Mittal steel in 2006: changing the global steel game Case Solution
Mittal steel co. is formed by merger acquisition of LNM holdings and ISPAT International. The company MittalCorporation is merely a family owned business with its headquarters in Rotterdam Netherlands. The company mainly produce raw scrap steel ranked as the top producer of steel in terms of volume.
Recently the company is planning to initiate the merger with the ARCELOR MITTAL that produces metal stone in the steel world.Arcelor established in February2002 and became the no: 1 steel company by 2006 with net revenues 105.2 billion a year.The value proposition of the company is producing the Raw Crude steel in the volume of 116 million tons a year which is quite huge. Since the company has thestrongexpansion in international world and produces or market alargeamountof steel in Asian, US and European market, it has a strong portfolio and sustainability strategy. The company has adopted the strategy of catching the low hanging fruit for to expand its functions in theglobal world, hedging the risks of failure.
- Critically assess the Industry of Steel market with respect to Mittal steel.
Porter 5 forces Model
Bargaining power of Buyer-High
The bargaining power of the buyers in case of Mittal steels is highbecausethe number of thesupplier is high as compared ti the buyers while in addition to this, there are plenty of local competitors who have captured majority marketshare.Also,the switching cost of thebuyer is also very low, which encourage the buyers to posit the pressure on the company in lowering the price.
Bargaining Power of Supplier
The bargaining power of supplier is low, as the company has divested supplier base which reduces the bargaining power of the vendor.In addition, since theenterprise businessstrategyincludes acquiring the business, it increases the number of vendors on board hence offers the competitive edge to the company in setting the policy and rules of business.
Extent of Rivalry
The extent of rivalry is very greaton the market. The company faces enormouslocal competition which is supported and guarded by the government, while the internationalplayers who have captured the majority of marketshare, inaddition, the government posits high entry barriers to tapping into the market which makes it difficult for any business to make the market for itself and sustain in the intense competition.
Threat of Substitution-Low
The threat of substitution is low, as there are no better options available to buyers that can replace the use of steel.Infact, the industry has shown the growth of the use of scrap steel and rawore steel to manufacture steel bricks.
Threat of New Entrant
The threat of new entrant is relativelymediumbecause the setup cost in the intentERional market and in the local market is high due to price and cost of the equipmentwhich makes the entry risky and less attractive in the market. In addition, the major playersin the market have made thebarriers high to enter. Thus it becomes complex for any new entrant to sustain in front of big giant players inthe market.Moreover, the concept of oligopoly is practiced in the market, which makes the sustainability and entry of new players risk in the market and restricts the functions and entry in the market.
- Assess the Mexican Market and the Role of Mittal Steels in developing the international strategy.
The companyextended its functions in MEXICO, in 1992 to expand the presence and to increase the duties and operations of the enterprise. In doing so, the companyaccepted theproposal from Mexican Government in supporting the private steel industry which was on the verge of doom, due to resource scarcity and financial assistance.
Mittal steel identified the opportunity in availing and accepting the businessbecause, it would help the company to gain the support of market in entering themarket, and will also help the company to acquire cheap raw material from Mexico. However, the situation can be analyzed under the following factors:
Since the company was not the local of the Mexico country, it created hindrance and resistance among the buyers to buy from an internationalplayer, due to ahigh affinity with the cultural values. Inaddition, since the company was a hosting company, it raised the difficulties in understanding the market behavior, the consumer perspectiveand the market forces which delayed the process of developing strong,sustainableoperations in the market.
Administrative and Political Distance
Mexico has a weak infrastructure with deep colonial ties.it encourages the company to expand its function by offering a benefit through CSR activities since; the country is weakin terms of infrastructure, the company may face anadditional cost of establishing the distribution network...................................................
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