Mission, Vision and Goals of Mittal Steel - Essay Example

Mittal Steel History Started in 1989 with the acquisition of Iron and Steel Company of Trinidad and Tobago, Mittal Steel is now the world's largeststeel producer. They have led the consolidation of the world steel industry by pursuing an acquisition programme on the belief that in order to have the range and quality of products needed for the global market they must have the scale and worldwide presence to do this competitively. Mission, Vision and Goals Strategic Business Units Mittal Operates on a regional business unit structure. The three main units are Americas, Europe and Asia/Africa. Within each of those units they are broken up into country operations. Their strongest regional operations are located in the Americas and Europe, with most of their European operations situated in Eastern Europe. Strategic event Mittal steel announced a hostile takeover bid for its nearest rival Arcelor steel. Mittal has lead consolidation in the world steel industry and their strategy emphasises size and scale and well as product diversity and quality. This acquisition satisfies all those elements of their strategy. Since Arcelor is not only a very large producer, which would add to the size and scale of Mittal's operations but also a producer of high value steel which is not a strength of Mittal Steel, this would satisfy the range of product diversity and quality which they desire. External Environment Industry Analysis The steel industry has in the past largely been dominated by domestic countries that supplied steel to their market and then exported an excess overseas. Recently however this has drastically changed. Industry Trends Going Global: The steel industry has now become a largely global industry as opposed to a domestic one, especially in with the emergence of Mittal steel which is built on acquisitions and companies such as Arcelor and ThyssenKrupp now actively pursuing acquisitions. According the Economist (2005, 72) "Until these deals, steel had largely been a national business, with America's traditional integrated producers serving chiefly the domestic market. The international steel business consisted of export trade, rather than the ownership of assets in several countries. The emergence of Arcelor and Mittal has changed all that, with steel groups that have an increasingly global dimension." Consolidation: Recent acquisitions and the new global nature of the steel business have helped to consolidate the industry. Instead of being fragmented, many companies, Mittal included have sought to achieve success through size and scope. The Economist (2005, 72) notes that, "the global industry will come to be dominated by a handful of big groups with production of around 100m tonnes a year." Privatisation: Many Eastern European governments in particular have privatised major industry, allowing for easier consolidation in the industry. Mittal itself was about to take advantage of this by purchasing major steel operations from Poland and the Ukraine. China: China's capacity for steelmaking has increased from 11% in 1994 to 25% of the world total in 2005 (Economist 2005, 72). While demand has gone up in the world and China in particular for steel, the worry is that if demand in China goes down they will export their steel and flood the market. PEST Political Anti-Competition Policies The EU has the right to make anti-trust allegations regarding the merger of Arcelor and Mittal. There is pressure from especially the French government to prevent this merger. Economic Market Trends The consolidation of the steel industry has brought about many cost efficiencies and has allowed Mittal in particular to become vertically integrated. According to D'Costa (1999, 13), the emergence of low cost firms makes sense because, "Most processing technologies connected with steelmaking were and continue to be characterised by strong economies of scale. Add to that the fact that large amounts of finance are needed to implement best-practice techniques on scales that yield the lowest cost, and that steel is a major input in most capital goods and is likely to experience strong ups and downs in demand, the need for large firms in the industry becomes a matter of sheer common sense." Automotive Industry The automotive industry in the US used low value steel as an input in most vehicles, which is good for Mittal which has a strong presence in the US market. European automakers however use mainly high value steel as an input. By merging with Arcelor, Mittal hopes to gain access to the high value markets, in particular the auto industry. Social Consumer Demand Demand for steel has been steady as it is an input for most consumer products and is used heavily in construction. Demand has grown very strongly in the Asian market. Mittal hopes to move into this market in the near future. Technological Modern Steel Making Technologies Companies like ThyssenKrupp have invested heavily in new steel technologies and see their advantage to be the superior technology they have in the process. However companies such as Mittal have thrived by focusing on low cost and low value markets where being a cost leader is their main advantage. Mittal has been upgrading its acquisitions that use old technology in order to increase their economies of scale but it will be a slow process getting all their technology updated as companies such as Nippon Steel and ThyssenKrupp have a head start. Opportunities and Threats Opportunities The Asian market in particular China has become a huge market for steel in recent years. While some of the larger players in the industry Arcelor and Mittal have not yet tapped the Asian market to its full potential there are huge opportunities there. Further opportunities may exist in the industry for consolidation, as well as vertical integration, allowing companies to save on costs. Threats While the Chinese market is an opportunity it could also pose a threat to players in the industry. Chinese steel companies are currently producing mass quantities to feed their market, however if the Chinese market slows down the market could be flooded with low cost steel exports from China. Porter's 5 Forces Competitor Analysis Arcelor Arcelor is the number 2 steel producer in the world, earning 32 billion euros in 2005. They are the number one steel producer in Europe and Latin America. They specialise in producing high value steel which is used in the automotive, construction and appliance industries. Nippon Steel Corporation Nippon Steel is a major competitor in the Asian market where Mittal seeks to expand. "One of the world's largest steelmakers with nine steelworks and one processing works, Nippon Steel can satisfy the diverse needs of the construction, automotive and many other industries through constant technical innovations, product diversification and sophistication (Nippon 2006, 1). Their specialties are the automotive and construction industries, which is where Mittal seeks to capture the market. ThyssenKrupp ThyssenKrupp is a large German company that makes a wide variety of construction materials. However one of their strong points is the steel industry, "ThyssenKrupp Steel concentrates on flat steel products with strong growth potential and high value added. And the company is part of the international elite. We are a major global player in carbon flat steel" (ThyssenKrupp 2006, 1). ThyssenKrupp concentrates on new technology and not on being a low cost leader like Mittal. However as Mittal seeks to get into the higher end market and enter the western European market ThyssenKrupp will become a major competitor. Market Analysis Existing Markets Americas Mittal Steel's operations in the Americas are located in the United States, Canada, Mexico and Trinidad. The region generated revenue of $6.6 billion, up from $4.1 billion in 2003 (Mittal 2006, 1). Mittal is very strong in the Americas region with large production facilities and a huge presence in the region. Their main competition in the Americas has been a heated battle with Arcelor in Brazil. Europe With operations in France, Germany, Poland, Czech Republic, Romania, Bosnia and Macedonia, Mittal Steel is Europe's second largest steel producer - and the number one in quality long products. Revenue increased from $3.8 billion in 2003 to $9.9 billion in 2004 (Mittal 2006, 1). However Mittlal's operations in Europe are behind those of Arcelor which has a stronghold in the region, Mittal's current operations in Europe have been expanded by the Purchase of Polskie Huty Stali, the largest Polish steel company which made them the largest producer in Central and Eastern Europe (Mittal 2006, 1). Africa Mittal Steel is the largest steel producer in Africa. In 2004, the Group took its holding in Iscor, South Africa's leading steel producer. As with other regions in the world Mittal has become the largest producer in Africa though an acquisition, they are still trying to integrate the two companies and have made several investments in technology updates and are trying to streamline activities in their new operation (Mittal 2006, 1). Mittal also has a large operation in Algeria, which has a steel-making capacity of 2 million tons a year. The plant has its own captive iron ore mines and dedicated port facilities, connected by rail to the plant (Mittal 2006, 1). Asia Mittal has very limited presence in the Asian region, as one of the biggest steel markets in the world; Mittal definitely has plans to expand into the region. Currently the only presence they have in Asia is a recent share they acquired in a large Chinese steel company. It agreed to acquire a 37 per cent holding in Hunan Valin Steel Tube and Wire Co in China. However, if the acquisition of Arcelor goes ahead Mittal have plans to enter the Asian region in a big way. Future Markets China According to the Economist (2005, 72) "Steel today is dominated by the economic explosion that is China. The country now produces and consumes more than a quarter of world steel output. China's soaring demand lifted the whole industry out of the doldrums in late 2003. At the time, America was imposing import duties to stop meltdown in the mid-west as one American steel company after another toppled into bankruptcy. As China sucked in every available tonne, prices soared." The Chinese steel market has been huge in recent times and currently the market is very fragmented, served by many different companies. It is a huge growth area that Mittal is keen to get in on. Current Relative Positioning Mittal steel is currently positioned as the world leader in the steel industry with strong presence in North America, Eastern Europe, and some operations in Africa. Currently Mittal produces lower grades of steel and has succeeded in developing markets. Future Positioning If Mittal successfully completes its planned acquisition of Arcelor then they would produce 10 percent share of the steel market which would be nearly three times of what its nearest rival produces. The acquisition of Arcelor would also give Mittal a strong foothold in Western Europe and in the high value steel market. Mittal feels that by combining with Arcelor they may also be able to get a foothold in Asia, especially China, where neither country has extensive operations at the moment. Value-added Mittal steel is a historically low value steel company. They excel in markets in the Americas and Eastern Europe which is where they've been most successful with their acquisitions. The acquisition with Arcelor would change all that, Arcelor's main competency is in the high value steel market and their main market is Europe. In short the acquisition would fill the gaps Mittal has in becoming a truly global steel company. Also Mittal feels that they would gain synergies from the deal and finally be able to be a truly global company. After the acquisition Mittal feels they would have three times the capacity of their nearest rival, this would make them by far the largest steel company in the world. Corporate culture Mittal stresses a culture of continuous improvement and personal development. At the employee and management levels they have 4 main areas they focus on: Accountability - Management at each operation is held accountable for running the business and delivering results. Open communications within a team approach - Openness and the sharing of information across functions and geographic boundaries are encouraged: the value of diverse ideas is recognised. Empowerment - Those closest to the point of action are encouraged to make decisions. Managers are responsible for building the skills of their teams. Individuals perform best when they self-manage and delegate effectively. Continuous improvement - Constant learning is supported by the Group-wide Knowledge Management Programme. Source: http://www.mittalsteel.com/Company/Careers/ In addition they have two main programmes to facilitate continuous improvement, the Continuous Improvement Programme at the corporate level and the Knowledge Management Programme at the group level. The continuous improvement programme's goal is to "support local business unit management to identify high potential areas on which to focus additional effort and resources in order to accelerate improvement in performance. Once the priorities are determined, multifunctional teams are formed at the local level, supported by corporate Continuous Improvement managers, to gather and analyse key operational data, develop improvement plans and manage implementation" (Mittal, para. 3). The programme has largely focused on productivity improvements and removing bottlenecks that can limit output at various sites. The knowledge management programme focuses on functional areas needing improvement such as: "procurement, health and safety, and marketing as well as all the main steel producing and processing steps. Shared benchmarking information highlights performance gaps while the meetings provide an opportunity for managers to seek advice and input from colleagues at other business units - or detail successes that may be applicable to other business units" (Mittal, para. 10). Mittal's corporate culture fits in with their overall strategy in that they are a company who thrives on acquisitions, acquiring companies and improving them to fit in with their overall business. By constantly improving and streamlining their own processes and encouraging employees to be accountable, innovative and constantly improve they feel they can better integrate new companies and take advantage of synergies, and consolidation. Culture and Mergers The importance of corporate culture cannot be underestimated in a merger or acquisition. According to Dolle, the CEO of Arcelor, ""..75% to 80% of mergers fail because of cultural differences" (Time 2006, 1). Especially in the case of a hostile takeover it is essential that the two corporate cultures be able to merge in order to make transitions more smooth and for the newly formed company to function as one. Key Stakeholders Competitors Mittal's main competitors are: Arcelor, Nippon Steel Corporation, and ThyssenKrupp. While Mittal is currently leading the industry, it faces increasing competition from its competitors. ThyssenKrupp is currently in the process of bidding for Canada's largest steel company which would greatly increase their capacity. Nippon Steel is very strong in the Asian market which Mittal has virtually no presence in at the moment, and could be a very fierce competitor when Mittal tries to enter that market. Arcelor is Mittal's nearest competitor and should their takeover attempt fail competition between the two firms will be fierce. Suppliers Mittal steel is a very vertically integrated company. This has given suppliers less power than normal over the firm. According to the Mittal Annual Report (2004), "The combination of upstream and downstream facilities provides a hedge against price fluctuations and permits a steel-maker to better manage market volatility. In addition, its downstream presence has enabled Mittal Steel to get closer to its end-customers, better understand their requirements and build a better brand presence." Shareholders Currently the Mittal family holds approximately 88% of the company's stock and so is not beholden to a large group of investors. However according to Time (2006, 1) "The family's current holding of 88% of Mittal stock is set to drop to just above 50% if the deal is concluded." This would give many large shareholders a bigger stake in the firm and would change the dynamics of the firm. Labour Unions Labour unions are in major opposition to the merger of Arcelor and Mittal. They feel that Arcelor workers would lose their jobs and in Western Europe unions have huge influence. Even if the merger does not go through and Mittal seeks to enter the Wester European market they will have to contend with unions. In addition a large number of their workers in their American operations are represented by powerful labour unions, so they are a key stakeholder of which Mittal must be aware. Government The opposition from governments regarding Mittal's proposed takeover of Arcelor has been an issue, as particularly the French government is opposed to the merger. According to Time (2006, 2) "Mittal had to move fast last week to counteract attempts in parts of Europe to paint him as a villain. He spent most of the week shuttling in his private jet from European capital to European capital, including three trips to Paris, to explain his motives and promise he wouldn't cut European jobs. Governments have limited formal means to stop the Arcelor deal, as 85% of the company is traded freely on the stock market. Nonetheless, they and labour unions can make life hard for Mittal, who still needs to get E.U. antitrust clearance for the deal." While there have been no formal anti-trust allegations, the EU reserves the right to file some and political pressure to do so could be brewing especially from France and Luxembourg, whose government is a major stockholder in Arcelor Conclusion Mittal has taken the steel industry by storm. Starting with the takeover of Trinidad and Tobago steel in 1989 they have continued their buying spree and have made themselves into the largest steel producer in the world. However they have not reached their goal of being a truly global producer and a one stop shop for steel. In order to do this they must capture not only the high value steel market but become a presence in Asia, especially China. With the proposed takeover of Arcelor their nearest competitor they come much closer to this goal. Arcelor would give them exclusive access to the western European market, and allow them to expand their capacity in order to move into the Asian markets. References Barney, J. 2006. Strategic Management and Competitive Advantage: Concepts. London: Pearson Business: Forging a new Shape; Steel Industry. The Economist. December 10, 2005. http://proquest.umi.com.ezp01.library.qut.edu.au/pqdwebdid=940315751&sid=4&Fmt=3&clientId=14394&RQT=309&VName=PQD (Accessed 21 April 2006). D'Costa, A. 1999. The Global Restructuring of the Steel Industry.London: Routledge. Grant, R. Contemporary Strategy Analysis. 2005. Malden, MA: Blackwell Gumbel, P. Nerves of Steel. Time Magazine, February 5, 2006. http://www.time.com/time/europe/magazine/article/0,13005,901060213-1156507-1,00.html (accessed April 19 2006). Mittal says Arcelor deal would create 115 million mt steel producer. Platt's International Coal Report, February 20, 2006. http://proquest.umi.com.ezp01.library.qut.edu.au/pqdwebdid=998231631&sid=2&Fmt=3&clientId=14394&RQT=309&VName=PQD (accessed April 20 2006). Mittal Steel. Annual Report 2004. 2004. http://www.mittalsteel.com/Investor+Relations/Annual+Report+2004/ (accessed 21 April 2006). Nippon Steel. Nippon Steel website. 2006. http://www0.nsc.co.jp/shinnihon_english/jigyo/index.html (accessed 21 April 2006). ThyssenKrupp. ThyssenKrupp website. 2006. http://www.thyssenkrupp.com/ (accessed 21 April 2006). Yahoo Finance. 2006. Steel Industry Analysis http://finance.yahoo.com/q/ins=MT (accessed April 20 2006). Read More