy.com
9. www.tata.com
10www.tatasteel.com
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This case study is intended to be used as a basis for class discussion rather
than to illustrate either effective or ineffective handling of a management
situation. This case was compiled from published sources.
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