Mittal was 39.
Again, life brought to the still young Mittal another tantalizing moment of opportunity, a sweet intersection of character and risk. It was a moment that you or I would probably not have noticed. If you’ve built one successful steel plant – and let’s face it, most of us haven’t – then the temptation would surely be to do the same again, and then again, and then maybe again. If Mittal had been in the business of talking to life coaches that presumably would have been the life-plan he’d have evolved. Mittal could’ve looked forward to a prospect of extraordinary success. He’d create and operate multiple plants as well as being the first Indian ever to have manufactured steel overseas. He’d be a hero.
However, Mittal didn’t want it. As he saw it, building steel plants from scratch was slow. Why build them, when you could buy them? The trouble was, in the world of steel, Mittal was still a very small player. His funds were meagre. He had no government or major institution backing him. He had no technological edge, no breakthrough invention, no special access to raw materials. But if you’ve already done the impossible once, you’re not that daunted by the idea of doing it again.
In the West Indies, the state-owned Iron and Steel Co. of Trinidad and Tobago (ISCOTT) was going bust and Mittal reckoned he could fix it. He promised the government that he would turn losses of $10 million a month into profits of the same amount. There was only one condition: if he did as he promised, then he’d win the right to buy the company.
The government agreed. Mittal fired the team of sixty German managers who had been running the plant, and brought in sixty Indians instead, thereby cutting the wage bill by almost $20 million a year. He slashed other costs and ramped up production. In just four years, by 1993, production had more than doubled and Mittal bought the company.
Which was his second, not first, major purchase, because in 1991 Mittal had gone to see a government-owned steel plant in Mexico. A plant running at 25 per cent capacity and losing $1 million a day. A year later, in 1992, he bought it.
In 1994, he bought Canada’s Sidbec-Dosco.
In 1995, he gobbled up Hamburger Stahlwerke and created a shipping company to handle the group’s increasingly global transport logistics.
In the same year, he also bought the Karmet Steel Mill in Temirtau (‘Iron Mountain’), Kazakhstan. This was a massive plant, one of the world’s biggest. Built by forced labour and prisoners of war in the evil old days of the Soviet Union, the plant was on an almost inconceivable scale. It boasted 1.5 billion tonnes of coal in its own reserves, 1.7 billion tonnes of its own iron ore and its own 435 megawatt power station. It was also, needless to say, a financial basketcase in a country whose economy faced massive issues of its own.
It’s hard to overstate how extraordinary all this is. The speed of it. The total lack of concern for geographical or political boundary. The confidence of it: the willingness to take on a Mexican business that was losing a million dollars a day. The willingness to acquire a huge, crumbling, loss-making empire in Kazakhstan, certain that the thing is fixable and that you’re the right person to fix it.
In this welter of extraordinaries, a few particular points are worth picking out.
First, the extraordinarily successful execution. The Kazakh plant in particular constituted an utterly unprecedented scale of industrial challenge. Take, for example, what is usually a fairly routine aspect of a company’s business: paying the workers. When Mittal bought the plant, he had promised to pay salary arrears in full, averaging about six months’ pay per worker. No problem. The funds were there to do it. But few of the workers had bank accounts, so they needed to be paid in cash. No problem. Mittal started to convert hard currency into local cash…until he got a call from the Central Bank. Whoops, sorry, Lakshmi, but if you bring that much hard currency into the country all at once, we’re going to have an inflationary problem on our hands. Would you mind stopping, please? So Mittal obliged. He continued to bring in hard currency, albeit in much smaller amounts, but meantime hired a plane to fly in suitcases of cash from the capital city Almaty.
Or take power. Not power for the plant, but for the town itself. It’s probably fair to say that there aren’t so many enterprises in the West where CEOs need to worry about how their workers are going to keep their homes warm through winter. But up in Temirtau, the temperature can fall to –40°C and the power company, like most things in Kazakhstan, was falling apart. So Mittal bought the power company too, and fixed it. And the local tram services. And the railway. And the TV station. And a few mines while he was at it.
This was Mittal. He didn’t simply solve these problems; he solved them in extraordinary fashion. Within a year, this appalling, decaying business was profitable again. Along the way, steel production had doubled. The Kazakh plant now produced in a month what Mittal’s first steel mill would have taken ten years to produce at its first year’s rate of output.
Given the sheer scale of the problems, it was extraordinary that Mittal managed it at all – but remember that he did it while also owning, managing and turning around steel companies all across the globe, and did it with an extremely young and self-created organization.
Secondly, Mittal was an outsider. He came from the wrong place. When you read, for example, about Mark Zuckerberg’s amazing success in creating Facebook, you can’t help but feel that his success has been amazing, but also a little predictable. Social networking was clearly going to take off at some point. It was always more likely to take off in America than anywhere. Mark Zuckerberg was a Harvard student who had been programming computers since he was at middle school. Facebook itself started purely as a Harvard thing, and spread from there.
Please don’t misunderstand my point. I’m not knocking the guy. There were loads of other equally privileged, equally well-educated students at Harvard and elsewhere who did not do what Zuckerberg did. But Mittal grew up without electricity. Without running water. With rope beds and twenty in a house. In a country whose economy was not only backward, but self-isolating from the global mainstream. If, in 1950, you were asked to pick the future king of steel, you’d never have come close to picking Mittal. He was in the wrong continent, the wrong country, the wrong part of the wrong country. All he really had going for him was an able and ambitious family that would educate him superbly and (in due course and through their own entrepreneurial efforts) supply the funds to get him going.
To take the point a step further, consider how many other companies could have done what Mittal did. British Steel was a badly run state-owned firm when Thatcher privatized it. The company soon became efficient, profitable and with funds to invest. In 1989, as Mittal was wondering what to do next, British Steel might just as well have been asking itself the same thing. Or the big German producers. Or those in France, Spain, or Italy. Or those in America or Japan or Australia. The list of companies better placed – financially, managerially, technologically, politically – to succeed to pre-eminence was a long and formidable one. And none of them did.
Thirdly, Mittal retained ownership. A slightly more complex point this, but a crucial one. In theory, it’s not all that hard to grow fast and aggressively. You go to the stock market or private investors. You raise money. You acquire assets. You grow bigger and you raise more money. You keep going. Needless to say, it’s not quite so simple – you need a track record strong enough to persuade investors to trust you with their money – but it’s still a much, much easier route to success than funding your growth very largely from your own pocket, as Mittal did.
What’s more, steel is a business which involves a lot of stuff. Iron mines. Coal mines. Transport. Blast furnaces. Rolling mills. Mini-mills. Power plants. TV stations and railway lines. Tangible kit with a tangible price tag. The reason why most of the billionaires that you’re familiar with are involved in software (Bill Gates, Larry Page, Sergey Brin, Larry Ellison, and Mark Zuckerberg, for starters) is a simple one. If you’ve got a decent computer program, you have most of what you need to succeed. There is not a huge list of physical assets that need to be bought out of cashflow. Steel is the precise reverse of that. There, the assets are everything – and managing to fund an extraordinary amount of growth from cashflow is all the more remarkable as a consequence.
If you’re not yet persuaded,