A Call for Consolidation in South East Asia (Part II)

Posted on 23 March 2006

Source: SEAISI

Last month we have raised some potential hurdles to have a more consolidated steel industry in South East Asia.  The first problem is related to ownership of the company and the pride of the nation.  It is apparent that the consolidation move will face a stumbling block.  Can a consolidation start with something other than giving away ownership? Perhaps it can.  There are ways to be more consolidated, more co-operation.  They can start with soft consolidation in some functions of corporate management.    

Marketing consolidation

This is a logical strategy to improve competitive position in their home region.  A marketing consolidation is a step to broaden business scope and to merge competencies.  The move also means to have a stronger position relative to much larger competitors and to avoid a cut-throat competition among the region's steelmakers. They can serve the customers better by providing a wider range of product types and specifications.  Many of the customers demand wide range of product size and specifications thus steel products from more than one company would serve them better. Joint marketing will also make production management more flexible and less excess of finished steel inventory that can not be sold.

Procurement consolidation

The production and material management functions of a steel company have several strategic objectives.  The most important one is to lower the costs. However, it has been difficult for small South East Asia steelmakers to secure raw materials and semifinished products in adequate volume at favourable prices.  A joint procurement operation would help in lowering the cost of input, improving service from suppliers in term of responsiveness, inventory management, and ultimately the conditions of sale.  These will lead  to additional competitive advantage such as better capacity utilisation and also improved product quality.  Joint procurement will also give directions to a more efficient logistics.  Product quality would improve as well because the consolidated companies can source materials from more reputable suppliers in a longer term supply-purchase agreement instead of relying on volatile and less quality-warranted spot transactions. 

A soft consolidation is perhaps a more realistic way to start a consolidation process among South East Asia steelmakers.  Since the integration moves do not touch ownership issue, less criticism would be expected.  Marketing and procurement consolidation can be a starting point for a 'hard' consolidation in the future.  This soft consolidation will facilitate companies to complement each other and to merge limited competencies to a stronger one. 

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