Value Chain Analysis Case Study

Backward Integration in Chinese Metal Industry: A case of Anben steel

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Abstract:
Anben Iron and Steel Group acquired Lingyuan Iron & Steel Group Co, a small domestic enterprise that owned an iron and steel company and an iron mine with 66.78 million tons of iron ore reserves. The domestic experts believed that after the acquisition, Anben Group would have steady upstream channels and it could even ignore the unfavourable price rise in international iron ore markets. It would also reduce the inventory cost and working capital requirement of Anben Steel. It was expected that this would ultimately lower the cost of operations and increase the net present value of the company. However, some industry analysts warned about the chances of producing low quality steels, monopolisation of markets, price gouging and the damage that may be caused to the local economy. Hence, it remained to be seen whether Anben could make the acquisition successful and make it big in the international steel market.

Pedagogical Objectives:

• To understand the position of Anben steel in the Chinese steel industry
• To realise the benefits of the backward integration strategy of Anben Steel
• To highlight the costs associated with this acquisition project.

Keywords : Backward integration, Linggang Steel, Acquisition, Merger, Iron ore, Competitive advantage, Rolling Steel, Scrap, Crude steel, Silicon flat steel, Electroplating, Overcapacity

Contents:

• Anben Iron and Steel Group
• Anben's Wish To Acquire Linggang: The Deal
• The Deal between Anben and Linggang: Raising Questions