Select Committee on Science and Technology Minutes of Evidence

Memorandum submitted by Corus plc


  1.  Corus plc is the merger between British Steel plc and Koninklijke Hoogovens NV, and came into existence on 6 October 1999. The company has an annual turnover of about £10 billion, and employs some 66,000 people worldwide. Corus is the second largest steel producer in Europe, the fourth largest in the world (production 21.3MT) and is also the fifth largest aluminium company in the world.

  2.  The new company's strategy is to create value by providing innovative metal application solutions to attractive market segments where leading positions can be achieved.


  3.  Corus was created as a result of three main drivers.

    (a)  Changes in the international market.

    The globalisation and consolidation of the world steel market is causing key sectors to become dominated by major international customers who seek suppliers with critical mass capable of developing joint materials applications. These developments have been accompanied by the progressive consolidation and increasing competitiveness of the European steel industry.

    (b)  Strategic considerations of the partners.

    British Steel sought to diversify away from dependence on over 90 per cent of its manufacturing base being in the UK; and also to reduce exposure to the strong value of the £ sterling. Hoogovens sought to acquire critical mass in the global metals market.

    (c)  Improved customer service.

    The combined group seeks a wider international approach in order to respond more fully to the needs of customers wherever they might be in the world.

  4.  Specifically, Corus Group plc intends:

    —  to offer customers a multi-metals approach to its market. This means becoming the only company that provides fully engineered components and sub-assemblies made of several metals, to optimise performance for consumers. This will be done through Corus' combined steel and aluminium expertise, and a strong product portfolio;

    —  to be active in all major markets where its key customers are present;

    —  to establish a strengthened international distribution and service centre network;

    —  to achieve cost efficiencies through synergies in areas of major overlap (elimination of duplication, more effective utilisation of existing capacity, wider options for routing supplies to customers, exchange of best technological know-how and competencies).


  5.  The importance of high level R&D to the new Company was emphasised from the outset (see attached brochure page 5). R& D is the basis for increasing market shares by providing world-class service and support to customers, and developing new products and innovative multimetal solutions to satisfy increasingly sophisticated customer needs. R&D also underpins quality improvement and cost reduction by enhanced efficiency in its manufacturing processes. R&D thus helps to give the new company added competitive advantage, thereby raising revenues and margins. It also helps create opportunities to grow market share which would not have been available to the former companies independently.


(a)  British Steel

  6.  All Research and Development activities at British Steel were carried out in the UK at three locations.

    (i)  Teesside Technology Centre, Grangetown—concentrating on process research (eg improved efficiency of, and new ways of operating, Blast Furnaces, improved Steelmaking processes and steel quality).

    (ii)  Swinden Technology Centre, Rotherham—focusing on product research and development, and environmental research (eg ultra high strength steels, construction technology, improved stainless steel, improved operating technology to reduce emissions, life cycle analysis).

    (iii)  Welsh Technology Centre, Port Talbot—focusing on product and applications development of Strip Products (eg improved galvanised products for the car industry, new metal forming processes such as hydroforming, longer life coatings, improved packaging systems such as ultra-light beverage cans).

  7.  In addition to the above, design and engineering work for the automotive market was also carried out by the Automotive Engineering Centre in Coventry.

  8.  During the last three full financial years prior to the merger, R&D expenditure by British Steel was as follows:

Gross expenditure

  9.  At the end of 1999 the total number of employees of the three above Technology Centres was approximately 750.

(b)  Koninklijke Hoogovens

  10.  Almost all R&D at Hoogovens was carried out by the central R&D department located at Ijmuiden in the Netherlands. It covered essentially the same general topics listed in para 6.

  11.  During the last three financial years prior to the merger, R&D expenditure by Hoogovens was as follows:

Gross expenditure

  At the end of 1999 the total number of employees in R&D at Hoogovens was approximately 500.


(a)  Organisation

  12.  Since 1 January 2000, the R&D activities of Corus Group plc have been grouped into Corus Research, Development and Technology, which operates as an integrated organisation comprising the three technology centres of British Steel and the former Ijmuiden technology centre. The activity reports through a Group Director of Research, Development and Technology (RD&T) to the Executive Director, Technology.

  13.  The basic principle of the new organisation is that Corus RD&T will operate as one entity, with researchers working together on cross-site Research & Development projects, though based on different locations.

(b)  R&D strategy

  14.  The Boston Consulting Group have advised that, in mergers of companies in mature industries, a 20-40 per cent overlap in R&D activity is very typical. This is because both companies are inevitably addressing broadly the same manufacturing and market issues.

  15.  The Corus merger has been no exception to this general rule, and has a 20-25 per cent overlap in the R&D activities of British Steel and Hoogovens. The challenge now is to retain the best of both companies' programmes, to improve the quality of the work and to raise radically the level of contribution which R&D makes to the Company's competitiveness, revenues and profitability. The change will emphasise innovative engineered solutions developed in deep partnership with customers, making engineering and design the common language between Corus and its customers. This will be combined with innovative multi-metals technology packages.

  16.  This R&D approach fully reflects the strategic drives of the company as set out in paragraph 2.

(c)  R&D Resource

  17.  A radical review of resource and expertise is under way across the new Company in order to match the Group's R&D activities to the business realities. At the same time we will:

    —  enhance the best of the R&D activities of the former independent companies;

    —  eliminate duplication in the previously independent programmes;

    —  identify new R&D activities directly aimed at increasing market share, revenue and margins;

    —  bring in new technologies from outside to complement Corus' own technologies;

    —  build and strengthen lasting relationships with our customers.


  18.  From the Corus point of view, the UK is a good location for R&D. An important consideration here is the presence of several universities (eg Oxford, Cambridge, Imperial College, Birmingham, Sheffield and Swansea) with top level programmes in engineering, metallurgy, physics and chemistry which qualify them as good partners in co-operative research, and with qualified and capable researchers. Nevertheless, it is a major concern of Corus that this scientific excellence is being eroded by the progressive decline in the UK of high quality students entering science and engineering disciplines.


  19.  R&D is very important to Corus. As described above in para 4, it is expected to provide high quality services to the Corus Business Units by driving incremental innovation in technology for existing products and processes, both to maintain and improve competitive advantage and to protect or increase market share. However, in common with other intelligently managed companies in mature industries, Corus will look outside to acquire those radically new technologies that are needed to provide the new products and processes required to increase fundamentally market share or move into new markets. This is the most effective method of dealing with the inherently high risk process of radical innovation.

  20.  Typically in the metal industries companies spend between 1-1.5 per cent of revenues on R&D depending on the technical sophistication of the customers they serve and the market in which they operate.

  21.  In the case of Corus, the current year's R&D expenditure will amount to approx. 0.9 per cent of revenues.

5 April 2000

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2001
Prepared 25 January 2001