In this presentation, one learns about the sourcing, logistics and location decisions made by the legendary Lakshmi Mittal and how he strived despite all odds to achieve success simply by the strength of his self-belief and eagerness to learn

1. LAKSHMI MITTAL ESTABLISHED
A STEEL PLANT IN TRINIDAD
AND TOBAGO. DISCUSS THE
SOURCING, LOGISTICS AND
LOCATION DECISIONS HE MAY
HAVE FACED.
PROF VENKATESH GANAPATHY
INTERNATIONAL BUSINESS QUESTION PAPER – BANGALORE
UNIVERSITY

2. Acquisitions
 1989
 Iron and Steel Company of Trinidad & Tobago
 Iscot Steel Plant in Trinidad & Tobago
 Loss making companies
 Within one year, Mittal turned around these
plants.
 This made Mittal’s entry into the US easier.

3. Trademark strategies of Lakshmi
Mittal
 Buy old rundown steel mills from governments
at throwaway prices and turn them around.
 Plants in Romania, the Czech Republic and
Poland between 2001 and 2004.
 Expand production in steel mills.

4. Location decisions
 Select a location where there is already a loss
making steel mill
 Where natural resources are available
 Where governments looking out for strategic
partnerships to deal with the losses made by
the steel mills.
 Where markets for finished products are close
by.

5. Influence of technology in decision
making
 Jakarta plant, Indonesia switched over to new
electric arc technology in steel manufacture.
 Mini mills – flexible set up, lower costs.
 High quality.
 Investigate alternative raw material sources.

6. Sourcing challenges…
 Blast furnaces – pig iron raw material.
 Mini mills – scrap steel raw material.
 Mittal’s prediction – price of scrap steel would
increase.
 Mittal started looking out for sourcing
alternative raw material for the steel mill.

7. DRI technology
 DRI – Direct Reduced Iron.
 Process involved a special treatment
 Iron ore was smelted directly
 No oxygen
 No melting
 Result was ….?

8. Benefits of DRI technology
 COST EFFICIENCIES OF 40-
50% !
 So, just by sourcing alternative,
cheaper raw material aided by
new technology, costs were

9. Lease and acquisition
 Initially the Trinidad and Tobago plants were
on lease, later on these were acquired by
Mittal.

10. Robust decisions…
 Mittal used the state run Trinidad and Tobago mills to
use DRI technology and products from mills were
shipped to the plant in Jakarta.
 Benefits of Transfer pricing from one subsidiary to
another!
 In the next few years, Mittal became an expert of DRI
technology.
 This led to cost reductions to the tune of 50% in many
of his operations.

11. Decision making
• 1980s – Governments in West selling state-owned
steel plants at sharp discounts.
• Acquiring them – better strategy than building a new
mill.
• Mittal’s preference – steel plant with DRI (directly
reduced iron) technology.
• Mittal had the foresight to realise that in case steel
mills did not use the DRI technology, then operational
efficiency would be impacted by rise in the price of
scrap raw material. He was right!

12. Problem or Opportunity?
 While for others, economic recession was a
problem – for Mittal, it was an opportunity.

13. Mittal’s success formula
 Reduce costs
 Layoffs – he replaced the Germans with
Indians and saved $ 18 million in salary costs.
 Ship steel where best price could be obtained
 Intensive capital investments – modernize
plants, expand production.

14. Trinidad plant – jewel in the
crown
 Access to one of the world’s largest suppliers
of DRI
 This led Mittal to produce steel at a cost much
less than his competitors.
 Later on Mittal purchased the plant and
renamed it Caribbean Ispat Limited (CIL).

15. Manufacturing strategy
 90% Direct Reduced Iron
 10% Scrap

16. Location decisions were also based
on
 Availability of natural gas
 Modern shipping terminals that could handle
cargo 24 x 7
 Ease of exporting from host country to other
countries

17. DRI expertise turns into a
goldmine!
 Over a period, Mittal became so proficient in
DRI technology that production capacity of
DRI became the highest in the world!
 DRI so produced was supplied to other
subsidiaries of Arcelor Mittal.

18. Why Trinidad & Tobago ?
 Caribbean & Central American countries ranked both
these places as second-best for cost effectiveness,
third best in terms of country competitiveness & fifth
best in terms of economic potential.
 Largest exports to USA
 Strong trade relations
 Access to regional and international markets
 Low inflation, steady growth, stable economy,
organised financial system

19. Why Trinidad & Tobago ?
(Cont’d)
 Success of FDI !
 400 MNCs set base in Trinidad & Tobago – Fujitsu, Microsoft,
IBM..
 T&T have CARICOM (Caribbean community) trade
agreements with Venezuela, Colombia, Dominician Republic,
Costa Rica.
 Investment treaties with France, USA, Canada, Cuba and
other Caribbean nations
 Funding from Govt, rebates, lower customs duty and value
added taxes, incentives for free trade zones.

20. Logistics decisions
 Mittal’s strategy was to improve last mile
supply chain delivery.
 Move process industries closer to areas where
natural resources abound.
 Project evaluation and feasibility studies
 Clear understanding of infrastructural
constraints.

21. Sourcing - make or buy
 Make or buy depends on
 Cost
 Production capacity
 Quality
 Timing
Mittal based his decisions on these parameters

22. Mittal’s interview in 2006 to Fortune
magazine
 I realized that life is too short to build a steel
company from the scratch

23. Mittal’s success formula was based
on…
 Strategy of expanding into the US by pouncing
on bankrupt companies and turning them
around.

24. Mittal’s working style
 Nice Tyrant (Oxy moron)
 Cut throat yet humble businessman
 A perfectionist
 Oversees plants in 16 countries sitting in London
 Studies data
 Conference calls
 Weekends – visiting steel mills and meeting
managers.

25. Mittal’s ultimate dream is …
 To consolidate fragmented steel industry
 Penetrate markets in emerging economies like
China and India.