Management- Rio Tinto Case analysis Essay Example

  • Category:
    Management
  • Document type:
    Case Study
  • Level:
    Undergraduate
  • Page:
    2
  • Words:
    1241

Management- Rio Tinto Case Analysis

Presented to

Introduction

Based in UK, Rio Tinto is known to be one of the leading mining groups globally. It is a conglomerate of Rio Tinto Plc. and Rio Tinto Limited (Harvey, 1981, p.1894). The former is a London listed company while the latter is listed on the Australian Securities Exchange. With its core business as finding, mining, processing of various mineral resources and supplies of both metal and minerals, Rio Tinto has remained as one of the best companies in meeting the growing needs of persons worldwide. The company has continued to contribute immensely to improvements in living standards of persons (Kapelus, 2002, p. 283).

Strategic Management Issues

One of the strategic issues that are identified is the increase in costs of iron ore that makes it a real threat to the company. The high set up costs for the company is another strategic management issue. The high cost levels are mainly triggered by the control of the government that happens through leasing and licensing. The government has been setting high costs and this definitely has been a barrier to entry for most of the companies. Additionally, there is the aspect of other materials that are used instead of iron ore. These substitutes are in themselves a threat to the company. The main substitute is the scrap metals that are relatively cheap in comparison to the iron core. The management of Rio Tinto has to be strategic enough to ensure that it addresses such issues lest their mining and productivity rendered less competitive in the market. Inflationary policies are some of the issues that face the firm. This is a problem that needs to be addressed going forward.

Model Applicable

The model under consideration for this case is the Porter’s five forces. This model is applied to assist in comprehension of the strategic position of Rio Tinto in the market. Applying the model assists explains the effects of different aspects of it including the government. The effect of the government is great within the mining industry and this has necessitated the addition of it in the model (Porter, 2008). Given that the fluctuating power of both buyers and suppliers in the government are predominant, it then makes this model appropriate (Bose, 2008, p. 516).

Through the model, the position of the firm can be gauged and challenges that exist also identified for the sake of their address in future. Through the model, the competitive nature of rivals is explored and the exact position of the firm is explained (Narayanan and Fahey, 2005, p. 219). A case in point is competitiveness and rivalry that was witnessed when BHP Billiton made attempts to acquire Rio Tinto. Rio Tinto would protect itself through its own strength and as well by support of the regulatory authorities. The nature of such rivals is only clear through the model. The threats of entrants and substitutes for this market are covered using the model (Porter, 2008).

Through the model we get full insight of the new entrants and the entry barriers that exist, the sources of bargaining power, the substitutes, buyers in the market and their bargaining powers. This together help to explain some of the strategic management issues that Rio Tinto face.

Analysis of Model and Solution

Threat of Existing Rivalry

In its operations, Rio Tinto sees the competitors as opportunities and threats. Rio Tinto aware of her position in the market has done all it can guided by the authorities to make it difficult for its acquisition by BHP Billiton. There are discussions between Rio Tinto and Vale on sharing of railway infrastructure and this is indicative of their oligopoly and strength in the industry (Jones, Marshall and Mitchell, 2007, p. 61). Rivalry has been a major factor in the industry though has remained to be an advantage to Rio.

Threats of New Entrants

The mining industry generally has very high set up costs. Additionally, the industry suffers also from very high levels of control by government in terms of leasing and licensing. This definitely has resulted in major barrier to entry. Also, given that there is labor shortage in Australia where Rio boasts of biggest concentration of iron ore assets can make the other buyers to opt for the other areas. Due to the above there is a decrease in barriers to entry.

Power of Suppliers

Owing to the high commodity prices there result definite shortages in mining equipment. Therefore, Rio Tinto has to be keen when obtaining the supplies and ensure that such supplies can meet demand. This must happen while keeping the costs down. Rio Tinto is a leader in technology and as their technological capacity increases, the strength of the suppliers definitely increases given that fewer of them will be in a position of supplying the needed equipment.

Power of Buyers

There are some countries that have had inflationary policies that have made it difficult for Rio Tinto to invest. One of these countries is China. Such policies also lead to reduction in demand of iron ore thus leaving the buyers with more power and eventually decreasing the cost of iron ore.

Threat of Substitutes

The largest portion of iron ore is used for manufacturing of steel that is known to be one of the most sought after construction materials. The major threats that are presented for the iron ore even though it is on demand are the increasing costs. Scrap metal is one of the largest threats for the iron ore. Other countries substitute it for concrete, wood, paper and glass.

Recommendations

The company should continue to invest in production of low carbon footprint products to ensure that it remains to be the choice of the people in the market (Frost, 2007, p.197). As much as the company is technologically innovative, it should strive to ensure that it demands meets those of suppliers rather this will just increase the prices (Whitmore, 2006, p. 311). The company needs to have in place a competitive legal team that will address some of the issues that are pertinent to the firm. This is to ensure that the firm remains bound by the laws of the country where it operates and at the same time it operates without major hitches.

Bibliography

Bose, R., 2008, Competitive intelligence process and tools for intelligence analysis, Industrial Management & Data Systems108(4), 510-528.

Frost, G. R., 2007, The introduction of mandatory environmental reporting guidelines: Australian evidence, Abacus43(2), 190-216.

Harvey, C. E., 1981, The Rio Tinto Company: an economic history of a leading international mining concern, 1873-1954, Alison Hodge Publishers.

Hamann, R., 2003, Mining companies’ role in sustainable development: the’why’and’how’of corporate social responsibility from a business perspective, Development Southern Africa20(2), 237-254.

Jones, M., Marshall, S., & Mitchell, R., 2007, Corporate social responsibility and the management of labour in two Australian mining industry companies, Corporate Governance: An International Review15(1), 57-67.

Kapelus, P., 2002, Mining, corporate social responsibility and the» community»: The case of Rio Tinto, Richards Bay minerals and the Mbonambi, Journal of Business Ethics39(3), 275-296.

McCullough, C. D., & Lund, M. A., 2006, Opportunities for sustainable mining pit lakes in Australia, Mine water and the environment25(4), 220-226.

Narayanan, V. K., & Fahey, L., 2005, The relevance of the institutional underpinnings of Porter’s five forces framework to emerging economies: An epistemological analysis, Journal of Management Studies42(1), 207-223.

Porter, M. E., 2008, The five competitive forces that shape strategy.

Whitmore, A., 2006, The emperors new clothes: Sustainable mining?, Journal of Cleaner Production14(3), 309-314.