Growth and internationalization of Gerdau Group

Abstract

Gerdau Group is a Brazilian enterprise that has undergone steady growth since its first acquisition in 1948 of Riograndense steel mill. It has achieved a global position that is internationally recognized. This paper’s proposition of five hypotheses to explain the growth of the Gerdau Group is based on Penrose’s concept of growth and diversification, Guimaraes’ concept of the internal restriction of growth, Chandler’s concept of strategy-structure, Dunning’s competitive advantages relative to the OLI paradigm and the Resource Base View model. The main results found were that the group is a capital unit in the process of growth. This growth is achieved mainly by means of horizontal integration. It also occurs by means of vertical integration. Most of the integration takes place within the original specialization area, the manufacturing of long steel products. The company recently started a process of diversification, expanded towards new markets, and new technological bases. Domestic growth occurred at a higher level than the domestic apparent demand, creating a bottleneck for future growth; thus, exports and FDI appeared as an outlet for the potential growth of the group. As a response to the strategy of growth, the group promoted structural changes, shifting from being a functional organization into becoming a multidivisional one, with increased decentralization but a global system of control developed internally was also present. The growth process was based on resources advantages that were internally created; mainly operational and financial processes constituted the ownership specific asset advantage. Such engendered sustainable advantages were due to its rare resource conditions and the challenge of any imitation. Foreign growth was mainly the result of market seeking, although it also occurred, to a lesser degree, by natural resources seeking, specific assets seeking and productive efficiency seeking, along with support and escape strategies.