THE global axis of business power is shifting away from Europe, North America and Japan toward developing economies. A series of deals, either done or under way, emphasizes the change. Qatar’s Investment Authority is now the front-runner to buy the UK’s largest water company, Thames Water, from its German owners for up to $18 billion. This summer India’s Mittal Steel acquired its French rival Arcelor in a $34-billion deal that makes the new Arcelor Mittal the world’s biggest steel maker with 330,000 employees in 60 different countries. Now India’s Tata Industries is poised to bid in excess of $10 billion for Anglo-Dutch steel-maker Corus perhaps in competition with Russian tycoon Roman Abramovich. This month, SABIC (Saudi Basic Industries Corp.) took over Huntsman Petrochemicals (UK) Ltd., a subsidiary of Huntsman Corporation, in a $700-million deal which complements SABIC’s 2002 acquisition of Dutch chemical business DSM.
In each of these acquisitions, the investment is direct and made by hands-on owners who are pursuing an international strategy in both of their markets. The Qataris will have to deploy serious management skills with Thames Water, which although profitable is in serious operating trouble. It is facing fines from regulators over its failure to stop water wastage through leaks from an antiquated pipe system beneath London’s busy streets.
The two acquisitive Indian steel-makers are clearly aiming for a strong strategic position in global steel. China has a voracious appetite for the metal, which, by a growing margin, it cannot meet from its domestic production. Arcelor and Corus have brought to their new owners a range of high margin, technically sophisticated specialty steels which are a long way from the pig iron production with which Mittal and Tata Steel both began. They typify the new wave of investment from developing economies that are generally now taking on the high-end production after honing their manufacturing and business skills in the basic “commodity” low-end sector of the market.
Despite some protectionist sentiment, Europe, and the UK in particular, are open markets for outside direct investors. The United States and Japan are markedly less so. The Americans do not take kindly to non-Anglo Saxon investors trying to buy up US assets. Though there were some plausible security concerns, the blocking of the acquisition by Dubai Ports World of the US ports owned by Associated British Ports was chauvinistic and racist. That the security issue was nonsense was demonstrated shortly after the deal was scuppered when DPW’s Dubai operation became the very first to achieve a Lloyds List certificate for meeting the exacting requirements, security included, of ISO 9001:2000. US and Japanese firms have always been happy to take the benefits of indirect investment, especially of petrodollars, from developing economies. Now they are going to have to get used to direct investment by emerging companies that want to run the assets they buy. America and Japan have profited greatly from global markets. They cannot now recoil when new aggressive players emerge to challenge their hegemony.
