Case Study: Zhang National Steel Company

Encouraged by the beckoning of national leaders, China quickly became the world’s greatest steel producing nation by 1996. Ten years later, China accounted for over a third of the worlds steel production. This surge of production quickly surpassed domestic needs and began to overflow into a skeptical and mature international market. Other nations, frightened by the prospects of losing jobs to foreign steel manufactures began to erect barriers and tariffs. With so many citizens laboring in this industry and so much invested in its infrastructure, it is vital that China begin to successfully market its steel in the global marketplace. If China cannot maintain its enormous steel industry, unemployment rates will surge and instability will likely result. The challenge has become one of geopolitical stability that must be addressed immediately.

Adam Smith (1776) asserted that, “if a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry, employed in a way in which we have some advantage” (p. 422). The benefits of free trade have been widely lauded by economists around the globe. The irony in the challenge of the Chinese steel manufactures is that they must argue in favor of less regulation while the United States and Europe stand as the opposition. China is capable of producing a desirable product at a cost significantly lower than competitors due to advantages in labor costs and existing infrastructure. Additionally, China benefits from production centers that are largely populated near ports and open shipping lanes. The challenge required for these organizations to overcome is finding nations willing to open their ports to free trade.

The solution to China’s steel surplus is to aggressively market their products abroad. This solution will take the form of a geocentric orientation with global marketing. According to Lascu (2008), “The objective of a geocentric company is most often to achieve a position as a low-cost manufacturer and marketer of its product line; such a firm achieves a strategic competitive advantage by developing manufacturing processes that add more value per unit cost to the final product that its rivals” (p. 9). China must now work to aggressively market its steel in India, the United States, and Europe.

India, a billion strong and rapidly growing, produces less than ten percent the amount of steel produced in China. While reviewing the strengths-opportunities block of the SWOT, we discover that India, with ample ports and growing demand, is a market that China needs to pursue. In order to overcome protectionism in the United States and Europe, China will present the facts and recruit talented economists to highlight the benefits of embracing free trade. Allowing cheaper, imported Chinese steel will ensure the cost of construction is cheaper for Americans and Europeans in the future. The success or failure of Chinese steel producers will rely on their ability to reacquaint the British and the Americans with one of their favored sons – Adam Smith.

References

Lascu, Dana-Nicoleta. 2008. International Marketing (3rd ed.). Mason, OH: Cengage
Learning.

Smith, Adam. 1776. An Inquiry into the Nature and Causes of the Wealth of Nations, 2 Vols., Everyman's Library (London: Dent & Sons, 1904), Vol. I.