In the end, the home-grown school of business carried it through

NEW DELHI: In the end, it’s the triumph of the Kolkata School of Marwari Business Management on the global stage, even as Marwari businesses back home in Kolkata sputter to a halt. So what’s there in it for you, global manager?

Business historians will aver that Lakshmi Niwas Mittal’s e27-bn gambit for Arcelor has been etched in the quintessential Marwari ethos of doing business rooted in the precepts of Bhagwad Gita and the worship of the goddess of wealth, Lakshmi.

The Marwari believes Lakshmi (not Mittal) is for personal keeps, not to be wagered for the sake of the company or business, both of which can be traded like worn-out garments in favour of a new robe just like the spirit or atman trades the worn- out body for a new one.

And, in retaining his wealth, the Marwari back home in Kolkata trades his strategies depending on the exigencies of time, moving from one orbit to another without harping back to the past. That’s how you see new ventures emerging where older ones decay, taking the Marwari on the evolutionary ladder from a trader to a manufacturer to a services provider, with the Marwari alone getting richer. Which is why, it is said there may be a sick Marwari business around, but never a sick Marwari businessman.

Lakshmi Mittal’s deal with Arcelor comes at a cost that couldn’t possibly have dug deeper into his pockets. His acquisition of board seats at Arcelor comes at approximately $517 per tonne. From being a 87% owner in the world’s largest steel company, he will now be a 43.5% owner in the world’s largest steel company.

Earlier, Mr Mittal chose whoever he wanted on his board, now he will have to do only with a third of the 18 seats in the boardroom; previously, from having a management team of his own, he will now have to make do with three representatives out of a maximum of seven. And, much like the Queen of England, he will probably no longer be able to run his company as his private fiefdom.

So, what makes Mr Mittal stand on his head when he has been standing tall all along?

Brought up in the ethos of change being the only constant, Mr Mittal knows the way to future lies in renouncing the past. Because Mr Mittal realises that a smaller slice of a larger cake in itself could be larger than what the cake once was. Yet, if the world’s biggest steel tycoon’s tryst with his global dominions has brought him to where he stands today, his past does not look less inglorious either.

Till he tilted his lance at Arcelor, Mr Mittal acquired assets at a fraction of their replacement cost. With the exception of US’ Inland Steel - the acquisition of which he had to finance through an IPO - the cornerstone of LNM’s growth has been acquisitions at bargain basement prices.

Given that many of the assets sold were in bankruptcy or near-bankruptcy, the group has managed to acquire assets at a fraction of the replacement cost ($40-110 per tonne or 15-20% of greenfield/brownfield capacity). It was only with the acquisition of Inland Steel that the LNM group entered into market-related valuations.

What kept him growing, however, was LNM’s ability to take risks - that’s something that’s kept him going in the merger with Arcelor as well. But, while the latter gambit may be a commercial risk, his past risk-taking has been in the politically-sensitive territories of eastern Europe and fragments of the erstwhile Soviet state.

The merger exposes LNM to the competitive management of business environment, whereas most of his past negotiations have needed deft management of political environment as he acquired big and rusted state-owned East European plants. Mr Mittal offered capital expenditure commitments over three to six years post-acquisition, making sell-offs politically acceptable. He exhibited the risk appetite here - most countries where he acquired plants were politically high-risk territories for doing business.

Initially, the group’s strategy was to produce low-cost, low-quality steel and sell it through a global network of traders. It was only in the late 1990s with the acquisition of Inland Steel that LNM shifted focus to high quality products. In trading in the global market, LNM leveraged the giant size of his plants to get the best deals in logistics and for sourcing raw materials. LNM also grew almost exclusively by acquiring capacity.

Acquisitions and cost-cutting have been the hallmarks of LNM’s engagement in the global steel business. His only greenfield investment was a 3,00,000-tonne-per- annum facility in Indonesia in 1981 to manufacture billets. The company focused on the integrated mini-mill route of steel making, cost-cutting, productivity.

It also came to be known for speedy decision-making . The acquisition of Inland Steel was consummated in only 10 days. LNM initially grew through a structure of privately-held companies, but in 1997 it went public as it prepared to enter the US market with the value-based takeover of Inland Steel at five times his cash flow. The move also encashed his and his family’s value to bring him on the global league among the world’s richest businessmen.

With the Arcelor-Mittal merger, LNM is on record that global steel capacities will consolidate around four of five big players each with 150-200m tonne capacity.

In the early ’90s, he strategised for dominating the global steel business with four-five big players with 40-50m tonne capacity. But that, as is clearly expected of the Kolkata School of Marwari Business Management, is a strategy of the past. Look forward to the future.