Submitted By:- Group 7 Mandeep Nain(08EM-020) Rahul Gossain (08EM-032)

Sanjeev Agarwal

(08EM-037)

Shobhit Yadav (08EM-041)

Uday Singh

(08EM-049)

Evolution of Mittal Group

The extraordinary story of Mittal Steel

The Growth Approach

The Growth Process Mittal Steel International Growth Process: The M&A

Process

Steel: Global Scenario(1989)

Profits were secondary; production was primary

Highly fragmented

Extreme volatility in steel prices and low growth

Uniform belief that Steel would always be regional

1989: Mittal Group in had less than .05% of the global

steel industry (Indonesia Operations)

How global is an industry?

How global is an industry = Annual value of trade (include components)

Annual value of industry sales

Why is steel less globalized?

Yield factor

Yield per tonne of Steel is much less compared to White Goods

Hence need to minimize transportation element of steel

That does not mean more efficient factors of production like manpower, technology, finance, operations cant be moved

Mittal Philosophy was to build a global steel enterprise by reaching out to the consumers where they were

Strategic Choices

Value Chain Configuration

Measuring Value Chain

Optimization

Building Global Enterprise

Imperatives

Global Presence

Global Competitive Advantage

Mittal Group Strategic Choice

Need for Local Responsiveness

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Globalstrategy

Transnationalstrategy

Multidomesticstrategy

Central Central ResourceResource

Pool Pool EuropeEurope

UnitedUnitedStatesStates

MiddleMiddleEast/East/AfricaAfrica

AsiaAsia

CentralCentralEuropeEurope

LatinLatinAmericaAmerica

Mittal’s Multidomestic – Integrated Manufacturing Strategy

Building Global PresenceGrowth Strategies

Investment ApproachThe NPV Approach

When firm A acquires firm B: A is makes a capital investment while B is makes capital divestment

According on NPV method Benefit = PV(AB) – {PV(A) + PV(B)} Cost = Cash – PV(B)

NPV to A= Benefit – CostNPV to B= Cash – PV(B)

Mittal Steel

The Growth Roadmap

Trinidad & Tobago(1989) Lease/Purchase Agreement of Iscott

Imperatives: Slow pace of Organic Growth Raw material for Indonesia Operations Cyclical Nature of Steel Steel Industry collapsed at the end of the 1980s

Trinidad & Tobago(1989) Lease/Purchase Agreement of Iscott

Country Evaluation:

Government Role: Iscott, a plant built by the government was struggling, and ministers were looking for outside help Firm’s Strategy, Structure & Rivalry:

Global strategy Minimal Competition

Demand Conditions: Looking for a supply of raw iron to feed its Indonesia Plant

Related & Supporting Industries: High access to sea

Factor Conditions: Plant in operational mode

Entry Mode: Take over lease and operations of Trinidad mill for ten years--with an option to buy out the mill after five years

Mexico(1992) Acquisition of Sibalsa

Imperatives: Access to North America

Country Evaluation:Government Role: Privatization focus & Mexican FinanceMinster sought Mittal’s help to revive the fortunes of Sibalca

Firm’s Strategy, Structure & Rivalry:

Use closeness to Caribbean Multiple Revenue Sources Focus on integrated production

Demand Conditions Not a constraint – Large opportunity in North America

Related & Supporting Industries Plant in operational mode Access to North America by Road & Sea

Factor Conditions: Plant in operational mode Access to large DRI Facilities

Mexico(1992) Acquisition of Sibalsa

CAGE Analysis: Cultural Distances:

Company seen as outsider Caribbean operations minimized cultural difference

Administrative or Political Distances: Initiative from Mexico Govt.

Geographic Distances: Closeness to Caribbean Closeness to US Market Extensive access to waterways

Economic Distances: Free trade agreement with US

Entry Mode: Sicarsta steel mills purchased for $220 million (mill built in the 1980s for some $2 billion.)

Speed: Purchase of backend DRI facility -Ispat world's largest DRI producer

Canada(1994) Acquisition of Sidbec-Dosco

Imperative: Foothold in the North American market

Product Synergy: Mexico/Canada prod. based DRI as raw material

Entry Mode: Bought from the Government of Quebec

Speed: Canada’s fourth largest steel producer

Germany(1995) Acquisition of Hamburger Stahlwerke

Imperatives: Limited access Western European Limited understanding of European market

Product Synergy: Expanding scope of business: Wire rod

Building Value Chain Configuration: Renowned for mini-mill expertise

Entry Mode: Hamburger Stahlwerke in Germany acquired

Speed: Germany's fourth largest producer of wire rod

Mittal Group Strategic Choice

Need for Local Responsiveness

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d fo

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LowLow

HighHigh

LowLow High

Globalstrategy

Transnationalstrategy

Multidomesticstrategy

Central Central ResourceResource

Pool Pool EuropeEurope

UnitedUnitedStatesStates

MiddleMiddleEast/East/AfricaAfrica

AsiaAsia

CentralCentralEuropeEurope

LatinLatinAmericaAmerica

Evolution of Mittal’s Transnational – Integrated Manufacturing Strategy

Kazakhstan (1995) Acquisition of Karmet

Imperatives: Location Advantage Access to huge coal & iron reserves Proximity to China

Country Evaluation:Government Role: Proactive Government Involvement

Firm’s Strategy, Structure & Rivalry: Integrated Manufacturing Develop Multiple Revenue Options

Demand Conditions: Huge demand in China

Related & Supporting Industries Minimal Infrastructure

Factor Conditions: Abundant Manpower Abundant Iron/Coal Mines eg. Shatinskaya Limited access to modern manufacturing equipment

Kazakhstan (1995) Acquisition of Karmet

Risk Analysis

Risk Perspective: Two rescue attempts by Western companies, US Steel and

VAI of Austria, failed. Banks did not lend money

Risk Hedging: Develop secondary revenue stream by selling coal from Shatinskaya directly to China

Kazakhstan (1995) Acquisition of Karmet

VOIDS: There was no power or water supplies to the town

PESTEL Analysis: Political factors:

Basic Soviet era township, along with 70,000 employees and Temirtau and its 170,000 inhabitants, all of whom relied on the plant for a living, faced a bleak future.

One of the preconditions of the deal was that Mittal couldn’t reduce employment by much as it was the Kazakh president’s pet project. Hence, huge political problems

High government involvement as pet project of President

Economic factors: Soviet-style barter trading prevalent Wages weren’t being paid Minimal infrastructure Access Chinese market

Social factors: Socialistic mindset Technological factors: Poor access to modern technology & trained

manpower Environmental factors: Incredibly harsh weather with temperatures reaching

+40C in the summer and -40C in the winter

Kazakhstan (1995) Acquisition of Karmet

Entry Mode: Bought the plant outright, putting in his own cash

Development of Value Chain: Brought international management from India & other

plants to instill new management practices Scrapped Soviet-style barter trading Invested in plant and the town, restoring heat, light and

water

Speed: Developed One of world’s largest integrated manufacturing facility

USA(1998) Acquisition of Inland Steel

Imperatives: Entry into US Market Access to technology

Product Portfolio: Access to Nippon technology to manufacture cold roll sheet, strip sheet & special

quality bar products Specialized in cold-rolled sheet and strip steel for motor vehicles

Strategic Choice: Inland was one of the world's largest integrated steel operations

Developing the Value Chain: The steel mill's shoreline location enabled it to take in steelmaking commodities &

Inland Steel operated its own fleet of bulk carrier vessels

Entry Approach: Departing from its low-cost acquisition position, Ispat paid $1.43 billion for

the East Chicago, Indiana-based steelmaker Inland Steel

Speed of Market Acquisition: Inland Steel - fourth largest steel maker in US. Inland acquisition, bolted Ispat

International into the world's top ten steel producers

France(1998) Acquisition of Unimétal

Imperatives: Direct Access to French Market

Product Synergy: Consolidation of the European long products sector

Entry Mode: Acquisition of Unimétal from Usinor

Speed: Mittal Steel became the largest producer of high-quality

wire rods in Europe

Algeria(2001) Acquisition of ALFASAID

Imperatives: Entry to Africa Supplies to Europe

Country Evaluation:

PESTEL Analysis: Political factors:

Civil War Underway(1991-2002) Association Treaty in 2001 with European Union to lower tariffs and increase

trade Economic factors:

Reinitiating Economic Reforms Process after previous failure 30% of GDP & and over 95% of export earnings from hydrocarbons

Social factors: Total Social Disarray Technological factors: Outdated equipment Legal Factors: New legislative framework

Economic Mode: Bought 70% of Alfasid from the Algerian government

Speed: Alfasid is the largest producer of steel in North Africa

Romania(2001) Acquisition of Sidex

Imperatives: Supplies to Germany/Europe

Country Evaluation:Government Role: Active role of government: Sidex to be precursor to Romanianprivatization process & entry to Central European Free Trade Area (CEFTA) Firm’s Strategy, Structure & Rivalry:

Develop new export destination through Danube River Integrated Manufacturing: Acquire the local coal and iron ore mines

Demand Conditions: Demand in Europe The Galati steelworks is also the main provider of raw material for domestic ship-

builders, truck and car manufacturers, machine builders and construction companies.

Related & Supporting Industries: Poor access to waterways

Factor Conditions: Abundant Manpower & RM Limited access to modern manufacturing equipment

Romania(2001) Acquisition of Sidex

PESTEL Analysis: Political factors:

Political commitment to economic reforms Significant role/control of EU Retrenchment fear: Resistance against privatization

Economic factors: 2001: Collapse of Communism Sidex to be precursor to Romanian privatization process &

entry to Central European Free Trade Area (CEFTA). Shortage of Capital Prevalence of Barter Unrealized wages

Social factors: Socialistic mindset & first shot at privatization Hardcore Christian following

Technological factors: Outdated equipment Legal Factors:

Legal framework under development: 1st initiative towards economic reforms Not part of Central European Free Trade Area (CEFTA) or EU

South Africa(2002) Business Alliance with Iscor

Imperative: Access to Southern Africa Access to Asia/America’s

Entry Mode: Business assistance deal To provide business assistance over a three-year period in exchange for Iscor shares - provided certain cost-saving thresholds were met

PESTEL Analysis: Political: South African government's growth objectives in the

manufacturing sector, Legal: Approval from the country's Competition Commission

Speed: Mittal Group took control of Iscor in June 2004

Czech Republic(2003) Acquisition of Nova Hut

Imperatives: Consolidate in Europe Bordering Germany

PESTEL Analysis:Political: Multi-party parliamentary representative democracy since 1993Economic: Growing since formation Focus on privatization Achieved developed nation status in 2006

Entry Mode: Bought from the government

Speed: Nova Hut-largest steel producer in the Czech Republic

USA(2004) Acquisition of International Steel Group(ISG)

Imperatives: Global Presence Access to ISG spread

Developing the Value Chain: Combined Entity: Around 30% of its assets in North

America, 30% in Europe and the remaining 40% split between Asia and Africa

Entry Mode: Acquisition of ISG

Speed of Market Acquisition: Created the world's largest steel maker

Macedonia(2004) Acquisition of Skopje

Imperatives: Add to downstream activities Strengthen the position as the leading steel producer in

Central and Eastern Europe

Expanding Business Scope: Hot strip mill has a capacity of 1.2 million tonnes Cold rolling mill a capacity of 1 million tonnes

Entry Mode: Skopje, Macedonia acquired from Balkan Steel

Bosnia-Herzegovina(2004) Acquisition of BH Steel

Imperatives:Consolidate Eastern Europe Presence

Entry Mode: Controlling stake in Bosnia's BH Steel purchased in a deal approved by the government of Bosnia-Herzegovina LNM will replace the Kuwaiti Investment Agency as BH

Steel's majority owner

Poland(2004)Aquizition of Polskie Huty Stali

Imperatives: Unique product-line -wide variety of flat products Location advantage to Europe

Entry Mode: Purchase from government

Speed: 70% of Polish steel production. Acquisition transforms the group into the leading steel producer in central and Eastern Europe

China(2005)Acquisition of stake in Hunan Valin

Imperatives: Entry into China

Country Evaluation:Government Role: Foreign ownership restricted to minority Firm’s Strategy, Structure & Rivalry:

Enter China through JV Large No. of small producers

Demand Conditions World’s largest producer & consumer of steel

Related & Supporting Industries Adequate Infrastructure

Factor Conditions: Plant in operational mode Access to large DRI Facilities

Entry Mode: JV with Hunan Valin

Speed: Hunan Valin is amongst top 10 steel producers in China

India(2005)JV with Jharkhand Government

Imperatives: Entry into India

Country Evaluation:Government Role: Foreign Investment welcomed Firm’s Strategy, Structure & Rivalry:

Large Investment to counter delay Large No. of small & large producers

Demand Conditions World’s fastest growing economy Focus on infrastructure

Related & Supporting Industries Poor Infrastructure Support industry not developed

Factor Conditions: Limited Plant in operational mode Access to large DRI Facilities

Entry Mode: JV with Jharkhand Government for $9 Billion

Ukraine(2005)Acquisition of Kryvorizhstal

Imperative: Enter Ukraine Market Tap more than one billion tonnes of iron ore resources

Entry Mode: Bought Public auction in from Ukraine Govt.

Speed: Kryvorizhstal is Ukraine's leading steelmaker

Liberia(2005)Mining agreement with government

Imperatives: Access to West Africa One billion tonnes of iron ore resources

Entry Mode: Mining agreement with Liberian government

Global Integration

ACQUISITION OF ARCELOR STEEL(2006)

Mittal Steel Arcelor acquired for $32.9 billion in cash & shares

ArcelorMittal key financials for 2007 show revenues of US$ 105.2 billion & 10% of world steel production of 116 million tones

As of May 17 2008, the market capitalization of ArcelorMittal was $144.37 billion

LNM Group’s ApproachHighlights

Buy distressed steelmakers, with a view to geographically diversify the acquisitions

Apply basic modern management principles and techniques to run them profitable

Employ a core team of experts, moving them around from one location to another, to implement cost-cutting measures, marketing changes and market reorientation

LNM Group’s Approach DNA Transfer

In Mittal’s words ”The Next step for a business leader is to communicate one’s aspirations to the workforce, especially those who have only known government bosses. The trouble with states owning businesses is that the workers can’t see any direction. When we go in we communicate and show leadership. When people can see which direction the leaders are going in it becomes easier to motivate them.”

Value Chain OptimizationApproach

Three factors set Mittal Steel’s management approach apart from that of its peers:

its knowledge sharing programmeKnowledge Management Programme(KMP) This kind of expertise is now being exported around Mittal’s far-flung plants through a process of forced and shared learning. Incorporates:

Monday Meeting: At strategic Level Tuesday Meeting: At Operational Level ‘e-room’: If a plant is having a particularly tricky problem, it will

post details in an ‘e-room’ — an internal online noticeboard. Managers all over the world are then expected to come up with solutions

its commitment to technology leadership

its encouragement of talent at every level.

Global Competitive Advantage First is creating a global

customer base and thus being better able to predict market trends.

Second, the company has a strong manager integration program - an approach that "is unheard of in the steel industry. We have people getting together and talking about how they can improve processes."

Third is global purchasing power

Learnings

Capability: Ability to be flexible Maintaining a global employee Mixture of nationalities and the

cultural mix

Learnings Focus entirely on integrated production Enhance speed of entry by buying leading player in

domestic market Buy from government to minimize opposition Build political affiliation & support Build investor support Remove backend & front end voids Enter & consolidate Multiple sources of revenue to hedge risks