波士顿咨询公司宝钢贸易重组项目报告-.ppt

'SHANGHAIBAOSTEELGROUPCORPORATIONTRADINGRESTRUCTURINGPROJECTPresentationToBaoSteelGroupSeniorManagement30July,2001THEBOSTONCONSULTINGGROUP AGENDAObjectivesandprocessGlobalmarketcontextforBaoSteelTradingvisionandcorporatestructureCorebusinessstrategyandorganizationRestructuringimpactandchangepath AGENDAObjectivesandprocessGlobalmarketcontextforBaoSteelTradingvisionandcorporatestructureCorebusinessstrategyandorganizationRestructuringimpactandchangepath PROJECTCONTEXTANDOBJECTIVESBaoSteelGrouphasdecidedtogrowitstradingbusinessintothe2ndpillarbusinesswithintheGroupEnhanceGroupassetreturnandprofitabilityDiversifythebusinessportfoliotowardshighervalueaddedservicesBCGwasbroughtintodesignanoverallorganizationstructureforthepost-integrationtradingbusinessanddevelopbusinessmodelsfortwocorebusinessesBCGprojectthereforeaddressesthefollowingquestionsHowshouldBaoSteeltradingbeorganizedtooptimizetheintegrationofexistingentitiestradingresources?Whatshouldbethefuturebusinessmodelandorganizationstructureoptionsforthefinishedgoodstradingandironoretrading?Whatarethee-commerceandlogisticslinkagestothecorebusinesses? High-LevelServiceDefinitionOrganizationStructureDesignBCGFOCUSEDONTHEBUSINESSMODELANDORGANIZATIONDEVELOPMENTWORKOFTHEPROJECTRoll-Out&MarketLaunchBusinessModel&OrganizationDetailedBusinessPlanning~10weekstbd.tbd.EvaluationofandrestructuringofBaoSteel’stradingresourcesBusinessconceptandtrendofcorebusinessesReviewofmarketpotentialandcustomerrequirementsDefinitionofserviceofferandanalysisofunderlyingeconomicsDescriptionofrequiredcapabilitybuild-upandofoperationalprocessesTop-levelorganizationstructuredesign(1st&2ndlevel,furtherdetailsforfinishedgoodsandironoretrade)DefinitionofdepartmentalfunctionsandinitialstaffheadcountestimatesOrganizationalKPIDetailingofspecificserviceoffersforeachbusinessstreamandfore-commercelinks/platformsDetailedfinancialmodelingDetailedoutliningofrequiredcapabilitybuild-upandofoperationalprocessesDetailedorganizationalstructuredesignat3rdanddepartmentlevelActualinvestmentdecisionsandinfrastructurebuildingHumanresourcebuild-upSettingupofoperationalinfrastructureITarchitecturefore-commerceImplementationphasingandpotentialpilotprogramsGotomarketDetailedSituationAssessmentBusinessConceptOptions&Organization StinnesCorusThyssenKruppStainlessThyssenKruppAGDillingerHuetteRyersonTullUsinorThyssen-SchulteBHPMitsuiWECONDUCTEDEXTENSIVEGLOBALSTEELANDTRADINGCOMPANYRESEARCHPoscoisteelasia.comNipponSteelesteel.comsteel24-7.combuyformetal.comKanematsu INADDITION,SIGNIFICANTDOMESTICMARKETINTERVIEWSShanghai黑龙江哈尔滨哈飞青岛海尔集团百盛包装海信集团济南小鸭吉林一汽集团江苏跃进汽车春兰集团无锡阿里斯顿无锡小天鹅上海捷品电机震旦家具外高桥船厂三菱日立林内上海大众汽车现代集装箱新树金属制品日用友捷汽车工业集团美固龙金属制品江西昌河汽车广东美的格兰仕万家乐容声湖南长沙伊莱克斯长沙金荣湘钢湖北东风汽车武钢四川长安汽车安徽江淮汽车滁州西门子合肥荣事达天津钢线钢缆集团扎努西电机汽车工业总公司天津LG钢厂钢材成品用户云南昆钢河北唐钢邯钢北京首钢 MARKETRESEARCHBACKEDBYWIDERANGEOFANALYTICSMarketbysectors,productandregionCustomerrequirementsProjectionofshearingandcuttingmarketShearing&cuttingeconomicsandoutsourcingratesOrganizationalbenchmarkingRoleoftheCenteranalysisEvaluationoftradingassetsSimulatednetcapitaleffectsonBSITIronoremarketprojectionCustomersharesbysegmentCustomerrequirementsImportandlogisticseconomicsRevenue,cost,grossprofitandnetcapitalaggregationInternalandexternalheadcountbenchmarksFinancialmodelingtoestimateimpactofkeyrecommendationsFinishedGoodsCorporateStructureIronOreFinancialModeling JOINTTEAMEFFORTBETWEENBAOSTEELANDBCGSteeringCommitteeProjectmanagementBaoSteelexecutiveHeWenBoZhangMiaoWuDongYinBCGVPJimHemerlingBaoSteelteamGuoJianGuangFengAiHuaXiaJiangLiYongChenJinBCGteamJanSchwierJudyPanFinishedgoodsBaoSteelteamWangJinZhangYongZhangXueChengHouJianYangZhiCaiZhangZhiYongBCGteamJamesXuDianaQianJasperPanIronoreBaoSteelteamLiuYongShunShenWenFuXiZhiQiangChenJinWangHuaQiangBCGteamAaronFangBillWuOrganizationstructureBaoSteelteamZuXueChaoLiJianWeiLiShiPingWuYiMingLiYongLiHanMinBCGteamJudyPanBillWuE-CommerceBaoSteelteamWangJinYangZhiCaiBCGteamCindyChiLogisticsBaoSteelteamGuoQiangZuXueChaoBCGteamFangAaronBCGAdvisorsHideakiImamuraColinCarterMartinWortlerFrancoisRouzeau AGENDAObjectivesandprocessGlobalmarketcontextforBaoSteelTradingvisionandcorporatestructureCorebusinessstrategyandorganizationRestructuringimpactandchangepath GLOBALSTEELMARKETCONTEXTFORBAOSTEELSummaryofKeyMessagesGlobalsteeleconomicsremainchallengingforintegratedproducersRegionalsupplycurvesinsteelareveryflatTheindustrysuffersfromchronicovercapacityIndustrystructureexertsdownwardpricepressureMajorplayersmanagevaluecreationalongthreestrategicdirectionsFocusonthecoreDownstreammigrationDiversificationImportantimplicationsforBaoSteelTradingaswellastheBaoSteelGroupoverallDownstreammigrationshouldbecomeanintegralpartofstrategyContinuedneedtodriveassetproductivityandintegrateddistributionperspectiveSuccessfuldiversificationrequiresavalueorientedportfolioframework HOWTOCREATEFURTHERVALUEINTHESTEELSECTOR?OptionsBasicallyinThreeDirectionsIntegratedkeyaccountstrategyPurchasingstrategyDriveassetproductivity-engineeringHighervalueaddedtransformationproductsDiversifyintonewservicesPortfoliostrategyValuemanagement“Focusonthecore“Improvementofcorebusiness“Downstreammigration“Migrationalongthevaluechain“Diversification“MoveintonewbusinessesValuecreation123 GLOBALBENCHMARKSMANAGETHEIRKEYACCOUNTSFROMANINTEGRATEDPERSPECTIVESource:BCGbenchmarkinterviewsAutosectorofitsdistributiondivisionsources90%ofitssteelfromUsinorandismanagedcentrallywithsteelmills.ItisalsolinkedtoUsinorproductandtechnologydatabaseInhomemarket,ownservicecentersworkcloselywithsteelmillstoincreaseCorusproductshare(75%internalsourcing)OnlyinoverseasmarketsdownstreamactivitiesaremoreemphasizedHigh-marginproductsaresoldthroughowndirectsaleschannelstomaximizesteelmillprofitsLow-marginproductsarehandledthrough3rd-partytradersortradingaffiliates1UsinorCorusThyssenKrupp WHEREYOUARETODAYAFFECTSWHEREYOUGOFourStagesOfPurchasingStrategyMaturityCost/QualityTimeStage1:Localnegotiation•LocalbuyingDecentralizedOne-Time10-15%SavingsOne-Time10-20%SavingsOngoingSavings5-15%/yearStage2:ConsolidationConsolidateprocurement&supplierbase•StandardizeStage3:Partnerships•Focusonreducingsuppliers"costs•HelptosuppliertoimproveproductivityProcessintegrationviae-procurementStage4:Long-termOptimization•SuppliermanagementapproachdifferentiatedbysegmentBuyerfocusesonowncorecompetenciesValueaddedpartnershipswithsupplierContinuousjointperformanceimprovement1 HOWTODRIVEASSETPRODUCTIVITY?BenchmarkingofThyssenKruppvs.OtherGlobalPlayersSource:BCG-AnalysisAssetproductivity1.480.490.70DayssalesoutstandingInventoryturnsCashratioCurrentratioPeriodofpayment20792628.410.1963223351.730.010.172.660.590.14315.63.677WorstBestTopquartilevalueGreen(yellow)=Better(worse)thantopquartileTK0.02IntangibleassetsFixedassetsFinancialassetsProductivityofnetcurrentassetsProductivityoffixedassets2.970.621.284.721.762.885.010.781.910.670.120.230.010.13Benchmarks1 -ENGINEERINGASLEVERTOIMPROVEPROFITMARGINS-EngineeringistheNextPhaseofE-Businesse-ProcurementReductionofthecostofsalesandpurchasinge-KnowledgemanagementInternet-supportedproductandbusinessdevelopmentReductionofdevelopmentcostsandcyclesEarlyidentificationofmarketchangesReductionofprocesscostsImprovementofcustomerandsupplierrelationships-EngineeringE-optimizedprocessesandinterfaces1BasicSteelValuechainRawmaterialsupplyMeltingCastingHotformingColdformingSurfacetreatmentDistri-butionTradeMarketResearchProductDevelop.Pre-machin-ingR&De-Sales/Improvementofcustomeraccessandvalue;higherreach MANYCOMMODITYBUSINESSESLIKESTEELWITHDOWNSTREAMVALUEMIGRATIONOVERTIMEValuechainRawmaterialsupplyMeltingCastingHotformingColdformingSurfacetreatmentDistri-butionTradePre-machin-ingComponentmanu-facturingModulemanu-facturingSysteminte-grationAftersalesOperationValuecreationSource:BCGprojectexperienceFullcaptureofmigratedvalueonlythroughpackageofferTrade/distributionaloneusuallynotsufficientValuemigration2 CORUSEXPANDSINTODOWNSTREAMSERVICEANDTRANSFORMATIONBUSINESSCorusInternationalMarketUnitNorthAmericaMarketUnit18BusinessUnitsinManufacturing,EngineeringService,R&Detc.4productportfoliosLongproductsStripproductsDownstreamproductsAluminumSteelmillunitshaveowncommercialcapabilitytoconductdirectkeyaccountsales3TradingunitsEuropeanMarketUnit...TailoredproductandservicesolutionscoveringallmarketsoutsidewesternEuropeandNorthAmericaFullrangeofCorussteelproductsandservicesthroughoutNAFTAstatesWesternEuropethroughanextensivenetworkofsalesofficesandservicecentresServiceCenterServiceCenter...4Mnoutoftotal21MntonofsteelCorusproducedissoldthroughservicecentersServicescenterssourceroughly75%fromCorusmills2Source:BCGbenchmarkinterviews USINORHASMIGRATEDFORWARDTOBECOMEANAUTOMOTIVEPRE-FABRICATORUsinorAutoIndustrial(non-auto)PackagingCentralMarketing&SalesTradingAffiliateTransformationDistributionAutoDedicatedNon-AutoSteelmillsDirectsalesandtechnicalcapabilityNegotiatedirectlywithlargeaccountsDirectsalesandtechnicalcapabilityinbusinessunits.AftermergerwithArbed,salesaregoingtobemergedwithcentralMarketingandSalesIndependentproductionanddistributionsystemByindustryandkeyaccountManagesinternational(non-EU)businessSellnon-UsinorbrandedandalsoUsinorbrandedproducts20-30distributioncenterslocatedclosetocustomersEachcenterhaswarehousingandprocessingcapability90%dealwithUsinorproductsJointlyownedwithindustrysuppliers,e.g.autopartproducercloselycoordinatedwithAutoBUOver100sitestakenoverduringthedistributionconsolidationperiodinEuropeOperatedwithbigautonomyPriceisnegotiatedquarterlyaccordingtomarketwithUsinorCanalsooperateascompetitorsTrading....2Source:BCGbenchmarkinterviews CostreductionservicesJITdeliveryMaterialspecificationSupplychainmgmtMaterialsmanagementAutomatedreplenishmentandperson-in-the-plantprogramsMetallurgicalservicesMaterialscienceexpertisetohelpcustomerswithproductandprocessdesignFirst-stageprocessingThermalprocessingSlittingCuttingtolengthSawingFabricationProductionofsemi-finishedpartsandsubassembliesINDEPENDENTTRADINGPLAYERSALSOMIGRATEDOWNTHEVALUECHAINExample:Ryerson(USA)ValueaddedservicesOutsourcingcapabilities“ServiceShelf”DevelopmentofRyerson“Byaddingvaluetoapieceofmetal,wehelpourcustomersinseveralways.Whenwedeliverproductinamorefinishedform,itconsumerslessspaceandspendslesstimeinourcustomer’sinventory.Thecustomeravoidscommittingcapitaltoprocessingequipment.Bycoordinatingtheprocessandensuringconsistentquality-weallowourcustomerstofocusonwhattheydobest.”RudiTanckMerchandisingManagerFabricationServices,Ryerson2Source:BCGbenchmarkinterviews DIVERSIFICATIONINTONEWBUSINESSESExample:OverviewofThyssenKruppActivitiesPlantTechnologiesProductionSystemsRealEstateInformationServicesMarineAutomotiveElevatorsMaterialsIndustrialServicesMechanicalEngineeringTechnologiesStainlessSteelCarbonSteel3 CONCENTRATIONOFGROWTHINVESTMENTINVALUE-CREATINGBUSINESSSEGMENTSOverviewoftheThyssenKruppPortfolioin1999/2000ROCE(%)Growthrate(%)1999-2000Note:GrowthratesrefertocapitalemployedSource:PublicDisclosure;BCGAnalysisAvg.TKgrowth(11%)SteelEngineeringProductionSystemsComponentsRealestateAvg.WACCca.9%ElevatorsAutomotiveFacilitiesServices=€1BSalesMaterialsServicesCreatingvalue(CVA>0)Destroyingvalue(CVA<0)Assessment3 IMPORTANTIMPLICATIONSFORBAOSTEELObservationsImplicationsforBaoSteelSteelcompaniesgloballyarepursuinggrowthopportunitiesthroughvaluemigrationandselectivediversificationBenchmarkcompanies–whilepursuingdownstreamservicemigration–continuetofocusontightintegrationofdistributionandsteelproducingassetsDownstreammigrationprimarilyoccuringinsaturatedandlowgrowthmarketsvs.relativelyhighgrowthratesinChinaforcoresteelproductsManagementofbenchmarkcompanieshaveinvestedformanyyearsinstrategyandcapabilitydevelopmenttopursuevaluecreatinggrowthopportunitiesPursuingappropriatevaluecreatingdownstreamgrowthopportunitiesshouldbecomeanintegralpartoftheGroupstrategyGivenBaoSteel’songoinginvestmentinproductionassetsandexpectedincreasingcompetition,therecontinuestobeahighneedfortightintegrationtodriveutilizationOpportunityincoresteelproducingbusinessinChinaarestillsignificantandwarrantahighdegreeoffocusCurrentbusinessportfolioandnewdiversificationopportunitiesmustbeevaluatedandprioritized,oncetheneworganizationalstructureisputinplace AGENDAObjectivesandProcessGlobalmarketcontextforBaoSteelTradingvisionandcorporatestructureCorebusinessstrategyandorganizationRestructuringimpactandchangepath EXECUTIVESUMMARY(I)TradingVisionAndCorporateStructureThenewtradingcompanyvisionToachieveleadershippositionintheservedmarketsegmentsToenhanceBaoSteelgroupprofitabilityandassetreturnTodevelopintoa2ndstrongpillarbusinesswithinBaoSteelGroupMissionofthenewtradingbusinessThemissionofBaoSteelTradingistoserveitscustomersbybringingtothemacompletelineofsteelrelatedproductsandvalue-addedtransformationalservicesBaoSteelTradingwillworkcloselywithotherBaoSteelGroupcompaniestoensurethatcustomersbenefitfromthescaleandproductsoftheGroupWhileinitiallyfocusingoncorebusinessesofironoreandfinishedgoods,futuregrowthwillincreasinglycomefromnewvaluecreatingproductsandtransformationalservices,domesticallyandinternationallyTorealizethisvisionandfulfilthismission,managementhasdecidedtorestructurethetradingrelatedassetsintoanewseparatelegalentitywithamultipleshareholderstructureatboththegroupandthebusinesslevel EXECUTIVESUMMARY(II)TradingVisionandCorporateStructureKeyelementsofthedesignofthenewstructureinclude:Regroupingoftheexistingtradingrelateddepartmentsandcompaniesintological,relatedunitsalongthevaluechainCreationofaleadershipteam,ledbyaCEO,thatwillplayanactivistrole:definecorporatedirectiondevelopshareholderandpartnershipstrategymanagethebusinessportfolioenhancebusinessunitperformancerealizebenefitofinter-businesslinkagesToexecutetheseactivistrolestheneworganizationwillbe:LedbyaCEOwithoverallresponsibilityreportingintoanewtradingboardofdirectorsStructuredintobusinessunitswiththecoreoperatingunitsreportingtoaCOOwiththeCEOdirectlyresponsiblefornewbusinessandinternational,giventheimportanceofpursuingfuturegrowthopportunitiesEnabledbyasetofsupportfunctionsincludingCFO,HRDirectorandCIOwithclearlydefinedrolesandresourcesatthecenterand/orbusinessesasrequiredCapitalwillberestructuredtomeetthe50%netequityrequirementEstablishoptimalcapitalstructureoftradingassetswithineachbusinessFocusonafewkeyassetsasastartingpoint ANEWTRADINGCOMPANYVISIONEMERGESOurSuggestionBasedonYourInputToachievealeadershippositionintheservedmarketsegmentsToenhancetheoverallBaoSteelGroupprofitabilityandassetreturnsTodevelopintoa2ndstrongpillarbusinesswithintheoverallBaoSteelGroupVisionStatementCoreSteelTradingFinanceTechnologyBaoSteelGroupBaoSteelGroupPortfolio… MISSIONOFTHENEWTRADINGCOMPANYThemissionofBaoSteelTradingistoserveitscustomersbybringingtothemacompletelineofsteelrelatedproductsandvalue-addedtransformationalservicesBaoSteelTradingwillworkcloselywithotherBaoSteelGroupcompaniestoensurethatcustomersbenefitfromthescaleandproductsoftheGroupWhileinitiallyfocusingoncorebusinessesofironoreandfinishedgoods,futuregrowthwillincreasinglycomefromnewvaluecreatingproductsandtransformationalservices,domesticallyandinternationally GIVENMANAGEMENTDIRECTION,ORGANIZATIONDESIGNINTENDEDTOANSWERTWOQUESTIONSHowtogroupthebusinesses?CreateentitiesthatsharecommoncharacteristicsincludingcustomerssuppliersrolesassettypescapabilitiesCreateentitiesthatwillrealizeavailablesynergiesCreateentitiesthathaveclearlydefinablegoalsandKPIsHowtoestablishthereportingrelations?EnsureappropriatelevelofleadershipandtransparencyEnsureadequateattentionisgivenbothtoexistingcoreoperatingbusinessandthenewgrowthopportunitiesEnsurerequiredlinkagesandsynergiesarerealizedRestructurethetradingrelatedassetsintoanewseparatelegalentityAllowformultipleshareholderstructureatboththegroupandbusinessunitlevelManagementDirection TRADINGCURRENTLYSPREADACROSSTHEGROUPLegalStructureNon-tradingcompaniesBSITshareBaoSteelGroupcompanies’shareBSIndustrialCo.XinHuaCo.YeTongCo.BaoLiCo.XinRanCo.BSITSteeltradingDept.ShangdongBaoSteelBSCommerceTradingco.BSTech.EconomicDev.Co.StripCo.ShenJingCo.SHRyersonEastSteelE-commerceCo.BaoOuBaoTongBaoTieRawMaterialTradingDept.MajishanPort(CIP)BaoJiangDistributionCenter/FreightCoShanxiRawMaterialCo.BaoShunBaoKuangBaoDaoBaoJinBaoYunMaterialsTradingDept.EquipmentTradingDept.1EquipmentTradingDept.2PartsTradingDept.PudongInt’lTradingCo.BSUsedAutoTradingCo.AnhuiWanbaoMiningCo.SHDatunEnergyCo.HenanBaoyuIndustryCo.DandongBomoMaterialsCo.ScrapTradingDept.BiddingOfficeBaoSteelGroupNorthTradingCoSWTradingCoBaoJinChangBaoChuLinBSEnterpriseDevCorpLiaoningBaoSteelChongqin(CIP)SouthTradingCoHangBaoEastTradingCoGuangzhouInt’lTradingCo.Qingdao(CIP)MaterialTradingCo.BaoMeiBaoHeBaoFaBaoDeBaoXingBaoSteelLtd.SHIron&Steel#1SHIron&Steel#5SHIron&Steel#3MeishanSHIron&Steel#2TransportCo.IndustrialTradeRealBusinessCo.XinBaoCo.BSBusinessDevCo.IndustrialTradeFurnaceMaterialCoBaoSteel-controllingNotBaoSteel-controllingOwnershipaffiliationSource:BaoSteelYichangSheetBSInfoTechCo.ExternalinvestorsExternalinvestors ACOMPLEXRESTRUCTURINGEFFORTISREQUIREDDownstreamUpstreamMidstreamProcurement&TradingCustomersDomesticTransformationS&CDistribution&Mfg.Autoetc.IronorelogisticsPorts&Shippinge-Commercee-Procuree-Salese-TradeBaoSteelGroupFinishedGoodsLogisticsCompetitormillsMinesOEMShippersTradersTransportWarehousingNewBusinessAutoPackagingMachineryAppliancesMfg.SuppliersCustomersInternationalEquipmentFinishedgoodsOtherIntl.BaoSteelLtd.OtherBaoGroupmillsIronOre&coalKAMScrapEquipment&PartsLogisticsTransport&WarehousingFGSales&TradingSteelproductdeepprocessing DESIGNCRITERIADRIVETOSIXRELATEDBUSINESSAREASINTHENEWORGANIZATIONDownstreamUpstreamMidstreamIronOre&coalDomesticKAMS&CScrapEquipment&PartsSteelproductdeepprocessingAutoDistributionPorts&ShippingOthermillsMinesOEMShippers?TransportWarehousingNewBusinessAutoPackagingMachineryAppliancesMfg.e-Procuree-Salese-TradeEquipmentFinishedgoodsOtherIntl.BaoSteelLtd.OtherBaoGroupmillsTransport&Warehousinge-CommerceInternationalMaterialsTradingPackagingStrip123456 FOURGENERICHIGH-LEVELREPORTINGOPTIONSDirectCEOReportingCentralSupportFunctionReportingBusinessUnitReportingCOOReportingCEOVPInternat.GMLogisticsCFOCIODirectorHRVPRawMat.VPEquip./PartsVPScrapVPFin.GoodsVPNewBus.CEOVPInternat.GMLogisticsCFOCIODirectorHRVPMaterialsVPFin.GoodsVPNewBus.RawMaterialsEquip./PartsScrapCEOVPInternat.GMLogisticsCAO/CFOVPRawMat.VPEquip./PartsVPScrapVPFin.GoodsVPNewBus.Financee-Commerce/ITHRCEOCFOGMLogisticsCIOVPRawMat.VPEquip./PartsVPScrapVPFin.GoodsCOOVPNewBus.DirectorHRVPInternat. TRADINGCORPORATEWILLTAKEONAN“ACTIVIST”ROLECentersHaveChangedFromHeavyHanded"Imperialists"ToSelective"Activists"1970198020001990HighlyInvolvedandIntrusiveScopeofCenter’sInvolvementMostlyFinancialControlAgendaShapingLargeBureaucracySmallSizeofCenter"Imperialist""Minimalist""Activist""Activist”CharacteristicsTargetedinterventionAimtoinfluencebusinessLeanprocessmanagement&structureManagedbybesttalents BoardofmanagementRECOMMENDEDCENTRALFUNCTIONSANDSERVICESTOSUPPORTAN“ACTIVIST”CENTERRolesDefinecorporatedirectionShareholderandpartnershipstrategyManagethebusinessportfolioEnhancebusinessunitperformanceRealizebenefitsofinter-businesslinkageResponsibilitiesDefineandrenewcorporatevisionDefinecorporatestrategiesandplanPrioritizebusinessportfolioDevelopcorporatestructureIdentificationofcross-businessopportunitiesandthreatsIdentifyandnegotiatepartnershipsAllocationoffundsandresourcestobuildnewbusinessMonitorstrategicplanningofKeyBUPoolactivitiesandexpertisetorealizeeconomiesofscopeandscaleEnsureharmonizationandefficientutilizationofcentralresourcesDefinebusinessunits,allocateresourcesAllocategrouptargettoBUtargetandmonitorfulfillmentHiring,compensationanddevelopmentofseniormanagements(top100?)ComplianceandqualityFunctions&ServicesCorporatedevelopmentStrategicplanningBusinessdevelopmentValuemanagementHumanresourceLegalFinanceControlling&reportingMgt.ofcashflowandcapitalrequirements RECOMMENDEDTOP-LEVELORGANIZATIONDESIGNWithSpecificManagementInputOnIntroductionOfCOOPositionOperativeTradingBusinessesExecutiveManagementServiceBusinessesSupportFunctionsOperationsMgt.&CoordinationVPFinishedGoodsVPRawMaterialsVPScrapGMTransportLogisticsVPEquipment&PartsIronOreCoalScrapmaterialsEquipmentSparepartsKAMRegionalTransformationDeep-processingAutoOtherFinishedGoodsEquipmentOtherImport/ExportShippingTruckingCFOorCAODirectorHRCorporateDevelopmentFinanceLegalHRStrategyHRPoliciesCEOreportsCOOreportsCOOCEOorPresidentCIOe-CommerceERPITsystemsVPNewBusinessVPInternationalBoard ROLESANDRESPONSIBILITIESOFBOARDANDMANAGEMENT(I)RolesResponsibilitiesBoardDirectandcontrolmanagementtomaximizeshareholdervalueSelect,evaluate,rewardCEOandothertopexecutivestoensureeffectivemanagementApprovestrategicdirectionandevaluateprogressEnsurelegalandethicalconductofkeyexecutivesCEOEstablishaclearvision,objectivesandstrategicdirectionforthenewtradingcompanyEnsurealignmentbehindstrategicdirectionandprovidemotivationandinspirationSuperviseandassureexecutionofstrategyforNewandInternationalbusinessesSuperviseandcoordinatesupportingcross-businessstrategyinFinance,ITandHRCOOOperationalresponsibilityforthecurrentcorebusinessunitsas2ndincommandtotheCEOAssureexecutionofstrategyinFinishedGoodsandRawMaterialsTradingbusinessesaswellasTransportLogisticsservices ROLESANDRESPONSIBILITIESOFBOARDANDMANAGEMENT(II)RolesResponsibilitiesCFO/CAODevelop,implementandmanageoverallfinancialpolicies,toolsandreportingsystemstosupportexecutionoftheindividualbusinessstrategiesMeasureandreportprogressagainsttargetsandassuretransparencyofresultsCoordinateandexecuteauditandreportingprocessacrosslegalentities–manageinsuranceandclaimsriskportfolioCentralFunctionHeadCIODevelopanoverallITstrategybasedontheneedsofthetradingbusinessesCoordinateandmonitorexecutionofITsystemdevelopmentsinindividualbusinessunitsandlegalentitiesDevelopane-serviceandsupportstrategyforbusinessunitsandmanageBsteel.comDirectorofHRDevelopanoverallHRstrategybasedontheneedsofthetradingbusinessesDevelopcentralHRsupportfunctionsforbusinessunitswhereappropriateandrequiredAssureexecutionofHRpoliciesinindividualbusinessunitsandlegalentities ROLESANDRESPONSIBILITIESOFBOARDANDMANAGEMENT(III)RolesResponsibilitiesVPFinishedGoodsBusinessUnitHeadVPNewBusinessVPInternationalVPRawMaterialVPScrapVPEquipment&PartsGMTransport&LogisticsBusinessUnitVPandGeneralManagersettheoverallbusinessgoalsunderthedirectionoftheCEOorCOOandareresponsiblefortheoverallperformanceoftheBusinessUnitResponsibilitiesareessentiallycomparabletothoseofaheadofacompany–exceptthosethatarelinkedtoreportingobligationsofalegalentityDefinitionofBusinessUnitstrategyExecutionresponsibilitytotheCEOorCOODevelopmentofsupportingbusinessplansChairsoriskeymemberoftheboardofthelegalentitieswithintheBusinessUnitAppointmentofdirectreportinglines,e.g.GMofcompanieswithintheBUorHeadsofDepartmentManagementandcontrolofkeycustomerandsupplierrelationshipsaswellasstrategicpartnersandinvestorsoftheBUAssurescomplianceofBUwithcentrallydevelopedpoliciesintheareasofFinance,Accounting,HRandIT ORGANIZATIONSTRUCTUREWITHRELEVANTASSETSSource:BSIT;BCGanalysisVPRawMaterialsTransportCo.RawMaterialTradingDept.OverseasMining(inplan)BaoJiangDistributionCenter/FreightCoShanxiRawMaterialCo.BaoShunBaoKuangBaoDaoBaoJinBaoYunAnhuiWanbaoMiningCo.SHDatunEnergyCo.HenanBaoyuIndustryCo.VPFGTrading+S&CShangdongBaoSteelBSCommerceTradingco.ShenJingCo.SHRyersonPudongInt’lTradingCo.GuangzhouInt’lTradingCo.NorthTradingCoSWTradingCoBaoJinChangBaoChuLinLiaoningBaoSteelChongqin(CIP)Qingdao(CIP)SouthTradingCoHangBaoEastTradingCoBSIndustrialCo.XinHuaCo.YeTongCo.BaoLiCo.XinRanCo.ScrapTradingDept.VPScrapSteelGMLogisticsBaoTongBaoTieMajishanPort(CIP)VPEquipment&PartsEquipmentTradingDept.1EquipmentTradingDept.2PartsTradingDept.BiddingOfficeCIOEastSteelE-commerceCo.ComputerCenterDirectorHRHRCAO/CFOBudgetingFundingAccountingOperationMgmtPlanningMarketingCEOorPresidentCEOreportsCOOreportsCOOSteeltradingDept.BaoOuVPInternationalBaoMeiBaoHeBaoFaBaoDeBaoXingMaterialTradingCo.MaterialsTradingDept.DandongBomoFire-resistantMaterialsCo.BSTech.EconomicDev.Co.StripCo.BSUsedAutoTradingCo.VPNewBusinesses “BUModel”TradingCo.FG+S&CBU2BU3Dept1Dept2Co.1Co.2...BU1“SubsidiaryModel”TradingCo.FG+S&CSub.2Sub.3Dept1Dept2Co.1Co.2...Subsidiary1ManagerialaffiliationAssetownershipLegalentityNon-legalentityBUMODELRECOMMENDEDTOALLOWMOREFLEXIBILITYTOMANAGE50%INVESTMENTLIMITBSITCurrentlyat~46%ofitsNetCapitalOwnershipoftradingassetsiswiththenewtradingcompanyBusinessUnitisdefinedbyrelatedtradingcompaniesanddepartmentsandmanagesthemSubsidiaryownsallrelatedtradingassetsandisinturnownedbythenewtradingcompanyOwnershipandmanagementatthesubsidiarylevelarethesame ASSETOWNERSHIPINTHENEWTRADINGORGANIZATIONAssumingNoCapitalRestructuringRawMaterials(658)TransportCo.RawMaterialTradingDept.OverseasMining(inplan)BaoJiangDistributionCenter/FreightCoShanxiRawMaterialCo.BaoShunBaoKuangBaoDaoBaoJinBaoYunAnhuiWanbaoMiningCo.SHDatunEnergyCo.HenanBaoyuIndustryCo.TradingCo.Equipment&PartsEquipmentTradingDept.1EquipmentTradingDept.2PartsTradingDept.BiddingOfficeBSTech.EconomicDev.Co.StripCo.BSUsedAutoTradingCo.NewBusinesses(67)FGTrading+S&C(961)ShangdongBaoSteelBSCommerceTradingco.ShenJingCo.SHRyersonPudongInt’lTradingCo.GuangzhouInt’lTradingCo.NorthTradingCoSWTradingCoBaoJinChangBaoChuLinLiaoningBaoSteelChongqin(CIP)Qingdao(CIP)SouthTradingCoHangBaoEastTradingCoBSIndustrialCo.XinHuaCo.YeTongCo.BaoLiCo.XinRanCo.MaterialTradingCo.MaterialsTradingDept.DandongBomoFire-resistantMaterialsCo.ScrapTradingDept.ScrapSteel(192)Materials(150)Source:BSIT;BCGanalysisLogistics(1764)SteeltradingDept.BaoOuBaoTongBaoTieInt’l.Trading(39)BaoMeiBaoHeBaoFaBaoDeBaoXingMajishanPort(CIP)HRHRFinanceBudgetingFundingAccountingOperationMgmtPlanningMarketingCorporateDevelopmentContractMgmtLegalAuditAuditTranslationCo.TranslationITEastSteelE-commerceCo.ComputerCenterBaoSteel-controlledNonBaoSteel-controlledTradingBusinessBSITshareBSGroupshareCap.received(MnRMB)(XX) HighLowDifficultEaseofchange/degreeofrequiredchangeNecessityoflegalcontrolMajishanPort(CIP)XinHuaCo.BaoFaSHDatunEnergyCo.BaoChuLinTransportCo.BaoDaoBaoYunHenanBaoyuIndustryCo.BaoDeBaoXing30.40401000BaoJiangBaoJinAnhuiWanbaoMiningCo.BaoTieShenJingCo.BaoOuBaoMeiBaoHeBaoTongXinRanCo.DandongBomoFire-resistantMaterialsCo.Priority2Priority4Priority3Priority1BaoKuangCAPITALRESTRUCTURINGTOBEFOCUSEDONFEWKEYASSETSSystematicProcessofEliminationandPrioritizationSeparateportdecisionrequiredEasy AGENDAObjectivesandProcessGlobalmarketcontextforBaoSteelTradingvisionandcorporatestructureCorebusinessstrategyandorganizationRestructuringimpactandchangepath EXECUTIVESUMMARYFinishedGoodsTradingBaoSteeliswellpositionedtodayinthelargeandgrowingsteelmarketinChinaStrongpositioninhighvalueaddedproductsegmentsHighshare(45%)ofprioritizedsectorsWhileBaoSteel’spositionisstrongtoday,therearesignificantthreatsandopportunitiesThreatislossofsharewithcustomersthatarebecomingincreasinglysophisticatedanddemandingtointernationalcompetitorsKeyopportunitiesaretogrowshareofhighvalueaddedproductsinprioritizedsectorsandtoprovideadditionaltransformationalservicesToaddressthesethreatsandopportunities,BaoSteelshouldfollowinternationalbestpracticesImplementKeyAccountManagementfocusedonmeetingtheneedsofthemostimportantcustomersbyfullyleveragingBaoSteelGroupresourcesImplementclearaccountabilitiesfordevelopmentofS&Candnewtransformationalservices CHINASTEELMARKETLARGEANDGROWINGCAGR（1991-1995）12%CAGR（1995-2000）9%CAGR（2000-2005E）4%SectionsWire&rodPipe&tubeSheet&plateMnTonSource:IISI,ChinaSteel&IronIndustryStatisticYearbook,BaoSteel,BCGanalysisChinasteelFGapparentconsumptionSegmentgrowthAuto11%Homeappliance9%Shipbuilding8%Construction6%Oil&Gas4%Machinery4%Metalwork3%Packaging2%Container2%CAGR(’00-’05) MARKETSEGMENTSBYPRODUCTTYPEANDSECTORGalvanizedColorcoatedSiliconStripCold-rolledPlatePipeWire&rodSectionTinplate%ofproductconsumptionSource:Baosteel,BCGestimateValue-addedHighLowStainlessHot-rolled%oftotalconsumption BAOSTEELISWELLPOSITIONEDINHIGHVALUEADDEDPRODUCTSEGMENTSStillSignificantRoomforBaoSteeltoGrowSource:Baosteelplanningdept.;Chinametallurgyinfocenter;Base:Year2000BaoSteelMarketshare(%)Percentageoftotalsteelconsumption(2000)ColorcoatedSiliconsteelTinplateColdrolledPipeWirerodSectionHotrolledGalvanizedAverageprice(000RMB/Ton)01234567Weightedavg.marketshareAveragemarketpriceBaosteelmarketshareBaosteel’sweightedaveragemarketshare1218%10%30%7%18%8%28%3%5% STRONGPOSITIONINHIGHGROWTHANDVALUEADDEDSECTORSTheMomentumistobeMaintainedAndEnhanced(1)Tinplatepackaging(2)Baosteelhaspresenceinhardwireworksector(3)Autosheetmarketonly(4)Construction,machinery,metalwork,oil&gasandrailmarketsharecomesfrombestestimateSource:Baosteel,Chinairon&steelstatisticyearbook(2000),BCGanalysisEstimatedgrowth(00’-05’)(%)Indexofconsumedsteelvalue（Averagesteelconsumptionprice）Auto(3)ContainerHomeAppliancePackaging(1)ShipBuildingMachineryMetalwork(2)Oil&Gas1999BaoSteelmarketshare1999sectorvalue(5BnRMB)RailSegmentswhereBaoSteelplanstoincreaseshareConstruction THESESECTORSHIGHLYCONCENTRATED,WITHHIGHPRODUCTSOPHISTICATIONANDUNDERINT’LCOMPETITIVEPRESSUREMarketshareContainerShipbuilding(1)Auto(2)Homeappliance(3)PackagingNo.ofmanufactures72%55%76%(1)Oceanshipbuilding(2)Calculatedbyproductionvolume1999(3)Calculatedbysalesrevenue1999.Othersectorsarecalculatedbysalesrevenue1998Source:ChinaMarketStatisticYearBook(2000),ChinaLightIndustryStatisticYearbook(2000),ChinaAutoIndustryYearbook(2000)AutosteelmarketHomeappliancemarketTinplateforpackagingmarketImport:25%Baosteel:60%Import:45%Baosteel:33%Import:25%Baosteel:27% ImportedproductsLow-endproductsMiscpurchasefromlocalspotmarketOthermillsprovidebetterqualityofsiliconsteelFIRSTKEYCHALLENGEFORBAOSTEELISTOPREVENTSHAREEROSIONINKEYACCOUNTS%ofcustomer’stotalsteelconsumptionBaosteelexistingshareBaoSteelpotentialshare(1)(1)ReferstotheportionthatBaoSteelhavetherelevantsteelproductsandcanpossiblyselltothecustomersSource:BCGcustomerinterviewsInterviewedcompaniesWhynotfromBaoSteel? ADEEPUNDERSTANDINGOFCUSTOMERREQUIREMENTSHELPSIDENTIFYINGSPECIFICGROWTHOPPORTUNITIESBaoSteel’sdomesticcustomerbreak-downKeyfindingsincustomerrequirementsCustomersarehighlyproductspecification-drivenindecisionmakingCustomershaveveryuniqueservicerequirements,henceKAMiscrucialtostrengthencustomerrelationshipLargecustomerstendtovaluetechnicalservices,whilesmallonestendtovaluefinancingLocalpresenceisseenimportantbyallthecustomersCustomersoftenencounterprocesscomplicationsandhavetodealwithmultiplecontactsinBaoSteel%ofdomesticsalesvolume(2000)AutoContainerHomeapplianceMetalwareOthersNon-KA46%27%Source:BaoSteelLtdAgent5%7%54%KA34%18%9% Trading/SSC(1)shareoftotalplatesalesin1998(inkton)(1)SteelservicecenterSource:S&PIndustrysurveys,ASIS,SSCITRANSFORMATIONSERVICESAREINCREASINGLYIMPORTANTSharesInUSandEuropeHasReached~40%D-339-24bkUSARestofWesternEurope48%52%8,000France46%54%75032%68%5,070FinishedGoodsTradingTransformationServiceGermany36%64%3,900100%Totalplatesales(Kton) CUSTOMERSINCREASEOUTSOURCINGOFNON-COREPROCESSDUETOHIGHERPRODUCTIONSCALEANDCOMPLEXITYExample:AutomotiveValueAddedChainStatusquoTrendAutomanufacturersStrategydev.R&DPrototypeProcure-mentProduktionplanningProductionAssemblyMarketingsalesServiceRecyclingRawmaterialOEMSteelcoilsPlasticsSource：BCGanlaysisSteelcompaniesOEMSystemOEMModuleOEMComponentOEMProductOEMProductdev. SteelmakingDeepprocessingS&C(workshop)SteelmakingSimplecuttingDeepprocessingS&C(workshopSteelmakingS&CDeepprocessing~80%~20%10-30%~5-10%~30-70%TypicalwaysforcoiltoreachcustomersChinanowExternalbenchmarkTrendShareofconsumptionvolumeIIIIIISource:BCGmarketinterviews(Coils)(Coils)(Coils)(Largesheets)(Smallsheets)(Smallsheets)(Smallsheets)Note:shownabovearethethreemostpopulartypes,othertypesexistinthemarketbutnotasmainstreamLOWCURRENTOUTSOURCINGRATEINCHINAINDICATESHIGHGROWTHPOTENTIAL LONG-TERMGROWTHPOSITIVEFORCHINAS&CMARKETBut,CurrentlyTheMarketIsOversuppliedNote:The#ofS&Ccentersrequiredarebasedonassumptionsthateachofthecentershouldreachtheutilizationof80%,whichmayenxureROIasof5%.Thecurrentaverageutilizationrateisonly~60%Source:BCGestimate#ofS&CservicecentersOptimisticConservative17%11%8%CAGR(99-05’)BaseActual#ofS&CcentersRequired#ofS&Ccenters ProtectthecoreBaoSteelGroupproductsalesEnsurepenetrationofallBaoSteelGroupproductsMaintainhighservicelevelIdentifyneedsofcustomersandopportunitiesforgrowthDownwardmigrateintotransformationservicesCross-selladditionalproductsKAMANDTRANSFORMATIONSERVICECANBETWOLEVERSFORBAOSTEELTOREALIZEMARKETOPPORTUNITIESKAMDedicatedteamtoprovidetailoredservicetokeyaccountsSingularandcoordinatedcustomerinterfacefromBaoSteelGroupTransformationServicesMulti-sourcingwhilespecifyingBaoSteelaspreferredsupplierInventoryandlogisticsmanagementDeep-processingoffering KAMCOMPLEMENTEDWITHREGIONALSTRUCTUREISACOMMONPRACTICEAMONGTHEBENCHMARKSSegmentdifferentiationNoexplicitstrategicagreementontargetcustomerindustrysegmentsLargeproportionofmills’salesgoesthroughBSITKAMfunctionExistsbutnotinstitutionalizedSharedresponsibilitiesbetweenBSITandmills(contractedthroughmillsandexecutedbyBSITSegmentdifferentiationMarketisdividedintoAutoandNon-autosegmentsDistributionunit(underGroup)isstructuredintosametwosectorsKAMfunctionCustomerrelationshipmgmtisledbymillsinautosector(KAM)Non-autosector(non-KA)operateswithhighdegreeofindependenceSegmentdifferentiationCustomerssegmentedintoA,BandCtypesbasedonordersizeMillsfocusonA&B(KAM),TradingonC(non-KA)segmentKAMfunctionA&BisdirectlymanagedandcontractedthroughmillsTradingfocusonsmallregionalC-typecustomerswithsomeKAMtreatmenttorelativelargerclientsNon-KAKAMNon-KANon-KAKAMThyssenKruppUsinorSteelMillTrading(regional)SteelMillTrading(regional)SteelMillTrading(regional)KAMA,BCAutoNon-AutoBaoSteelTodayExternalBenchmarks KAMAMAJORCOMPONENTOFNEWFGORGANIZATIONKAMToManageTotalCustomerRelationshipSalesR&DProduction...R&DProductionPurchasing...BaoSteelCustomerKAMCustomerretentionEfficiencyimprovementofsalesactivitiesProfitablegrowthBondlargecustomerswhowouldcreateamajorriskiflostStrengthenBaoSteelpositionviacreationoftrust/specialserviceoffersInternallyConsistentsalesstrategyforthecustomerCoordinatedactionbybusinessareasExternallyDemand-oriented,stream-linedservicepackagesratherthanfragmentedofferofproducts/servicesSuperiorprocessingoftransactionsbetweencustomerandsupplierIncreasecross-sellingtoexistingcustomersWinattractivenewcustomersRaisethelikelihoodofwinningnewoffers ApproveSupplierAnalyzeQualityManageLogisticsProcureSamplesBENCHMARKLEARNINGFROMTHYSSEN-KRUPPONKAMIMPLEMENTATIONExampleofOptimizationofInterfacesinProductSampleTestingSource:BCG-Krupp4KimplementationteamRequestSamplesResearch&DevelopmentAutomotiveCustomerAnalyzeQualityManageLogisticsDevelopTrialProductRequestSamplesResearch&DevelopmentDepartmentR&DStampingPlanningR&DProcurementProcurementDispoPlanningR&DStampingProcurementTechnicalR&DSalesDepartmentTechnicalSalesSalesDispoprocessServiceSystematicimprovementofallinterfaceswithkeyaccountsalongthecustomersvaluechain MillControlsAllTHREEOPTIONSTOIMPLEMENTKAMATBAOSTEELMillInputAreRequiredToDecideOnOptionChoicesStrategicCustomerPlanningContractNegotiationPricingDecisionNewProductDevelopmentAdvancedTechnicalServicesGeneralTech.ServiceSupportTransaction/DeliveryCo-ordinationS&CCo-ordinationCRM(customervisit,etc.)DirectionaldecisionTechnicalservicesCRMCommercialservicesStrategicCustomerPlanningContractNegotiationPricingDecisionNewProductDevelopmentAdvancedTechnicalServicesGeneralTech.ServiceSupportTransaction/DeliveryCo-ordinationS&CCo-ordinationCRM(customervisit,etc.)DirectionaldecisionTechnicalservicesCRMCommercialservicesStrategicCustomerPlanningContractNegotiationPricingDecisionNewProductDevelopmentAdvancedTechnicalServicesGeneralTech.ServiceSupportTransaction/DeliveryCo-ordinationS&CCo-ordinationCRM(customervisit,etc.)DirectionaldecisionTechnicalservicesCRMCommercialservices1MillControls,TradingExecutes2MillLeads,TradingCoordinates3MillTrading RECOMMENDEDORGANIZATIONSTRUCTUREONFGTRADINGANDTRANSFORMATIONBUSINESSKeyAccountManagementRegionalFGSalesRegionalTransformationServiceSalesVPFGTrading+TransformationNorthRegion.........SouthRegionSouth-WestRegionKAMEastRegionFinishedGoodsShearing&CuttingFinishedGoodsShearing&CuttingFinishedGoodsShearing&CuttingFinishedGoodsShearing&CuttingOperativecoordination RECOMMENDEDORGANIZATIONSTRUCTUREFORKAMMillLeads,WhileTradingCompanyCoordinatesRegionalMgrEastRegionalMgrEast...VPFG+S&CKAMSectorMgrLocalKAMRepLocalKAMRepLocalKAMRepKAM(Mill)ContractnegotiationStrategicpricingNewproductdevelopmentAdvancedtechnicalservicesExecutetransactionCoordinatewithS&CcentersoncuttingservicesProvidegeneraltechnicalservicesVisitcustomersregularlyFeedbackcustomerinfotomills“Leader”SetstrategicdirectionforKAM“Coordinator”Betweenmill&tradingAcrossalltheregionsMillTrading“Executor”ExecutetransactionsLocalinterfacewithKAAssistthemillonKAMstrategicdirectionsettingCoordinatethelocalKAMacrosstheregionstorealizesynergyvalueOrganizationStructureRoleMajorResponsibilities Multi-sourcingchanneltoenhanceproductrangeVarioussegments/productgradesDomesticandimportMinimizeproductconflictwithBaoSteelthroughcoordinationBaoSteelaspreferredsupplierPre-determinedsharequotainkeycompetitivecategoriesCUSTOMERSHOULDRECEIVEAPACKAGEDSERVICEOFFERINGFORTRANSFORMATION“Cutting,Processing,DeliveryandServices”SupplierrelationshipWarehousingShearing&cuttingDeepprocessingTransportationCustomerrelationshipRealizeregionalsynergythroughcoordinationvirtuallycentralizedlogisticsthroughITsystemoptimizesupplierandcustomermatchtorealizebetterservingdistanceBuildupnationallogisticsnetworkandprovideflexibletransportationmeans/deliveryBroadenservicevarietiesbyleveragingequipment/technologywithintheregionBalanceworkloadallocationwithinregiontomaximizecapacityutilizationRightmixonTPandCPtomeetbothprofittargetsandutilizationtargetsForwardintegrationinselectivesectors/customers(bending,punching,etc)CustomerrelationshipmanagementsystemStrengthensalesforcejointmarketing&saleseffortswithFGtradingwithinregion EstablishleadingpositioninS&CservicemarketcapturevalueviadownwardintegrationfullyleverageexistingassetstosetupdevelopmentfoundationPARTNERSHIPSWOULDBRINGSIGNIFICANTVALUETOBAOSTEELINS&CBUSINESSInternalcapabilitiesSmallcustomerbase–lowcapacityutilizationHighoperatingcostLimitedexpertiseindeepprocessingAccesstonewcustomers/marketsJointcustomerdevelopmentcapabilityCostsharingandscaleeffectsMutuallycomplementarytechnologyandexperienceManagementgoalCurrentissuesExternalenvironmentMarketjustemergingandwithhugeuncertaintySeverecompetitionwithhighpricepressureRisksharingLowerfinancialcommitmentPre-emptcompetitorsExertmorecontrolonthemarketValuepropositionexpectedfrompartnership RECOMMENDEDORGANIZATIONFORTRANSFORMATIONVPFG+TransformationRegionalMgrEastRegionalMgrSouthRegionalMgrNorthS&CJV1S&CJV2S&CJV3workshopworkshopworkshopS&CJV4S&CJV5S&CJV6workshopworkshopworkshop..................ReportinglineManagerCrossregionfunctionsS&Cteam...I.HQII.RegionalofficeIII.LocalJVcompaniesR&RPolicymakingandplanningAcross-regioncoordinationRegionalreportingSalesmanagementcoordinationbetweenFGandS&CPolicyexecutionDailymanagement/operationOrganizationstructure EXECUTIVESUMMARYIronOreTradingIronoreimportmarketinChinaislargeandgrowingGrowthofsteelconsumptionShifttohigherqualityoreIronoreusersarehighlyfragmentedwithverydifferentsegmentsLargescaleplayersthatareabletopurchaseoreatlowcostandwhoprefertobuyindependentlySmallplayersthatdonothavepurchasingscaleorcapabilitiestopurchaseoreatlowcostSignificantopportunityforBaoSteeltogrowsharewithsmallerplayersSystematicallytargetandselltogrowshareofimportsineachcustomerLeverageitsironorepurchasingscaletoprovideoreatalowercostPutinplaceanironoreorganizationwithclearrolesandresponsibilitiesforprocurementandcustomerdevelopment BaoSteelisthelargestironoreimporterIRONOREIMPORTMARKETLARGEANDGROWINGAstheLargestIronOreImporter,BaoSteelIsinaGoodPositiontoAggregateIronoreimporthasstablegrowthprospectChinaIronOreImport(MnTon)95CAGR9%Oreimport(10Kton)300050045037030070002160220BSSGWGMGJinan中钢OtherstotalOreImportbyplayersin2000(MnTon) TARGETEDCUSTOMERSFRAGMENTEDWITHDIFFERENTSEGMENTSBStargetsatfragmentalsmall-mediumsteelplantsTotaltargetmarketisaround29MntonsAGAnnualsteeloutput(10Kton)Annualoreimport(10Kton)MGWGSGJinanMini-mills(1)TargetmarketChinaSteelPlantsImportOre(Mnton)BSshare9.830%1117%840%CJNorthSouth邯郸北台通化宣化承德小钢厂(1)#>20南京重庆新余萍乡杭州沙洲鄂州合肥南昌苏州芜湖铜陵达钢唐山太原天铁安阳凌钢莱芜抚顺长治威远顺达泰钢沙华三明湘潭昆明水城攀枝花柳州涟源韶关广州成都BSshare SIGNIFICANTOPPORTUNITIESFORBAOSTEELTOGROWSHAREWITHMEDIUMANDSMALLUSERSSystematicallytargetandselltogrowimportshareineachcustomerLeverageitsironorepurchasingscaletoprovideoreatalowercostRegionalfocusonNorthandYangtzeareaDirectchannelformedium-sizedcustomersandindirectforsmallcustomer RECOMMENDEDORGANIZATIONFORIRONOREBUSINESSI.HeadII.BusinessDept.III.SupportingDept.R&RStrategy,policyandplanAcross-businesscoordinationManagebusinessoperation:procurementandcustomerdevelopmentMaximizeownrevenueandprofitSupportthebusinessdeptMaximizesynergyinservingallthreebusinessesOrganizationstructureIronOreCoalAuxiliaryVPRawMaterialProcurementSale/ServiceProcurementSale/ServiceProcurementSale/ServiceServeBSMillsNorthCJSouthIronOreCoalAuxiliaryCharteringDistributionTechResearchMktResearchTechServiceMineInvestment(tbd)LogisticsMgtMarketing&Tech. E-COMMERCELINKAGESSUMMARYBenchmarksuggestse-commercelinkagestobeplacedatthreepointsalongthesteelvaluechaine-Procuremente-Salese-ExchangeE-procurementande-salesoftenstructureddedicatedlytotherespectivefunctions,whilepublicexchangerequiresahighdegreeofneutralityandindependenceManagementdeterminesthatBsteel.comshouldbepositionedtosupportinternalprocurementandsalesfortheGroupforthefeasiblefutureItimpliesthatBsteel.comtobeoperatedasatechnicalserviceprovidersandplatformforvariousGroupfunctions,inparticular,procurementandsales.ItwillbesetupasanindependenttechnicalservicecompanywithinthenewtradingcompanyE-teamneedtobebuiltupwithinprocurementandsalesfunctionstodevelopandexecutee-strategyaswellasmanagecoordinationwithBsteel.com SupplierManage-mentProcure-mentPre-saleOrdermanage-mentLogisticsFinancialsettle-mentAftersalesEndproductRM&MROSteelProduc-tionSupplierManage-mentProcure-mentSteelMillPortKemblaE-steel.comProvidetechnologysolutionChargelicensing&transactionfeese-SalesCentralMarketing&SalesServingexistingkeyaccountsServingallcustomersBESTPRACTICEINe-PROCUREMENTSANDe-SALES(I)BHPsteelconnect.comBHPsteel.comExample:PoscoExample:BHPe-ProcurementPospineNtoB.comSubsidiaryJVKwangYangMillPurchasingDivisionPoHangMillStrategicSourcingGroup(MROproducts)InvestorsServiceproviders SupplierManage-mentProcure-mentPre-saleOrdermanage-mentLogisticsFinancialsettle-mentAftersalesEndproductRM&MROSteelProduc-tionSupplierManage-mentProcure-mentBESTPRACTICEINe-PROCUREMENTSANDe-SALES(II)Example:PoscoExample:BHPOfferValuePropositionPospinisamixtureoftraditionalprocurementchannelsande-channelsProcurementcatalog&newsRFI&RFPmanagementConsiderationsofnon-pricefactorsviawrittenformsandface-to-faceinteractionseNtoB.comoffersmorecomprehensivee-packagesOnlinebidding&auctionValueaddedsuchase-paymentandlogisticsCostsaving&buildingofaqualitysuppliernetworkOfferValuePropositionIndustryinformationOrdermanagementTransportation&logisticsBar-codedincominggoodsdataanddispatchadviceReal-timeinvoices&statementsPrintabletestcertificatesForecastingcapabilitiesEnhancedcustomerserviceCostsavingFasterresponsetimes24hourinformationaccess RECOMMENDEDORGANIZATIONFORE-COMMERCEExemplaryStructure(DependingonBusinessNeeds)I.DedicatedII.CentralizedIII.ServiceproviderR&RDevelope-strategyforindividualBUDefinethefeaturesandfunctionalityneededDefineandcoordinatethelinkagebetweenonlineandofflinebusinessManagethecoordinationwithBsteel.comITstrategycoordinationInfrastructurecapabilitiesTrainingandcapabilitybuildingProvidetechnicalserviceProvidetransactionsupportOrganizationstructureFG+S&CScrapEquipment/Parts...TradingCo.e-Salese-procuremente-procuremente-Teame-StrategyChannelmgt.e-commerceplatformsTechnicalsolutionsTransactionandlicensingfees(ifapplicable)ServicevendoragreementswithbusinessesBsteel.come-StrategyChannelmgt.e-StrategyChannelmgt.ITstrategydevelopmentCoordinationofbusinessneedsDevelopmentofe-commerceinfrastructurecapabilitiesTrainingandcapabilitybuildingforbusinessesCIO... LOGISTICSLINKAGESSUMMARYDesignoflogisticslinkagesisbasedonthreeprinciplesEnsureseamlessdeliverytocustomersMinimizechangeinphysicalgoodsflowanddisruptiontocurrentbusinessmomentumExploreopportunitiesofcostreductionandsynergycreationCurrentlogisticsorganizationandassetsfragmentedandoverlapwithintheGroupAslogisticsmanagementandtransportationlogisticsarekeycomponentsofvaluecreationfortradingbusiness,ManagementhasdeterminedalllogisticsassetsshouldbeincludedinthenewtradingcompanyasasupportingfunctionRecommendedlogisticslinkagessuggestlogisticsactivitiestobededicatedtobusinesses,whilephysicaltransportlogisticsassetstobecentralizedasserviceprovidersToensureefficientandlow-costtradingtosupportbusinessesToleaveflexibilityforlogisticsdevelopmentwhenopportunitiesarise RECOMMENDEDORGANIZATIONFORLOGISTICSDedicateLogisticsManagement,WhileSeparateAllPhysicalAssetsI.DedicatedII.CentralizedIII.RegionallevelR&RSupportindividualbusinessonlyLogisticsmanagementfunctionSupportallbusinessImport/exportpaperwork,andprovidephysicaltransportationservicesSupportregionaloperationBothlogisticsmanagementandwarehouseOrganizationstructureOreFG+S&CEquipment/SpareScrapTradingCo.LogisticsmgtLogisticsmgt(1)Logisticsmgt(1)Logisticsmgt(1)TransportationLogisticsRegionAFGtradingS&CILogisticsLogisticsChartering/mktoperationDistributionMJSportmgtCharteringCoordinatewithBSmillsCharteringCharteringManagementWarehouseManagementWarehouseImport/exportpaperworkPhysicalassets(1)Maynotneedanindependentdepartment,ifonlylimitedlogisticsmanagementtaskinvolved AGENDAObjectivesandProcessGlobalmarketcontextforBaoSteelTradingvisionandcorporatestructureCorebusinessstrategyandorganizationRestructuringimpactandchangepath MUCHOFTHECHALLENGESTILLLIESAHEADFORBAOSTEELDrivetradinggrowthtargetsSpecificgrowthstrategiesDefinitionofpartnershipandinvestorneedsInternationalstrategye-commercestrategyPushfornextphaseofGrouprestructuringPurchasingstrategyacrossallmillsSalesintegrationacrossallmills“Goingpublicstrategy”RefineportfoliomanagementAssetproductivityValuemanagementPeopledevelopmentPhaseI:July23rdPhaseIIPhaseIIIDesignnewtradingorganizationandbusinessmodelsforcorebusinessesScopeoftradingbusinessAssetintegrationneedDecisionlogicforcorporatestructureOrganizationdesignforcoretradingbusinessesCriticalstepsandpathwayDefinedlinkagesfortradingbusinesswithinBSGroupAssureimplementationandenableorganizationCreategovernanceforimplementationDetaildesignoforganizationDevelop“RoadMaps”forimplementationAppointkeymanagementpositionsAligntheleadershipteamandachievecommitmentShapetheportfolioValuecreationdiagnosisofcurrenttradingportfolioDefineareasofexpansionvs.divestment IMPERATIVESFORSUCCESSFULIMPLEMENTATIONTherestructuringofBaoSteelTradingrepresentsamajoropportunityforBaoSteelGroupTradingbecomesthe“2ndPillar”ofthegroupBecomeacoreengineofgrowthandvaluecreationTherestructuringisalsoamajortransformationalchallengeformanagementSignificantrestructuringoforganizationandassetsManynewroles,functions,processesandcapabilitiestobebuiltMajordesign,planningandexecutionaleffortrequiredtoassureimplementationandtoshapetheportfoliogoingforwardToensureasuccessfulrestructuringitisimperativeto:Putinplacegovernancerequiredforimplementationandtheresourcesrequiredtodetailthedesignoftheorganizationincludingroles,accountabilities,processesandresourcesandtomanagethechangeprocessbeforechangingtheexistingorganizationEnsurethatexistingbusinessmomentum,customerrelationshipsandcoreprocessesareprotectedandcloselymonitoredduringimplementation KAMimpactbasedonThyssen-KruppbenchmarkIncreasedcustomerpenetrationReduceddefectandclaimratesIncreasedtimelinessofdeliveryResultin10-15%increaseinprofitmarginFurtherimpactexpectedtotheGroupviaimprovedcosttoserveSIGNIFICANTVALUECREATIONISPOSSIBLEInitialEstimates(1)ofIdentifiedOpportunitiesMarginimpactin2005(basescenario)KAM34S&CExpectedincreaseinmarginMnRMBIronore44380458Total(1)Nottobeusedforfinancialplanning,allreportingInitialimpactfromincreaseincapacityutilizationRealizationof80%utilizationintheexisting5S&CcentersresultsinRMB40MnincreaseinprofitmarginExpansionimpactbasedonprojectedBaoSteelmarketsharein2005ExpansionoftransformationbusinessneedtobejustifiedbybusinesscaseIronoreimpactbasedonBaoSteelaggregationprojectionby2005Marketshareoftargetmarketprojectedtobe~40%Grossmarginexpectedtobeincreasedby2%duetosynergyeffectvialogistics&scaleFurtherimpactexportedtotheGroupviasupplyinglowerironorecostCostsavingtoBaoSteelmillMarginincreaseforcompany ANEXCITINGTRANSFORMATIONJOURNEYAHEADImplementationAgenda0.Developrestructuringplan1.AssureimplementationImplementationGovernanceDetailedorganizationdesignDevelopRoadMapsAppointkeymanagementAlignleadershipteam2.ShapePortfolioValuecreationdiagnosisInvestmentvs.divestment3.DriveGrowthTargetsSpecificgrowthstrategiesPartnershipsInternationale-commerce4.NextPhaseRestructuringPurchasingSales“GoingPublic”5.RefinePortfolioManagementAssetproductivityValuemanagementPeopledevelopment200420032002200101/12Golivewithnewstructure01/03Clearportfoliostrategy01/03Developedbusinessstrategies01/10Gopublictarget?01/12DetailedimplementationplanDecidenewstructure'