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Case Title:

Baosteel’s Aggressive Inorganic Growth Strategy: The Cost Factor

Publication Year : 2010

Authors: S Chaudhuri, D Mukherjee, S Hussain

Industry: Minerals, Metals and Mining

Region: China

Case Code: GRS0199IRC

Teaching Note: Not Available

Structured Assignment: Not Available


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Abstract:
Shanghai Baosteel was China's largest steel company. In the year 2006, the company planned to increase its steel production capacity from the existing 30 million tons to 80 million tons by 2012. This expansion strategy was adapted to gain greater control over the Chinese, as well as the global steel industry and to increase bargaining power with the raw material suppliers. To execute this plan, the company resorted to inorganic expansion strategies such as mergers, acquisitions and strategic co-operation, with both domestic as well as foreign steel companies. In January 2007, Baosteel paid 3 billion renminbi for Xinjiang Ba Yi Iron and Steel industry. The move had been welcomed in China as consolidation was the need of the hour in the fragmented Chinese steel industry. However, the cost involved in such acquisitions seemed to be quite high compared to the small capacity addition. Moreover, the acquisitions and mergers implied more capacity addition by the steel giant, which could add to the anguish of the Chinese steel industry already suffering from overcapacity. In such circumstances it remained to be seen whether the aggressive inorganic expansion strategy used by Baosteel could deliver the expected results.

Pedagogical Objectives:

  • To discuss the aggressive expansion strategy of Shanghai Baosteel.
  • To study its various mergers and acquisitions with special mention to Xinjiang Ba Yi Iron and Steel.
  • To examine the benefits that such strategy can deliver
  • To study the costs associated with such aggressive expansion strategies.

Keywords : Chinese steel industry; Baosteel Group; Xinjiang Ba Yi Iron & Steel Group; Global steel industry; Consolidation strategies; Fragmentation of the steel industry; North American Free Trade Agreement (NAFTA); Organisation for Economic Co-operation and Development; Strategic partnership; Acquisition; Mergers; Overcapacity in crude steel; New steel policy; Capacity expansion

Contents : 
Chinese Steel Industry: A Brief Overview
Government Ownership Of Chinese Steel Company
China’s Share In The World Crude Steel Production
Shanghai Baosteel: Aiming High
Products Of Shanghai Baosteel
Revenue Earned By Major Steel Products Of Baosteel
Global Steel Industry: A New Look 2006
Major Mergers And Acquisitions Of Shanghai Baosteel

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Case Study :
   INR 200 = USD ($)

Structured Assignment:
   INR 150 = USD ($)

Teaching Note :
   INR 400 = USD ($)
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