RIO TINTO

Analysis of Business Strategy of The

Mining Giant
IBS Case Study by
Sandeep Pandharkar (68)
Pankaj Kumar ( 48 )
Ashish P Kumar (17 )
IIFT EPGDIB
10-11
New Delhi
Dec2011

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

Has

USD.

in more than 50 countries in multiple continents.

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

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

RIO TINTO
Rio Tintos Global Business Operations

RIO TINTO
Rio Tintos Global Business Operations

Organisation Structure of Rio Tinto

An Integrated Global Company

Rio Tinto A House of Global Brands

RIO TINTO

What Rio Tinto Brand Represents

RIO TINTO

Top 3 Miners of the Globe

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RIO TINTO

11

RIO TINTO

Share of Countries

in World GDP by 2050 where

Rio Tinto operates !

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.
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Putting

thrust on long term sustainable development at the

heart of everything the Group does.

Understanding 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.
15
Present

in all key markets like BRIC, where the highest demand

growth in the world is estimated for next 10 years (2020).

16

RIO TINTO

SUSTAINABILITY INTEGRATION INTO

BUSINESS PROCESSES

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DEGREE OF GLOBALNESS OF RIO

TINTO
Dimensions of Globalisation

Degree

Level of Global Integration

Number of world key markets served

Local Responsiveness

Pattern of Competition

Global

Marketing Approach

Local

Type of Vision

Organisational Structure

Global Market Participation

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High
All
High

Geocentric
Decentralised
High

DEGREE OF GLOBALNESS OF RIO

TINTO
Dimensions of Globalisation

Degree

Global Products

10

Global Location of Activities

High

11

Global Competitive Moves

High

12

Competitive

Highly

12

Factor Costs

Low

13

Employment of Senior Foreign Nationals

High

14

Corporate Culture

Global

15

Strategic Information Syatem

Global

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Yes

Key Characteristics of Rio Tintos Global Approach

Adopts

Transnational Strategy

Formulate
Allocate

a strong international vision

scarce resources on a worldwide basis

Participate
Implement
Engage

in major markets
global partnerships

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 Tinto

Responsiveness

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Top 3 Sustainability Factors of Rio Tinto

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Value Chain of Rio Tinto

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Relation ship of Sustainable Development and Value

Chain of Rio Tinto

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Some of the Key Parameters of Rio Tinto

Narration

2010

2009

2008

Operating
Profit Margin

34.8 %

17.95 %

18.79 %

ROA

12.74%

5.1%

4.1%

Net Profit

25.32%

11.65

6.77

RoE

24.56%

11.12%

17.81%

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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

period , may be attributable to the global crisis
that period, but it need to aggressively pursue
operations strategy and unlock efficiencies from
assets.
A

27

09
of
its
its

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.

Recommendations to the CEO of Rio Tinto

Sell

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

28 initiatives and preservation of ecology, in all
green
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

World Steel Demand 1533 Million Tons by 2015

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Recommendations 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 30to 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

Recommendations 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
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industry.

......... 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
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