Tata Steel International (Shanghai) had its mettle tested in the lean times of the recent past, but the subsidiary has coped well to hit the comeback trail with its China operation
Global economic trends and the upheavals unleashed thereof have been the default decision maker in shaping the evolution of Tata Steel’s most substantial operation in China. Tata Steel International (Shanghai), or TSIS, has turned the page on what it used to do in more tranquil times. And it has employed a raft of restructuring measures, preceded by plenty of soul-searching, to regain its footing in a country that continues to considerably influence the health and well-being of the worldwide steel industry.
TSIS is the pivot in China for Tata Steel Europe (TSE), an enterprise with a presence in the country that dates back to when it was called British Steel and, later, Corus. TSE’s interest in this dynamic market remains undimmed but almost everything else to do with its business spread has undergone a sea change. The reason, simply put, is China itself: how it produces and consumes steel, and the effect this has on the global selling and buying of steel.
TSE is the priority concern for TSIS. It works primarily as a sales and marketing arm for the high-end steel TSE produces and ships to China and is also a procurement centre for the European business (see Procure and be secure). Tata Steel, the mother company, has several entities in China to service the different requirements of its many global operations — the recently established Tata Steel Shanghai Procurement Office is designed for Tata Steel India — and TSIS is the most sizeable of the lot.
Reinvention became a necessity for TSIS as China’s development model matured. The logic for the makeover got stronger after the subsidiary was forced into a corner following the economic recession of 2008. TSIS shifted from being a business that, on the selling side, had concentrated on long products for construction and yellow goods, to one that is now focused on the automotive sector. The procurement part has kept pace alongside.
“We represent the Tata Steel group in China,” says TSIS commercial manager George Huang. “We cover sales and marketing for the European operation and this function was recently enlarged and extended.” The subsidiary now has in place what is known as ‘markets, customer and shared services’, the last of which includes helping with the e-commerce platform TSE is pushing hard on.
The expansion of responsibilities is an illustration of how TSIS has had to alter its ways to cope with compelling economic realities. The most telling example here concerns the move away from long products to strip steel. Construction and yellow goods were once bread and butter for TSIS, constituting the majority of its steel sales in China. As the Chinese harnessed their own capabilities, market requirements changed dramatically. This was a body blow for TSIS and TSE, to the extent that an exit from the China business appeared a possibility.
“The 2008 crash and its aftermath was a very difficult time for everyone,” says Ritsu Nakamura, regional manager, Asia, for TSE. “We reviewed what we were doing in Asia. The global automotive industry was in the dumps, but the effect of it on China was relatively mild. Automotive was actually growing here and we had some enquiries. We were not quite ready, though, to seize the opportunity.”
A telling reason was that TSE had never sold or exported to the automotive market in China. That would change quickly as TSIS discovered a niche segment for the top-quality steels that the car industry in China needed. “We began engaging with the supply chain of European automotive manufacturers in China and we were up and running,” says Mr Nakamura. “Our sales figures got revived with healthy margins.”
Targeting the automotive industry has proved to be a winning proposition for TSIS. “It is a sustainable business and we are not even chasing after volumes,” says Mr Nakamura. “We went after the highly technical and demanding supply-chains of the auto-component industry. We have shown that differentiated European steel can still sell in China.”
Manufacturing is out of the equation for TSIS in China, a steel-saturated market. But that does not rule out downstream operations in, for instance, plating steels, where the chance to shine is real and immediate. Having a local operation would help TSIS connect better with Chinese and regional customers, while eliminating the geographical disadvantage of shipping these steels from faraway Europe and the US.
Should that happen, TSE and its mother company may well have to consider increasing resources in China, which have been drastically reduced over the years of business freefall it was compelled to endure. At its peak, TSE had about 100 employees across Asia; that number is down to 13. As with the parent, so with its subsidiary. TSIS had some 20 people and three offices in the country; it now has one office in Shanghai and a total of seven employees.
More important is where the money is coming from. The automotive and battery-related businesses pull in about 95% of sales for TSE in China. It has trained its eyes on automotive steels that rival Asian suppliers are not positioned to deliver. It sells some 20,000 tonnes of these steels a year in this market and expects to reach 30,000 tonnes by 2020 without any further investments.
Riding on this success, TSIS is viewing two new segments within the automotive space: electrical steels for the motors that power electric vehicles and nickel-plated steels for their battery cells. “Not all steelmakers produce these steels; we are among the few that do,” says Mr Huang. “It’s early stage on these and trials are on, but we believe it’s the next wheel for the China business from Europe.”
Some 500,000 electric cars were made in China in 2016, the largest global market for these cars, and with government publicly airing its intent to ease out combustion-engine vehicles, the future will likely provide TSIS with lucrative avenues for growth in freshly minted spheres. “We are exploring the scope to market safer and environment-friendly material for the food packaging industry, along with high-strength, high-technology steels for the automotive sector,” says Mr Huang. “That’s our focus.”
Right through the rough times it had to endure in the 2008-2014 period, the business that did not lag for Tata Steel International (Shanghai) was procurement from China for the manufacturing facilities of Tata Steel Europe (TSE).
‘Bringing the best value possible’ to TSE’s doorstep is the sourcing team’s mantra and, crucially, the effort has not had to experience the sort of slump the sales part of the business suffered. “Compared with sales, our purchasing initiatives keep growing,” says George Huang, commercial manager, TSIS. “We handle global sourcing and China plays a big role in that.”
There’s more to it in the details. TSIS helps the European and, to a lesser degree, Indian operations of Tata Steel in three main ways: it gathers information on Chinese and regional markets; it provides insights and leverage to what are called ‘category teams’; and it does direct sourcing and one-off buying of raw and processed materials.
TSIS kick-started the procurement-from-China business in 2007 and it has steadily increased in the years since. It began by buying mechanical and maintenance components before expanding to process material and the rest. The subsidiary touched a China-sourcing high of €32 million in 2015 and it has recorded impressive savings for TSE, but there is still some way to go.
“China accounts for just 1.5% of the total global procurement for TSE,” says Mr Huang. “We need to enhance sourcing from here and thereby enhance our savings. China has a huge influence on the European steel market — it produces about 50% of the world’s steel output while consuming 45% domestically — and raw material purchases are crucial in the context.”