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  1. Submitted By:- Group 7 Mandeep Nain (08EM-020) Rahul Gossain (08EM-032) Sanjeev Agarwal (08EM-037) Shobhit Yadav (08EM-041) Uday Singh (08EM-049)

  2. 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

  3. 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)

  4. How global is an industry? How global is an industry = Annual value of trade (include components) Annual value of industry sales

  5. 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

  6. Building Global Enterprise Strategic Choices Value Chain Configuration Measuring Value Chain Optimization Imperatives Global Competitive Advantage Global Presence

  7. Mittal’s Multidomestic – Integrated Manufacturing Strategy Global strategy Multidomestic strategy Transnational strategy High United States Middle East/ Africa Asia Central Europe Latin America Europe Need for Global Integration Central Resource Pool Low Low High Need for Local Responsiveness Mittal GroupStrategic Choice

  8. Building Global Presence Growth Strategies

  9. 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 – Cost NPV to B= Cash – PV(B)

  10. Mittal Steel The Growth Roadmap

  11. 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

  12. 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

  13. Mexico(1992)Acquisition of Sibalsa Imperatives: • Access to North America Country Evaluation: Government Role: Privatization focus & Mexican Finance Minster 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

  14. 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

  15. 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

  16. 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

  17. Evolution of Mittal’s Transnational – Integrated Manufacturing Strategy Global strategy Multidomestic strategy Transnational strategy High Asia United States Middle East/ Africa Central Europe Latin America Europe Need for Global Integration Central Resource Pool Low Low High Need for Local Responsiveness Mittal GroupStrategic Choice

  18. 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

  19. 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

  20. 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

  21. 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

  22. 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

  23. 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

  24. 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

  25. Romania(2001)Acquisition of Sidex Imperatives: • Supplies to Germany/Europe Country Evaluation: Government Role: Active role of government: Sidex to be precursor to Romanian privatization 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

  26. 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

  27. 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

  28. Czech Republic(2003)Acquisition of Nova Hut Imperatives: • Consolidate in Europe • Bordering Germany PESTEL Analysis: Political: Multi-party parliamentary representative democracy since 1993 Economic: • 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

  29. 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

  30. 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

  31. 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

  32. 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

  33. 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

  34. 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

  35. 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

  36. 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