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Tata Steel SWOT & PESTLE Analysis

ID : 52387653 | May 2018

COMPANY PROFILE - Tata Steel

Business Sector : Metals and Mining

Operating Geography : Global

About Tata Steel : A multinational company with its base in India, Tata Steel, is a subsidiary of the Tata Group with its headquarters in Mumbai. Tata Steel ranks as one of the highest steel producing companies in the world with its India production estimated to be 12.26 million tons in the financial year of April- March 2018, while the sales for the year is 12.13 million tones. The company’s operations are spread worldwide in 26 countries and employ over 74,000 people. The operations are spread across five continents with commercial presence in over 50 countries. The largest plant of this company however is situated in Jamshedpur, Jharkhand. Tata Steel, is well known for its ethical practices and was awarded the ‘World’s Most Ethical Company’ by Ethisphere Institute for the sixth time in 2017-2018.

Its vision is 'We aspire to be the global steel industry benchmark for Value Creation and Corporate Citizenship.'

Its mission statement states 'Consistent with the vision and values of the founder Jamsetji Tata, Tata Steel strives to strengthen India’s industrial base through effective utilization of staff and materials. The means envisaged to achieve this are best technology and high productivity, consistent with modern management practices.
Tata Steel recognizes that while honesty and integrity are essential ingredients of a strong and stable enterprise, profitability provides the main spark for economic activity.
Overall, the Company seeks to scale the heights of excellence in all it does in an atmosphere free from fear, and thereby reaffirms its faith in democratic values.

Tata Steel Revenue : INR 1, 17,420 Crores (FY 2017)

Competitive Analysis of Tata Steel

The SWOT analysis of Tata Steel is presented below:
Strengths
Weaknesses
1. Strong Brand Equity
2. Strong growth in sales
3. Ethical image
4. Efficient supply chain
1. Labour force is not very productive
2. Failure of Corus in the European Market
Opportunities
Threats
1. Increasing migration and urbanization to increase India’s steel consumption
2. Increasing digitalization
3. Proposed joint venture with ThyssenKrupp
1. Competition faced from steel alternatives
2. Regulations related to green house emissions
3. Volatility of steel and raw material prices

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Detailed SWOT Analysis of Tata Steel

 

Strength

This section is available only in the 'Complete Report' on purchase.

Weakness

1. Labour force is not very productive: As per a recent report around 98% of Indian’s workforce has not undergone any requisite training that makes them skilled enough for the industry, way below the global standards. This has been mainly due to lack of vocational training and professional education in India and a direct impact has been observed in most manufacturing companies. Infact as per governmental estimates India requires around 4 lakh crore rupees to train as much as 500 million people where as the allocation in budget is not sufficient so this gap will require time to get bridged. Tata Steel though intends to set benchmarks for its productivity levels of workers as off now it comes nowhere close to the steel giants in Korea or Japan on this particular parameter. Hence, even though abundance of labor in India should ideally be a point of strength for Tata Steel, their lack of productivity makes it a point of weakness.

2. Failure of Corus in the European market: Tata Steel had acquired Corus for around $13.6 billion in 2007 at the last phase of the economic boom which was a part of Tata Steel’s overall plan to spread operations all over the globe. In fact around 20 billion dollars were spent in takeovers in the foreign shores. However, in 2016 Corus , i.e, the UK business of Tata Steel was about to be sold which gave a major blow to its image and somewhat to the economic aspect because it definitely curbed the prospects of Tata Steel in Europe, after the entire show of promise and scope of expansion in 2007. The takeover had happened after a strong case of bidding but at the end the business had to be wrapped up in UK, owing to a large number of macroeconomic factors, the major one being the increasing demand for cheaper steel from China which posed a direct threat to the financial viability of Corus.

Opportunity

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Threat

1. Competition faced from steel alternatives: Aluminum has been widely touted as the lightweight alternative for steel mostly in the aerospace and automobile industries and poses a major threat to the steel industry in general. In fact even though the strength of aluminum isn’t comparable to advanced steel, still it has some major improvements over steel that make it highly preferable as a light weight metal. Alongside that it is also more credible as a sustainable metal that gives it the added edge. In fact some automobile manufacturers like Jaguar have resorted to entirely replacing steel with aluminum. Aluminum is also highly recyclable without much investment. On the whole however the competition is not just from other metals but also materials like polymers which are emerging as viable alternatives to steel. Polymers like polyurethanes have emerged as satisfactory alternatives to steel even though they have limited mechanical strength. But the anti corrosive qualities that polymers posses make it favorable as an alternative in various applications.

2. Regulations related to green house emissions: India based on its high ranking as a green house emitter, has national action plans to reduce the green house emission to a desirable limit. As per the Kyoto Protocol, the government has been increasingly trying to encourage technological improvements and introduction of state of art equipment to make sure that steel production isn’t accompanied by an excess amount of green house gas emission. Moreover as per the Renewable Purchase Obligations the steel industries that have fossil fuel based production have to comply under the Electricity Act of 2003 and if the compliance is not there, heavy penalties are bound to be imposed. At the same time, given the challenges imposed by climate change, India has chances of having limits imposed for emissions as per worldwide conventions and protocols. Additionally given the law framework, and increasing legislation against deforestation, even mining of minerals, raw materials that facilitate steel production would become a major challenge.

3. Volatility of steel and raw material prices: The prices of coking coal have varied greatly in between 2016 to 2017 and the rise in the prices has at the same time not been linear. In fact in China the price per ton was 75 USD in February 2016, rose to 300 USD in April and finally went down to 200 USD in December 2017. The fact is while the prices did stabilize based on market forces, it was accompanied by a number of natural disasters which led to supply chain deficiencies further leading to price rise. Another important raw material, iron ore also had its prices fluctuate from 41 USD per ton in 2016 beginning and then changed to 95 USD, 57 USD over the course of time, finally settling at 70 USD in December 2017. These fluctuations have placed a heavy burden with increased difficulty in making sales and production forecasts which on the whole poses a huge challenge for Tata Steel in 2018.

The PESTLE/PESTEL analysis of Tata Steel is presented below:
Political
Economical
1. Geo-political issues and rising trend of protectionism
2. Indian governmental policy intends to treble steel production capacity by 2030
1. Volatility in the prices of steel and raw materials all throughout the world
2. Debt and budget deficits in emerging markets and developing economies
3. Failure of Corus in the European market that was a blow to Tata as well as the economies of the countries
Social
Technological
1. Increasing levels of urbanization
2. Ethical image of Tata Steel gives it a great deal of social capital
1. Increasing digitization to increase revenues and decrease overall costs
2. Analytics to provide competitive advantage to companies
Legal
Environmental
1. Impact of mines and minerals Bill 20161. Regulations related to green house emissions
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Detailed PESTLE Analysis of Tata Steel

 

Political

This section is available only in the 'Complete Report' on purchase.

Economic

1. Volatility in the prices of steel and raw materials all throughout the world: The prices of coking coal have varied greatly in between 2016 to 2017 and the rise in the prices has at the same time not been linear. In fact in China the price per ton was 75 USD in February 2016, rose to 300 USD in April and finally went down to 200 USD in December 2017. The fact is while the prices did stabilize based on market forces, it was accompanied by a number of natural disasters which led to supply chain deficiencies further leading to price rise. Another important raw material, iron ore also had its prices fluctuate from 41 USD per ton in 2016 beginning and then changed to 95 USD, 57 USD over the course of time, finally settling at 70 USD in December 2017. These fluctuations have placed a heavy burden with increased difficulty in making sales and production forecasts which on the whole poses a huge challenge for Tata Steel in 2018.

2. Debt and budget deficits in emerging markets and developing economies: Ever since the financial crisis in 2007-2009 there has been a widespread increase in the debt and budget deficits of most emerging markets and developing economies which has made them increasingly prone to be affected by a steep rise in the borrowing costs. Infact to state in numbers the governmental debt has rise from a 35% of the GDP in 2007 to 47% of the GDP in 2016. Another such alarming statistic is that the average deficit which was around 1% in 2007 has deteriorated to 5% in 2016, indicative of the worsening situation. In response to this various countries have tried to ramp up their monetary policies and come up with sufficient reserve buffers but the problem still lies in the fiscal positions. A sharp spike in the financing costs can still make these economies increasingly tighten their fiscal positions, which should not be the case ideally and hence, fiscal positions should be shored up in prior accordingly. With reference to Tata Steel, unless the scenario changes in these economies growth potential will be stumped.

3. Failure of Corus in the European market: Tata Steel had acquired Corus for around $13.6 billion in 2007 at the last phase of the economic boom which was a part of Tata Steel’s overall plan to spread operations all over the globe. In fact around 20 billion dollars were spent in takeovers in the foreign shores. However, in 2016 Corus , i.e., the UK business of Tata Steel was about to be sold which gave a major blow to its image and somewhat to the economic aspect because it definitely curbed the prospects of Tata Steel in Europe, after the entire show of promise and scope of expansion in 2007. The takeover had happened after a strong case of bidding but at the end the business had to be wrapped up in UK, owing to a large number of macroeconomic factors, the major one being the increasing demand for cheaper steel from China which posed a direct threat to the financial viability of Corus.

Social

This section is available only in the 'Complete Report' on purchase.

Technological

This section is available only in the 'Complete Report' on purchase.

Legal

This section is available only in the 'Complete Report' on purchase.

Environmental

1. Regulations related to green house emissions: India based on its high ranking as a green house emitter, has national action plans to reduce the green house emission to a desirable limit. As per the Kyoto Protocol, the government has been increasingly trying to encourage technological improvements and introduction of state of art equipment to make sure that steel production isn’t accompanied by an excess amount of green house gas emission. Moreover as per the Renewable Purchase Obligations the steel industries that have fossil fuel based production have to comply under the Electricity Act of 2003 and if the compliance is not there, heavy penalties are bound to be imposed. At the same time, given the challenges imposed by climate change, India has chances of having limits imposed for emissions as per worldwide conventions and protocols. Additionally given the law framework, and increasing legislation against deforestation, even mining of minerals, raw materials that facilitate steel production would become a major challenge.

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Check out analysis of other relevant companies

References used in Tata Steel Analysis Report

http://www.tatasteel.com/investors/

http://www.tatasteel.com/investors/integrated-reportannual-report/integrated-report-annual-accounts-2016-17-110th-year-and-related-documents/#

https://www.tatasteeleurope.com/static_files/Documents/Corporate/Careers/Supply%20Chain%20and%20Logistics.pdf

http://www.tata.com/company/releasesinside/tata-steel-worlds-most-ethical-company-2017

http://www.tatasteel.com/media/3669/integrated-report-and-annual-accounts-2016-17.pdf

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Tata Steel SWOT and PESTLE analysis has been conducted by Neelabjo Mukherjee and reviewed by senior analysts from Barakaat Consulting.

Copyright of Tata Steel SWOT and PESTLE Analysis is the property of Barakaat Consulting. Please refer to the Terms and Conditions and Disclaimer for usage guidelines.