POSCO SWOT & PESTLE Analysis
ID : 52401753 | May 2018 | 15 pagesCOMPANY PROFILE - POSCO
Business Sector : Iron & Steel Making Company
Operating Geography : South Korea, Asia, Global
About POSCO : Headquartered in Pohang, South Korea it started operations in 1968 for manufacturing and selling rolled steel products. The company has gradually ventured into various related businesses that uses steel products or supplies requisite raw materials for manufacturing. Also, it has diversified risk by expanding its operating geography as mentioned above. Recently, it took up restructuring initiative that resulted in a financial effect worth KRW 7 trillion. It achieved an operating profit of 3.7 billion dollars for FY – 2017. It has around 130, 000 employees as of May, 2017.
The mission statement of USS POSCO states “To Conduct Business in A Manner That Provides Maximum Value to Our Customers, Owners and Employees.” ; With a vision of “To Be the Safest, Most Competitive Flat Rolled Steel Company.”
POSCO Revenue :
28,554 billion KRW (listed in NYSE:PKX) as of FY - 2017
24325 billion KRW as of FY - 2016
Competitive Analysis of POSCO
| 1. Consistently strong financial performance 2. Global Presence 3. People – Centric organisation 4. In – house research capability | 1. Problematic Cash Conversion Cycle |
| 1. Expected Growth in steel demand in developing economies 2. Expected Consolidation of the sector 3. New Ventures and Restructuring Endeavour | 1. Competitors 2. Problem of Over - Capacity 3. Substitute Products |
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Strength
1. Consistently strong financial performance: In last 3 years, the profits have increased continuously from negative to very high positive numbers (from -86.56 million to 2.68 billion i.e. 0% to 5% with respect to the revenue of the company), indicating an improvement in the situation. Retained earnings have improve, which now stands at 54% of the total asset value, albeit cost of goods sold has increased as compared to last year. Though there was a minor decrease in property, plant and equipment and of course in production, due to certain rationalization but it is able to maintain its profit margin as compared to last year’s margin. Interest coverage ratio has also increased from 0.76 to 1.86, showing a massive improvement in the financials of the company.
2. Global Presence: Under Great Voyager program it is continually expanding to newer geographies where there are customers and opportunities leveraging its know-how in the steel making industry segment. Also, it is moving into frontier unexplored areas such as North and South Poles, interiors of Africa and Siberia. These places have requisite resources in abundance. Apart from moving into newer geographies, it also has diversified business portfolio e.g.: POSCO Daewoo, POSCO E&C, POSCO Chemtech, POSCO Energy, POSCO C&C and POSCO ICT. Some of its subsidiaries are POSCO Maharastra, POSCO Mexico, POSCO Vietnam, and POSCO SS Vienna. It also has partnership with various steel players around the world as well.
3. People focused organization: Knowledge centric organization, with support for personal development of employees. It is also establishing a family management system in which it aims to improve trust and communication, harmony and synergy amongst the employees to improve their productivity. Focus on establishing a flexible and creative corporate culture would help in swift response to changes and generation of novel ideas.
4. In-house research capability: Posco has invested in establishing PosTech, in which students and faculties are involved in improving existing technologies and developing novel technologies. Delving into the segments of Lithium extraction and bio - pharma will be based on the studies and research done by students and faculties of PosTech, established 32 years back. PosLX, a technology for Li extraction, has been developed which will substantially reduce the time of extraction from one year to one month.
Weakness
1. Problematic Cash Conversion Cycle: The Company, as any capital intensive company faces a problematic cash conversion cycle. Analyzing, its financial statement revealed that it takes around 3 years for its net receivables to convert to cash. This manifests the power of buyers of the Company. Recently, its asset turnover ratio has increased but still is very low. Working capital requirement, as a percentage of sales, has remained at 20%. Also, the ratio of Non – Cash Working Capital has reduced which suggests that non – cash current asset have reduced and cash has been realized more effectively, as compared to last year.
Opportunity
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Threat
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| 1. Business Environment 2. Risks | 1. Decrease in global economic demand 2. Exchange Rate fluctuations |
| 1. Demographics in developing countries 2. Urbanization | 1. Innovations by Competitors 2. Industry 4.0 and other innovations |
| 1. Labor laws 2. Bankruptcy Resolution Laws | 1. CO2 emission norms 2. Sustainable use of resources |
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Political
1. Business Environment: The government in a country is definitely responsible for various regulatory norms for multitudinous sectors. Lately, various developing countries have eased down their protective laws to attract investments from foreign players. The countries have their own obligations such as to solve the unemployment issue. E.g. India’s rank of ease of doing business index improved after various reform measures. Also, implementation of GST will play a pivotal role in easing the business environment. Growing protectionism in the world and laws pertaining to such a development would be detrimental for the company E.g. Imposition of tariffs on Steel and Aluminum imports by the US.
2. Risks: The risk arises from this dimension as it is uncertain if the government will choose a populist move or a prudent move. Generally, governmental changes that cause dissatisfaction amongst common populace will be avoided, most of the times those steps are not prudent. Recent imposition of tariff on steel and aluminum by Trump administration has delayed the investment plans of POSCO America corp. The delay is due to the company waiting for preliminary assessment report of imposition by US Commerce department which are expected to come after July 9, 2018.
Economic
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Social
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Technological
1. Innovations by Competitors: This plays a major role in impacting business environment. The innovations by competitor, to produce better products in more environment friendly manner, becomes generally accepted norm, then late adoption of the technology will be costly for the company. Also, better technical know-how always gives an edge over the competitors in allocation of departmental projects. Arcelor Mittal has 11 R&D centers worldwide, which helps the company in hiring talents globally with multitudinous perspectives. The interaction amongst the research groups at Arcelor Mittal brings out novel ideas. POSCO though invests in R&D but apart from POSTech, it has no other R&D lab.
2. Industry 4.0 and other innovations: This is the current trend in manufacturing sector to use automation and data exchange technologies. This includes Internet of Things, Cloud Computing and Physical systems. The advancements in ICT will lead to “Smartization” of the steel factories improving the operational efficiency and strengthening the process monitoring by requisite integration. POSCO is migrating to “Smart – X” business, which includes Smart Factory (which is better operation of the factory beyond the replacement of human resources), Smart Energy, Smart Building etc.
Legal
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Environmental
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Major Competitors : Arcelor Mittal , Nippon Steel, HBIS Group, China Baowu Group, Wuhan Iron and Steel Group, Tata Steel, NSSMC Group
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References used in POSCO Analysis Report
1. www.posco.com/
2. http://www.theinvestor.co.kr/view.php?ud=20180401000202
3. http://www.posco.com/homepage/docs/eng5/jsp/invest/financial/s91b5010040c.jsp?mdex=posco22AA
Copyrights and Disclaimer
POSCO SWOT and PESTLE analysis has been conducted by Abhishek Mishra and reviewed by senior analysts from Barakaat Consulting.
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