Europe's fear of pinstriped Indian By Anand Giridharadas International Herald Tribune
FRIDAY, FEBRUARY 3, 2006 MUMBAI, India Polish plumber, step aside. The new archetype of the threat to Europe is the Indian in pinstripes.
Or so it seemed this week, as French political and corporate elites shaped Mittal Steel's hostile bid of E18.6 billion, or $22.5 billion, for its European rival Arcelor into nothing less than a corporate clash of civilizations.
The specter of a European industrial icon being taken over by an Indian company provoked a swift, united front among politicians and business leaders that is rarely seen on other issues that arise in the European Union.
"French people have been worried about globalization," said Sébastien Montigny, head of business development for France at Infosys, the Indian outsourcer. "First, we were talking about the European Community and the plumber from Poland. Then China. Now, India is emerging as a new, big important economy that France has to deal with."
Arcelor's chief executive, Guy Dollé, issued a rain of fiery comments after Lakshmi Mittal, the Indian-born billionaire, issued his surprise offer for the company on Jan. 27.
Mittal Steel, an empire spanning five continents, was a "company of Indians," Dollé said, and a "group of less-than-average" businesses that would pay for Arcelor "in monkey money" - a common French colloquial expression that means that something is worthless.
European steel, Dollé added, was like "perfume," and Mittal's steel like "eau de cologne."
Government officials expressed their concern in a different way. France, Luxembourg and Spain - where Arcelor has factories - banded together to raise the specter of an irreconcilable clash of business cultures and the prospect of job cuts among Arcelor's tens of thousands of European workers.
The arguments sounded familiar: The pristine West was at risk of being sullied by the cheap, shoddy East.
But Lakshmi Mittal, the chairman and chief executive of Mittal Steel, is no Polish plumber. He is an entrepreneur who came from a village with no electricity to build the world's largest steel company. He is now the world's third-richest man, behind Bill Gates and Warren Buffet. In 2004, Mittal's wealth, buoyed by China's demand for steel, expanded at the rate of $36,000 a minute.
And far from being a familiar threat, Mittal represents a challenge to Europe that is profoundly new: the emerging market not as a font of cheap talent, but as a springboard for new business models and new multinationals seeking to beat or buy Western companies.
"This action from Mittal toward Arcelor will crystallize the fact that India will be a major player in the next century, and French people have realized this through this event," said Montigny, the Infosys executive.
The leftist, pro-worker French newspaper Libération published an article on Thursday chiding politicians for not foreseeing the globalization of companies from emerging countries.
The problem is "that Lakshmi Mittal is Indian, and that India was more reassuring when it was not a new emerging power, equipped with multinationals on the march," said the article, written by Joël Ruet, an India scholar and researcher affiliated with the London School of Economics and L'École des Mines in Paris.
Strictly speaking, Mittal Steel is not an Indian company. Lakshmi Mittal lives in London and the company is formally based there and in the Netherlands. Mittal Steel has no operations in India, although there are plans to build them soon. But apart from his Indian heritage, Mittal is associated with emerging markets because of the nature of his business model. From the beginning, it focused on turning around steel plants in the developing world and running them at bargain-basement costs.
Mittal perfected that model in places like Mexico, Kazakhstan and Trinidad before applying it to advanced economies like that of the United States, where he recently completed his acquisition of International Steel.
Europe's reaction to Mittal's bid for Arcelor has created some tension between India and Europe. The Indian ambassador to the European Union, Dipak Chatterjee, said Thursday that he was "disappointed" at the European response. "Very unpleasant comments have been made, not in good taste," he said by telephone from Brussels.
As it looked increasingly likely that European governments could do little to stop Mittal, all sides toned down their rhetoric. The French finance minister, Thierry Breton, repeated earlier statements that shareholders would ultimately decide the fate of Mittal Steel's bid, and called it "a European company." Dollé on Friday said Arcelor remained "completely determined in our opposition to Mittal Steel's offer," but for the first time he said he would not exclude discussions with Mittal.
Europe's reaction reflects the escalating challenge mounted by emerging economies like China and India, to which the West originally turned for inexpensive labor, whether in China's factories or on India's software campuses.
But while the rise of China is widely associated with factory job losses in the West or with threats to national security - as when the Chinese oil company Cnooc tried to purchase the U.S. oil giant Unocal - India has more or less escaped such perceptions.
Now, the Mittal bid may give rise to a new image of India, and of emerging markets more generally, as a profound and sophisticated threat. European concerns partly reflect the unknowns of how Mittal Steel will apply its low-cost model to Arcelor's plants. Steel industry analysts say that Mittal Steel is far leaner than Arcelor and is likely to trim, but Mittal has denied that there will be any plant closings or layoffs.
Europe is also wary of the ascendancy of business models invented outside the West - whose inventors claim that they can operate Western companies better than Westerners do. In interviews, several India-based expatriate workers for European multinationals all argued that it was this deeper, high-end threat that worried Europe.
"This threat is stronger than the threat of" outsourcing, said Antoine Zenone, a vice president at the French cement maker Lafarge and the company's lone French expatriate in India. "We're no longer talking about keeping companies within the borders, but rather about preventing companies from coming in."
Jérôme Rouch, a Frenchman and manager of Natexis Pramex International in India, said, "We don't realize that with 60 million people, compared with India and China, which is 2.3 billion, we are nothing. We keep moaning. We are cowering."