Aliquippa, Gerdau Steel, and the Global Steel Industry

I grew up in Aliquippa, Pennsylvania, a steel town located on the west bank of the Ohio River, 20 miles north of Pittsburgh. My family was in the builders supply, automobile, and banking businesses, but everything in our town focused on the steel industry, specifically the Aliquippa Works of the Jones and Laughlin Steel Corporation. The whole town of 27,000 people had grown up as a boom town in the first quarter of the 20^th Century as the Aliquippa Works had expanded along the river, eventually reaching an extension of over three miles. My great uncle Paul Miller Moore had gone to work for B.F. Jones after graduating from Muskingum College, and in 1908 was sent to Aliquippa, then Woodlawn, to prepare the ground for the building of a the giant steel mill. In 1912 my uncle left J&L and founded P.M.Moore Builders Supplies, located on a leased piece of land within the mill, and for the next 75 years our family fortunes rose and fell in direct relationship with J & L and the steel industry in the US. Most of the adults I knew as I grew up in the 1940’s and 1950’s were steel men, from works managers to metallurgists to fathers of friends who worked on the blast furnaces and the open hearths. The steel industry has always fascinated me.

In 1977 when I was on the international business faculty of New York University I conducted a personal interview survey with executives and financiers of the nascent steel industry in Brazil. The U.S. industry was already in the process of radical restructuring and workforce reduction by this time, but the Brazilian industry was in full growth mode. New companies were being founded, and there was great optimism. One of the less prominent companies in the Brazilian industry at that time was owned by the Gerdau family, based in Rio Grande do Sul in the far south of Brazil. This family had started the company as a producer of nails in the early 1900’s. It had continued steady growth throughout the century, adopting a focused strategy of servicing the regional markets for “long” products and nails produced in the mini-mill electric furnace/continuous casting processes implemented so effectively by Nucor in the United States.

When the privatization of state industries occurred in Brazil in the late 1980’s Gerdau stepped up the plate and successfully bid in several steel company auctions, with the largest acquisition being the takeover of Acominas, a large basic steel producer located in the heart of the iron triangle of Minas Gerais. By the late 1990’s Gerdau had become a major player in the Brazilian industry, and a leader in the trend toward the multinational expansion of Brazilian and Latin American firms. A Harvard Business School case was written on the company, and I published my own case study on the company in 2004. In my view the success of the company was based on inspired leadership, constant focus on training at all levels of the company, a corporate culture based on constant improvement in quality in all aspects of company operations, and a focus on specific market niches.

Gerdau has become one of the top 15 steel companies in the World, with operations in Brazil, the U.S., Canada, Chile, Argentina, Mexico, Peru, Venezuela, and now Spain. This is truly an impressive corporate performance spanning more than 100 years.

There are always uncertainties on the horizon for any organization. One of the big ones for Gerdau is the changeover taking place to a new generation of managers. Another is whether the company will successfully remain independent in the fast changing context of the global steel industry. The industry still has a relatively low level of global concentration in comparison with almost all other industries, even as major mergers and acquisitions follow each other with high frequency. The takeover of the world’s largest steel company by family controlled Ispat Industries in 2006 is one of the most dramatic developments illustrating the trend of concentration. One can only speculate as to the future of Gerdau in the face of this trend.

Returning to the beginning of this essay, what has been the fate of J & L Steel’s Aliquippa Work’s in the town of my childhood? The company itself became a part of LTV in the 1980’s, merged with the former Republic Steel. The 1990’s found the company in bankruptcy, and liquidation followed in the early 21^st Century. Some of the assets were purchased at bargain basement prices to be a part of the newly formed International Steel Industries, and are now operating again. The Aliquippa Works were not resurrected. Today Aliquippa is a community of 6,000 people, and most of the giant works along the Ohio has been dismantled, with some of it shipped to China according to local lore, and the rest sold for scrap metal. The riverbank once again has a natural beauty after its interlude as a fiery industrial crucible.

I wonder if the same fate will some day befall any of the communities in South and North America which today host the operations of Gerdau Steel.

President Bush In Sao Paulo

I have some questions about the spin being put on the current Latin American tour of President Bush. Why does the press focus so much on aid programs and the poverty of Latin American countries. Certainly these are worthwhile concerns, but it diverts the public's attention from the concern of Latin Americans for much more than mere money. It is nice that the US contributes to some programs in Latin American countries, and probably should be doing more. But what is included in the totals of current US contributions to countries in the region? In particular, is money for the "War on Drugs" being included in the aid totals? And what about trade protectionism against products from Latin American countries? What about the agricultural protectionism in the US public policy? These are concerns of Latin American which press coverage of the toou may be glossing over.

On another point, in the talk about the new ethanol deal between Brazil and the US there should be discussion of the protectionism afforded to US-based agribusinesses by limiting the importation of ethanol produced in Brazil. Is the US ethanol program a subsidy program for agribusiness, or is it an efficient way to increase the usage of energy from renewable resources in the US?

On still another point, demonstrations in honor of the President's visit may well be about the failure of the US to support freedom and democracy in the past six years. People in the US often overlook the radical idealism which Latino patriots took from the experience of the US in its early days. In some senses there has always been a sharing of democratic values between North and South America since the breaking of the colonial ties with Europe, in spite of the ways in which democracies in North and South America have fallen short over the years. It may be that people in Latin America are angry, in part, at the way the US has ignored its traditional role as a beacon for support for human rights, the rule of law, the observance of international committments, peaceful resolution of disputes, and the tolerance for diversity in recent years. Mr. Bush, if you are reading this blog, my suggestion to you is that "it's not just about the money."

What is Dr. Moore's IB Blog All About?

The purpose of this blog is to discuss topics related to international business and politics. Sometimes there will simple reporting on people, companies, and events, and sometimes there will be an expression of opinions. People who read the blog are invited to share their own comments on the matters discussed on the blog.