Globalization is going a common thing today, as companies and people around the Earth are going more affiliated to each other than of all time before. Information and money flow more rapidly now. Goods and services produced in one portion of the universe are progressively available in all parts of the universe and international communicating is easy. The “ globalisation. ” epoch has really started more than 2 decennaries ago ( Modelski, 1972 ) . Technological invention, the rise of market establishments, progresss in production and inducements for long-distance trade stimulated concerns worldwide to make other parts of the Earth. Therefore, the international markets are apparently attractive to most concerns and more concerns are now seeking to gaining control markets internationally to derive competitory advantage and besides economic systems of graduated table which will finally take to higher returns. Rio Tinto is one such company.
Rio Tinto is a successful international company in determination, excavation and treating the Earth ‘s mineral resources such as aluminum, Cu, gold, diamonds, industrial minerals ( borax, Ti dioxide, etc ) , Fe ore and energy merchandises ( coal and U ) . Rio Tinto is a combination of several subordinates with each subordinate concentrating on a type of merchandise. This study will be concentrating on Rio Tinto ‘s industrial minerals group of ilmenite mineworkers that are comprise of entirely owned QIT – Fer et Titane in Canada and besides 50 % involvement Richards Bays Mineral located in South Africa. Both subordinate mine ilmenite which produces Ti dioxide as the chief merchandises that are normally used for pigments used in paper, plastics, pigments, etc.
This study will analyse the importance of both the general and industry appraisal and the impact environment will hold on the company, schemes that are set to accomplish the organisation ends and besides Porter ‘s 5 forces theory for the industry appraisal. The study will be concentrating on a mix of both QIT – Fer et Titane and besides Richards Bay Mineral and Rio Tinto as a whole.
The importance of environment appraisal
Harmonizing to Deresky ( 2002 ) , the first thing that a company should make in puting planetary scheme is to specify or clear up mission and aims. Appraisal of the external environment that the house will confront in future should be done following and besides analysis of the company ‘s capablenesss in covering successfully with the environment. Environment factors are important factors that will act upon the success of a company ‘s planetary enlargement. Rio Tinto ‘s cardinal aim is “ to maximize the overall return to stockholders by operating responsibly and sustainably in happening, excavation and processing minerals – countries of expertness in which the Group has a clear competitory advantage ” ( www.riotinto.com ) .
Rio Tinto Ilmenite excavation operates in Canada and South Africa, the hazards of operating in different geographic country should be carefully considered. Harmonizing to Deresky ( 2002 ) , environmental scanning refers to the procedure of garnering information and prediction relevant tendency, competitory action, and fortunes that will consequence operation in geographic country of possible involvement. Hanson et Al ‘s ( 2002 ) found that a house might non be able to command the general environment ‘s section and component ; alternatively, it can garner the information required to understand each section and its deduction for the choice and execution of the appropriate schemes. Therefore, general environment appraisal is indispensable, the general environment that should be considered are demographic, economic, political/legal, sociocultural, technological and planetary dimensions which affect the company ‘s planetary enlargement.
Harmonizing to U.S. Census Bureau, the universe population is 6.4 M presently and is projected to make 6.5 M by January 2006. Thus the demand for Ti dioxide is increasing steadily based on the rapid universe ‘s population grow which is evidenced from Fig1 below. To get by with the increasing universe ‘s demand for Ti dioxide, Rio Tinto demand to spread out its excavation operations globally and Canada and South Africa was chosen for their enlargement. By making so, they have created occupations in these 2 states, even though harmonizing to CIA World Factbook ( 2005 ) , Canada has a low unemployment rate of merely 7 % , South Africa has a much higher unemployment rate of 26.2 % . Therefore, the impact of supplying employment in South Africa is much higher and therefore, Rio Tinto is most welcome to hold a excavation operation in South Africa.
Fig1. Graph of Ti dioxide supply and demand ( taken from tiomin.com )
Harmonizing to Tiomin.com, “ the high rate of growing in ingestion of plastic stuffs and the superior features as a lightening, brightening and opacifying agent property to Titanium Dioxide ‘s consistent rate of growing in ingestion of approx. 3 % per annum since 1970. Global pigment production in 2004 was estimated at 4.60 million metric tons, or about US $ 9 billion. ” In the yesteryear, it has developed strongly in the most economically developed states for being an indispensable constituent of basic consumer merchandises such as lodging and plastic merchandises.
South Africa is a middle-income, lifting market with abundant supply of natural resources, well-developed fiscal, communications, legal, energy, transit and besides a modern substructure which support efficiency in distribution of goods throughout the part and worldwide. Nevertheless, growing has non been strongly sufficient to cut down South Africa ‘s high unemployment rate and lay waste toing economic jobs that lingered from the apartheid epoch, peculiarly poorness and deficiency of economic authorization amongst the deprived groups. Harmonizing to CIA World Factbook ( 2005 ) South African economic policy is in fiscal matters conventional, but realistic, concentrating on aiming rising prices and liberalising trade as a manner to increase occupation growing and household income. As I have mentioned antecedently, Rio Tinto is therefore welcomed to hold a excavation operation in South Africa.
Whereas, Canada is a comfortable, hi-tech industrialized society, who has entered in the trillion dollar category late, harmonizing to World Factbook ( 2005 ) . Canada is similar to the US in its market-oriented economic system, form of industry, and high life criterions. Since World War II, the singular growing of the fabrication, excavation, and service sectors has transformed Canada from a chiefly rural economic system into chiefly industrial and urban. Given its immense natural resources, adept labour force, and modern assets, Canada enjoys steadfast economic chances. The 1989 US-Canada Free Trade Agreement ( FTA ) and the 1994 North American Free Trade Agreement ( NAFTA ) , created a singular addition in trade and economic integrating with the US. Canada enjoys a significant trade excess with its chief trading spouse, the United States, which absorbs more than 85 % of Canadian exports. Solid financial direction has produced a long-run budget excess which significantly reduces the national debt. Exports history for approximately a 3rd of GDP. By spread outing Rio Tinto ‘s operations to Canada, Rio Tinto will besides hold entree to the U.S. market which Canada presently have close ties with.
This section is about the trade barrier that authoritiess set out to companies. As an ilmenite mineworker and exporter, it is of import for Rio Tinto to understand, measure and admit the trade barriers that are imposed. ‘White Paper ‘ is the mineral and excavation policy for South Africa which rule out the inside informations of the revenue enhancement and ordinances that a company must stay when seeking to hold a excavation right in South Africa such as the Mine Health and Safety Act of 1996. Harmonizing to investopedia.com ( 2003 ) , developing states might hold cheaper labour and excavation costs, but the political hazards are immense. Realistically, Rio Tinto is cagey plenty to hold its important assets such as Richards Bay Mineral, in South Africa and QIT- Fer et Titane in Canada that are politically stable and have a mining-friendly ordinances and revenue enhancement. Harmonizing to Heakal ( 2003 ) , many-sided understanding such as WTO could be used by Rio Tinto to cut down revenue enhancement costs and besides hike ilmenite export.
A important tendency that is presently in focal point worldwide is the increased diverseness of the work force. The turning gender, cultural and cultural diverseness in the work force creates challenges but besides chances. Therefore, Rio Tinto is challenged to pull off and unite both gender work forces. When they have efficaciously managed a globally diverse work force, the advantages are immense to Rio Tinto which will finally take to competitory advantage. Harmonizing to UNEP ( 2002 ) , the pattern of standardisation, are going common presents, which is considered as a less than fulfilling pattern which will finally take to the loss of individualism and singularity of different states. Rio Tinto should take note and be cognizant of that when they have an enlargement to different states, they should accommodate and be witting of the local preferable manner of life and making things.
In the current postmodern universe, everyone in anywhere is dependent on engineering in one manner or another. For a excavation company such as Rio Tinto, engineering is the anchor of its operations, therefore technological alteration and promotion will impact Rio Tinto ‘s operations. The demand to upgrade and be updated will find the efficiency of Rio Tinto ‘s operations. Companies, who spot emerging new engineerings and utilize it efficaciously, will hold certain competitory advantage over its rivals. Technology has ease houses in being able to pass on globally about immediately, engineering psychiatrists clip and distance, helped in communicating between divisions globally, and besides reduces cost. Technology is ever of import to the distribution of cognition ( informations ) , and development of a house ‘s construction. Harmonizing to CIA World Factbook ( 2005 ) , Canada has a high degree of engineering, while South Africa has a mid degree engineering. Knowledge transportations for both states are good to one another and globally.
Globally, the demand for Ti dioxide is increasing due to the rapid enlargement of each state ‘s market, particularly China, which has advancement quickly in these few old ages. Everyone now acknowledge China as portion of the universe of import economic system apart from U.S, Europe, etc. China ‘s recent entryway to WTO will surely convey more chances for international houses due to less limitations or ordinances, therefore doing China to be top picks in enlargement. Developing states such as Thailand, Indonesia, South Korea, etc are besides of import growing market which will be spread outing more smartly in future. As we are in the ‘globalization ‘ epoch, more and more companies are looking for chances to spread out its operations globally which created competition worldwide. Rio Tinto should maintain in head that it ‘s rivals are besides in hunt of minerals globally, Rio Tinto should perpetrate to geographic expedition and happen new minerals to maintain up with the competition globally. With Rio Tinto ‘s world-wide enlargement, the demand to understand, appreciate, adapt and larn each state ‘s alone civilization is critical to find successful international enlargement.
Rio Tinto ‘s planetary entry scheme
Harmonizing to Keegan ( 1999 ) , a research found that it is of import for companies to travel planetary because 70 five per centum of universe market potency is outside its place state. Strategy of a concern focuses on long term way of the organisations ( Johnson and Scholes, 2002 ) . Rio Tinto ‘s scheme is to maximise the net present value per portion by puting in big, long life, cost competitory mines. Investings are driven by the quality of chance, non pick of trade good ( www.riotinto.com ) . “ Our scheme is to concentrate on big graduated table, long life and cost competitory excavation operations and to put throughout their lives so that they maintain their competitory places. ”
Fig1. Entry Modes picks hierarchal theoretical account ( taken from Deresky ( 2002 )
There are many options for entry manner to another state that a concern could utilize such as the one shown in Fig1 above. In Rio Tinto ‘s Ilmenite Group, a combination of entirely owned subordinate and 50 % EJV was used by Rio Tinto in spread outing its operations globally. QIT- Fer et Titane is a entirely owned subordinate whereas, Richards Bay Mineral enlargement entry manner is by utilizing 50 % portion EJV with BHP Billiton which is really a enemy. Thus the statement “ a friend in demand, a foe so ” , this applies good to Rio Tinto and BHP Billiton. Rio Tinto ‘s Joint venture scheme created certain advantages in many different ways such as:
* Ability to derive immense capital by uniting capital with spouse.
* Direct entree to international and local market.
* Access to spouse ‘s engineering or economic systems of graduated tables in assets ( works ) .
* Share hazards with spouse and therefore, cut down hazards when come ining new market.
* Acquire accomplishment or cognition from spouses.
Rio Tinto ‘s ilmenite industry environment & A ; Porter ‘s 5 forces )
Michael Porter ( 1979 ) believes there are five forces regulating competition in planetary industry, which are: menace of new entrant, dickering power of provider, dickering power of customer/buyers, menace of replacements of merchandise or service and the industry degree of competition which is shown in Fig2 below. Porter ‘s five forces consist of those forces which are close to a company that might impact its ability to function its clients and do a net income. A alteration in any one of the forces usually requires a company to re-assess the market.
Fig2. Competitive Forces Model ( Porter, 1979 )
-Threat of new entrant
In every concern, non merely competitions come from incumbent challengers but in add-on there is besides the menace of a new entrant anytime. The menace of entry for Ti mineworkers is presently non that high as there are barriers of entry for the excavation industry such as high plus specificity with specialised assets, deficiency of proprietary know how/ cognition, restricted distribution channels and besides authorities ordinances. Existing houses should ever make barriers to entry and utilize the expected reprisal benefits that will put challengers and possible new entrant in competitory disadvantage. Financing is the chief barriers of entry for the excavation industry as the building of mines, production installations, geographic expedition and development, excavation works and equipment all oblige big sum of capital. These big capitals are required even before the mine is in production. Therefore, favourable funding footings are highly of import which means long-run endurance in the excavation industry requires important capital.
-Bargaining power of purchasers
The bargaining power of purchasers is the impact that clients have on an industry. In this instance, the bargaining power of ilmenite purchasers is non high compared to Rio Tinto as the demand for ilmenite is increasing over clip and besides there are non many providers of ilmenite with whom the purchasers could instead purchase from. Buyers of ilmenite are fragmented and therefore the different purchasers do non hold any peculiar influence on the merchandise or monetary value. Buyers dickering power is besides weak as ilmenite mineworkers supply critical parts of purchasers input and besides the fact that the cost of exchanging is high as the merchandise is neither standardised nor easy available.
-Bargaining power of providers
Mining industries need natural stuffs such as labor, equipment and other supplies to bring forth its merchandises. Strong dickering power of provider can straight impact on the cost of the company ‘s operation by exercising an influence on the company such as selling equipment at a high monetary value to capture the industry ‘s net incomes. The dickering power of Rio Tinto ‘s providers is non significantly high as competition is strong and there are non many clients for mining equipment. Harmonizing to Engineering & A ; Mining Journal ( 2005 ) , Caterpillar late in March wins a provider contract for Rio Tinto for a period of 5 old ages.
-Threat of utility merchandise
Harmonizing to Samath ( 2002 ) , there is no replacement for ilmenite which produces Ti is regarded as the metal of the hereafter. Therefore, Rio Tinto could rest assured of increasing demand for ilmenite but Rio Tinto should ever expect and be prepared for any sudden intelligence of a replacement for ilmenite.
-Rivalry among viing houses
The competition among viing houses is rather high for ilmenite mineworkers as there are several others ilmenite mineworkers such as Tiomin Resources. Inc. High fight among the viing houses consequences in force per unit area on the monetary values and borders, and therefore on profitableness for every individual houses in the industry. The competition among ilmenite mineworkers are high as there is non much distinction between mineworkers and their merchandises, hence, there is much monetary value competition. The barriers for issue are high peculiarly attributed from the expensive and extremely specialised excavation equipment. There are several ilmenite mineworkers of about the same size and have similar schemes, therefore competition between each mineworkers is high.
Porter ( 1980 ) pointed out that there are 3 generic schemes that could be used by concerns which are distinction, cost leading and cleavage scheme. These 3 schemes are based on the strategic range and strategic strength of the company. Strategic range is the demand-side dimension whereas strategic strength is the supply-side dimension and looks at the strength or nucleus competence of the company. Therefore, Rio Tinto should beef up its nucleus competences to vie successfully in the excavation industry and besides to keep its place in the excavation industry.
This study has analysed the general and industry environment of Rio Tinto ‘s Ilmenite Group, discussed on the importance of environment appraisals and has besides analyzed on it ‘s planetary entry scheme.