Vale: Can a Reluctant National Champion Stay Globally Competitive?
A corporate strategy article by Thunderbird students, Eduardo Da Silva, Lucas Hendee, Patrick Jaszewski, Rebecca Lau, Tim Murphy and Indra Wiryadinata.
After its privatization in 1997 and the appointment of Roger Agnelli as its CEO in 2001, Brazilian mining company Vale has become the darling of Wall Street. Under Agnelli’s leadership, Vale has streamlined and focused business operations, making it the world’s largest iron ore exporter and second largest mining company. Meanwhile, Vale’s market capitalization grew from US$9 billion to US$100 billion. Industry observers believe Vale’s success is driven by booming domestic demand. With a population of 200 million, Brazil is a fast-growing nation with huge market potential. The country’s need to further develop its infrastructure will continue to fuel domestic demand for iron ores and other metals and minerals. To capitalize on these opportunities, Agnelli (known as the “Iron Man” for his nerves of steel and knack for negotiation), divested businesses that would distract it from its core competency, metal mining, especially in iron ore, copper and zinc. The divested businesses included paper and pulp, steel, and transportation. In addition to distracting management from Vale’s core operations, these businesses were heavy electricity users, making Vale heavily dependent on the whims of the Brazilian government, which controls electricity production. The strategic alignment to Vale’s core competencies eventually allowed Vale to control about 90% of Brazil’s iron ore production.