Business Strategy <strong>ArcelorMittal</strong> has been built on a management philosophy that values scale, vertical integration, product diversity and quality, continuous growth in higher value products and a strong employee well-being and customer service focus. The Company has continued to enhance these characteristics through its three dimensional strategy for sustainability and growth. As a result, the Company enjoys unique geographical and product diversification, coupled with upstream and downstream integration that reduces exposure to risk and cyclicality. This strategy can be broken down into three major elements: Geography: <strong>ArcelorMittal</strong> is the largest producer of steel in Europe, North and South America, Africa, the second largest steel producer in the CIS region, and has a growing presence in Asia, particularly in China. <strong>ArcelorMittal</strong> has steel-making operations in 20 countries on four continents, including 66 integrated, mini-mill and integrated mini-mill steel-making facilities which provide a high degree of geographic diversification. Approximately 36% of its steel is produced in the Americas, approximately 49% is produced in Europe and approximately 15% is produced in other countries, such as Kazakhstan, South Africa and Ukraine. <strong>ArcelorMittal</strong> is able to improve management and spread its risk by operating in six segments (Flat Carbon Americas, Flat Carbon Europe, Long Carbon Americas and Europe, AACIS, Stainless Steel, and Steel Solutions and Services) reflecting its geographical and product diversity. Worldwide steel demand in recent years has been driven by growth in developing economies, in particular the BRICET1 countries. The Company’s expansion strategy over recent years has given it a leading position in Africa, Central and Eastern Europe, South America and Asia. As these economies develop, local customers will require increasingly advanced steel products as market needs change. Products: As a global steel producer, <strong>ArcelorMittal</strong> is able to meet the needs of diverse markets. Steel consumption 28 and product requirements are different in mature economy markets and developing economy markets. Steel consumption in mature economies is weighted towards flat products and a higher value-added mix, while developing markets utilize a higher proportion of long products and commodity grades. To meet these diverse needs, <strong>ArcelorMittal</strong> maintains a high degree of product diversification and seeks opportunities to increase the proportion of its product mix consisting of higher value-added products. The Company produces a broad range of high-quality finished, semi-finished carbon steel products and stainless steel products. Value chain: Vertical integration is key to <strong>ArcelorMittal</strong>. The Company has access to high-quality and low-cost raw materials through its captive sources and long-term contracts. <strong>ArcelorMittal</strong> plans to continue to develop its upstream and downstream integration in the medium term, following a return to a more favorable market environment. Accordingly, the Company intends in the medium-term to increase selectively its access to and ownership of low-cost raw material supplies, particularly in locations adjacent to, or accessible from, its steel plant operations. Downstream integration is a key element of <strong>ArcelorMittal</strong>’s strategy to build a global customer franchise. In high-value products, downstream integration allows steel companies to be closer to the customer and capture a greater share of value-added activities. As its key customers globalize, <strong>ArcelorMittal</strong> intends to invest in value-added downstream operations, such as steel service centers and building and construction support unit services for the construction industry. In addition, the Company intends to continue to develop its distribution network in selected geographic regions. <strong>ArcelorMittal</strong> believes that these downstream and distribution activities should allow it to benefit from better market intelligence and to better manage inventories in the supply chain to reduce volatility and improve working capital management. Furthermore <strong>ArcelorMittal</strong> will continue to expand its production of value-added products in developing markets, leveraging off its experience in developed markets. Organic growth: Notwithstanding the current downturn, <strong>ArcelorMittal</strong>’s management believes there will be strong global steel demand growth in the medium and long-term. Accordingly, the Company is maintaining its previously announced strategic growth plan to increase shipments in the medium-term to 130 million tonnes, which represents a 20% increase over 2006 levels, primarily through production improvements at existing facilities. Realization of this plan will nonetheless be delayed due to the postponement of capital expenditure in light of current market conditions and uncertainties. Mergers and acquisitions and Greenfield growth: Mergers and acquisitions have historically been a key pillar of <strong>ArcelorMittal</strong>’s strategy to which it brings unique experience, particularly in terms of integration. Instead of creating new capacity, mergers and acquisitions increase industry consolidation and create synergies. <strong>ArcelorMittal</strong> has also placed strong emphasis on growth in emerging economies through Greenfield developments. In light of the current economic and market conditions, <strong>ArcelorMittal</strong> has temporarily curtailed merger and acquisition and Greenfield investment activity until a return to a more favorable market environment. Despite the unprecedented global economic situation which has resulted in some postponements or temporary adjustments of growth targets, the Company’s three dimensional strategy remains its key to sustainability and growth over the long-term. However, given the current economic challenges, the Company has temporarily put its growth plans on pause, focusing instead on adapting the Company to the current difficult environment. 1 Brazil, Russia, India, China, Eastern Europe and Turkey.
<strong>ArcelorMittal</strong> is the largest producer of steel in Europe, North and South America, Africa, the second largest steel producer in the CIS region, and has a growing presence in Asia, particularly in China. 29 Business Strategy <strong>ArcelorMittal</strong> <strong>Annual</strong> <strong>Report</strong> <strong>2008</strong>
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