Lakshmi Mittal and the Growth of Mittal Steel

Topics: Mittal Steel Company, Arcelor Mittal, Arcelor Pages: 7 (2455 words) Published: June 23, 2013
Lakshmi Mittal and the Growth of Mittal Steel
with the right margin and 1/2" from the top. It's highly advisable that you type your last name just before the page number Case study: Lakshmi Mittal and the Growth of Mittal Steel
Mittal Steel began in the early 1970’s as a small, family owned company, based in India. However, due to a range of restrictive government regulations and tough competitiveness from SAIL (a state-owned firm) and Tata Steel (a large privately owned firm), Mittal Steel believed that the best projection of growth of the company would transpire outside of India. In 1975, Mittal Steel began expanding across national borders by creating and building a steel making plant in Indonesia. Mittal Steel was able to expand into different nations through mergers and acquisitions. At the time of Mittal Steel’s foreign expansion, the steel industry was in the midst of a 25-year slump. The 25-year slump caused many companies to go under distress. Lakshmi Mittal (the CEO of Mittal Steel) saw value in the distressed companies and believed that they could be feasible operations through a move toward greater efficiency and with an injection of capital. On the contrary, Greenfield Investment took a different route by building similar operations from the ground up, which was proven to be more costly. By avoiding the start-up-phase, Mittal Steel was able to avoid delay and take advantage of the benefits that come with a recognized market presence. Mittal Steel brings many benefits to the countries that it enters. For instance, its presence in a foreign market is deemed beneficial as it focuses on acquiring distressed companies and ameliorating them. However, it is important to note that that was not the case for Arcelor, Mittal Steel’s most recent acquisition. The management and politicians were opposed the concept of a foreign firm taking over an organization that was important to the European market. Due to the recent global economic crisis, Mittal Steel may find drawbacks in countries where other companies are now susceptible to companies like Mittal Steel. Furthermore, Mittal Steel is interested in distressed companies where it can fix them and gain capital. 2

In 2007 a controversial merger between Mittal Steel and Arcelor closed, creating ArcelorMittal. The merger was the brain child of Mittal CEO, Lakshmi Mittal and his son, Aditya. Under Lakshmi’s leadership, the family-owned Mittal Steel had grown from obscure origins in India to become the largest steel company in the world. The story dates back to the early 1970s. At that time, the family-owned company was facing limited growth opportunities in India. Regulations constrained expansion opportunities, and Mittal was facing competition both from a state-owned rival, SAIL, and a private national champion, Tata Steel. So Lakshmi’s farther financed his son, helping him to set up a steel making plant from scratch in Indonesia in 1975. To reduce costs in his Indonesian plant, Lakshmi did not smelt iron ore, but instead directly purchased reduced iron pellets. His supplier of these pellets was a struggling state-owned steel firm in Trinidad. Impressed by Lakshmi’s success in Indonesia, in 1975 the Trinidadians asked him to turn their firm around under a contract. Mittal set up another company to run the Trinidad plant. In 1989, after a successful turnaround, Mittal purchased the Trinidadian plant in its entirety. Now the company that had been born in India had two major foreign operations, but that was just the beginning. The global steel industry had been in a slump for a quarter of a century due to excess capacity and slow demand growth as substitute materials replaced steel in a number of applications, but Lakshmi saw opportunity in purchasing the assets of distressed companies on the cheap. His belief was that the global steel industry was about to turn a corner, driven in large part not only by sustained economic growth in developed nations, but also by...
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