Global Strategic Management of Arcelor Mittal Steel Report (Assessment)

Abstract

This paper finds out the contribution of the steel industry to the construction activities and the introduction of Arcelor Mittal Steel. In addition, focus on how Arcelor Mittal has been established and its history. This paper is to find out the strategy of the Arcelor Mittal Steel industry to expand into markets based on evaluation of competitor environment from the perspective of demographic, economic, socio-cultural, technological, global, and political factors. Furthermore, a brief analysis of the industrial environment has been stated. There is also an attempt to establish a relationship with porter’s five forces model of competition with the Arcelor Mittal Steel industry.

Keywords: ArcelorMittal, competitor, environment, technology, economy, culture, demography, political issue, challenges, porter’s five forces model.

Introduction

“Steel is the most widely-used structural metal in the auto and building construction industries” (IEDC, 21 December 2007). The steel industry is to be said as the key element to improve and maintain the construction activities of a country. This industry is now in a better position because of the global demand growth and the certainty of consolidated industry. In the discussion of the steel industry, one company, Arcelor Mittal that should be named. Arcelor Mittal is now leading as the world’s largest and most global steel company, which comprises.32 million personnel in more than 60 countries. Arcelor Mittal is the result of the merger from the agreement to combine both Arcelor and Mittal steel. In 2006 the two companies reach an agreement to combine in a merger of equals (Arcelor Mittal, n.d.). Consequently, it is three times the size of its nearest competitor and maintaining its business activities in more than 60 countries. The success of Arcelor Mittal relies on gathering and analyzing the general industry and competitor environment to assess their potential for global growth and construct strategies for profitability. However, such type of success is not easy to obtain and continue because of the demographic, economic, political, socio-cultural, and technological challenges. This paper will mainly focus on how the different segments of the general environment prompted Arcelor Mittal to expand into markets and launch takeovers. In addition, it will provide a brief analysis of the industrial environment and the five forces model of competition as it relates to Arcelor Mittal.

Arcelor Mittal and its competitors

Arcelor Mittal is the leader in every major global area of automotive, construction, household appliances and packaging, R&D, and technology as well as suppliers of sizeable captive raw materials and outstanding distribution networks (Mickefett, 21 February 2008). JFE holding, Nippon, TATA steel, United States steel are considered as the main competitor of the Arcelor Mittal steel industry (ISSB, 2006).

The annual sales of the steel industry worldwide:

The above information shows the leading position of Arcelor Mittal Company in the steel industry. The total asset of Arcelor Mittal is $ 1, 12,166 mm which is ten times the nearest one. The numbers of personnel also make a difference with the other companies.

“India’s Tata Steel wants to buy a stake in PT Krakatau Steel, Indonesia’s state steel firm, and will meet for talks with Indonesia’s industry minister in the next few days” (The Economic Times, 4 May 2008). Consequently, the Arcelor Mittal and Australia’s BlueScope steel Ltd. are also interested in Krakatau steel to buy. What is the need to show such type of interest when this company is considered as the largest steel company. It is because to face and analysis the competitor environment to assess their potential for global growth. Therefore, Tata has signed an EOI with the government of Bangladesh for a $3 billion steel project on October 13, 2004. So, as a competitor, Arcelor Mittal steel now what will do? The Arcelor Mittal industry may assess Bangladesh as a non-profitable investment. The competitor may not be their concern sometimes for example Bangladesh.

The general industry consists of mechanical construction, energy, and other sources. The Arcelor Mittal analysis general industry to develop high performance and high durability materials (pipes, electrical steels). It focuses to give future solutions, which provides a breakthrough in terms of cost.

The focus of the study

There are several external factors related to competitor environment that affects Arcelor Mittal’s activities to expand into markets and launch a takeover. It is highly recommended to analyze these factor from the perspective of Arcelor Mittal’s competition.

Demographic Impact

Arcelor Mittal did know that people make up the markets and they are the key of all activities. The company expands their market according to the need of their product. The need of their product in India is not same as in Brazil because of the demographic differences. The wages for the workers are not same in Western Europe as in Latin America. The Tata Corus operates their business in India, Australia, Vietnam, South Africa, and Sri-Lanka, The US Steel in USA and Canada and Eastern Europe, Nippon in Japan and Africa and the Arcelor Mittal in India, Africa, Western Europe and North & South America. It is to be stated that the demographical advantages is existed in favor of Arcelor Mittal industry comparatively to the others. The numbers of buyers to Arcelor Mittal are the key that makes this company in their desired position.

Labor issue is one of the most significant factors that direct the demographic challenges to the company like Arcelor Mittal Steel industry. Country to country the labor cost varies and who can capture the labor market also can capture the desired market. Sometimes there may happen of labor shortage because of better facilities and wages provided by the existing competitors. In addition, this may also happen because of the demographic situation. As, in the Middle East the construction interrupted because of labor shortage and in most of the cases it is common issue.

Some of the labor shortage studies refer to the 1970 to mid-1990s period as if it was a normal period in the labor market, but it was far from that. It was a very difficult time to be an employee. Chronic and long-term unemployment of young workers in particular was common as was widespread over qualification of workers for jobs. The ups-and-downs of business cycles dominate unemployment rates, but it is telling that unemployment in the best periods from 1970 to 1995 is not far off from what it was in the worst periods from WWII through the 1960s.

Economic challenges

The companies always look for the ways to gain efficiency and develop the effectiveness by minimizing the risks and maximizing the opportunities. Many companies turned to do their business in the lower cost countries. But it is very difficult to assume the perfect balance.

As, recently, the president of Arcelor Mittal, Lakshmi Mittal has met with Bulgarian economy minister Petar Dimitrov to negotiate their potential purchase of kremikovtzi, the largest Bulgarian steelmaker company. The question may arise why Arcelor Mittal not the other steel companies though it is known that kremikovtzi are through problem. This is because the Arcelor Mittal can make it profitable. Moreover, their total asset reminds their purchasing capacity which is absence in their competitor.

Political impact

Political and legal environment has a major impact on the Marketing decision of a company and Arcelor Mittal steel industry is not out of this impact. In many cases, it has been seen that the government does not allow the equal facilities because of the relation with the company’s origin country. The political relations such as Russia-U.S.A, China-U.S.A. or China-India or so on, have a direct impact in the business activities. It influence and limits the boundaries of business. On the other hand, political issues also create new opportunities. Kotler (2003) provides an example, such as, “mandatory recycling laws have given the recycling industry a major boost and spurred the creation of dozens of new companies making new products from recycled materials” (p.174). China government will not be happy to see the activities of Arcelor Mittal in China. It may allow the competitive industry to do so but not the Arcelor Mittal Company. Mitchell, Hill and Betts (14 December 2007) states that [o]country, two systems – the much-praised formula under which Hong Kong is governed as a Chinese special administrative region – has landed executives at Arcelor Mittal, the world’s largest steel company, in an interesting predicament. Earlier this year, as it acquired a 28 per cent stake in China Oriental, a small Chinese steelmaker, Arcelor Mittal was also engaged in delicate negotiations with the company’s controlling shareholder, Han Jingyuan, to buy out his 45 per cent interest. China Oriental may be a private enterprise registered in Bermuda and listed in Hong Kong, but foreign ownership of Chinese steel assets is still a sensitive matter. Arcelor Mittal was, therefore, careful to emphasize that its deal with Mr. Han was subject to Chinese government antitrust clearance.

Technological impact

The Company’s resources are limited and so are the technologies. This limited resource should be properly implemented through right technology. The Arcelor Mittal company was aware about what they know and what they do not know which means about their strengths and their weakness. They also knew that the buyers may turn to the competitor if timely new technology is not implemented. Various type of need may arise among the buyers and to meet these demands, Innovation is the key tool. It is the mindset at Arcelor Mittal. The Arcelor Mittal not only the largest steelmaker, but also it offers the broadest range of steel grades and solutions and also the quality. It makes sure to fulfill the ever-growing demands arising for technology change. Technology is such kind of force that shapes the business style and activities we do. New technology is to be said as a force for “creative destruction”. The new technology always hurts the existing technology for example autos hurt the railroads, internet hurt the television, cell phone hurt the telephone or AC hurt the fan industry. It is better to understand and accept the benefits of new technology and use them properly as much as possible. Many industries have ignored the new technology instead of moving into and their business has declined. The Arcelor Mittal Company is the example which has a good history to adapt to the new technology according to the global need. But it was not easy step because the cost and risk to invest in new technology is very high and the gain is extremely uncertain.

Socio-cultural challenges

The socio-cultural factors play a major role in analyzing the Arcelor Mittal’s competitor environment. Among them the language is the most important factor that has a larger impact in operating business. English has become global, especially in business world. It allows overcoming the miscommunication across cultural boundaries. But the syntax and grammar of English and idiomatic expression of English is different. Earlier mentioned, Arcelor Mittal Company operates their business more than 60 countries of the entire world and most of them are outside of English speaking countries. The challenge of the employees of Arcelor Mittal is not just to understand the grammar, but also the expression. According to Christian Standaert, general manager of Arcelor Mittal’s corporate university, “Only 10% of Arcelor Mittal’s 320,000 employees are native English speakers” (International Political Economy Zone, 6 November 2007). Arcelor Mittal is donating 100,000 euro to the “Save the Children NGO” to help the victims of the Myanmar disaster (ArcelorMittal, 29 May 2008).

But the pictures of the competitor are different from Arcelor Mittal. As, the US Steel company mainly operates their business in English speaking countries. So they have no such problem to think about the cultural differences. Furthermore, the Mittal steel industry is from India and so their employees may face some cultural or social barriers.

Global impact

Arcelor Mittal generally has to face various types of global challenges. Many times some uncertainty happens and the competitor try to utilize that time. Recently, a local railroad has bought out, which was used by Arcelor Mittal Steel. There are about 6000 workers in Indiana harbor operation mill and this mill ship 5 million tons steel products and receive 2 million tons raw materials annually. All operation was done through this railroad. Moreover most of the railroad is to be bought by the Arcelor Mittal’s competitor US Steel and still now this problem has not been solved (Tribune, 7 February 2008). In previous, Arcelor Mittal has faced larger problem than the above one and they have been succeed. So, it is expected that, it will not be a problem for a long time because Arcelor Mittal has that ability to recover this.

Similarly, the Arcelor Mittal’s competitors have to go through such problem and what they do then. They try to utilize that opportunity by hook or by crook to make sure that loss has occurred to the competitor.

Industrial environment

“Industrial environment is a magazine providing the coverage and analysis the manufacturing and the environment” (bBNET, n.d.). The Arcelor Mittal Company has always taken the proper steps to minimizing the pollution. In 2007 it has established a vital step by launching the environmental policy. It consists of “ten principles” that has been approved by the group management board and it will guide the Arcelor Mittal activities worldwide. “When the full system effects of environmental issues are considered, it is evident that business is significantly affected and will continue to be so”. (Page-456, business in a social world by Keith Davis). Industrial environment is to be said as the most attentive issue now-a-days. If proper decision is not made then the computer may have to face unrecoverable lose. In most of the cases, during that time the competitor would go far away from the competition. Moreover, this may cause the decline of the industry as well. The following information can be a good example:

A power company built a coal-burning power plant at $283 million. About fifteen years later the state environment improvement agency required the company to install controls that would remove 67.5 percent of sulfur-dioxide emissions. The cost of this new emission-control equipment was estimated to be $220 million, which was nearly as much as the cost of the original power plant. This required cost would be incorporated into the rate structure and paid by the power users. (Air cleanup to cost plant $220 million, Arizona republic, July 20, 1978)

Porter’s five forces model and Arcelor Mittal

The five forces model of porter is a strategy to analyze attractiveness of an industry structure.

Buyers’ power

It is to be said that buyers have higher power when they have more choices. In the steel industry a huge number of steelmakers are now in the market. So the Arcelor Mittal has no way to ignore the buyer’s expectation. Moreover, the market is now more competitive and complex than it was before.

The key elements of buyers’ power:

• Bargaining leverage
• Buyer volume
• Brand
• Buyers incentives

Suppliers’ power

It is the opposition of buyers’ power. When there is a fewer number of supplier that means when the buyers have fewer number of choices from whom to buy, then the suppliers’ power is to be said higher. Supply provides the services that help managing supplies. The Arcelor Mittal industry gets their raw materials from various sources. It depends on the supply from Germany, Italy, Belgium, Spain and France.

The key elements of suppliers’ power:

• Threat
• Substitute inputs
• Switching cost

Threat of substitute

Availability of alternatives product makes threat of substitute products or services high. When the same or better product or services at reasonable price is available, then the buyer would turn to that product or services. The Arcelor Mittal is such type of company that is out of this kind of threat. It is because the all possible substitute or alternatives are not competitive with the products of Arcelor Mittal.

The key elements are:

• Price performance
• Switching cost

Threat of new entrants

When it is easy for new competition to enter the market then without question it can be said that the threat of new entrants is high. A small company may run their business happily if they earn a very little amount comparatively to the existed company. Such type of example is to be considered as the threat of new entrants.

The key issues are:

• Government policy
• Switching cost
• Brand identity

Rivalry

The rivalry can be said high when the industry is considered to be undisciplined. The background of the industry is very vital which determine the level of rivalry among the company. The Arcelor Mittal Steel industry has controlled all of its rivalry issues and that’s why they are now in such a position.

Key tools are:

• Exit barriers
• The growth of industry
• Fixed cost

Strategic management of Arcelor Mittal

The Arcelor Mittal has established and committed a 12 board commitment. The 12 broad commitment topics have been developed and these commitments address specific areas of performance, such as reducing greenhouse gas emissions. They also focus on corporate governance, social dialogue and labor standards.

“The R&D is the main instrument for delivering Arcelor Mittal’s ambitions in technological innovation and supporting its future growth” (ArcelorMittal 29 May 2008). It emphasizes to face the forthcoming technological challenges and match them with the existing technology. The R&D mission is to (ArcelorMittal 29 May 2008):

1. To invent the steels and related solutions of tomorrow.
2. To Improve and develop the competitiveness of the company.
3. Contribute to sustainable development by reducing environmental impact.
4. Upgrade the scientific knowledge.

Conclusion

The Arcelor Mittal Company recognizes their success depends on maintenance and continuation of ‘license to operate’. The management system of the company emphasizes to maximize the opportunities and minimize risks for better social development and improve competitive advantages. The company generally evaluates their market position and then tries to segment. Now they are launching their activities worldwide and all of them are succeed. The company has focused mainly on the steel production facilities and their operations in Mexico, Ukraine, USA, Poland, Spain, Romania, Algeria, Canada and the Kazakhstan. In future they will seek to increase the production facilities and then to their largest mining operations. The most crucial move from the Arcelor Mittal merger is in the consolidation of the world steel industry. As a result, this company is leading the consolidation process in the steel industry of the world.

References

ArcelorMittal. (2008). Media- Press Releases- ArcelorMittal announces donation for victims of Myanmar cyclone. Web.

bBNET. (n.d.). Industrial Environment. 2008 CNET Networks, Inc. Web.

Arcelor Mittal. (n.d.). The Merger Process. 2008. Web.

IEDC (Indiana Economic Development Corporation) 2007). Annual Report to the Indiana General Assembly. pp.1-22. INDIANA STEEL INDUSTRY.

International Political Economy Zone. (2007). Cultural Differences & Global English. Web.

ISSB (Iron and Steel Statistics Bureau). Steel News. 2006 – 2008 ISSB. Web.

Kotler, Philip. (2003). Marketing Management. 11^th edition. Prentice Hall.

Mickefett, Von. (2008). 1998-2007 Wallstreet Online AG – Alle Rechte Vorbehalten. Web.

Mitchell, Tom., Hill, Andrew., and Betts, Paul. (2007). One country, two systems, and a headache for Mittal. Rediff India Limited. Web.

The Economic Times. (2008). News by Industry- Tata Steel eyes Indonesia’s Krakatau: Industry official. Times Internet Limited. Web.

Tribune, Chesterton. (2008). Arcelor Mittal expresses concern over railway purchase. Chesterton Tribune. Web.