The Inspiring Story of Lakshmi Mittal

Prof Venkatesh GanapathyApril 2014

Lakshmi Mittal HUMBLEMIDDLE CLASSBACKGROUND

INDIAN ENTREPRENEUR

JOINED FORBES LIST OF WORLD’S RICHEST TOP TEN BILLIONAIRES

CREATED ARCELOR MITTAL – THE BIGGEST STEEL COMPANY IN THE WORLD , WORTH OVER 100 Billion pounds.

Family background

• Born in 1950 in Sadulpur, Rajasthan.• Eldest of 5 children • Named Lakshmi, after Hindu Goddess of

Wealth• His father – job in a small British steel

company• Lakshmi Mittal – brilliant in accounting and

mathematics

How inspiration turned into passion

• Lakshmi Mittal fascinated by steel manufacturing

• Fascination …… Passion• Early in his career, Mittal handled Ispat’s steel

exports to SE Asia and Middle East• Started his company at age 26.• First steel mill in Indonesia – 26000 tonnes

steel, annual profit $ 1 m.

Indonesia , 1975

• Mittal went to retail market in Indonesia• Looked at the prices of bars and rods• Realized that there was a good margin in

business• Dealt with Japanese competition by building a

mini mill with DRI technology in Indonesia

Problems with funding..

• Mittal had no cash to build a plant in Indonesia.

• Even if he had cash, Indian Government would not have allowed him to take the rupees abroad.

Solution to funding problem…

• Mittal discovered that India had a scheme by which he could invest overseas.

• Purchase equipment & building materials in India, export them to Indonesia

• Indian government would lend him 85% of cost of equipment and building materials as a loan.

• He got a $ 3.7 million loan from Bank of India

In the first year itself…

• Mittal made a profit of $ 1 million in Indonesia.

• Japanese started pulling out of Indonesia.

Supplier monopoly

• Mittal was banking on one supplier in West Java for Direct Reduced Iron(DRI) and scrap needed for the furnace.

• Years later, he ventured into Trinidad and Tobago – Caribbean countries as they were supplying DRI.

• Iron and Steel company of Trinidad and Tobago (ISCOTT) were making losses. It was a state owned mill.

Mittal told the politicians…

• “ Your company is losing $ 10 million every month. Give me the management and I will pay you $ 10 million every month”.

Think Local, Act Global

• Lakshmi Mittal determined to make his company a global one so that it could be a major player in the steel market across the globe.

• Targeted International Business efforts in Canada, Germany & then to Kazakhstan.

Kazakhstan

• Ninth biggest country in the world• Country rich in natural gas, petrol, coal, gold

and diamonds• Rich in minerals• Bordered by China.

Location decisions - sharp

• Former Soviet Republic – financial mess• Mittal acquired steel works in Temirtau for a rock

bottom price of $ 400 million.• Kazakhstan – shared border with China.• Demand for steel in China.• It made great business sense!• This single acquisition was a wise strategic

investment as Mittal eventually became a global steel producer with operations in 14 countries.

Intelligent decision making

• Mittal recognised the need for a strong management team for his expansion plans.

• He hired Indian managers• Doubled production• Sold to booming markets in East• Success in Kazakhstan led to big ticket

investments in the future.

When Mittal identified Kazakhstan..

• China was booming.• China wanted steel to build high rises,

highways and airports,• President of Kazakhstan decided to privatize• Low bid for the plant due to its poor financial

condition• Local tram and railway system was under loss.• Salaries of workers not paid for months.

Mittal’s strategies in Kazakhstan

• He employed Indians in Kazakhstan who could speak Russian and who had studied in Soviet Union.

• Somewhat of a regio-centric strategy.• Bought local tram and railway services• Entered into agreement with the local

government that no new environmental laws would apply to the plant for ten years from the date of privatization.

Strategies paid off when…

• Lakshmi Mittal got the best bargain for acquiring the plant in Kazakhstan

• Huge concessions including a moratorium on payment of taxes

Moratorium• A legally authorized postponement before some

obligation must be discharged

Smell of sweet success!

• Within 1 year, the Temirtau plant at Kazakhstan made profits

• Steel production doubled• 10000 miners and steel workers were able to

save their jobs• Labour was paid every 15 days.• Mittal – became so popular in Kazakhstan !

Ispat’s earliest opportunities

• One of Ispat’s first opportunities was Iscott in Trinidad and Tobago.

• 1989 – Trinidadian government sought equity partners to take over the operations.

• Mittal signed a lease for $ 11 million a year with an option to make an outright purchase after 5 years.

Iscott - challenges

• Though Iscott had a good infrastructure, bad management led to heavy losses.

• Despite measures to improve environmental performance, CIL (Caribbean Ispat Limited) faced labour unrest due to poor safety policies and slow pace of acculturation of upper management.

• Market for steel was bad• Steel replaced by substitute materials• Growing influence of plastic

Sourcing Decisions of Mittal

• Based on – Cost effectiveness– Cost effectiveness– Cost effectiveness of raw material supplies.

Lakshmi Mittal – a visionary

Spot the invisible!

• International steel industry – fragmented.• Local demand• Great need for consolidation• Lack of innovation• Steel sector characterised by over capacity,

high indebtedness, rock bottom steel prices.

2004-2006 : Mittal takes the world by storm!

• 2004 – Mittal Steel – largest steelmaker in the world – profits over $ 22 billion

• 2006 – acquisition of Arcelor steel despite competition from European players.

• Arcelor steel – a company created through merger of firms from Spain, France, Luxemborg and Belgium.

• Lakshmi Mittal’s success - the whole world noticed it!

Positive outcomes of intelligent decision making

• Increase in steel prices• Production capacity of steel increased• Mittal expanded his empire to Africa, Australia

and China.

Dampeners!

• 191 accidents in 12 years in Kazakhstan operations – absence of safety measures.

• Mittal gave donations to Tony Blair government in the UK

• Quid Pro Quo• Mittal wanted the support of Blair for

acquiring a Romanian steel plant

Personality

• Resembles somewhat like a Level 5 leader who doesn’t seek publicity.

• Always think of growth• No complacency• Outstanding vision• Entrepreneurship• Leadership & success in Global steel

manufacturing.• Indian values & ethos – can never fail you!

Sourcing Strategy

• Intention to acquire coal mines in Australia & Russia ( backward integration) for steel production.

Sourcing strategy (Cont’d)

• Mittal also invested in shipping and rail to cut transport costs.

• Aim – improve last mile supply chain delivery.

Location decisions

• Mittal had the common sense to understand that building something from a scratch would take a life time

• He chose brownfield strategy over greenfield strategy and the result was spectacular success!

Logistics decisions

• Supply chain costs rise in a recessionary mode in economy – Mittal’s challenge would have been to create a cost effective, robust and responsive and agile supply chain that could meet the dynamics of the market place.

• Decided based on infrastructure facilities• Explore transportation by shipping• Multi modal transportation as an effective

means to control costs ?

Success = ?

• Success = Hardwork + Planning + risk taking ability + intelligent decision making + eye for detail + looking at what is not visible to others.

• Mittal chose the right technology at the right time!

• Turned loss making plants into profit making ones within a year!

Mittal – an active businessman

• Member of Foreign Investment Council in Kazakhstan

• Member of International Investment Council in South Africa

• Member of world economic forum’s International business council.

• Member of International Iron & Steel Institute’s Executive Committee.

Mittal - blending into local culture!

• Successful transnational strategy - local responsiveness + economies of scale.

• HR policies ranged from geocentric to polycentric.

To sum up, what were Lakshmi Mittal’s strategies for success ?

• Acquire loss making firms and then turn them around.

• Consolidate steel industry• Use new technology (DRI)• Bargain well with loss making firms to extract

the best price• Use a different HR strategy (geocentric/

regiocentric)

To sum up, what were Lakshmi Mittal’s strategies for success ?

(Cont’d)

• Buy steel plants in locations which are close to markets that need steel.

• Example – Trinidad and Tobago were close to US and Europe ; Kazakhstan was close to China.

Expansion strategy – truly global in its outlook!

• Started from Indonesia• Trinidad and Tobago• Middle Asia• Algeria• Poland• Romania• Czech Republic• South Africa• France• China & • INDIA….!

What is the lesson from Mittal’s story?

• What the mind can conceive and believe, it can achieve!

• Be Bold• Risk taker - Fortune favors the brave!• Success despite middle class roots!