Eastern Waves Inc. Case

OM 527

Edward Elric

Background
Eastern Waves Inc. is a steel manufacturing company located in Kuantan, Malaysia. In 2009, Eastern Waves’ cash on hand was 188 ringgits (RM). In the previous year, they had an even lower cash balance of RM188. Without cash, Eastern Waves are unable to purchase raw materials from local raw material suppliers. Eastern currently has a joint venture relationship with Jinan & Iron Steel Corp., which enables Eastern to buy scrap steel on credit from the Jinan plate mill operation. This scrap steel is crucial to Eastern’s success given the market price of the purchased raw steel billets. However, the scrap steel is of a lower grade than the standard raw steel billet.
The new government policy on steel will make doing business increasingly difficult. The new policy is expected to generate more business for local and government suppliers.
In 1997, Malaysia was hit hard by the Asian financial crisis. In order to rescue some of the largest state-owned companies, the government imposed several strict trade barriers on certain goods. Included under law in these protected goods are steel billets, the raw material for use in the downstream steel industry.

The steel industry and Eastern Wave Inc.
The steel industry in Malaysia is divided into two subsectors, the manufacture of long steel products and the manufacture of flat steel products. Long products include billets, bars, and wire rods and are widely used in the construction industry. Flat steel products include tin plates, galvanized sheets, metal sheets, and fabricated sheets. Mega Steel controls the flat steel segment while six large manufacturers dominate the long-product segment. All six manufacturers are government-owned. Since the falling of international steel prices, the price gap between domestic billets and international billets