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Dominant Firm Model

Essay by   •  September 23, 2011  •  Essay  •  2,523 Words (11 Pages)  •  1,308 Views

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NoSeam - Company Background 3

The Product - Seamless Carbon SteelTubulars for Petroleum Industry. 3

Production process 4

Industrial standards: 4

Seamless Pipe Market Worldwide 5

NoSeam's Global Low Cost Competitive Strategy 5

The Oligopolistic Market of Seamless PREMIUM Pipes in Egypt 5

Oligopoly by Definition: 6

Key characteristics of the Oligopolistic Market of Seamless PREMIUM Pipes in Egypt: 7

The Dominant-Firm model adopted by NoSeam 8

Dominant Firm Price Leadership Model 8

How NoSeam applied the Dominant-Firm Model: 9

No Seam - Dominant Firm Model Graph and economic data. 10

Conclusion 12

References 13

NoSeam - Company Background

NoSeam is a multinational seamless pipe manufacturer that entered the oligopolistic market of seamless tubulars in 1990. The company started with acquiring and renovating its 3 main steel producing mills in Japan, France, and Brazil. By the year 1999, NoSeam had expanded its operations exponentially to include 2 other steel producing mills in China and Czech Republic, and various finishing facilities in different countries worldwide such as USA, Taiwan, and Saudi Arabia.

The Product - Seamless Carbon SteelTubulars for Petroleum Industry.

Seamless carbon steel tubulars are basically pipes that are installed in the oil & gas wells.

In order to drill a well, a pipe -referred to as "casing"-has to be inserted into the well hole so the well does not collapse. Consequently, in order to be able to produce the fluid (oil or gas) from this well, another smaller pipe -referred to as "tubing"- has to be inserted into the casing to allow for fluid production.

As you can see in the illustration, a well comprises a set of pipes of different sizes placed into one another in a telescopic manner and can reach total depths ranging from 5000 up to 15000feet under the ground.

Production process

The most important characteristic of a seamless pipe is that it has no seam. The production of such pipe starts from the cooking of the molten red hot steel, adding all the chemical additives needed to reach the required steel grade then casting this molten steel into solid cylindrical billets (of about 3 meters in length). The solid billets are then left to cool down.

Then comes the most interesting part in the seamless pipe production which is the piercing process. The solid steel billets are heated again to over 1000 degrees until they are red hot then a solid steel pipe (mandrel) is forced through the center of the billet to pierce it out. The result of this process is transforming a solid cylindrical steel billet into a hollow steel pipe.

Seamless pipes are very useful in the petroleum industry because unlike welded pipes, they have no weak points that could break or crack that would cause problems such as leakage of the fluid. On the contrary a seamless pipe has uniform mechanical properties all over the pipe (no weld - no weak points).

Piercing Process

Industrial standards:

There are two types of seamless pipes:

* Standard following API (American Petroleum Institue) specifications

* PREMIUM following the specifications of the manufacturer.

API pipes are less sophisticated than PREMIUM pipes and are used in less demanding oil & gas operations, while PREMIUM pips have more complex steel grades and connection profiles.

Seamless Pipe Market Worldwide

The seamless pipe market is an oligopoly with few players worldwide such as WYZ, Arcelor Mittal, Vallourec&Mannesman, JKL, Tianjin & other Chinese players, and our company; NoSeam.

Chinese mills are very competitive in API seamless pipes considering their lower costs and pricing strategy of "cost+". They have however, low profit margins.

On the other hand, the rest of the above mentioned manufacturers including NoSeam, though they have higher costs but they have the technology to produce PREMIUM pipes that are actually more profitable than the API.

This report will tackle the penetration of NoSeam in the Egyptian PREMIUM Seamless steel pipes market in competition with giant manufacturers such as WYZ (Japan), Vallourec&Mannesman (France& Germany), and JKL (Italy, Japan, Argentina, and Mexico).

NoSeam's Global Low Cost Competitive Strategy

In order to compete in the Premium segment with these giants who each have more than 50 years of experience in the industry, Noseam had to reduce its operating costs. The main challenge for Noseam was that each of its facilities worldwide had different and seperate Operating Systems, Information Systems, and Administration procedures. Noseam had to adopt the following cost cutting strategy to make sure it can compete with the giants of PREMIUM steel tubulars:

* Cross-asset cost management: align cost strategies of all mills.

* Integrated Supply Chain Management of all its mills.

* Suppliers deal review: Long term deals with suppliers of raw material were established to ensure a lower raw material cost

* Forward Integration: Noseam acquired 3 finishing facilities to be able to finish its products on its own instead of sending the material to a third party for finishing.

The low cost strategy helped NoSeam increase its worldwide market share of seamless tubulars from 10% in 2001 to reach 18% by the year 2005, and 26% by the year 2009. One of the main contributors to the exponential increase of Noseam's market

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