Rapid overseas expansion bring

Rapid overseas expansion brings this Brazilian multinational some contrasting experiences.

Until the late 1990s, Brazil’s Vale mining company was a state-owned sleeping giant. Vale, the world’s largest iron-ore producer and the second-largest miner overall by volume and market value, was privatised in 1997. Since then the company has transformed itself into a dynamic conglomerate and expanded globally. As the former CEO Roger Agnelli commented in 2010: ‘Vale used to be fundamentally an iron-ore company. We used to operate essentially in Brazil. Now we are in 36 countries.’ Although Vale has been described as ‘one of the world’s most powerful and aggressive mining companies’ its international experiences have been mixed as shown in the examples below and consequently the new CEO Murilo Ferreira has somewhat slowed down Vale’s global expansion.

Vale’s $17.6 bn (€13.2 bn or £10.5 bn) takeover in 2006 of Inco, the world’s largest nickel producer, was its first major overseas acquisition. Canada’s largest national newspaper, the Globe and Mail, described Vale’s arrival as ‘the great Canadian mining disaster’. Many Canadians resented this takeover by what they regarded as a business from a developing country. Of 29 senior Canadian managers in early 2007, three years later 23 had departed, mostly voluntarily. At one tense meeting a Brazilian manager riposted: ‘How come, if you’re so smart, you didn’t take us over?’ The clash resulted in a strike that lasted almost a year. While the conflict was finally resolved it was seen as a sign of potential confrontations when companies from emerging economies such as Brazil, China and India expand into new, unfamiliar territories.

The booming demand from China has been a gift and Vale’s export of iron ore there account for about 30 per cent of revenues. Compared to main rivals Australian miners BHP and Rio Tinto, Vale, however, has a considerable disadvantage: distance. Vale’s solution has been to develop giant iron-ore vessels. A fleet of 100 of the so-called ‘Valemaxes’ would reduce shipping costs to China by 20 per cent and carbon emission by 35 per cent. The giant ships have, however, ignited controversy among Chinese authorities, especially when one developed a crack in a ballast tank. The struggling Chinese shipbuilding community has been particularly critical as it claims that the mega-carriers would drive freight rates down. All this has resulted in a ban on the Valemaxes to dock at China’s ports, forcing Vale to unload in Malaysia and the Philippines instead.

A contrast so far has been Vale’s experience in Mozambique. Like many Brazilian companies, Vale has been attracted to the two African countries of Angola and Mozambique because of the shared cultural and linguistic heritage of Portuguese colonialism. About half the 3 million black African slaves sent to Brazil between 1700 and 1850 came from Angola and, in the 1820s, settlers in Angola and Mozambique applied to join the newly independent Brazil in a federation. Vale first invested $1.7 bn (€1.3 bn) in Moatize, considered by investors to be one of the world’s largest untapped coal reserves. Because of its success Vale has decided to expand Moatize’s capacity from 11 million to 26 million tonnes per year with an additional investment of $6 bn (€4.5 bn) including the expansion of railway linkages and infrastructure. Vale’s CEO, Murilo Ferreira, confirms Africa’s significance for the company’s strategy: ‘It’s a new frontier . . . Africa is very important. We want to grow there.’

Questions

1 Suggest three reasons for Vale’s different reception in Canada and Mozambique.

2 What can Vale do to mitigate the problems the company encounters when expanding globally?

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