Growing in its region of choice
"Rautaruukki wants to be a regionally strong company - which it already is - and not a globally weak one," says President Mikko Kivimäki, carefully stoking his pipe. A lawyer and one of the few bearers of the prestigious State-awarded title "Counsellor of Mining", he has something of the old-style industrial mogul about him. The company he heads produced 4.3 million tonnes of steel and generated turnover of over 15 billion markkas (2.5 billion Euro) last year and is confident of its ability to cope with the new challenges that it knows the next century will bring. "An international company has to get its information management into a shape that enables up-to-date material to be used efficiently at every level in the organisation. In this respect, intranet systems have a very important role," says Kivimäki.
Rautaruukki is a medium-sized actor on the European scale of things, but far and away the biggest in the Nordic region. It will continue to concentrate strongly on the parts of the world in which it enjoys clear market leadership: Finland, the other Nordic countries and the new European market economies like Poland, the Baltic States and Russia. These countries account for over 60 per cent of the group's turnover.
"Our sales in the 'new' countries grew by all of 38 per cent in 1998," Kivimäki says with satisfaction, adding that Finland, with only 5 million inhabitants, accounts for nearly a third of his company's turnover. "The economic situation in the new market-economy countries is still modest in comparison with Finland, but the potential to increase sales there is enormous. It is long-term work. None of the products that we sell there can be inferior to what we offer the Finnish or western markets if we intend to succeed. When a product is of a high quality and exactly what is needed, there will be plenty of customers."
An indication of the determination with which Rautaruukki is looking after the market area is the fact that it opened its first production facility there - in Pärnu, Estonia - as long ago as 1992. Since then, the company has opened several plants to manufacture its building products in Lithuania, Poland, the Czech Republic, Slovakia, Ukraine and Russia (Moscow and St. Petersburg). Several sales offices have also been opened. Kivimäki emphasises that all of these investments have been made at very low cost.
Downstream is the way to go
The steel business is very capital-intensive at the beginning of the process. Relative to turnover, capacity is very expensive to provide. However, the further downstream one goes, i.e. the higher the degree of processing, the less one has to invest and the more profit there is. The business is also very sensitive to cyclical fluctuation, but this sensitivity can be reduced by going far down the further-processing chain. Rautaruukki achieved an average return of 13 per cent on the capital it invested during the five-year period to 1998. That is a good result in the steel business.
"We have been developing the company in a way that raises our degree of processing," says Mikko Kivimäki. "An end-product in one stage can be the first link in the next processing chain. As we continue along that chain, value is added all the time. For example, when a metal billet is transformed through seven or eight stages into a system product, its value can increase to seven or eight times what it started out as. To ensure profitability it is extremely important to be able to manage production chains. Because we are able to do that, we can always offer a product range that suits our market area well."
Thus Rautaruukki has no ambitions to conquer the world. But it is determined to be able to respond to the constantly growing challenges that it will face in the market area it has defined for itself. The ongoing investment programme will increase steel output at the Raahe mill to 2.8 million tonnes and rolling capacity to 3 million tonnes. The introduction of new production methods will make steelmaking about 10 per cent cheaper. A new galvanisation plant with an annual capacity of 400,000 tonnes is under construction in Hämeenlinna and when it is completed in spring 2000 the company will be even better placed to concentrate on downstream production.
Sophisticated, high value-added products are a key factor in Rautaruukki's success. The company has a special focus on products tailored to customers' very specific requirements. That also means making branded articles. For example, Rautaruukki Steel's Raex, Racold, Ragal and Racolor brand ranges are, the company believes, just what is needed to keep it that essential step ahead of its competitors.
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