The Grey Chronicles

2008.September.15

Recommendations for Future NSC: W-O Strategies


W-O Strategies: the weaknesses (W) can be transformed into opportunities (O) by these strategies, such as:

Total overhaul of organization based on worldwide benchmarks. (W2, W3, W4, W5, O1, O5) Andrew and Sirkin (2006), in a Senior Management Survey, found that globalization, organizational issues—metrics and measurement, structure, and people—and leadership remain three of the biggest challenges facing companies that are seeking to become more innovative.

A Performance Appraisal system and Key Results Anchors must set the level of performance based on worldwide comparative benchmarks, not just of equipment but of personnel, too. Presently, a supervisor claimed that some production hurdles are based on either Dolvi or Kalmeswhar that are incompatible with the equipment at the former NSC facilities.

Revive the ISM project. (W1, O1, O2, O3) Senator Gloria Macapagal-Arroyo, then undersecretary of the Department of Trade and Industry under Aquino’s presidency, disagreed with NEDA’s 1992 judgment that the Integrated Steel Mill (ISM) was not viable and feasible. She was instrumental to the NEDA’s funding approval when NSC made a new study, which showed otherwise (NSC News, September 1992). The ISM project remained complicated then shelved, however, because of the proposed privatization, and subsequently, the Jacinto litigation in 1992.

Henares (2006) urged the public to “let’s get it on with our steel industry,” after lamenting that, the Philippines steel industry lagged 35 years behind that of South Korea and Taiwan. The Integrated Steel Mill dream for the Philippines has been scuttled, not just once but thrice, by IISMI (NSC News Supplement, 12 September 1990), during the Marcos era, and the Aquino era when privatization was prioritized before backward integration.

Former NSC’s CEO, Dr. Antonio V. Arrizabal, and president & COO, Rolando S. Narciso, prior to privatization, both claimed that “integration is a necessity, and privatization is a sacrosanct government policy—and . . . are 100 percent behind it” (Henares, 2006). When Wing Tiek took over, it embarked on the start of FYEP Phase II-B, but Phase III (ISM) discussions were also on the agenda.

Last 23 May 2007, Lalit Kumar Sehgal, Global Steel managing director, announced that GSPI is investing $1.5-billion two-phase Integrated Steel Mill project in Iligan City to be completed in 2010, or two years from now (Valdez, 2007m). This news surfaced after speculations that GSPI’s Iligan plant was to be sold to Tata Group (Osorio, 2007) and the brouhaha regarding cold-rolled coils exports to Vietnam (SEAISI Newsletter, March 2007). Exported cold-rolled coils were slapped with higher tariff by Vietnam claiming that the raw materials used did not come from the Philippines but instead in India (Valdez, 2007j). This was reminiscent of the Jakarta Form D issue in October 2005, when the Association of Galvanized Steel Manufacturers in Indonesia complained against GSPI’s availing reduced tariff rate using Form D for its cold-rolled coils questioning the source of raw hot-rolled coils allegedly from India rather than the required 40% local content from the Philippines (de Pedro, 2005).

With the ISM, the next logical step is an application for Special Economic Zone status for GSPI, which promises (de Lima, 1999) investment incentives for ecozone developers, operators and locators such as Income Tax Holiday, access to official development assistance (ODA) and other sources of financing, among others.

Pursue favorable tariff rates for raw materials imports. (W1, O3) The greatest threat is the steel tariffs. The overall trend is a gradual decrease of Weighted Average Tariffs since 1990 (Remo, 2004). The Philippine government announced in July 2004, the Cabinet Committee on Tariff Related Matters would take time to study opposing positions on raising steel tariffs, which is expected to cause increases in prices of basic commodities manufactured by downstream steel users like canned goods and construction materials. Prior to the purchase of NSC’s assets by GIHL, the latter have vigorously announced its concerns regarding the tariff rates, presently from 0 to 3%, imposed on steel products. GSPI’s, known then as GIHL, position highlights (Inquirer News Service, 22 July 2004) that there should be a difference in the tariff between the raw materials used for the production of steel products and the finished products itself to make the operations of NSC, now GSII, feasible and viable. This issue remains unresolved, pending the evaluation of GSPI’s status whether it is already on commercial operation or not. Eñano (Manila Standard Today, 23 July 2004) wrote, “This did not sit well with opponents of the planned tariff increase.”

The Philippine Chamber of Commerce and Industry (PCCI) had been very vocal about this issue. “Government should not give preferential treatment to any group who has intentions of reviving operations of a closed company. All companies should compete normally without special favors. As in the case of NSC, Global should not be allowed to raise tariffs and then adopt an import-parity pricing system,” it said. “Rather, prices should be based on normal market forces… and other relevant factors such as cost efficiency, terms, quality and service.” (Manila Standard Today, 23 July 2004)

Under the Implementing Rules and Regulations of Executive Order 375, the 7% tariff on HR and CR steel products will be imposed once GSII’s production volume is found to have reached certain level. This is 50% of GSPI’s BoI-registered capacity for flats products or 50 percent of average Philippine importation volume of HR or CR steel products for five years immediately prior to the state of operations (Manila Standard Today, 25 June 2007).

Upgrade Business networks and systems using new technologies. (W3, O1, O5) Before any hardware and software system gains user applicability, user-friendliness, and continuous improvement, an upgrade of antiquated hardware should be the first and foremost concern. Computerization does not come cheap, thus initial investments should be programmed to ensure deployment without sacrificing the operational capability of the basic business: steel manufacturing.

One option to consider: instead of buying a new corporate server, the Mainframe System could be re-deployed to tackle the business process for the whole plant. In 1997, IBM (Layland, 1997) released its High Performance Routing (HPR) for Mainframe System offering better performance and fault tolerance than TCP/IP, the protocol used by Windows-based systems, especially those involving transaction processing and electronic commerce.

Strengthen domestic markets with local partnerships & new product development. (W5, O5) Andrew and Sirkin (2006) also found that among industrial goods companies, to include steel, the financial returns of innovation are satisfactory. Furthermore, of the four possibilities on the new products and services axis of innovation, 71% of the respondents rated new offerings for existing customers are considered important or highly important, thus most valuable and worth pursuing.


Notes:

Andrew, James P. and Harold L. Sirkin (BCG) (2006), “Senior Management Survey: Innovation 2006.” Worldwide: The Boston Consulting Group, 20 July 2006. pp. 1-30. back to text 1 | 2

Santos, Bayani Jr. (ed.) and Loy Concepcion (1992). “NSC should be privatized as soon as possible.” Interview with Senator Gloria Macapagal-Arroyo. NSC News, XVII: 9, Makati: Corporate Communications, NSC, 30 September 1992. p. 6-7. back to text

Henares, Hilarion M. Jr. (2006), “National Steal Corporation,” Give and Take. Book 9. Manila: Philippine Folio, 2006. back to text 1 | 2

NSC News (1990), What Employees Should Know About The Jacinto Claim, NSC News Supplement, Iligan City: NSC, 12 September 1990, p. i-ii. back to text

Valdez, Katrina Mennen A (2007m). “Global Steel prepared to put up integrated manufacturing plant.” Manila: The Manila Times, 23 May, 2007back to text

Osorio, Ma. Elisa P. (2007). No plan to sell Iligan plant, says Global Steelworks, The Philippine Star, 22 May, 2007 back to text

Santiono, Jati (ed.) (2007), “Vietnam imposes 7% tax on Philippine CRC.” SEAISI Newsletter, Selangor, Malaysia: Tan Ah Yong, March 2007. pp. 7, 9. back to text

Valdez, Katrina Mennen A. (2007j). “Global Steel to hurdle Vietnam challenge,” Manila: The Manila Times, 25 July 2007. back to text

de Pedro, Helegarde S. (2005), Letter of Assistant Director to Commissioner, Bureau of Customs re: “Trade Complaints re GASPI”. Manila: DTI, 19 October 2005. back to text

de Lima, Lilia B. (1999). Economic Zones: Creating Employment & Other Opportunities Particularly in the Countryside, Proceedings of the 8th Mindanao Business Conference, 12-14 August 1999, Iligan City, Lanao del Norte. back to text

Remo, Michelle V. (2004), “National Steel Bidder Asks for Tariff Protection,” Manila: Inquirer News Service, 06 January 2004. back to text

Inquirer News Service (2004), Gov’t reviews position on steel tariff, Manila: Inquirer News Service, 22 July 2004. back to text

Eñano, Ray S. (2004), “NSC protection won’t just go away.” Manila: Manila Standard Today, 23 July 2004. back to text

Ramos, Elaine Ruzul S. (2007). “Govt to hike tarrif on steel to 7%.” Manila Standard Today. Manila: Manila Standard, 25 June 2007. back to text

Layland, Robin (1997), Mainframe Makeover, Data Communications New York: Penwell Publications, August 1997, pp. 85-92. back to text

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1 Comment »

  1. One of our readers recommended this blog post:…

    Pursue favorable tariff rates for raw materials imports. (W1, O3) The greatest threat is the steel tariffs. The overall trend is a gradual decrease of Weighted Average Tariffs since 1990 (Remo, 2004). … “Government should not give preferential treatm…

    Trackback by Viliam — 2010.March.6 @ 08:41 | Reply


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