Mittal: A better manager than rivals
Mittal's secret of success lies in his unique global-local ways of thinking, according to industry experts.india Updated: May 19, 2006 14:51 IST
Lakshmi Mittal, who finally launched his takeover bid of Arcelor, has been a better manager of globalisation than his rivals, and his secret of success lies in his unique global-local ways of thinking, according to industry experts.
With its success in turning around sick steel companies in eastern Europe, South Africa, the United States, Mexico and the Caribbean, Mittal Steel has demonstrated a unique global-local way of thinking and doing business, according to a feature in the June issue of CNBC European Business, a leading magazine on European business.
According to an advance copy made available, Mittal Steel has assured it will change little at Arcelor and has stressed that its main focus is to generate savings from economies of scale and Arcelor's superior distribution channels.
Mittal has also reportedly assured that the combined company's headquarters will be based in Luxembourg, Arcelor's current base. The feature, by Justin Keay, includes an interview with Roeland Baan, CEO of Mittal Steel Europe.
The best example of Mittal's success story was in the former communist world, where in Kazakhstan in 1995, LNM Holdings, as Mittal Steel was then known, made the first of what would eventually be many acquisitions of clapped-out, former state-owned steel plants, the writer states.
The magazine quotes Chris Beauman, steel specialist at the European Bank for Reconstruction and Development (EBRD) in London, as saying that Lakshmi Mittal had the foresight to invest in a 'resolutely un-sexy product' when prices were low and the rest of the corporate world was caught up in the dotcom frenzy.
"At a time steel had most businessmen running in the opposite direction, Mittal quietly developed a technique of turnaround. Other firms, especially those created out of former state-run entities, simply did not have the techniques, management or strategy," Beauman says.
Beauman says Mittal's genius was finding a gap in the market and having this rewarded by the subsequent rise in global steel prices, caused largely by India and China's ongoing economic boom.
"His core business has not been so much in making steel as in turning steel businesses around," says Beauman.
Another example was Romania's vast Galati steel plant, which occupies one-quarter of the area of the town of Galati in eastern Romania. In November 2001, LNM bought the mill - by then called Sidex - for $360 million a privatisation in which it was the only serious bidder.
"Today, despite the inevitable stray dogs - which are still almost everywhere despite regular government-sponsored cullings - and the occasional fog as coke is burned, the plant bears little resemblance to the sorry state of five years ago. New systems and a strong cash flow - facilitated by a $100mn EBRD loan - enabled much-needed technological investments, allowing output to be increased almost immediately.
"Losses of $1mn a day have been turned into profits of $1mn a day, with the plant now accounting for three percent of Romania's GDP and five percent of its exports, new markets having been found in Turkey, the EU and domestically, where the plant now has 75 per cent of the domestic flat products market", the feature says.
In Galati, new restaurants, bars and car dealerships have opened over the past five years, reflecting the prosperity the plant has bought. Mittal Steel paid for the rebuilding of a whole village devastated by floods in 2004, built a church just outside the entrance to the plant and has been an avid supporter of the local football club.
KAP Singh, CEO at Galati Steel, told the magazine:
"Wherever Mittal Steel goes it's a happy story - we think globally but never forget the importance of the local context and of promoting local talent. I don't think anyone here sees us as outsiders on the take. Our experience here has been win-win for everyone."
Roeland Baan, CEO of Mittal Steel Europe, who has been one of the firmest advocates of the takeover bid for Arcelor, says that Mittal Steel's core philosophy is consolidation.
"You need to look at the broader philosophy of steel, where consolidation really is key. We saw that these units were run inefficiently and without proper market focus, therefore we realised the only way to turn them around was to change this.
"Kazakhstan was our first purchase: this was a mill where no one saw potential, yet it has been a big success. We then moved on to our other acquisitions, all of which had the same core philosophy behind them.
"Our core philosophy is consolidation: this will keep guiding our actions".