beyondbrics

It was brave of the boss and main owner of Severstal, Russia’s biggest steel maker, to admit to the FT that the much vaunted globalisation strategy he put in place has come close to unravelling.

Alexei Mordashov’s original attempt was modelled on Lakshmi Mittal, the billionaire Indian steel magnate, but now the Russian says he needs to go back to the drawing board. Other emerging markets steel executives have tried to emulate Mittal’s approach in some way – so they should sit up and take note.

They include Alexander Abramov of Evraz in Russia, Benjamin Steinbruch of Brazil’s CSN, Sajjan Jindal of JSW of India, and Zhang Xiaogang of China’s Anshan Steel.

All have made – or attempted to make – takeovers or joint venture deals outside their main markets, replicating the process that Mittal followed as he assembled the world’s biggest steel maker in the shape of ArcelorMittal over the course of 30 years.

Last year Malay Mukherjee, a highly rated Indian steel executive who was formerly one of Mittal’s closest lieutenants, jumped ship and apparently plans similar feats at Essar Steel, an Indian steel maker

What Mordashov seemed to mean, though he did not say so explicitly, was that he did not think out his strategy well enough in 2005 when he started buying steelmakers – mainly in the US but also in Europe – as part of an effort to expand Severstal’s frontiers.

It has taken the deepest slump in the steel industry for more than 60 years to ram home the conclusion that some of the plants that Severstal purchased were simply not good enough.

The aspiring executives would do well to bear in mind some of the reasons for Mittal’s success.

They have included an unusual appetite for taking big, risky decisions, as with his early acquisitions in the former communist nations of eastern Europe.

He has also demonstrated the ability to blend cultures from around the world to build close knit management teams, and he benefits from close relationships with bankers who can arrange the necessary finance.

Mittal also needed a large amount of luck. He bet successfully on the steel industry recovering (thanks to a sudden onset of huge demand in China) after the sector’s big slump around 2001.

It would be almost impossible for any steel industry executive – no matter how brainy or well connected – to emulate the scale of Mittal’s achievements.

But a lot of people will wish Mordashov well as he embarks on a Mark-II version of his strategy. The 44 year old former economist has a sense of humour and a certain amount of humility.

It looks as if he will devote most of his energies to improving Severstal’s efficient and relatively high-value Russian steel operations, where the cost structure is helped by the company’s ownership of coal and iron ore mines.

Over the next few years downstream steel using businesses in Russia in fields such as construction, cars and appliances look likely to become a lot stronger, so a new “Russia-centred” approach, mixed in with some judicious investments outside the country, seems wise.

Related reading:
Lunch with the FT: Lakshmi Mittal, FT