1. INTRODUCTION

Mittal Steel Company N.V. was the world's largest steel producer by volume, and also thelargest in turnover. The company is now part of Arcelor Mittal.

CEO Lakshmi Mittal's family owned 88% of the company. Mittal Steel was based in Rotterdam but, managed from London by Mittal and his son Aditya. It was formed when Ispat International N.V. acquired LNM Holdings N.V. (both were already controlled by Lakshmi Mittal) and merged with International Steel Group Inc. (the remnants of Bethlehem Steel, Republic Steel and LTV Steel) in 2004.

On 25 June 2006, Mittal Steel decided to merge with Arcelor, with the new company to becalled Arcelor Mittal. The merger has been successfully approved by shareholders and directors of Arcelor making L.N. Mittal the largest steel maker in the world.

Lakshmi Mittal built Mittal Steel from a single mill. His father, too, had been a steel man -- inCalcutta. Lakshmi Mittal ran a factory for him in Indonesia before striking out on his own with a plant in Trinidad. Soon, he seized on a strategy of serial acquisition, often scooping upunderperforming former government outfits in such far-flung places as Kazakhstan. Although the locales have changed over the years, he has stuck to a common formula: Import modern management practices, wring out costs and, where possible, create new efficiencies by taking steps like acquiring nearby coal and iron ore mines. In some locations, like the Czech Republic,he has left the local management team intact. In others, like Romania, he has replaced every member.

2. HISTORYThe history of the Mittal Group can be traced back to the 1950s, when Mohan Mittal, the father of the Lakshmi N. Mittal (LN Mittal), the head of Mittal Steel, laid the foundation of the Ispat Group in India with his brothers and children. At the time, India followed a socialistic pattern of development, and the economic environment did not encourage large scale private investment.The Mittals therefore looked for options abroad, and in 1976, they invested $15 million in asteel mill in Indonesia which they named PT Ispat Indo. In their search for non-scrap iron tofeed the plant in Indonesia, the Mittals went to Trinidad and Tobago.In 1989, they leased Iscott, a loss-making government owned steel firm in Trinidad and Tobago.Adopting innovative practices and cutting edge technology, the Mittals managed to bring about a turnaround at Iscott and within a year, Iscott became profitable.This set the stage for future expansions. During the early 1990s, the Mittals furtherstrengthened their growth strategy when they acquired another non-performing state-owned mill, this time in Mexico.The firm soon became the group's cash cow and earned huge profits through the 1990s. In1994, Ispat International was split from the Ispat Group in India, and concentrated oninternational acquisitions under the leadership of LN Mittal.

Another important acquisition from a strategic viewpoint was that of a steel plant in Kazakhstan in 1995. The plant was in very bad shape and there were not many takers for it in the industry.However, LN Mittal saw potential in the plant, as it had a distinct locational advantage in being fairly close to the Chinese border, since China was emerging as a major steel consumer.Over the next few years LN Mittal acquired several steel plants in places like Poland, the Czech Republic, Romania and Canada. Some of these mills were privately owned by LN Mittal underLNM Holdings (LNM), of which the publicly-traded Ispat International (Ispat) was also a part. BY the late 1990s, Ispat had several steel plants around the world and controlled nearly one-tenths of the global steel production

3.1 PORTER’S FIVE FORCE MODEL :-Entry by potential competitors is enormous:- Entry barrier plays an important role in the here. I case of steel industry these are the factors creating very high entry barrier for new entrants.1) Huge capital investment:- Huge capital investment is required for establishingsteel manufacturing facility.2) Economies of scale:- In case of steel industry economies of scale is achieved at very large scale. Due to its large size Mittal Steel enjoys high magnitude of economies of scale. It has ownership on factories in many countries(by acquisition ) so uses the technology and knowledge knowhow across the borders. So it becomes very difficult for new entrants to enter into the market and compete with an already established large company.3) Absolute cost advantage:- Established companies such as Mittal Steel has absolute cost advantage over new entrants because of its 1) superior production operations and processes because of accumulated experience, patents and secret processes, 2) By vertical backward integration Mittal Steel acquired coal and iron mines. It gave lower cost for input materials. 3)Going for low labour cost regions allowed Mittal Steel to have more cost advantage which is very difficult for a new entrant.4) Customer switching cost:- Steel is a product for which buyer industries has toestablish very well structured transportation facility with the producers. It becomesdifficult for a buyer to establish a new transportation channel when it wants to switchthe seller.5) Government Regulation:- In some the countries Mittal Steel enjoyed very low tax rate or zero tax for few initial years after it bought the loss making government units.Rivalry among established competitors:-1)By acquiring large number of Steel Companies Mittal Steel became behemoth andgained the more control on price.2) Large number of steel industries are in government hands. Management of thesecompanies find it difficult to compete with private players such as Mittal Steel.3)Since Mittal Steel was ready to acquire the sick government units it gave an easy exitbarrier to these industries and weakened the competition.4)Other big players were present in the market. But Mittal Steel concentrated on its lowprice strategy(mostly in Asia and Africa) while many of its competitors competed forhigher quality(mostly in Europe) and better distribution channel.Buyer Power:- It buyers are appliance (white goods), automotive (passenger vehicles, trucks, auto components ), building and construction (including housing and infrastructure),fabrication (sheet steel and metal fabricating industry), oil and gas(including pipeline), packaging (tin plate, tin-free and aluminum / aluminium), rail transport and maritime shipbuilding industries.1)Building and construction, fabrication, oil and gas and packaging industries arefragmented so they have less bargaining power.2)Although, some of the buyers are large players but in comparison to behemoth steelindustries they are dwarfed in size. Comparatively they have less bargaining power.3) Since steel making industries are less in number so they enjoy more bargaining powerthan its buyers.

Supplier Power:-Since coal and iron mines are large in size and few in number and controlled by large player,their bargaining power can significantly effect the steel industry business.1)But Mittal Steel adopted the strategy of backward vertical integration. Beforeacquiring any industries, they first ensured the iron ore and coal supply from mines.2) Mittal Steel buys a large chunk of supply from its suppliers and retains the bargainingpower to itself.Threat of Substitute:-1)Steel has currently no substitute at its price level.2)At some places(utensils, white goods) steel can be substituted by natural fibers andother metals but that is at very small scale.3) Due to new emerging markets such as China, India, South East Asia consumption ofsteel have risen sharply in recent decades.

3.2 OPPORTUNITIES:-Opportunities arise when a company can take advantage of conditions in its environment toformulate and implement strategy that enable it to become more profitable. Someopportunities for Mittal Steel1. After merger with Arcelor it can use its low cost technology to in the countries of Europeand South America where Arcelor was operating.2. After merger with Arcelor it can use Arcelor’s good distribution channel and high qualityproduct technology in Asia, Africa and North America.3. Many new emerging markets are following policy of globalization, privatization andliberalization. These countries are primarily focusing on infrastructure development.These will lead to significant growth in the steel demand.4. In many developing countries resources and raw material are available in good amountwhich can be exploited for further growth.5. Cheap labour in developing countries can give absolute cost advantage to Mittal Steel.

3.3 THREATS:-Threats arise when conditions in the external environment endangers the integrity andprofitability of the company business. Threats for Mittal Steel1. Anti globalization protest in many countries. As an example Mittal Steel, which hasheadquarters in Rotterdam but is controlled by the Indian entrepreneur Lakshmi Mittal,has met ferocious opposition in France and Luxembourg, where Arcelor is based and isthe biggest private employer of some 5,900 people.2. Recession and falling demand in developed countries.3. Unstable political condition in many developing countries.

4. INTERNAL ANALYSISInternal Analysis include the analysis of factors which are within the industry such asdistinctive competencies, competitive advantage, profitability. Internal properties ofa company can be categorized into two parts strengths and weaknesses.

4.1 STRENGTHSPosition as the world's largest, most diversified steel groupStrong profitability and free cash flow generation through the recycle, supported bylow cost operations and upstream vertical integration.Learning curve benefit due operation experience of long time.

Acquisition experience of acquiring industries from different countries.Compared with peers, Mittal has higher exposure to spot markets. Most of theshipments outside North America are spot sales.

4.2 WEAKNESSESAmbitious growth strategy that implies integration challenges and uncertainties for the company's future financial profileExposure to operating in emerging markets.Different acquisition can lead to cultural mismatch among different units.Exposure to those countries weak legal and regulatory systems, as well as the integration of new assets into the group structure (for example, establishing appropriate control procedures, achieving operational synergies, and turning around former state-owned and often inefficient plants)

5. STRATEGY OF MITTAL STEEL5.1 CONSIDERATIONS BEFORE AN ACQUISITIONWhen Mittal Steel considers an acquisition, it seeks not only low-cost inputs and an expanding market, but also inexpensive labor.But it will bend its criteria if an opportunity looks promising enough. Its Algerian plant, for example, had no obvious source of iron ore. When Mittal staffers discovered that the country had ore deposits, the company secured a license to open a mine.Similarly, its purchase of International Steel Group did not seem to fit its requirement for lowcost labor; U.S. wages are among the highest in the world. But ISG had been cobbled together out of such storied American steel names as Bethlehem and LTV by U.S. turnaround specialist Wilbur Ross, and Ross had streamlined the companies while reorganizing them. He laid off employees and jettisoned pension plans, giving ISG a cost edge over U.S. competitors.Although the company has a blueprint for acquisitions, each of its deals presents unusual challenges. In the former Eastern Bloc, for example, financial statements have proven unreliable because plants often did business via barter. In Romania, they had a central computer which would track all of the barter transactions.In Kazakhstan, where it opened a warehouse and found 50,000 bottles of Romanian red wine.They had traded steel for wine. And they had created their own currency -- IOU notes. Youwould go to the hospital or the grocery store, and there were these IOU notes.

5.2 OPERATIONAL STRATEGYMittal acts as a consolidator in the global steel industry, focusing on growth throughacquisitions, and has a successful acquisition and integration track record.Operationally, Mittal has a highly diversified asset base, with plants of different types, includingboth integrated and minimills.Mittal's base capital-expenditure requirements are lower compared with those of peers,because of its lower cost base in emerging markets (for example, Romania andKazakhstan),where comparable types of work can be performed at a lower cost.Mittal may invest in new projects to strengthen its upstream integration. For example, thegroup is considering new projects in iron ore mining in Liberia and expansion of its Ukrainian

production.

5.3 BID FOR ARCELORMittal Steel & Arcelor complemented each other in terms of geographical coverage andproduct mix, as there is no significant overlap.Mittal has strong positions in the U.S. market; low-cost operations in Central and EasternEurope, Asia and Africa; and vertical raw-material integration. Arcelor is the leader in highervalue-added products in Western Europe, low-cost slab manufacturing in Brazil, and has asuccessful distribution system.As the largest player in the steel industry--globally and in the key markets--the combined groupenjoys significant bargaining power. The merger was expected also yield synergies inprocurement, marketing, and optimization of production processes and capital expenditures.The bid significantly increased Mittal's leverage.

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5.4 FINANCIAL RISK PROFILEAcquisitions introduce risks, but the group has a good track record of turning aroundunderperforming steel acquisitions, particularly in less-developed countries, through LNMHoldings, which implemented this strategy since 1995.The advantages of Mittal's strategy of expanding into emerging markets include low cost basesfor steel production and capital construction. In most cases, assets the group acquired inemerging markets like Romania or Kazakhstan were low priced, and the plants enjoyed sizable,albeit temporary, tax breaks.The key risks of Mittal's emerging-market expansion strategy include exposure to thosecountries weak legal and regulatory systems, as well as the integration of new assets into thegroup structure (for example, establishing appropriate control procedures, achievingoperational synergies, and turning around former state-owned and often inefficient plants). ButMittal has a track record of successfully integrating and restructuring previouslyunderperforming state-owned assets. Vast geographical diversification also mitigates risk ineach particular emerging market, as the group is no longer markedly dependent on any singleasset or market.In the medium to long term, the main issue for the group is its success in integrating recentlyacquired assets and maintaining long-term, stable relationships with the governments of hostcountries.The Mittal group has a complex structure and has only majority control, but not full control,

over some of its cash-generative and cash-rich subsidiaries. For example, Mittal owns only 51%of the South African plant, 70% of the Algerian plants (30% is state-owned), and 76% of theCzech plant. This constrains cash flow circulation within the group and may lead to significantspending to buy out minority interests (although no such requirements are currently effective).

6.CONCLUSIONThe business strategy that has made Mittal Steel the world's largest steel maker is acommitment to consolidation and globalization and a willingness to take risks that scare offcompetitors. As the steel industry overall struggled in the present decade, Mittal Steel,

www.bsutra.com1213grappling with financial problems of its own, continued to expand. And as competitors insistedthat steel should remain a regional business, Mittal Steel pursued its vision of becoming aglobal giant.Mittal steel is as the world's largest, most diversified steelmaker; strong positions in NorthAmerica, Asia, and Africa; and robust free cash flow generation.The group's vertical integration in mining and low cost position in emerging market operationssupport profitability through the cycle and help reduce capital-expenditure needs.These factors are tempered by the group's ambitious plans to grow through acquisitions;institutional risks associated with emerging markets; and uncertainties regarding theintegration of newly acquired assets, although Mittal's integration track record has beensuccessful to date.Mittal is the most diversified steel company in the world in terms of asset location and marketpresence across all regions, and the group's product range includes both flat and long steel. Assuch, Mittal is not overly dependent on any single region, product, or end market (see chart 1).

www.bsutra.com1314The company's overall low cost position is buttressed by vertical integration and low wagecosts in its Kazakhstan, Romania, Poland, Algeria, and South Africa locations. The acquisitionof U.S.-based International Steel Group Inc. (ISG) in early 2005 moved the group into a highcost-base market, but bettered geographical market diversification. Moreover, Mittal's costadvantages are expected to strengthen further since acquiring Mittal Steel Kryviy Rih in late2005.In cyclical businesses, such as steel, volatile margins depend on changes in raw-material andfinished-product prices. Compared with peers, Mittal has higher exposure to spot markets.

Most of the shipments outside North America are spot sales. Although a significant part of salesin North America are under long-term contracts, most of these contracts are annual and carrysurcharge provisions, and there is significant exposure to automotive customers.Upstream integration into iron ore and coking coal provides Mittal with a competitiveadvantage throughout the cycle. In 2005 (pro forma ISG acquisition), 56% of iron ore and 42%of coal requirements were supplied by the group's mining subsidiaries or under long-termcontracts. Kryviy Rih integration would further increase vertical integration, as that company isabout 80% self-sufficient in coke and iron ore.Also, as one of the largest players in any of its markets, Mittal has major negotiating power.Mittal takes advantage of its diversified asset base to achieve operating synergies. For example,the group estimated the synergies on ISG to be about $250 million, and on Kryviy Rih about$200 million, because of optimization of sales, marketing, procurement, and IT costs.