Spinning Steel Into Gold

The Case of Ispat

International N.V.
 COPORATE TRANSFORMATION
The case describes Ispat’s humble origins and
rapid growth through a series of acquisitions
of underperforming steel factories in Mexico,
Canada, Trinidad, Germany, Ireland,
Kazakhstan and the United States between
1992 and 1998.
Founded by an Indian, incorporated in The
Netherlands, headquartered in London and
selling steel in 80 countries around the world,
Ispat was the first truly global steel company,
and the case provides some insights into how
Ispat transformed the companies it acquired
and co-ordinated its far-flung global empire
 Formation of Ispat
Mohan Lal Mittal, founded the Ispat Group.
In Calcutta in the 1950s to trade scrap metals.
Ispat means steel in Hindi.
After graduating from St Xaviers college in 1970,
Lakshmi joined his father’s company at the age of 19,
where he helped start a new steel mill in Calcutta and
oversaw Ispat’s export business in South East Asia.
He expanded into steel production and overseas trade
in the 1970s and by 1997 had grown Ispat to the ninth
largest business group in India measured by sales.
 First Step For Growth
In 1976, Mohan acquired land to build a steel factory in
Indonesia, but then changed his mind, and sent the 26
year old Lakshmi to sell the land earmarked for the new
mill.
Lakshmi observed that the Indonesian economy
appeared poised for explosive growth, and successfully
convinced his father to build a ‘mini-mill’.
Lakshmi Mittal remained in Indonesia to design and
build the new factory and to run the Indonesian
business, Ispat Indo. Although electric-arc furnace
technology produced low-cost steel, Mittal was
reluctant to rely on scrap metal as a raw material.
Founded by an Indian, Lakshmi L. Mittal, incorporated
in The Netherlands and with a corporate office in
London, Ispat sold steel in over 60 countries around the
world and was considered by many industry experts as
the only truly global steel company.
With 1997 revenues of $2.2 billion and earnings before
interest, tax and depreciation of $406 million, Ispat was
the global leader in producing Direct Reduced Iron (DRI)
as well as one of the largest exporters of steel slabs and
biggest producers of wire rod
Lakshmi Mittal — the founder, chairman and sole
shareholder of the LNM Group owned 80 per cent of
Ispat International stock — a stake valued at
approximately $3 billion in 1997, which earned him a
place among Forbes magazine’s Global Power Elite.
Much of Ispat’s growth was driven by a series of
acquisitions, with Ispat or its corporate parent the LNM
Group acquiring steel factories in Mexico, Canada,
Trinidad, Germany, Ireland, Kazakhstan, and the
United States between 1992 and 1998.
 Expansion of Business

Mittal’s first opportunity for global expansion presented

itself in 1988 when the government of Trinidad invited
Ispat to bid for Iscott, a State owned DRI facility.
Mittal proposed to lease the plant for 10 years paying $11
million per year.
Between 1992 and 1997, Ispat went on to acquire plants
from the provincial government of Quebec, the city of
Hamburg, and the national governments of Mexico,
Ireland and Kazakhstan.
Ispat invested heavily to remove bottlenecks in the
acquired plants and improve quality.
 Stopping the Bleeding
Ispat took control of Imexsa on January 1 1992 in the midst
of a global recession in the steel industry, and had to briefly
shut down the furnaces because there were no orders for the
steel and no place to store the finished slabs.
Continual Turnaround
In 1992 — the first year under Ispat ownership — Imexsa
increased shipments from 528,000 short tons to 929,000
tons, decreased the cash cost per ton produced from $253 to
$178, and earned a small profit. Under the leadership of
Malay Mukherjee, Imexsa increased annual steel shipments
from 929,000 tons to over 3 million tons between 1992 and
1998, and improved productivity from 2.62 to 0.97 man-
hours per ton.
 Quality Programs

In 1998, Imexsa used standard quality tools, such

as ISO methods to describe existing processes.
Imexsa’s quality efforts won numerous
international awards. In 1996, Ispat Mexicana and
Caribbean Ispat received ISO’s prestigious
Company Wide Recognition Award for quality, a
distinction shared by only 20 companies in the
world. More importantly, Imexsa’s quality
initiatives had helped the company upgrade its
products to serve more demanding customers.
Knowledge Integration Program. The
Knowledge Integration Program (KIP) was an
Ispat corporate initiative designed by Mittal to
‘keep stirring the whole organization.’
Continuous Improvement. Each department
in Imexsa committed to annual targets for
production volume, productivity and costs, and
presented their plan for achieving these goals.
 The Inland Acquisition

On July 16 1998, Ispat International completed its

acquisition of Inland Steel, the sixth largest steel
maker in the US, with capacity of 6 million tons per
year. Ispat planned to increase Inland’s shipments by
1 million tons per year, save approximately $120
million annually through global purchasing synergies
and implement the operating practices the company
had in place at its other plants.
Like the rest of the steel industry, Ispat faced fresh
challenges triggered by the Asian economic crisis. As
demand for steel in south-east Asia collapsed, steel
makers diverted their shipments to other markets,
depressing steel prices around the world. Mittal was
confident, however, that Ispat would make the
acquisition pay off, and by December 1998, Ispat was
realizing cost savings faster than projected at Ispat
Inland.