By 2006, Mittal Steel was one of the top producers of steel in the world. They earned their place within the industry by acquiring smaller steel companies and set standard practice as to how they acquire and manage these companies. These standards changed how business is done in the steel industry. These changes have produced consolidation, better efficiency, and restructuring, which has allowed Mittal to profit as global producer.
Before Mittal Steel, most steel companies produced steel for their regions and many were losing millions of dollars yearly. Even though there was a need for steel all over the world, the shipping and tariffs cost were too high to provide services to international customers. Mittal saw an opportunity to capitalize on this by purchasing companies throughout the world to take the steel industry out of the regional market and into a global market. This would stop the bottleneck problems that industry faced due to local suppliers not being able to fulfill their demand and allow them more access to different suppliers. (Globalization, Kotler, 15).
During the 80’s, many steel plants were state owned, which meant there was basically no growth or development within the industry. Mittal saw this, so instead of spending millions of dollars to build new facilities, they bought under preforming state owned companies which moved them into private ownership (Privatization, Kotler, 15). Mittal also invest in an older technology called, DRI, which was a technology used in the steel industry, but lacked quality. Mittal took a chance and purchased DRI plant. Over the years the technology advanced and became a huge asset to the industry and brought in large profits (Technology Environment, Kotler, 84).
When Mittal looked into acquiring Iscott, they had firsthand knowledge of the problems the target was experiencing. Although the Indonesia mill was equipped with DRI technology, they depended on an external supplier such as Iscott. Iscott was owned by the Trinidad government and due to financial difficulties they only utilized 25% of their capacity. Mittal decided to seize this opportunity to solve their problem with a regional supplier (Marketing Opportunity, Kotler, 50). Mittal purchased Iscott to solve their own demand problem and capitalize on selling products that are in the steel industry supply chain (vertical integration). By injecting their management and standard practices into Iscott, not only did they generate sales volume and income for the Mittal, but it also opened up them up to a new market (Integrated Growth & Value Creation, Kotler, 39)
When Mittal was interested in acquiring a target, a team of manager specializing in making deals for the company would visit the target to investigate and test their assets to make sure they are feasible. They would also hold discussions with the management of the target to get a feel of their expectations. This type of due diligence would help Mittal define any problems that were within the target company. In the next step, Mittal would work with the target to develop a 5 year plan for the target to help the target succeed. If the target approves the acquisition, Mittal moves into a restructuring phase.
Mittal Steel developed a strategy which is referred to by some as the “Mittal Method”. After the acquisition of the company, Mittal would insert a team of managers that would be responsible for meeting the goals of the new company. Next, they would put money into the company so they could make purchases and pay creditors. Making, retaining, and repairing working relationships that may have been damaged by prior ownership was an important part of maintaining customer loyalty and establishing new customers (Relationship Marketing, Kotler, 20)
Next, the team starts to improve efficiency by improving machinery and upgrading technology. This way they can produce a better product which can lead to more profitability. When the company is able to produce efficiently, they are connected with Mittal global systems and networks. Eventually when everything is up and running smoothly, Mittal begins to take cost saving measures such as offering buyout programs, which allow employees receive a lump sum of money if they voluntarily terminate their employment with the company. They would also start to get rid of non-profiting operations and equipment.