Corresponding Author: Tumpal Hamonangan Simatupang
E-mail: [email protected] ;
[email protected]
INTRODUCTION
The steel industry is one of the main
pillars of the development of advanced Indonesia. Currently, the national
demand for steel is in the range of 16.2 million tons (SEAISI, 2022) and is projected to increase to 100
million tons in 2045 (IISIA, 2023). The development of the steel
industry towards 100 million tons is necessary for the industry in the country
to build national industrial independence. PTKS, as a national steel company,
must be able to take the big opportunities in sight. With a plant capacity of
3.9 million tons of steel product (semi-finished product), PTKS must be able to
fill the national demand for steel and be involved in the development of
massive infrastructure and manufacturing industries that the Government is
promoting.
One indicator of whether a country's
economy is strong can be seen in the strength of the iron and steel industry in
that country. The iron and steel industry plays a vital role in the development
process because iron and steel are the main raw materials for the manufacturing
industry and infrastructure development (Soesanto et al., 2023). More than 90% of human metal
equipment is made of iron and steel. With this very important role, the
existence of the iron and steel industry becomes very strategic to spur the
growth and prosperity of a country, including Indonesia.
In line with the increasing
development of the industrial sector and the intensification of infrastructure
development in various cities and regions in Indonesia (including the
development of the IKN "Ibu Kota Negara"), manufacturing, mining, oil
and gas, agro-industry, as well as transportation and telecommunications
services, the need for national iron and steel products will continue to
increase.
In the next few years, the demand for
steel in Indonesia will increase with the development of IKN. Based on world
steel demand data by the consuming end-use industry, the construction sector
occupies the highest position with 49%. The construction sector itself includes
all structural and building work. The statistic following the IKN phase 1
master plan for 2022�2024� (Berawi,
2022), where the focus of development is on the construction sector (physical
infrastructure) such as toll roads, bridges, buildings for housing, offices,
houses of worship, educational facilities, health facilities, trade facilities,
and dam as well. Phase 2 master plan for 2025�2029 (Berawi, 2022) will continue
with the construction of airports, increased installed capacity, dams, and
wastewater treatment plants. All of these require steel as a raw material.
In addition, the Government also
supports the policy of using domestic steel by issuing Presidential Instruction
No. 2 of 2022 (Inpres No. 2 Tahun 2022) concerning the Acceleration of
Increasing the Use of Domestic Products (P3DN) to succeed in the National
Movement of Proud of Made in Indonesia in the Implementation of Government
Procurement of Goods/Services (Nomor, 2 CE). For the construction of IKN, it is
required to use domestic steel in construction work. This will greatly help
PTKS and other domestic steel industries to be able to fight imported steel.
However, challenges arose because we
know that the global steel industry has enormous excess capacity. 2020 global
overcapacity rose to 625 million tons from 569 million tons in 2019 (y-o-y).
Then, the gap between the global steel industry capacity and production became
521.6 million tons in 2021 and could increase to 562.9 million tons in 2022
(Figure I.2 Global Capacity - Production Gap). It causes a lot of imported
steel to enter Indonesia and disrupts the domestic steel industry, including
PTKS. One country that has a large steel industry capacity is China. China has
a capacity of over one billion tons per year. This excess capacity makes China
throw its direct exports to various countries, including Indonesia. It resulted
in the import volume of steel products in Indonesia being high and the
utilization of the national steel industry capacity below.
The next challenge is the relocation
and potential relocation of steel plants from China to Indonesia in the
aftermath of the escalation of the trade war with the United States. Also,
several steel plants want to avoid Chinese Government regulations regarding
environmentally safe emissions. On the one hand, it can create many new jobs
and reduce dependence on imports, but on the other hand, of course, it has the
potential to disrupt PTKS's market share (create new domestic competitors).
CONCEPTUAL
FRAMEWORK AND RESEARCH METHODOLOGY
The conceptual
framework for this final project is shown in Figure 1. Two key variables in
this conceptual framework make up the research�s main focus: the company�s need
for aggressive strategy for steel sales, and the scenarios that will eventually
be necessary for aggressive strategy development. In line with the research
question, the framework is primarily utilized to aid the author in exploring
other factors, such as external forces (contextual environment and
transactional environment) and critical uncertainties that resulting from
questionnaires to internal and external stakeholders who were interviewed, that
would impact future scenarios for PTKS.
Figure 1.
Conceptual Framework
Source: Author, 2023
According to (Cooper and Schindler, 2014), the research design is the blueprint for fulfilling
objectives and answering questions and selecting a design may be complicated by
the availability of many methods, techniques, procedures, protocols, and
sampling plans. Meanwhile, according to (Creswell and Creswell, 2017), a research design is a set of formal procedures for
collecting, analyzing, and interpreting data, such as those found in a quantitative
experiment or qualitative case study. The author creates the research design by
adapting the scenario planning development method in order to address the
research question by developing plausible scenarios for aggressive strategy
creation in steel sales.
The research design is
a type of inquiry within qualitative, quantitative, and mixed methods
approaches that provide specific direction for procedures in a research study (Creswell & Creswell, 2017). The major methodology for this study will be a qualitative
approach, mostly due to the need for qualitative data from specialists or
experts in the steel industry.
In creating scenario
planning in PTKS as a steel industry, the author will analyze the problems from
both internal and external factors. This research captures the business
environment using three different analysis designs. The analysis of the general
environment comes first. The company should know how the environment will
impact the steel industry activities because it is complex and interconnected
to gain a general understanding of business. An analysis of the overall
environment will be undertaken to manage this. There are four components:
scanning, monitoring, forecasting, and assessing. The general environment
segments will comprise the political, economic, sociocultural, technological,
environmental, and legal components. The research will guide the company in
identifying opportunities and threats.
The industrial analysis
comes second. (Porter, 1996) gave Five Forces Analysis to help the company
assess industry attractiveness, how trends will affect industry competition,
which industries a company should compete in-and how companies can position themselves
for success. There are five basic competitive forces: the threat of new
entrants, the bargaining power of suppliers, the threat of substitute products
or services, the bargaining power of buyers, and rivalry among existing firms (Mugo, 2020).
The internal analysis
comes third. An internal study is built to address the company's concerns.
Resources, core competencies, capabilities, competitive advantage, and
strategic competitiveness are the elements of internal analysis design that are
applied to current strategic decisions and investments.
The results of every
analysis will be used to build scenario planning for the company. There is a
list of driving forces for some of the focal issues that the company deals
with. Critical driving forces are used as the axes of uncertainty in the matrix
of scenario planning.
Figure 2. Research Design Framework
Source: Author, 2023
Figure 2 is the research design
framework used in the research. It starts with a research approach where there
is a need for an aggressive strategy for steel sales in PTKS that must be
implemented in order to dominate the domestic market and sell steel products close
to plant capacity, then proceed to a qualitative approach, data collection, and
data analysis which the process can be iterative between data collection and
data analysis.
At this point, the author should
identify many future trends that will serve as the foundation for developing
scenarios and serve as key driving forces. In order to create plausible future
scenarios, the chosen driving forces are used as important uncertainties in the
scenario development stage. Four scenario planning outputs will be used to
create an aggressive strategy in steel sales in PTKS.
Data Collection Method
This final project employs a
qualitative and quantitative approach to collecting the required data and
appropriate information through a literature review and interviews with
professionals in the steel industry from internal and external stakeholders. Interviews
with the consumers (external stakeholders), attending the Indonesian Iron &
Steel Industry Association Business (IISIA) Business Forum, and discussions
with the Coordinating Ministry for Maritime Affairs and Investment are included
to round out the perspective. After the interview, the author created a
questionnaire to rate the driving forces to create 2x2 scenarios with the 2
most important uncertainties as axes and to level the five basic competitive
forces in Porter's Five Forces analysis results. The questionnaire is limited
to the person being interviewed only.
All interviews with interviewees
are used to gather the primary data needed for developing the scenario planning
as well as to gain their expertise on driving forces, industry trends, industry
uncertainties, implications, and early warning signals; the author conducted a
semi-structured interview with a variety of professionals from across
divisions, departments, and consumers. Meanwhile, secondary data comes from
attending the Indonesian Iron & Steel Industry Association Business (IISIA)
Business Forum, discussions with the Coordinating Ministry for Maritime Affairs
and Investment, literature study and desk study by reading various literature,
academic journals, PTKS annual reports, articles, news, and other reports
related to steel industry. Secondary data aims to provide the author with
plenty of unprocessed data or information that will help frame the
interviewee's response. In addition to supporting the argument made by the
primary data, the secondary data may also encourage the interviewee to consider
potential future trends.
The interviewees are selected; six
interviewees come from PTKS, with the level organization of all interviewees
varying from Senior Sales, Manager (Vice President), and General Manager
(Senior Vice President). Three interviewees come from consumers, with the level
organization of all interviewees varying from the Manager, Department Head, and
Authorities of the Board of Directors.
The steel industry players as
interviewees were interviewed with the same questions: eleven (11) questions
for internal stakeholders and ten (10) questions for external stakeholders.
There was also a discussion to explore driving forces, uncertainty, and future
trends more deeply.
Data collection starts with initial
research using secondary data, followed by interviews (1:1) with internal and
external stakeholders, conducted semi-structured and open-ended (meet
physically and recorded, and also via Zoom). Then, follow-up interviews will be
conducted to select key driving forces relevant to the development of PTKS and
its impact on the company's goodness in the future.
Data Analysis Method
The author used content analysis since the information
gathered through qualitative methods and interviews were complex and difficult
to describe. According to (Krippendorff, 2004), content analysis is a research
technique for making replicable and valid inferences from texts (or other
meaningful matter) to the contexts of their use (Gheyle & Jacobs, 2017). Content analysis involves
specialized procedures, providing new insights, increasing a researcher's
understanding of particular phenomena, or informing practical actions. The
analysis is performed as described in Figure 3.
When the text is ready, the data is analyzed from step 1 to
step 5, from gathering the data through interviews, data preparation, data
condensing, coding verification, and finally, getting the themes used as
driving forces in the scenario planning context.
Figure 3. Description of The Qualitative
Content Analysis Process
Source: adapted from (Brorsson,
2017 and Krippendorff, 2004)
RESULTS AND
DISCUSSION
Analysis
The strategy implementation process begins with
evaluating the company's current situation. A company's position can be broken
down into two distinct aspects: the first one is the external environment, most
notably the industry competition in which the company operates, and the second
one is the internal environment, more specifically, the company's resources and
organizational skills. Both external and internal analysis will affect the
creation of scenario planning.
Then, a thorough analysis of a company's internal
and external environments is necessary to successfully develop a strategy
suited to the organization's circumstances. It is the initial evaluation of a
successful strategy. In order to choose a long-term direction and create a
strategic vision, strategic thinking starts with assessing the company's
external and internal environments, as shown in Figure 4 (Thompson et.al., 2022). It then progresses to a review of the most
viable alternative business models or strategies before concluding with
selecting a particular approach.
Figure 4. Analysis Company�s Situation
Source: (Thompson et.al., 2022)
The immediate industry and competitive
environment, as well as a more comprehensive macro-environment, are all parts
of a company's external environment. Political factors, economic conditions in
the company's overall environment (local, national, regional, and global),
sociocultural forces, technological factors, environmental factors, and legal
or regulatory conditions are the six main components of this macro-environment.
Although some of these factors are more likely to have a more significant impact
than others, each can impact the company's more immediate industry and
competitive environment. PESTEL analysis is a term used frequently to describe
an analysis of the factors of certain components. The author uses PESTEL
together with Porter's Five Forces for external analysis.
External Analysis � PESTEL Analysis
The author uses PESTEL analysis to identify the
macro-environment forces affecting PTKS business now and are likely to continue
to do so in the future by examining political factors, economic conditions,
sociocultural forces, technological factors, environmental forces, and legal or
regulatory factors.
a.
Political Factors
The development of the steel industry is
inseparable from the political background and national security strategy,
especially to meet the needs of vital goods that use steel as raw material,
ranging from light to heavy industry and the military equipment industry.
The political year that comes sooner brings
uncertainty that has the potential to slow down industry performance, including
the steel industry (HE, personal communication, June 15, 2023; and DA, personal
communication, June 16, 2023). Even though new elections will be held in 2024
(next year) and various technical stages have started since 2023 (this year),
the political atmosphere has been heating up from now on. Various maneuvers
carried out by several elites made the political year seem to have come more
quickly. This uncertainty complicates the business climate amid the global
recession and inflation threat. This has made investors and business actors
adopt a wait-and-see attitude, which always occurs in political years.
Investors' wait-and-see attitude will always occur in a political year, so the
most important thing that needs to be maintained is investor confidence through
domestic stability (Lahadalia, 2022).
The geopolitical conflict between Russia and
Ukraine also directly impacted the steel industry (DP, personal communication,
June 13, 2023; BCS, personal communication, June 15, 2023; and HE, personal
communication, June 15, 2023). As is known, Russia and Ukraine are two
countries that export steel products to ASEAN, including Indonesia. According
to (IISIA, 2022), the import of semi-finished steel products from
Russia to ASEAN countries for the 2015-2018 period amounted to 18-25%, and in
2021, this value will be around 14.1% or 6.2 million tons of the total imports
of 46.1 million tons from Russia and Ukraine. It is the quantity that is
estimated to be lost in the current supply of steel. Meanwhile, Indonesia
imports semi-finished steel products from Russia and Ukraine at around 27% and
15.8%, respectively, in 2020 and 2021 (IISIA, 2022). Billets and slabs mostly come from Russia,
while bloom and high-carbon steel are imported from Ukraine. Apart from steel
products, ASEAN countries also import iron ore from Russia and Ukraine but in
insignificant amounts (<6%). Indonesia only imports 11.1% of coking coal
from Russia (IISIA, 2022).
As time went by, on January 28, 1992, six ASEAN
countries (Indonesia, Malaysia, Thailand, Singapore, Philippines, and Brunei
Darussalam) formed AFTA, which is a free trade agreement between ASEAN
countries that aims to make the ASEAN region a place of production that
competitive so that its products have strong competitiveness in the
international market. Judging from its initial purpose, AFTA certainly has a
positive impact. However, behind this good impact, AFTA also has negative
impacts, including the abundance of imported products, which can kill domestic
products, hindering the growth of the industrial sector, including the steel
industry, caused by foreign trade that is too free. Hence, it hinders
developing countries from advancing the industrial sector more quickly.
b.
Economic Conditions
The International Monetary Fund (IMF) released
the October 2022 World Economic Outlook, in which the forecast or outlook for
global economic growth in 2023 was trimmed to 2.7%. This estimate is down from
2.9% in the July 2022 release and 3.8% in the January 2022 release (imf.org, 2022). The downward correction in growth is caused by
several factors, including consumer purchasing power, increasing cases of
COVID-19 in China, tightening monetary policy in the US, and high inflation in several
countries, which was the aftermath of the Russia-Ukraine war.
The IMF assesses that the impact of tightening
Federal Reserve monetary policy will be felt globally, where the strengthening
of the US dollar, which continues to depress currencies in emerging markets,
further adds to inflation and debt pressures. The IMF predicts that performance
in 2023 will be the weakest since 2009 or after the global financial crisis.
Several international institutions have warned of
the threat of a global recession in 2023. One of them is the IMF, which says
that 31 out of 72 countries are projected to experience a recession. At some
point during 2022-2023, there will be around 43% of the country's economy, with
quarterly data estimates that more than a third of the world's GDP is
experiencing a recession. Gross Domestic Product (GDP) is projected on the
growth of developed and developing countries on a
fourth-quarter-over-fourth-quarter.
The Indonesian economy continues to show
resilience and good prospects. Bank Indonesia predicts Indonesia's economic
growth in 2023 will remain strong in the range of 4.5�5.3% and will continue to
increase to 4.7�5.5% in 2024, supported by private consumption, investment, and
continued positive export performance amidst a slowing global economy.
The IMF assesses that Indonesia is included in
the green category for 2023 economic growth. The IMF predicts that Indonesia's
economy will be in third place, growing by 4.97% in 2023. This figure is below
India, whose economy is predicted to grow by 6.06%, and the Philippines, which
is predicted to grow by 5.02%.
External stability will be maintained, and the
current account is predicted to be in the range of a surplus of 0.4% to a
deficit of 0.4% of GDP in 2023 and a surplus of 0.2 to a deficit of 0.6% of GDP
in 2024, while in the capital and financial accounts, the surplus is supported
by Foreign Direct Investment (FDI) and portfolio investment. The financial
system's resilience is maintained in terms of capital, credit risk, and
liquidity. Credit growth will grow 10�12% in 2023 and 2024 (Bank Indonesia and
PTKS internal data processing, 2022).
National steel consumption is expected to grow
positively in 2022 and 2023 amidst fluctuations in international steel prices,
geopolitical conflicts, and an increase in the benchmark interest rate. IISIA
projects that steel consumption in 2022 will grow to 16.3 million tons. The
prospect of growth in steel consumption will continue in 2023, with growth
reaching 3.5�4% driven by the development project for the National Capital City
(Ibu Kota Negara [IKN]), which requires 9 million tons of steel in phase 1 (2020�2024)
and phase 2 (2025�2029) (IISIA and PTKS internal data processing, 2022).
c.
Sociocultural Forces
As a country with a land area of 1,916,906 square
kilometers (BPS, 2021), Indonesia is the fourth most populous country
in the world and the first most populous country in ASEAN. Based on data from
Badan Pusat Statistik (BPS, 2022), Indonesia's population will be 275.77 million
in 2022. This number has increased by 1.13% compared to 2021, which was 272.68
million people. Meanwhile, in 2023, Indonesia's population is projected to be
278.69 million. As the population increases, the population density also
increases. The population density in Indonesia is projected to be 143.86 people
per square kilometer in 2022.
Indonesia's demographic bonus provides benefits
to the steel industry. The large population will be a potential target for the
steel industry to promote and sell their products. For Indonesia, a large
population can also help accelerate the national development process.
d.
Technological Factors
The steelmaking process is produced through two
main lines: first, the Blast Furnace-Basic Oxygen Furnace (BF-BOF) line, and
second, the Direct Reduction Plant and Blast Furnace-Electric Arc Furnace (DRP
and BF-EAF) line. Blast Furnace and Direct Reduction Plant are for iron making,
while Basic Oxygen Furnace and Electric Arc Furnace are for steel making. In
the world, 72% of steel is produced using the BF-BOF line (IISIA, 2021). When
it was first established, PTKS used gas-based for iron making and electricity-based
for steelmaking. Along with the increase in natural gas and electricity
tariffs, which impacted the economic viability of iron and steel production,
PTKS and its joint venture partners began to change the direction to coal-based
for iron making and oxygen-based for steel making.
To increase market share and domestic Hot Rolled
Coil (HRC) production, PTKS built the Hot Strip Mill Number 2 (HSM#2) plant. HSM#2,
in the first phase, will produce steel coils at a capacity of 1.5 million tons
per year and can be further developed to reach a capacity of 4 million tons per
year. Technologically, HSM#2 is a plant with the latest technology and systems
with a higher efficiency level. The latest technology helps the steel industry
to become more efficient and productive (DP, personal communication, June 13,
2023). The total cost savings can reach 25% of the HSM plant in general due to
reduced energy consumption and more optimal use of manpower.
e.
Environmental Forces
Environmental factors involve broad environmental
issues such as the natural environment, global warming, and sustainable
economic growth (Rothaermel, 2021). The steel business is currently regarded as one
of the major environmental challenges, and its environmental impact is mostly
concentrated on lowering energy use, which produces large amounts of CO2
emissions that contribute to global warming. The key process steps are
primarily responsible for this energy consumption reduction. Large industrial
steel mills also release pollutants like dust, which is bad for the health of
the communities around the plants. This is challenging for the steel industry
to switch to a more arch-friendly technology (decreasing CO2
emissions).
f.
Legal Factors
The previous regulation, Minister of Trade
Regulation Number 110 Year 2018 (Permendag Nomor 110 Tahun 2018), has been replaced
as of January 2020 by Minister of Trade Regulation Number 03 Year 2020
(Permendag Nomor 03 Tahun 2020). The purpose of this regulation's amendment is
to make it easier to manage imported steel entering Indonesia (BCS, personal
communication, June 15, 2023), but due to unfair trade practices, including
dumping and circumvention (HE, personal communication, June 15, 2023), the
implementation of this change has not yet given optimal effects on the domestic
market.
Some of the imported steel that enter the
Indonesian market can be produced by PTKS. Import taxes are reduced to 0% by
adding boron compounds to steel. The national steel industry has gotten worse
as a result of two Minister of Industry regulations: Number 32 Year 2019
regarding technical consideration for imports of iron or steel and Number 35
Year 2019 regarding technical consideration for exemption from the
implementation of Indonesian National Standard (SNI) for iron or steel and
cable products.
It is necessary for the Government to fully
assist the national steel industry by implementing policies and changing
regulations. Without government policy backing, the domestic steel industry
will not be able to contribute to the expansion of the national economy.
External Analysis
� Porter�s Five Forces Analysis
External examination of the business industry
environment is necessary to comprehend the current business scenario and
identify the competitive advantage. According to (ARTHUR, 2021), every industry has unique competing forces,
each with character and strength. The most powerful and widely used tool for
diagnosing the principal competitive pressures in a market is the Five Forces
Framework.
a.
Threat of New Entrants
At first (from the establishment of PTKS until
before the 2000s), the threat of new entrants was low. This is because PTKS, a
state-owned steel company, had a monopoly right before it was revoked by
Presidential Regulation Number 79 Year 2005 (Peraturan Presiden Nomor 79 Tahun
2005). With this monopoly right, new entrants will have a barrier to entry when
they want to enter the steel industry. In addition, entering the steel industry
requires a big investment and working capital. Besides that, new entrants must
pay attention to the fact that the steel industry requires economies of scale to
build a steel plant. According to (Porter, 1996), economies of scale refer to
declines in product unit costs (or operation or function that goes into
producing a product) as the absolute volume per period increases. Scale
economies can be present in nearly every business function, including the steel
industry. New entrants must build steel plants integrated from upstream (iron
making) to downstream (rolling mill) to obtain high production efficiency.
As time goes by, the Government will not hesitate
to invite foreign investors to build the steel industry in Indonesia to
increase domestic steel production because the steel market in Indonesia is
still very big, such as Dexin Steel Indonesia and Tsingshan Holding Group in
Indonesia Morowali Industrial Park (IMIP), South East Sulawesi (Antara News,
2017), New Asia International in Sidoarjo, East Java (Sidoarjokab, 2020). These
three steel plants come from China, where the technology for steel production
is known to be cheap. In addition, the Chinese Government also strongly
supports the relocation of steel plants from China to Indonesia. This will be a
threat to PTKS in the future. The market that was once a monopoly has turned
into an oligopoly market. The threat of new entrants becomes high.
b.
Bargaining Power of Suppliers
The bargaining power of suppliers is high.
Several suppliers that strongly influence PTKS as a steel industry are
suppliers of slab raw materials for rolling, iron ore, gas, electricity, and
other supporting raw materials. For energy (gas and electricity), PTKS can
still rely on domestic companies. For gas, PTKS cooperates with PGN, while for
electricity, PTKS cooperates with KDL and PLN.
Suppliers of other strategic resources (slab,
iron ore, supporting raw materials) are still lacking in Indonesia. Then, the
solution is to import. The reason for PTKS to import is that the quality of raw
materials for iron ore is better, where the Fe content is higher than
local/domestic. In addition, the price is also cheaper. The same applies to
slabs; imported slab prices are more competitive, and delivery times are more
on time. PTKS's very high dependence on the above strategic resources puts PTKS
in a difficult position. If suppliers cannot supply raw materials, production
can stop, and price volatility can occur.
c.
Threat of Substitute Products or Services
The threat of substitute products is low.
According to (Thompson et.al., 2022), competitive pressures from substitutes are
stronger when (1) good substitutes are readily available and attractively
priced, (2) substitutes have comparable or better performance features, and (3)
buyers have low costs in switching to substitutes.
As the mother of industry, where the steel
industry is a supplier of raw materials for other industrial sectors and is the
main support for infrastructure development in Indonesia. Almost all industrial
sectors, both heavy and light, need steel. So far, no raw material such as
steel has better performance features at an attractive price, is used massively
in various industries, and is the main support for infrastructure development.
d.
Bargaining Power of Buyers
The bargaining power of buyers is medium. The
existence of a protectionist policy from the US Government towards Chinese
products due to the US-China trade war forced steel products that were
previously exported to the US to be diverted to Southeast Asia, including
Indonesia. The overcapacity conditions in China exacerbate this situation, and
they are trying aggressively to export their steel products to other countries
worldwide; Indonesia is considered one of the biggest steel market potentials.
This is also reinforced by the rampant practice of circumvention (HE, personal
communication, June 15, 2023) the practice of deviating from steel imports
(IISIA, 2020). This makes price competition for steel products more stringent
and gives buyers many choices of steel products at lower prices than PTKS
prices. Buyers in Indonesia are more sensitive to price than quality and
delivery time. However, with the support of government policies through the
implementation of Anti-Dumping Duties, which have already been implemented, the
entry of imported steel can be controlled.
e.
Rivalry Among Existing Firms
The rivalry among existing firms is high. With
the enactment of AFTA in 2002, the steel industry in Indonesia is relatively
open to foreign steel products. Currently, there are no significant
restrictions on imports of steel products, so the national steel market is very
open to international steel supplies. The two main PTKS products, Hot Rolled
(HR) and Cold Rolled (CR), have existing local competitors. Meanwhile, foreign
competitors come from various countries, such as India, China, Russia, Japan,
Australia, and several from ASEAN.
PTKS continues to seek protection from the
Government to restrain the import rate (BCS, personal communication, June 15,
2023). One way is to ask the Indonesian Anti-Dumping Committee (KADI) to
initiate a Sunset Review investigation into the imposition of Anti-Dumping
Duties (BMAD) on imported Hot Rolled Coil (HRC) products originating from 7
countries (China, India, Russia, Kazakhstan, Belarus, Taiwan, and Thailand) (IISIA, 2023). PTKS states that if the imposition of BMAD is
discontinued or not extended, there will be the potential for dumping and
losses to recur or continue. Therefore, PTKS must continue to monitor changes
in government policies because they can directly affect the level of
competition between existing competitors, especially imports.
Based on the description of the 5 forces above,
the threat from new entrants is very clear, and the Government's support for
investors who want to develop the steel industry is quite big. PTKS must have
an aggressive strategy to be able to go head-to-head with new entrants, and of
course, when they start to enter the domestic steel market, they will offer
lower prices. Furthermore, PTKS must also take the right steps to be able to
find suitable and strategic partners in terms of the procurement of raw materials
and supporting raw materials originating from imports. The dependence of PTKS
on these suppliers is very high, and it is hoped that there will be continuous
cooperation so that it will not become a threat that can stop production.
There are no competitors for alternative products
that can replace steel, which is used massively in almost all heavy and light
industries. Meanwhile, for the bargaining power of buyers, PTKS must continue
to look for innovations and new market segmentation so that buyers remain
dependent on PTKS without making price the most important thing for them.
Internal Analysis � Resource-Based View
The resource-based view can help the firm better
understand how resources, skills, and capabilities develop core competencies
that drive firm activities and result in competitive advantage. The
identification of core competencies is made easier by this methodology.
According to (Rothaermel, 2021), resources can be broadly divided into tangible
and intangible categories. Tangible resources have physical attributes and are
visible. PTKS tangible resources include human capital, plant, steel product,
capital, and infrastructure. Intangible resources have no physical attributes
and thus are invisible. PTKS intangible resources include corporate culture, government
support, group support, brand equity, and after-sales service.
Internal Analysis � VRIO Framework
Table 1. VRIO Analysis of PTKS
|
Resources
|
Competencies
|
Valuable
|
Rare
|
Inimitability
|
Organized
|
Implication for Competitiveness
|
|
Tangible
|
Human Capital
|
Yes
|
No
|
No
|
Yes
|
Competitive Parity
|
|
Plant
|
Yes
|
|
|
Yes
|
Competitive Parity
|
|
Steel Product
|
Yes
|
|
|
Yes
|
Competitive Parity
|
|
Capital
|
Yes
|
Yes
|
Yes
|
Yes
|
Sustainable Competitive Advantage
|
|
Infrastructure
|
Yes
|
Yes
|
Yes
|
Yes
|
Sustainable Competitive Advantage
|
|
Intangible
|
Corporate Culture
|
Yes
|
Yes
|
Yes
|
Yes
|
Sustainable Competitive Advantage
|
|
Government Support
|
Yes
|
Yes
|
Yes
|
Yes
|
Sustainable Competitive Advantage
|
|
Group Support
|
Yes
|
Yes
|
Yes
|
Yes
|
Sustainable Competitive Advantage
|
|
Brand
|
Yes
|
Yes
|
Yes
|
Yes
|
Sustainable Competitive Advantage
|
|
After-Sales Service
|
Yes
|
Yes
|
Yes
|
Yes
|
Sustainable Competitive Advantage
|
Source: Author, 2023
Diversification or development is required for
these resources to be more valuable than other steel industry players in the
same business. Once the resources are valuable and uncommon, the business must
make them pricey or difficult for rivals to copy the invention. When resources
are difficult or expensive to duplicate, they already have a competitive
advantage; they need the organization to use them and extract value from them.
Companies can turn their resources into long-term competitive advantages by
creating a strategic plan that considers competitive advantages and strives to
support these resources through strategic management.
To ensure that the strategic plan is successfully
implemented, the company must also manage and monitor it. Resources with
sustained competitive advantages already meet the requirements listed and are
organized through strategic planning. Based on research, as shown in Table 1,
PTKS has seven competencies that become a sustainable competitive advantage:
Infrastructure, Capital, Corporate Culture, Government Support, Group Support,
Brand, and After-Sales Service.
Internal Analysis � Value Chain Analysis
A company's value chain is the business
activities in which it develops, produces, and markets its products or
services. Each step in a company's value chain requires applying and
integrating different resources and capabilities. Because different companies
may choose which value chain activities they will engage in, they can develop
different sets of resources and capabilities. This can be the case even if
these companies operate in the same industry. These choices can affect a
company's strategies (Barney and Hesterly, 2020). Meanwhile, according to (Rothaermel, 2021), the value chain describes a firm's internal
activities when transforming inputs into outputs.
The value chain is described into two categories:
primary activities and secondary activities. For PTKS, the primary activities
started with supply chain management, operations, distribution, marketing and
sales, and after-sales service. Meanwhile, secondary activities started from
research and development, information systems, human resources, accounting and
finance, and firm infrastructure.
During the interview, the author transcribed the
interview data into text and do segmentation for all the text�s main ideas. The
author collected about forty-seven (47) non-unique trends from the transcribed
version and conducted the content analysis. Condensing the trends into a
meaningful unit was the first step. The core meaning of the condensed data is
then represented by a code that is added to the condensed data. The author
investigates numerous codes, repeats the exploration, and then categorizes one
or multiple codes into a single category. The author eventually came to a
conclusion with fifteen (15) categories based on the classification that could
describe the content of each condensed data set.
In order to develop the descriptive themes-main
codes, the author attempted to abstract the meaning of one or multiple
categories once they are available.�
These themes are employed to assist the author in elaborating on the
trend while maintaining the integrity of the original data. The method resulted
in fifteen (15) descriptive themes and subcategories which served as the
initial driving forces for developing the scenario planning.
After the driving forces were concluded, the
author additionally carried out a questionnaire process, as indicated in the
data collection method. Prioritizing the driving forces with key uncertainties
for scenario planning development is the goal of the questionnaire. The
questionnaire results show that raw material price and government policy are
the 2 critical factors that have the highest degree of uncertainty and level of
impact. Furthermore, other critical factors will be placed in the
Low-Medium-High (Degree of Uncertainties) vs. Low-Medium-High (Level of Impact)
table according to the leveling of questionnaire results and frequencies in the
interview transcript.
Table 2. Questionnaire
Results for Category
Source: Author,
2023
Table 2 shows the results of questionnaires from
interviewees regarding the degree of uncertainty and level of impact and the
frequency of the categories in the transcript which will lead to the critical
uncertainty matrix.
Table 3 shows trend examples from the top five
categories, transcribed the interview results.
Table 3. Categories and Trend Examples
|
Main Categories
|
Examples
|
|
Raw Material Price
|
Fluctuations in the price of raw
materials for steel production, which change very quickly, impact price
fluctuations.
|
|
Government Policy
|
Government policies for
applicable national/international regulations to strengthen competitiveness.
|
|
Economic Condition
|
Stable economic conditions will
create a conducive business climate, and steel demand will also grow in line
with the revolving budget for infrastructure projects and the growth of the
manufacturing industry segment.
|
|
Technology
|
What needs to be done is to
increase capacity and productivity by investing in technological aspects.
|
|
Politic/Geopolitics
|
Geopolitical issues (Russia -
Ukraine war and China trade war) still affect the movement of the world steel
market.
|
Source: Author, 2023
Business Solutions
Scenario Planning Analysis
a.
Stage 1 � Orientation
Based on the external and internal analysis and
interviews with internal and external stakeholders, the key focal issue that is
being defined is "What is the aggressive strategy for steel sales that
must be implemented by PTKS in order to dominate the domestic market and sell
steel products close to plant capacity in the next seven years?"
b.
Stage 2 � Exploration
Through external and internal analysis of PTKS,
interviews with internal and external stakeholders who are an expert in the
steel industry based on work experience, and internal data from the company,
several driving forces are identified during the exploration stage.
Table 4. Critical Uncertainties Matrix
Source: Author, 2023
Critical Uncertainties
Finding the critical uncertainties comes next
after identifying the driving forces. Critical uncertainties are the driving factors
that give the highest impact and, simultaneously, have the highest
uncertainties for the success of PTKS as an Indonesian steel producer and as a
State-Owned Enterprise. According to discussions, interviews with the internal
and external stakeholders, and questionnaire results, the price of raw
materials and the Government policy are two factors regarded as critical
uncertainties for this research, as shown in Table 4.
c.
Stage 3 � Scenarios
The scenario framework is a 2x2 matrix based on the two most critical
uncertainties identified in the previous stages. There are four distinct
quadrants in the matrix. The first quadrant describes a situation where raw
material prices are high while the government policies favor domestic steel
producers in Indonesia; it is called "Armageddon". The second
quadrant describes a situation where raw material prices are low while the
government policies favor domestic steel producers in Indonesia; it is called
"The King". The third quadrant explains a situation where raw
material prices are low while government policies do not favor domestic steel
producers in Indonesia; it is called "The King's Speech". Moreover,
the fourth quadrant explains a situation where raw material prices are high
while the government policies do not favor domestic steel producers in
Indonesia; it is called "Cast Away".
Figure 5. Scenario Matrix 2x2
Source: Author, 2023
Scenario 1 � Armageddon
In this scenario, the Indonesian Government fully
supports the steel industry through policies favoring domestic steel. Massive
infrastructure and manufacturing industry development is encouraged, and the
Government is fully committed to implementing the national development plan.
However, the high raw material prices, which led to high production costs,
caused the domestic steel industry to make extra efforts to make it efficient.
Scenario 2 � The King
In this scenario, the Indonesian Government
provides full support through policies that favor the domestic steel industry.
Indonesia's economic development, promoted by the Government, increased,
followed by the successful implementation of the national development plan. Low
raw material prices allowed domestic steel producers to enjoy their heyday
supplying high-margin steel products to the domestic market, including
Government projects.
Scenario 3 � The King�s Speech
The lack of Government policy support for the
domestic steel industry and the slowdown in national economic development
followed by the failure to implement the national development plan. However,
the low price of raw materials means domestic steel producers can continue
producing steel products with high margins. In this situation, local steel
producers are negotiating with the Government to obtain policy support that
favors the domestic steel industry and seeks to encourage national economic
development through a massive supply of steel products.
Scenario 4 � Cast Away
In this scenario, Government policies do not
favor the national steel industry. National economic development and
infrastructure development in Indonesia have also experienced a slowdown.
Several failures in implementing the national development plan resulted in a
decrease in steel consumption in the domestic market. The condition of high raw
material prices means that domestic steel producers only have a small margin of
product and are at risk of stopping their production. The national steel
industry players cannot sell their steel products to the domestic market with
high raw material prices, so the national steel industry players must find ways
to survive in this difficult environment.
d. ��Stage
4 � Option Consideration
Table 5. Implications and Options for Each
Scenario
Source: Author, 2023
In this stage, the implications and options to
think about are developed once the scenario matrix and narrative are created.
The following table provides the implications and options for each scenario.
e. ��Stage
5 � Integration
In this stage, early warning signals are
recognized. Early warning signals are leading indicators that point in the
direction of each plausible scenario. The following table lists the early
warning signals for each scenario:
Table 6. Early Warning Signals
Source: (Author, 2023)
Implementation Plan and Justification
The implementation plan is created as part of the
company's strategy to prepare for any scenarios happening in the future. To
uncover new ideas based on the future scenario imagination, an implementation
plan is created to develop innovation. The plan also generally outlines how the
company should get ready to tackle the situation and implement the ideas. The
implementation plan, which will be structured for seven years beginning in 2023
and comprise strategic actions, will be mapped to the relevant scenarios as
agreed upon with the stakeholders. Table 6 contains information about the
implementation strategy in detail.
Table 7. Implementation Plan � Strategic
Activities
Source: Author, 2023
Note:
A = Armageddon ; TK = The King ; TKS = The King�s Speech ; CA = Cast Away
CONCLUSION
In conclusion, this
Final Project analysis offers a thorough understanding of potential future
scenarios for PTKS in the next seven years. Raw material prices and government
policies have been identified as pivotal factors influencing the industry. The
study outlines four plausible scenarios, each depicting a unique outlook for
PTKS. To navigate these scenarios and dominate the domestic market, strategic
recommendations have been provided. These include vigilant monitoring of early
warning signals, forging strategic partnerships, optimizing joint procurement
initiatives, securing long-term raw material contracts, expanding production
capacity, embracing digital tools for sales enhancement, and actively engaging
in market penetration efforts. Moreover, renewing existing contracts and
fostering new relationships through Long-Term Supply Agreements are emphasized.
Proactive negotiations with the government to shape favorable policies for the
national steel industry are crucial. These multifaceted strategies encompassing
procurement, technology, sales, and governmental relations serve as a robust
roadmap, positioning PTKS to thrive amidst the uncertainties of the future
steel industry landscape.
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