Globalization Or Concentration?

Acquisitions are a normal part of business life. But Lakshmi N. Mittal's bid to buy International Steel Group (ISG ) Inc., if it goes through, could be the start of a new stage in globalization. Mittal, an Indian-born tycoon with steel factories all over the globe, wants to add U.S.-based ISG to his stable to create the world's largest steelmaker. The deal could trigger a wave of additional cross-border mergers and consolidations until there are only a handful of large global players. The likely result: true global markets in steel and the reduction or elimination of long-standing overcapacity in the industry.

With steel showing the way, the same thing could eventually happen in other industries with global overcapacity, such as autos, textiles, commodity chemicals, and even agriculture. In coming years, we could see country-spanning combinations in these industries that go far beyond, say, the merger of Chrysler and Daimler-Benz.

This new era of globalization could be a boon -- if government oversight can keep up with the consolidation process. Such linkages are logical in a unified global marketplace and can lead to a more efficient and profitable manufacturing sector. As excess capacity is squeezed out, it will become more attractive to put new capital into factories.

But regulators in the U.S., Europe, and Asia will have to make sure that the process doesn't go too far. With too few global rivals, prices could head up again -- bad news for both consumers and business customers. That objection shouldn't stop Mittal's bid, since the global steel market is still highly fragmented. But it could be a bigger factor in other industries, such as autos. Getting rid of global overcapacity is important, but not at the price of too much concentration.

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