Baosteel: China's first multinational
High flying Mittal Group and Arcelor have to be looking over their shoulders at a rapidly growing competitor, China's Shanghai Baosteel. Baosteel is controlled by the Chinese government, making it a unique player in the market. It I also the first Chinese company to enter the Fortune Global 500. Rated as the #6 steel company in the world, the Chinese company is growing at a rate that will make it into the big three. According to a Wall Street Journal article ("Looming Battle", 9/27/2004), it plans to reach 30 million metric tons by the end of the decade, and it may go even higher.
The key is a set of global alliances and international moves, unprecedented for a Chinese company. Among those efforts:
- Trading companies in the US, Germany, Australia, Singapore, Japan, Italy, and Morocco.
- A $786 million joint venture in China with Arcelor and Nippon Steel to produce galvanized steel for the auto market and other industries
- A joint venture iron mining company in Australia with mining giant Rio Tinto, which will supply iron ore to Baosteel
- A long-term supply contract in Brazil with the world's #1 iron exporter, Vale Do Ria Doce, plus a possible joint $1.5 billion venture which would process the Brazilian ore on site
- Another long-term supply contract with Rio Tinto's Brazil mining operation, Hammersley Iron
Baosteel's expansion is dependent on the continuing growth of China's economy. Steel for construction, automobiles, appliances, and other uses have been the cause with the rapid growth of Chinese production.
But, given that issue, Baosteel is getting more technically sophisticated through its alliances and learning to sell to other markets. It has locked in iron supplies as well. It also has the advantage of the fastest growing home market and very low labor costs.
Baosteel has set a pattern for the internationalization of Chinese business, one which may have an effect even more profound that the rise to dominance of Japanese industry in the 1960s and 1970s. As the WSJ article points out, Western steel companies are looking nervously at, even courting, this Chinese company, which figures to be a major disruptor in the global marketplace. Chinese electronics, auto, and consumer goods firms may be close behind.
10:37:26 AM 
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