The Borderless CEO
Mittal, eldest son of Mohan Lal Mittal, who bought a tiny steel company in Indonesia in 1975, has been buying companies one after the other since 1989. His acquisitions give new meaning to the concept of a borderless company. The first company bought by the then-Ispat Steel was in Trinidad. The 15 years that have followed have taken Mittal’s company to both Eastern and Western Europe, North and Central America, northern and South Africa, and the Balkans.
What Mittal saw before most of the rest of the metals industry was that, when development hits a poor country, one of the first things it needs in large quantities is steel.
Along the way, he has become a consummate turn-around artist and an accomplished privatizer of government-owned companies. He is also one of the business world’s most fearless consolidators.
Q: YOU LEFT INDIA AT 25. WAS IT NECESSARY, AS THE FINANCIAL TIMES CLAIMS, FOR YOU TO LEAVE TO ACHIEVE SUCCESS?
A: My family owned some land in Indonesia and I initially went to negotiate the sale of this land. However, on arrival I saw what I considered to be a good opportunity and built a greenfield venture that was to become Ispat Indo. I had not been specifically planning to leave India and therefore I cannot say whether it was necessary for me to leave to achieve success. It was simply an opportunity that presented itself and one that proved successful.
That is not to say it was easy. On the contrary, those early days involved a huge amount of hard work. But we were all young and believed in what we were trying to achieve. It was a great time.
Q: YOU WERE ONE OF THE FIRST TO SEE THAT WHEN A THIRD WORLD COUNTRY DEVELOPS FIRST WORLD APPETITES, IT NEEDS OLD-ECONOMY COMMODITIES. IN THAT REGARD, HAS BEING A NATIVE OF THE THIRD WORLD BEEN AN ADVANTAGE?
A: Every economy needs steel, whether developing or developed. This is why Mittal Steel has built up a position in 14 countries on four continents in both developing and developed countries.
It is true that growth potential for steel consumption in developing countries is going to be higher, and that is why we have built up an operating presence in markets such as Central and Eastern Europe. Nowhere is there a better example of this than in China which, of course, has been the catalyst for the revival in the steel industry’s fortunes.
In terms of my own background, perhaps to some extent this has been an advantage. Certainly my experiences have led me to be very culturally diverse and look for opportunities wherever they might exist.
Q: IN 1998, THE ECONOMIST SAID YOUR STATED AIMS WERE TO BE THE LARGEST AND THE BEST MANAGED STEEL COMPANY IN THE WORLD. LARGEST IS EASY TO QUANTIFY. BUT WHAT CONSTITUTES THE BEST MANAGED?
A: Our aim has never been to be the world’s largest steel producer although this is something that we have achieved. We have, however, always believed in consolidation and globalization and in the benefits that such size and scope will bring.
Rather our aim is to be the world’s most admired steel institution. This is far more than simply being the biggest. We are striving to achieve standards of excellence in all areas of our business—steel production and processing, technological development, functional areas such as sales and marketing, procurement, corporate governance and IT and areas such as human resources, continuous improvement and knowledge integration. It is in striving for excellence in all areas of our business that we hope will combine to ensure we create a sustainable and profitable business with significant value for all key stakeholders that is admired on a global basis.
Q: THE STEEL INDUSTRY IS TRADITIONALLY SLOW TO CHANGE. HOW MUCH OF YOUR TASK IS TRANSFORMATION AFTER
A: Mittal Steel has built a reputation for our ability to turn around under-performing steel companies that we have acquired. When we make acquisitions, we look for companies where we believe we can add value over the longer term. In some instances the transformation has been substantial. Take for example Karmet in Kazakhstan bought in 1995 (now Mittal Steel Temirtau) where production had almost stopped and salaries hadn’t been paid for months. Or Sidex in Romania bought in 2001 (now Mittal Steel Galati) which had been losing $1 million per day. Both of these businesses are now profitable, viable companies and we are very proud of the way in which we have been able to guarantee their long-term future.
The amount of transformation required is dependent on the acquisition. For example we have recently completed our merger with International Steel Group in the U.S. ISG is a well established and well run business and is not a turnaround situation in the same way that many of our acquisitions in emerging markets have been. However, we still see considerable synergies between ISG and our existing business in the U.S., Ispat Inland, and will be working to capture these over the next two years.
Q: HOW IMPORTANT IS YOUR MANAGEMENT TEAM TO THE QUICK TURNAROUNDS YOU HAVE ACHIEVED?
A: Essential. We have successfully completed 15 privatizations, and numerous further acquisitions. The skills and lessons that we learn from one deal we take with us to the next. I think it is fair to say that we have an unrivaled track record of turning around under-performing steel assets.
Although each acquisition is different and throws up its own challenges we have tried and tested turnaround strategy techniques. The first step in turnarounds is to send in a specific commercial team to identify and address what needs improving. Each acquisition is different, but generally, this includes injecting essential capital to get the plant up and running again, re-establishing supplier relationships, stopping barter trade, reducing costs, increasing efficiency, exploring new markets and often regaining lost domestic market share and, finally, making significant capital investments to improve facilities and product mix. Simultaneously, the business also becomes a member of the world’s most global steel producer and benefits in numerous ways from knowledge sharing—steelmaking expertise, R&D know-how, for instance—and significant economies of scale in terms of global purchasing power, access to new sales and marketing networks.
Q: DO YOU HAVE A CENTRALIZED OR DECENTRALIZED APPROACH TO MANAGING AND DECISION-MAKING IN SUCH GLOBAL COMPANY?
A: We favor a decentralized approach. All our operations are run as independent business units. I encourage all our regional CEO’s to think like me, as entrepreneurs, and take decisions that they feel will grow and develop each of the individual businesses.
This decentralized approach encourages quick decision-making, and we have a very flexible management team that I believe is motivated by the responsibilities that they are given.
The corporate office remains in touch with the management teams on a regular basis. We host weekly conference calls on a number of issues to exchange information, and all corporate officers remain firmly in touch with what happens at all operations globally to ensure a cohesive implementation of the groups’ strategy.
Q: YOU WERE AN EARLY ADOPTER OF THE MINI-MILL STRATEGY AND OF DIRECT-REDUCED IRON (DRI). WHAT ARE THE NEXT BIG TECHNICAL AND TECHNOLOGICAL TRENDS IN THE METALS INDUSTRY?
A: Technology is, of course, very important to the industry and we are regularly investing in it to maintain and improve the technology we are using. But in terms of any major technology change that would cause a structural change in the way the industry operates, we do not see anything on the horizon.
Q: HOW MUCH LONGER DO YOU EXPECT STEEL PRICES TO REMAIN HIGH?
A: We have experienced good demand growth in the steel industry in the past couple of years. We are now experiencing a slight softening of prices, but I keep reminding people to look at this in the context of the market historically.
These are still good times for the steel industry. The challenge that we now have is to demonstrate that we can maintain this current environment.
Q: ARE THE DAYS OF THE BUYERS’ MARKET IN STEEL GONE?
A: I believe that greater consolidation in our industry will help to offer a better balance between the buyers and the sellers. Continued growth in demand and higher input costs will continue to impact steel prices.
Q: YOU HAVE BOUGHT IN GOOD TIMES AND BAD BUT HOW MUCH DOES THE CURRENT CAPITAL ENVIRONMENT INFLUENCE YOUR EXPANSION DECISIONS?
A: Our acquisition strategy is based on acquiring assets that we believe can add value over the longer term. In terms of the capital environment, this depends on whether you are using paper to finance the deal. We were fortunate in the last downturn that LNM Holdings was able to fund acquisitions through cash. In fact the company doubled in size during this period, when many other companies were going bankrupt. This is one of the reasons we believe it is important for steel companies to retain healthy balance sheets and not to be too highly leveraged.
Q: WOULD YOU EVER CONSIDER VERTICALLY INTEGRATING INTO THE METALS DISTRIBUTION BUSINESS IN NORTH AMERICA?
A: Whilst Mittal Steel’s business model is one of the most vertically integrated in the industry in terms of upstream raw material assets and downstream finishing facilities, distribution is not something that we have branched into. This, however, does not mean that we might not look at opportunities in the future if they arose.
Q: AT THIS POINT, THE WORLD’S TOP STEEL PRODUCERS SHARE ONLY ONE-FIFTH OF WORLD OUTPUT. AT WHAT POINT WILL YOU ATTRACT THE ATTENTION OF ANTI-TRUST WATCHDOGS? AND WHAT HAPPENS THEN?
A: We are a long way from that point. There are numerous examples in other industries, such as automotive and petrochemicals, where they have four or five global players with market share significantly higher than the current situation in the steel industry. They aren’t overtly affected by anti-trust watchdogs so I see no reason why the situation should be any different for the steel industry. I think we are still a long way off this even beginning to become an issue. Mittal Steel is the world’s largest producer and we still only have 6% of total global production.
Q: WHAT IS THE ADVANTAGE OF GREAT SIZE FOR A STEEL MANUFACTURER? WILL CONSOLIDATION OF THE INDUSTRY CONTINUE?
A: With size comes increased flexibility. We have detailed knowledge of all global steel markets and can tailor our production to meet specific market needs and patterns, hence better serving our customers’ requirements globally and protecting ourselves from the cyclicality of the industry.
There also are the obvious economy of scale advantages such as global purchasing and marketing power. Our continuous improvement philosophy and knowledge management program ensure that expertise is shared throughout the group in all areas of the business.
These are just some of the advantages of our size and global position. As I have said previously, it is about creating a sustainable steel industry and consolidation and globalization is our underlying strategy to achieve this aim.
Will consolidation continue? I think the answer is definitely yes. Today it is not only Mittal Steel espousing the cause for consolidation—many of the top steel producers are looking for their own expansion opportunities. I would expect this to continue and believe it is perfectly feasible that within a decade we will have a handful of steel companies producing between 80 and 100 million tons.