RIO TINTO

RIO TINTOAnalysis of Business Strategy of The Mining Giant

IBS Case Study by

Sandeep Pandharkar (68)Pankaj Kumar ( 48 )Ashish P Kumar (17 )

IIFT EPGDIB 10-11New DelhiDec2011

About Rio Tinto.

A British Australian firm founded in 1873 and named after a river in Spain called Rio Tinto .

World's 3 rd largest international mining group.

Involved in every stage of metal and mineral excavation & production of aluminum, copper, diamonds, coal, iron ore, uranium, gold and industrial minerals.

About 85% of assets are located mainly in Australia and North America.

Operations in more than 50 countries in multiple continents.

Has 76,894 employees with a sales turn over of more than 62 billion USD.

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Vision Statement of Rio Tinto

Our vision of being the global mining leader means

maintaining or achieving sector leadership,

including operational excellence, sustainable

development, exploration and innovation

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RIO TINTORio Tintos Global Business Operations4

RIO TINTORio Tintos Global Business Operations5

Organisation Structure of Rio Tinto

An Integrated Global Company

RIO TINTORio Tinto A House of Global Brands8

RIO TINTOWhat Rio Tinto Brand Represents 9

RIO TINTOTop 3 Miners of the Globe10

RIO TINTOShare of Countries in World GDP by 2050 where Rio Tinto operates !11

Mining Industry Challenges on the horizon ..

Unprecedented demand for minerals driven by needs of emerging and developed economies.

Maturing Ore bodies and fewer discoveries of tier one surface deposits.

Long distance haulage of lower grade ores of large volumes.

Bodies bringing up ores needing complex mineralisation process apart from deeper exploration in the earth.

Stake holders demanding less environmental impact.

Carbon constrained future in the context of Global warming.Structurally high energy prices and energy constraints.

Tri Sector Partnership Core of Rio Tintos Strategy

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Understanding the Global Business Strategy of Rio Tinto

Entry Modes : Rio Tinto adopts a combination of WOS and 50% JV for global expansion of its operations.

Long term investments ( 40 years ) in cost competitive, large mines across the world.

The discovery of Tier 1 (large, low cost) ore bodies that safeguards future cash flows.

The development of Group assets into safe and efficient large scale, long life and low cost operations to ensure the Group can operate profitably at every stage of the commodity cycle.

JV s give access to partners technology, sharing & reducing risks, expand asset base.

Putting thrust on long term sustainable development at the heart of everything the Group does.1414Understanding the Global Business Strategy of Rio Tinto

Access to people, capital and mineral resources.

Larger contributions to social well being, providing employment at remote locations, away from cities and human habitat.

Reduce environmental impact, cut operations costs, better returns to shareholders.

Apply new technology, innovative industrial relations practices and astute acquisition strategies, which serve to enhance the operations and, therefore, shareholder value.

Present in all key markets like BRIC, where the highest demand growth in the world is estimated for next 10 years (2020).1515RIO TINTO16

Sustainability Integration into business processes17

17Degree of Globalness of rio tinto18 Dimensions of Globalisation Degree1Level of Global IntegrationHigh2Number of world key markets servedAll3Local ResponsivenessHigh4Pattern of CompetitionGlobal5Marketing ApproachLocal6Type of VisionGeocentric7Organisational StructureDecentralised8Global Market ParticipationHigh18Degree of globalness of rio tinto19 Dimensions of Globalisation Degree9Global ProductsYes10Global Location of ActivitiesHigh11Global Competitive MovesHigh12CompetitiveHighly12Factor CostsLow13Employment of Senior Foreign NationalsHigh14Corporate Culture Global15Strategic Information SyatemGlobal19Key Characteristics of Rio Tintos Global Approach

Adopts Transnational Strategy

Formulate a strong international vision

Allocate scarce resources on a worldwide basis

Participate in major markets

Implement global partnerships

Engage in global competitive moves

Configure value-adding activities on a global scale

Efficiency, Flexibility, Learning & knowledge transfer

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Global Leverage Points of Rio Tinto21Top 3 Sustainability Factors of Rio Tinto22

Value Chain of Rio Tinto23

Relation ship of Sustainable Development and Value Chain of Rio Tinto24

Some of the Key Parameters of Rio Tinto25Narration201020092008OperatingProfit Margin

34.8 %17.95 %18.79 %ROA12.74%5.1%4.1%Net Profit25.32%11.656.77RoE24.56%11.12%17.81%Recommendations to the CEO of Rio Tinto

RoS: Its good as it is higher than industry average but lower than its competitor by 10 %. The same can be improved by aggressive sales because theres a good demand for their products.

ROA : Very much on lower side at 12.74 % whereas, nearest competitor is has it much higher at 22.8%. The assets owned by Rio Tinto are not generating profits efficiently. The assets need to work much harder.

Decisions related to Investment in assets need to be scrutinised and analysed more sharply and inventory pile up need to be avoided.

Recommendations to the CEO of Rio Tinto

Asset Turnover deteriorated in 2008 and later slightly improved in 2010. The effectiveness of its assets need to be looked into improve top line revenue. Its possible that the over all structure and level of backward / forward integration need to be reviewed.

The performance of Rio Tinto dropped in 2008 09 period , may be attributable to the global crisis of that period, but it need to aggressively pursue its operations strategy and unlock efficiencies from its assets.

A striking feature is that it does not own any mine in China and Mongolia. It needs to be on the radar of CEOs key strategies to become dominant player in China. It shall help lower the cost of operations as well as reduced shipping costs to US.

27Recommendations to the CEO of Rio TintoSell off Alcan packaging Food business.

Need to put effective strategy to reduce shipping costs by investing in massive shipping fleet as done by BHP and Vale.

Focus more on exploration and may give a try to enter petroleum exploration business.

Move up the value chain : Manufacture Steel !

Lobby for reduction in taxes for mining in lieu of green initiatives and preservation of ecology, in all countries where its mines are located.Strategic Exposure : Since Rio Tinto operates in many countries with long horizons of contract terms, it need to minimise its foreign exchange exposure risks by restructuring & redefining its business strategy, which otherwise, can impact its long term cash flows and competitive position.

28World Steel Demand 1533 Million Tons by 2015

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29Recommendations to the CEO of Rio Tinto

Canada has a high level of technology, while South Africa has a mid level technology. Knowledge transfers for both countries would be beneficial to one another and globally.

Focus Russia: Russia has 3 rd largest iron ore reserves and a tiny player. This market for exploration is expected to open up within this decade.China's recent entrance to WTO will certainly bring more opportunities for international firms due to less restrictions or regulations, thus making China to be top choices in expansion.

Developing countries such as Thailand, Indonesia, South Korea, etc are also important growth market which will be expanding more vigorously in future

30Recommendations to the CEO of Rio Tinto

To better its competitive position in mining industry, Rio Tinto should strengthen its core competencies. By doing so, it can successfully have 3 generic business strategies as adviced by Porter i.e Differentiation, Cost Leadership and Segmentation.

This is because Rio Tinto is well placed in terms of Strategic scope ( demand side ) and Strategic strength ( supply side ) of the mining industry. 31......... and finally,

It is not just about the boats themselves; it is also very much about the seas on which Rio Tinto floats.

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Thank You