Success Story - Lakshmi N. Mittal

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Karmayogi

Laskhmi N. Mittal chats with Business Week (28 August 2000)

Q: You have set up a company with operations around the world. Up to this point, though, there haven't been too many others that have done likewise. Do you think that will happen?
A: It has already started happening in Europe. Some companies have extended their operations in Latin America; they have extended their operations in Europe. Some of them also have smaller operations in the U.S. American companies at least have started thinking about this. There is some change.

In my opinion, the American companies never needed to look abroad because America has always imported 20, 30, 40 million tons of steel every year. They see there is still a lot of opportunity for growth here. So why go abroad and invest? U.S. steel companies remain regional, not even national.

Q: But U.S. companies in many other industries are truly multinational. And many of the companies that steel companies sell to--the car companies--are leading proponents of globalization.
A: If our customers are becoming global, there's a need for steel companies to do likewise. Otherwise, we will not be able to serve our customers well. If Ford Motor or General Motors have operations in 15, 20 different countries around the world, and if their suppliers are not with them as global suppliers, they are not serving them well enough. Also, some of our major suppliers have consolidated and become global businesses. With e-commerce, the world is becoming smaller, and things are becoming much closer to each other.

Q: What specific advantages accrue from being global?
A: We have seen that as we are becoming global, we are becoming much more efficient, much more productive; we are able to reduce costs on a global basis. Like purchasing. We buy products through our central purchasing system, in Europe. They're able to aggregate our demand. We are able to have stronger muscle power to negotiate with our suppliers.

On the operation side, as a global company, we are able to exchange our knowledge and experience at different companies around the world. If you look at our shareholder-value creation, the steel industry has earned only a 4% return on capital in the last 10 years. Many other industries have earned much more than 4%. They have consolidated. Their top 10 producers produce 85% of world output. The top 10 steel companies produce only 25% on a global basis.

Q: Are you done building?
A: No. As a group, with 20 million tons of annual production, we are hardly 2.5% of the world's production. The world's largest steel company [South Korea's Pohang Iron & Steel Co.] is 3% or 3.5%. So there is a long way to go. This is a continuous process. I don't think we can ever say ''Enough.''

Q: Are there particular geographic gaps that you are looking at filling?
A: Yes. Today, we are not present in emerging markets like South Korea, Philippines, Thailand. The Middle East may also offer opportunities for the future. So we will really have to expand our geography, as well as to consolidate in our existing regions.

Q: Do you see any new markets for steel?
A: We are fully cognizant of the developments that are taking place with steel substitutes. So that's why we are continuously working on reducing costs for the customer and delivering them better and better products. There are discussions all the time about aluminum as a substitute for steel. We need to be concerned about this, but we don't need to be afraid about it.

Q: So you're not worried that the automotive industry, which is one of your primary customers, is going to be building cars out of aluminum?
A: I don't think it would be possible for them to replace steel to a large degree. Maybe there could be some shift by a couple of percent. But I don't think it would make a big difference to the steel industry.

Q: Are there one or two other steel companies that you think are doing very well and that you'd like to emulate?
A: We are a unique company. We have set the pace for globalization. We are the truly global company. I do not see any other steel company that we need to emulate in terms of globalization.

Q: What about in terms of production? Are there any other companies beside Ispat that you think are doing well these days?
A: I think there are companies that are doing well. There are some American companies that are doing well. In Europe, you will also find a few cases.

Q: Any you would name?
A: No.

Q: If you had to describe the steel industry five years from now, what do you think it would look like?
A: In five years, I definitely see more consolidation, more globalization. And we will see at least four or five steel companies emerging [each] with 40 or 50 million tons of steel capacity. We will see some shakeout. I think some U.S. companies will adapt. Others will be left behind. Of course, in any race, there are only one or two winners.

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