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Rio Tinto is one of the worlds renowned exploration and mining companies. Almost every continent (Europe, North and South America, Australia, Africa and Asia) houses an office of Rio Tinto. The company is responsible for finding, mining and processing raw material ores and minerals into useful metals which are in turn used in the manufacture of items essential to the daily routine of the average human person. From the time of its formation in 1873, Rio Tinto was already a highly capitalized global venture. In fact, after a few years, the company was able to become a leader in the world market for the mining of copper and sulfur with approximately 9,000 employees under its belt (Harvey, 1981).
At present however, Rio Tinto has been being recognized as a merger of two sibling companies --- Rio Tinto Plc and Rio Tinto Limited--- each of which based in the United Kingdom and Australia, ith the latter created in 1962 through the merging of the Rio Tinto Company (discussed in the previous paragraph) and The Consolidated a merger of two sibling companies Zinc Corporation, later called Rio Tinto Zinc Corporation (RTZ).
It was also during this time that its Australian counterparts also formed their own unification naming it CRA Limited, wherein in 1995, these two companies RTZ and CRA Limited merged into one company now known as Rio Tinto.
Ever since its merger about 15 years ago Rio Tinto has continually survived by employing the same techniques, they have used from long. They maintain the acquisition of investments (buying out small-time players and companies and secondly research on developments and innovations to keep up with their different global marketing strategies and it is this global marketing skill of Rio Tinto that has helped the company establish itself in the world market.
Its leaders continuously recognize that the world is their arena and it is growing smaller by the minute especially in the latest developments of digital technology. Company heads aiming to survive in the global scene must learn to understand the complexity and variation of international marketing otherwise it would lead to peril and danger to their respective organizations (Doole, 2008). Success in global marketing is achieved through the integration and appreciation for the different concepts and items in strategy development, thus making it very important for companies playing in the world market to analyze each of the factors that could spell either success or failure for its long-run advancement and future plans.
In view of the above context, this report will discuss on each of the different aspects on why Rio Tinto is successful in the world market using Porter's Fiver forces model. Porter (1980) argued that international marketing must not only deal with corporate level strategies but also included are the bargaining power of the buyer and supplier, threats of substitutes, rivalry among competing firms, and threat of new players in the industry. Therefore in order to thoroughly analyze in detail Rio Tinto Company based on this method, the discussion will limit only on the company's diamond investments as there are many different and varied players should discussion reach out to all available ventures of Rio Tinto.
Secondly, this paper will also consider the following items in view of the general environmental situation of Rio Tinto where under this; the discussion will focus on the demographic, economic, political or legal, socio-cultural, technological and global factors which make Rio Tinto the company it is today. All these items are then finally used to assess its future and growth in the international market and its possible strategies to improve its current condition, in light of its reviews.
PORTERS FIVE FORCES MODEL
BARGAINING POWER OF THE BUYER
Buyers can play the industry through their ability to control prices, bargain for more services and allow rival firms to compete with each other (Henry, 2008).
In the case of Rio Tinto's diamond investments the bargaining power of the buyer is low. Changes in prices, direct fluctuations over a short period of time have not been observed much for this industry as compared to that of other goods even with its significant numbers of buyers in the world market, although based on the trend line from the early 1930s to the present the price has been steadily increasing with a sharp rise starting from year 2000. This is because of the control of De Beers Corporation or more specifically the now called Diamond Trading Company (DTC), who has about 60% share of the world market's diamond production. It is responsible for producing, marketing, controlling and distributing a major bulk on the diamonds production (Siegel, 2009). Its dominance and control of the diamond marketing industry was more highly illustrated last 2004 when it suddenly raised the price of wholesale diamonds by three times or up by 14%. Historically, this company has been known to horde diamonds just to control its price ranges and stocks.
Secondly, although in the previous paragraph it has been discussed that indeed there are significant buyers in the world market, one of the aspects which causes the low bargaining power of the buyer is that the cost of producing these diamonds are in high proportion as compared to the cost of the quantity of available buyers. The varied types of diamonds together with their grade, whether based on carat or quality, needs intricate processes to make it suitable for use, either for jewelries and industrial uses, which in turn splits the buyer market at the cost of different manufacturing methods.
BARGAINING POWER OF THE SUPPLIER
The bargaining power of the supplier on the other hand is same to that to that of the buyer with having a low rating in Porter's scale. This is so because as discussed previously, the major player De Beers Corporation holds the say in the world distribution of diamonds. Although other institutions such as Rio Tino do have independent powers, the huge percentage owned by the De Beers Corporation still places a major factor overall.
In the diamond industry, most of the suppliers are those of small mining companies and labor. Although highly skilled individuals are indeed rare, novices tend to venture into labor due to the high profitability which allows many variations among the labor force.
THREATS OF SUBSTITUES
It has been said that nothing beats a real diamond, and this is true as there are man-made substitutes like that produced artificially but most people do still agree that there is still no comparison between the two. Take for example zirconium, which is usually used to imitate the shine, glitter and image of the real thing, it may look the same but the value of which differ and for buyers this also is one item to consider. Having brought an engagement ring with that using the man-made diamond, although for the untrained eye may not be noticeable, spell some difference especially during its appraisal and worth. A woman may feel less when her fiancée hands out this artificial gem. In summary, to this experts have time and again said that as long as people recognize the difference between synthetics and diamonds, these industry will be okay (Spool, 2005)
In industrial firms diamonds being one of the hardest minerals on earth is used to cut hard materials with ease and precision. Although some may come close to the hardness value it possess whether man made or natural, the diamond cannot be phased out as expensive as it may be since sometimes it provides better overall quality performance and better productivity results.
RIVALRY OF COMPETING FIRMS
As De Beers Corporation and Rio Tino hold the first and second spot in the mining and distribution of the world's diamonds, respectively, their rivalry has become a classic. They have been caught fighting over diamond mines as well as for dominance in this field.
The diamond industry is composed of many competing firms. There are small legal players (in comparison to that of the top two) and also considerable are those plying in the illegal market scene. However in the Porter Scale the rivalry is still deemed to be low as that their hold towards this industry does not pose as a great threat to De Beers Corporation and Rio Tino, as their production does not match the bulk from these two companies.
However, crediting to De Beers Corporation and Rio Tino it also defeats its rivals by buying out and taking over their corporation. For the case of Rio Tino it was able to create a dent in the dominance of De Beers Corporation when it was able to control through one-hundred percent ownership the Argyle Diamond Mine in Australia which previously had a direct arrangement with De Beers Corporation. This mine is known to be the one of the worlds long running mines as well as the main source for colored diamonds.
Other mines under Rio Tino's belt where they have majority of the ownership ratio includes the Diavik Mine in Northwest Canada with about 60%, the rest of which by Aber Diamond Mines Limited, and the Murowa Diamond Mine found in Zimbabwe of which they own 78%. These mines are fairly new and only started production on the late 1990s to the early 2000 but these have already caused a ruckus in the diamond market as these mines specifically that of the Diavik mine already hold 5% of the world's diamond supply.
Crushing competitors and rivals by owning above than half of its corporation has been one of the global marketing strategy by De Beers and Rio Tino, forcing the decrease in the threat from other competitors and thus puts them in major control of the diamond market.
THREATS OF NEW PLAYERS
Mines are being discovered all over the world, making the chances high of having the entry of new players to the scene possible. However, the veterans to the industry have already shown that they are ready with this factor as they have employed the global strategy of owning a portion (minority or majority) of new company's ownership.
As a newbie in the diamond world, new players especially those with very limited capital value are sometimes forced to accept these given offers from major companies to avoid early closure or having a negative balance on their books. These process although would cause early on investment and additional cost to Rio Tino for example but in the end it would be beneficial to them as they would not have to worry of having another competitor in their midst.
GENERAL ENVIRONMENTAL SITUATION
It has been known that some of the renowned diamond mines are found in countries with low ranking in the world market scene or as one would say third-world countries. Because of the high cost of mining and production of diamonds, these countries would rather opt to have foreign investors take over the recovery of these precious metals, with minimal resistance from them so that their people can have availability of work. Take for example, Belgium or Britain (industrialized countries) they do not have the blessings of a diamond mine but they are the world leaders in diamond trade, while Africa which is a place known to have diamonds as one of their natural resources are poor and unrated in the diamond business (K-Oryinda Yimbo, 2008).
The discussed situation in the previous paragraph is also true not only to rich countries but also to companies most especially those that have already established themselves as a leader in the industry. Rio Tino, and other major players have an easier time in taking over some small - time business especially if the economic times tend to be low and new companies have not yet recovered the investment they have initially set. Mergers' between two companies will then occur just to help out continue the mine's operation but this time at the expense of having majority or even full rate of the ownership ratio. Having also minimal companies with the capacity to do take-overs, buying rate or selling rate for these is not very high, unless of course these mines have very high values where in that case bidding of these will most likely occur and the companies would bog up their prices just to convince the down company to take up their offer. This is one major global marketing strategy that Rio Tinto has employed making it's name in the diamond world business. Its mines are scattered all over the world with some at improvished countries like Zimbabwe, who cannot fend off for themselves in operating their own diamond mines.
Gemstones, gold, diamonds and other natural mineral resources continue to grow as demand for these products continue to rise-up. The control of diamond prices by the top two institutions, De Beers and Rio Tinto provide another losing situation for new companies (and a great advantage to these two) since they cannot bargain for prices should times need for them to elevate or fluctuate the diamond costs. For this industry the power of oligopoly almost ensures retailers of stable or increasing prices leading to its continued success.
POLITICAL / LEGAL
Government support is also important should the mining industry flourish in a country. Being a multi - billion sector it has the tendency to be played around especially to those involved in politics since it surely is quite the temptation (the prospects for wealth is high).
International and regional organizations have worked together with national governments to come with laws, regulating and defining the industry. Governments from Canada and other countries have shown their support for the development of the diamond industry in their area resulting in relief to the dependent entrepreneurs and investors (Spool, 2005). In December 2000 the United Nations General Assembly also showed their dedication towards the progressive improvement in the industry when they created the Kimberly Process Certification Scheme (KPCS) and the signing of the Interlaken Declaration. This declaration, requests for the implementation of worldwide recognized certification especially to that of rough diamonds enabling participating countries to maintain separation and discrimination of legal and illegal diamonds (KP, 2002).
For small - scale mining more technically termed as arsinal mining, some governments totally forbids the operation of one, in their mainland while others provide strict guidelines in their national legislation. Most especially in developing countries, where investors are low these type of mining plays a very important role in its economics. According to a study in by Communities and Small - scale Mining (CASM) men, women and even children are involved in this business totaling a rough estimate of 13 to 20 million people in 50 countries to be dependent on small - scale diamond mining (Vlassenroot, 2008).
The control of governments in the propagation of arsinal mining also serves as a golden opportunity to companies as Rio Tino because it allows them the opportunity to take control of operations (converting small - scale operations to that in the international scale). It decreases forces of new and upcoming companies especially for those that uses this type of product and industry as a start - up.
Socio - cultural situations contributes to the economics of the diamond mine industry. Thanks to De Beers, when they promoted and conceived through the society that diamonds hold a special part in the engagement process and an inevitable item in the marriage rites (Siegel, 2009).
But not only on wedding bands and rings do the socio - cultural economic situation in general uphold the developments of companies like that of Rio Tino. The usage of diamonds especially in jewelries is also conceived as a status symbol of a person in the modern day. It has been observed that commentaries with relation to this line of thought include that the more diamonds you have, the richer you may be and to some people alleviating their class in the society is very important and thus this view is exploited by diamond jewelry makers.
Although there are synthetically made diamonds as a social symbol these rates to nil. Therefore making demands for diamonds to be growing and unstoppable.
Technological advancement for the mining process has been minimal. Same processes has been done and tested for already many years dating back to the early 1930s. Equipments may have been upgraded but the overall process remains unchanged.
However looking at another aspect, the development of computer systems and the birth of the internet age posted a good boost for these companies. Manpower and efficiency have been decreased by the use of high technology equipments. The usage of the internet allows companies to communicate easily to both customers and suppliers. It also shows another gateway to the promotion and selling of their products. As compared to the olden times where economics of diamonds are constrained to the locality in general, now it has the whole world as its market.
As discussed in the preceding item, now the world has become the diamonds market, where demand and supply reaches out to the corners of the globe. Companies like Rio Tino have begun to see that although the world is a good opportunity to expand and develop it is also full of wolves that would take one down when a slump has been felt. Trends come and go and the world market erratic but by realizing this Rio Tino has achieved the status of what it is today.
Rio Tino has become successful in the global marketing scene as it has mastered the art of analyzing the current environmental and economical settings to their advantage. History of mergers and take-overs has taken an important move done by Rio Tino which make it the company it is today. As discussed in Porter's five forces model most of the items are of low rating indicating a good opportunity for development. The environmental aspects also discussed shows that the current trends favors stable companies and have great chances for good global marketing.
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