Tag Archives: Disruption Strategy

HAVE WE MISSED CHINA’S STEEL DISRUPTION STRATEGY?

Recent news has made bleak reading for the UK’s once proud steel industry but, despite political announcements of support, is the real issue being overlooked?

Pic: The Independent

Pic: The Independent

Over recent days and weeks, the UK media has reported on what may prove to be the beginning of the end for the steel industry in this country.

Much of that media commentary has focused on the need for government to do more without reflecting accurately on what more government can do. For despite grand talk from politicians in Westminster and devolved parliaments alike, the fact is that for the three key problems identified by the UK Steel Summit, their hands are tied.

The UK Steel Summit identified high energy costs, restrictions on state aid, and the Chinese dumping steel on the export market below the cost of production as the three key problems. The first two tie the hands of UK politicians due to EU restrictions and policies while the third, although actionable by the World Trade Organisation (WTO) again ties our politicians’ hands because they need Brussels’ consent before that are permitted to act and take the matter to the WTO.

But, has anyone considered that China is not simply dumping cheap, surplus steel on foreign markets but flooding them to a more defined strategic purpose?

Doesn’t it seem strange that a country recognised for its careful planning of industrial growth should make such an apparent ‘school-boy error’ in this sector?

Our politicians appear to have overlooked the possibility that this is a carefully crafted disruption strategy aimed at securing a huge slice of the world steel market. It certainly shows all the hallmark signs of the classic disruption strategy:

  • Come in at the cheaper, lower quality end of the market
  • Flood the market place of your competitors
  • When your competitors vacate the discount end of the market, increase quality but keep prices artificially low
  • And so on until you dominate the market having squeezed your competitors out or restricted them to lower volume niche markets

Unfortunately, as I have pointed out on numerous occasions in the past, the UK’s politicians are woefully inadequate when it comes to strategy, as are the nation’s media judging by the lack of recognition of this inadequacy.

This presents the twin problem of (1) China’s steel market disruption strategy not being recognised until it is too late and, (2) even if it is recognised in time, those tasked with addressing the issue lacking the competence to come up with a credible counter-strategy.

This is a bold, global strategy from the Chinese, a master stroke worthy of admiration from anyone with an appreciation of things strategic. However it must be countered, and countered soon, if we are not going to hand global dominance of this vital market to a single power.

The clock is ticking, and ticking fast.

 

© Jim Cowan, Cowan Global Limited, 2016

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