A Study On Global Competitiveness Of China’s Steel Industry From The Perspective Of Industrial Concentration

China is in the intermediate stage of urbanization and industrialization in recent years, when sustained rapid economic growth has pulled steel demand, resulting in continued scale expansion of the iron and steel industry. However, a variety of problems have arisen as a result of the sprawl. As the biggest steel producer in the world, China cannot be regarded as a "world power" in the steel industry. A series of problems, such as unreasonable product structure with excessive capacity in low-end products, weak controlling ability in core resources, industry-wide loss, etc, have limited further growth of international competitiveness of China’s iron and steel industry. In the background of global industrial chain distribution and international division of labor, the key to occupy a dominant position in the world for Chinese steel industry not only lies in optimization of product structure and production process, but also in raising overall planning and coordination between enterprises in the industry. Based on both domestic and foreign research literatures, this paper adopts industrial organization theory to figure out existing problems of China’s steel industry, through analyzing the contradictions that exist between industrial structure and overall performance of the steel industry, especially from the perspective of industrial concentration. Characterized by one-sided pursuit of scale expansion, China’s iron and steel industry has formed excessive production capacity in low-end products, while heavily relied on imports in high value steel products, because of lack of high added value production capacity. Low-end products not only consume more energy than high-end products in production, but cause serious pollution. Such a deformed product structure has posed great threat to sustainable utilization of domestic resources. The root cause is low industrial concentration, with too many small scale steel enterprises scattered all over the country. The excessive competition entities have resulted in confusion of market order. Malignant price war was one of the important reasons for industry-wide loss, and also the reflection of the disordered industrial structure of the iron and steel industry. So reorganization of backward production capacity is a necessary route to take in order to improve the industry concentration rate, only in this way can rational and efficient assets allocation be realized. While making a comparison with foreign competitors under the current international competition background, the paper deeply explores the practical significance of the source factors of competitiveness in porter’s "Diamond Model" under analysis of the current development status of China’s steel and iron industry.From deep analysis of the attribution factors that correlates with competitiveness, it goes further to explain how to drive the positive effects out of the origin factors of competitiveness by raising industrial concentration degree. Although judging by the current standard of industrial concentration degree, structural problems may be one of the concerns of China’s steel industry, the real challenge lies in improving cooperation mechanism in the industry. Increase in quantitative aspect of industrial concentration degree may not necessarily mean higher competitiveness of the industry, unless growth in both scale economy efficiency and industrial cooperation ability between enterprises combined to improve the competitiveness level. Above all, growth of the key steel enterprises should be the focus of improving industrial competitiveness. In particular, they should exhibit growth potential in industrial resource control ability, innovation and strategic distribution in industry chain, not just limited to growth in production scale and yield.Combined with practical cases, this paper uses qualitative analysis method to explore the causes of low international competitiveness of China’s steel industry, taking industrial concentration degree as the point of penetration. In the introduction part, this article firstly makes a background review of the current global competition and sums up the main research results of the domestic and foreign experts and scholars on industrial concentration and industry international competitiveness. The second chapter summarizes the related theoretic foundation, and illustrates the reason of choosing industrial concentration as the breakthrough point of the theoretical basis. Chapter three elaborates on the current development status of China’s steel and iron industry by various data and graphs. China’s steel industrial layout is relatively dispersed and excessive enterprises has resulted in decentralized competition, which caused dwindled market share of large enterprises under limited market capacity. The unreasonable market structure caused by overcapacity of low-end products drives the steel industry into an embarrassing situation of industry-wide loss. Based on it, Chapter4discusses the dynamics between industrial concentration and industry international competitiveness by SCP mechanism. It analyzes the impact mechanism of concentration degree on industry performance from the angle of industrial organization theory, which clearly illustrates the reason why low concentration degree has formed in China’s steel industry. Chapter5is about qualitative analysis of attribution factors that influence industrial competitiveness from the perspective of Porter’s diamond model. The influencing factors, namely the six elements are:Factor condition, demand condition, related and supporting industry, firm structure and competition strategy, opportunities and government policy, in which the first four are the major determinants. Based on the specific status of China’s steel industry, the paper chooses concentration degree as the point of penetration. The root cause of the problem with China’s iron and steel industry lies in defects of industrial structure, i.e., low concentration industrial structure has weakened the function of key factors on improving international competitiveness. From the factor condition perspective, constrained by limited domestic reserve of iron ore resources, domestic mining industry can not meet the explosive demand of the steel industry. Strongly dependent on imported iron ore, China’s steel enterprises have to bear stressful operation pressure caused by soaring iron ore prices. With the two characteristics of capital intensive and resource intensive, the steel industry should be keen on improving the bargaining power of raw material purchasing, which determines the status in global competition. As to enhance international competitive advantage, the steel industry needs to strengthen resource control ability in upstream iron ore. Because of lack of united price coordination mechanism, Chinese steel enterprises competed with each other to bid up price in iron ore import as well as cut price in domestic market. From the perspective of domestic demand, national competitive advantage theory advocates that, domestic economic environment that enterprises face is an essential factor that influences competitive advantage nurturing. Demand condition is an important source of factors that affects international industrial competitiveness. In general, huge market demand in a big country such as China constitutes a competitive advantage unsurpassed by other countries. From the perspective of related industries, the strengthening world competition and increased concentration in downstream industry have further intensified restructuring pressure of China’s steel industry. In addition, reorganization is the way to take in order to improve the present situation of low industrial concentration, and also helps promote overall profitability of the iron and steel industry. From the perspective of enterprise structure and strategy, improving industry concentration should be aimed at nurturing large steel enterprise with stronger international competitiveness. Enterprise competitiveness is the foundation of the competitiveness of the whole industry, nurturing major enterprises with prominent product structure and R&D ability and can fully play the advantages of scale economy. From the angle of government and development opportunities, China’s iron and steel industry is in the transition stage of growth to matured stage, when industry competitiveness is steadily rising. This is a stage that needs optimization in market environment, policy, laws and regulations and other aspects, to ensure sustainable competitiveness of China’s iron and steel industry. Under the goal of regional distribution optimization, comprehensive consideration should be taken on mineral resources, energy supply, transportation, environmental capacity, market distribution and other conditions in future adjustment of China’s steel industrial layout. State-owned enterprises are still the leading power in China’s iron and steel industry, so we must deepen the internal reform of state-own large iron and steel enterprise and improve the legal entity governance structure. In the key period of urbanization and industrialization, the steel industry should seize the development opportunity under the guidance of steel industry structure adjustment and revitalization plan proposed by the government, so as to promote the benign development of the steel industry.The last part of this paper explores the future development direction of improving international competitiveness, mainly from product structure optimization and production yield control, overseas marketing network establishment and high-end products export market share development. From the perspective of industrial chain, resource reserve strategy should be established to support enterprises in carrying out the strategy of "going global" by involving in equity investment. At the same time, the steel industry should pay attention to tapping downstream values to consolidate domestic market by establishing strategic alliance with related industries. Large steel enterprises should make efforts in forming alliances with companies in related industries such as equipment and machinery industry. Strengthened coordination with downstream industry can promote upgrading in product structure. Through long-term cooperation relationship between the steel enterprises and downstream users, the steel industry can further expand market share and build core competence.It is difficult for China’s steel industry to narrow the gap in strategic resources control and technological level in a short term, so special attention should be paid to institutional factors for nurturing favorable environment. In cultivating industrial international competitiveness, full understanding of the impacts of industrial structure would help government to propel reform measures and promote cooperative mechanism in the industry.