Nucor Corp. is in a global market, and it has steeled itself to compete.

Foreign competition, especially with companies in developing countries, presents unique problems for U.S. manufacturers.

When Nucor competes against U.S. Steel, it competes on a playing field governed by uniform rules.

All of that changes when the competitor is, for example, Linzhou Steel Corp. of China. Owned by the Chinese government, Linzhou’s credit costs are low or nonexistent.

It enjoys lax environmental and labor regulations, and many costs borne by Nucor are, for Linzhou, handled by the government.

Despite these disparities, Chinese steelmakers actively market to Nucor’s U.S. customers. They do so by selling sheet and plate steel like that produced by Nucor’s 700 Decatur employees.

They market steel tube, underselling Nucor customers. They sell appliances made of Chinese steel, underselling appliances that use U.S. steel.

Nucor may be more aggressive than any other U.S. company in pushing the government to enforce trade regulations and impose tariffs on imports of Chinese steel.

The effort does not always endear it to U.S. companies who like the low pricing that results from Chinese imports.

Finally, though, Nucor makes steel, not trade policy. To continue its success, it must produce competitive steel, regardless of the advantages its foreign competitors enjoy.

Labor

The core of Nucor’s success is the productivity of its work force. The company maximizes its workers’ output not with harsh dictates, but by inspiring loyalty and providing a sense of ownership, according to Jim Frias, vice president and corporate controller. Frias will become chief financial officer in January.

Walk through the Decatur plant and the emphasis on safety is pervasive. Nucor goes far beyond regulatory dictates, incorporating employees into the formation of its safety programs.

“We ask employees at the plant level to participate in the development of their safety uniquely at each facility,” Frias said. “We don’t have a cookie-cutter safety program we install everywhere, but we do benchmark with each other and share ideas constantly and drive for continuous improvement.”

That would seem to create a competitive disadvantage to foreign manufacturers in regulatory environments that do not require expensive and time-consuming deference to employee safety.

Nucor doesn’t see it that way. Loyalty is a two-way proposition, and if Nucor wants loyal employees it figures it needs to earn them.

“That safety-first focus is one of the key elements of building trust,” Frias said. “It has to do with doing the right thing for people. But sure, there is a benefit for global competition.”

Employees trust that Nucor is looking out for them, and they express their appreciation through productivity.

A compensation structure that relies heavily on production incentives also increases productivity. Nucor employees are among the highest paid in the city when production is high.

The company gets its choice of Decatur’s best workers, offering combined base pay and bonuses that often exceed $70,000 a
year.

The incentives, Frias explained, mean employees are constantly trying to make sure there are no interruptions in production, and that the product is of the highest possible quality.

“If they don’t have customers who want their product, their pay gets cut because they don’t have as much production bonus.”

Incentives

The use of production incentives had an obvious benefit for the company during the recession, which Frias called the worst market Nucor has seen in its history.

Labor costs dropped automatically with the fall in demand, helping to insulate the company from some of the damage to its bottom line.

Remember, though, that Nucor’s focus is on engendering trust in its employees. How does Nucor keep an employee who watches his income drop by half from feeling betrayed?

By not betraying him. With production almost nonexistent for much of 2009, Nucor did not lay off a Decatur employee.

“They look at companies around them and they see people getting laid off and not having medical benefits anymore. Guess what, they still have jobs and they still have their medical benefits.”

Flexible production

Keeping its skilled work force helps Nucor. When production picks up, the company does not have to hire and re-train workers. Each of its plants can immediately reduce production or increase it without scrounging for skilled labor.

The desire for production flexibility does not just affect compensation policies at Nucor, it affects the company’s manufacturing process.

Nucor plants use electric-arc furnaces to recycle metal scrap, its main raw material. Conventional steel makers use blast furnaces, with virgin iron ore as their main raw material. One of the reasons Nucor opened a plant in Decatur is the availability of low-cost, reliable power from the Tennessee Valley Authority.

Starting and stopping an electric-arc furnace is simple, inexpensive and creates no risk to the equipment. This flexibility has been essential to Nucor during the recession, when orders are unpredictable.

Blast furnaces have advantages, but flexibility is not one. Starting and stopping them is a major expense, and it creates a risk to equipment.

“They have to have an expectation the market is going to be there for awhile before they can start up a blast furnace,” Frias said.

Nucor has used that advantage to build market share during the recession. Customers turned away by steel producers who could not start up a blast furnace — and recall laid off employees — have found an enthusiastic supplier in Nucor. Frias expects many of these customers to stay with Nucor long after the recession.

Long-term focus

Nucor is in it for the long term, so even as it struggles through national economic calamity it looks for growth opportunities.

The focus on the long term applies not just to employees and equipment, but to shareholders.

“We don’t focus on what our earnings are going to be this quarter, and what the Street is going to think about what we’re doing today, and how it’s going to affect next quarter,” Frias said. “We take a long-term view of the business.”

That focus on the future is what convinced Nucor to complete a galvanizing line in Decatur in January, when demand for its eventual product seemed wishful thinking.

“We didn’t change our investment policy because the market went in the dumper.”

It also is the impetus for maintaining the highest credit rating in the business, and avoiding debt on capital projects.

In a fortuitous move, Nucor issued almost $2 billion in stock just before the market — and share prices — sunk faster than a steel girder in Wheeler Lake.

That leaves the company in the enviable position of having cash at a time when investment opportunities are at an all-time low.

Nucor’s political efforts to restrain what it views as unfair competition, especially from China, remain vocal. Frias complains about cap-and-trade legislation, saying it will increase the disadvantage U.S. companies have on the world market.

He is especially frustrated at what he refers to as currency manipulation resulting from China pegging its yuan to the U.S. dollar.

Those complaints, however, do not seem to detract from Nucor’s steely resolve to best all competitors.