Rio Tinto: Takeover Fears and Price Negotiations with China SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
Global Business
Strategy / MBA Resources
Case Study SWOT Analysis Solution
Case Study Description of Rio Tinto: Takeover Fears and Price Negotiations with China
In the negotiated year 2005/2006, Brazilian iron ore giant Vale, negotiated a 71% price increase with its Chinese customers. For the same period, Australian BHP asked for a premium reflecting the freight cost differentials between shipping iron ore to China from Australia versus Brazil. This demand was later dropped due to strong opposition from Chinese steelmakers. In the negotiated year 2007/2008, following price increases of 65-71% negotiated by Vale, the other Australian Iron ore giant, Rio Tinto, demanded and obtained a premium that saw the total increase in prices reach 200% from the previous year. This case analyses the motivations behind these price negotiations in the light of BHP's intended hostile takeover of Rio Tinto, which would result not only in a combined market share of almost 40% in the production of traded iron ore but a monopoly in the supply of Australian iron ores. This case can be used in business classes, negotiation and strategy as will provide students with different aspects of the negotiation process. Issues such as hostile takeovers, pricing, market share and business relations are discussed in this case.
Authors :: Ivan Png, Zhigang Tao, Carola Ramon-Berjano
Swot Analysis of "Rio Tinto: Takeover Fears and Price Negotiations with China" written by Ivan Png, Zhigang Tao, Carola Ramon-Berjano includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Iron Ore facing as an external strategic factors. Some of the topics covered in Rio Tinto: Takeover Fears and Price Negotiations with China case study are - Strategic Management Strategies, Negotiations, Pricing and Global Business.
Some of the macro environment factors that can be used to understand the Rio Tinto: Takeover Fears and Price Negotiations with China casestudy better are - – increasing energy prices, increasing transportation and logistics costs, increasing household debt because of falling income levels, talent flight as more people leaving formal jobs, there is backlash against globalization, technology disruption, central banks are concerned over increasing inflation,
there is increasing trade war between United States & China, geopolitical disruptions, etc
Introduction to SWOT Analysis of Rio Tinto: Takeover Fears and Price Negotiations with China
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Rio Tinto: Takeover Fears and Price Negotiations with China case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Iron Ore, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Iron Ore operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Rio Tinto: Takeover Fears and Price Negotiations with China can be done for the following purposes –
1. Strategic planning using facts provided in Rio Tinto: Takeover Fears and Price Negotiations with China case study
2. Improving business portfolio management of Iron Ore
3. Assessing feasibility of the new initiative in Global Business field.
4. Making a Global Business topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Iron Ore
Strengths Rio Tinto: Takeover Fears and Price Negotiations with China | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Iron Ore in Rio Tinto: Takeover Fears and Price Negotiations with China Harvard Business Review case study are -
High switching costs
– The high switching costs that Iron Ore has built up over years in its products and services combo offer has resulted in high retention of customers, lower marketing costs, and greater ability of the firm to focus on its customers.
Cross disciplinary teams
– Horizontal connected teams at the Iron Ore are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
Training and development
– Iron Ore has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Rio Tinto: Takeover Fears and Price Negotiations with China Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Highly skilled collaborators
– Iron Ore has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Rio Tinto: Takeover Fears and Price Negotiations with China HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Digital Transformation in Global Business segment
- digital transformation varies from industry to industry. For Iron Ore digital transformation journey comprises differing goals based on market maturity, customer technology acceptance, and organizational culture. Iron Ore has successfully integrated the four key components of digital transformation – digital integration in processes, digital integration in marketing and customer relationship management, digital integration into the value chain, and using technology to explore new products and market opportunities.
Organizational Resilience of Iron Ore
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Iron Ore does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Superior customer experience
– The customer experience strategy of Iron Ore in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Strong track record of project management
– Iron Ore is known for sticking to its project targets. This enables the firm to manage – time, project costs, and have sustainable margins on the projects.
Successful track record of launching new products
– Iron Ore has launched numerous new products in last few years, keeping in mind evolving customer preferences and competitive pressures. Iron Ore has effective processes in place that helps in exploring new product needs, doing quick pilot testing, and then launching the products quickly using its extensive distribution network.
Innovation driven organization
– Iron Ore is one of the most innovative firm in sector. Manager in Rio Tinto: Takeover Fears and Price Negotiations with China Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Effective Research and Development (R&D)
– Iron Ore has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Rio Tinto: Takeover Fears and Price Negotiations with China - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Analytics focus
– Iron Ore is putting a lot of focus on utilizing the power of analytics in business decision making. This has put it among the leading players in the industry. The technology infrastructure suggested by Ivan Png, Zhigang Tao, Carola Ramon-Berjano can also help it to harness the power of analytics for – marketing optimization, demand forecasting, customer relationship management, inventory management, information sharing across the value chain etc.
Weaknesses Rio Tinto: Takeover Fears and Price Negotiations with China | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Rio Tinto: Takeover Fears and Price Negotiations with China are -
Interest costs
– Compare to the competition, Iron Ore has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Lack of clear differentiation of Iron Ore products
– To increase the profitability and margins on the products, Iron Ore needs to provide more differentiated products than what it is currently offering in the marketplace.
Aligning sales with marketing
– It come across in the case study Rio Tinto: Takeover Fears and Price Negotiations with China that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Rio Tinto: Takeover Fears and Price Negotiations with China can leverage the sales team experience to cultivate customer relationships as Iron Ore is planning to shift buying processes online.
Slow to strategic competitive environment developments
– As Rio Tinto: Takeover Fears and Price Negotiations with China HBR case study mentions - Iron Ore takes time to assess the upcoming competitions. This has led to missing out on atleast 2-3 big opportunities in the industry in last five years.
Low market penetration in new markets
– Outside its home market of Iron Ore, firm in the HBR case study Rio Tinto: Takeover Fears and Price Negotiations with China needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
High operating costs
– Compare to the competitors, firm in the HBR case study Rio Tinto: Takeover Fears and Price Negotiations with China has high operating costs in the. This can be harder to sustain given the new emerging competition from nimble players who are using technology to attract Iron Ore 's lucrative customers.
Workers concerns about automation
– As automation is fast increasing in the segment, Iron Ore needs to come up with a strategy to reduce the workers concern regarding automation. Without a clear strategy, it could lead to disruption and uncertainty within the organization.
Capital Spending Reduction
– Even during the low interest decade, Iron Ore has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Slow decision making process
– As mentioned earlier in the report, Iron Ore has a very deliberative decision making approach. This approach has resulted in prudent decisions, but it has also resulted in missing opportunities in the industry over the last five years. Iron Ore even though has strong showing on digital transformation primary two stages, it has struggled to capitalize the power of digital transformation in marketing efforts and new venture efforts.
Slow to harness new channels of communication
– Even though competitors are using new communication channels such as Instagram, Tiktok, and Snap, Iron Ore is slow explore the new channels of communication. These new channels of communication mentioned in marketing section of case study Rio Tinto: Takeover Fears and Price Negotiations with China can help to provide better information regarding products and services. It can also build an online community to further reach out to potential customers.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Iron Ore supply chain. Even after few cautionary changes mentioned in the HBR case study - Rio Tinto: Takeover Fears and Price Negotiations with China, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Iron Ore vulnerable to further global disruptions in South East Asia.
Opportunities Rio Tinto: Takeover Fears and Price Negotiations with China | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Rio Tinto: Takeover Fears and Price Negotiations with China are -
Manufacturing automation
– Iron Ore can use the latest technology developments to improve its manufacturing and designing process in Global Business segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Remote work and new talent hiring opportunities
– The widespread usage of remote working technologies during Covid-19 has opened opportunities for Iron Ore to expand its talent hiring zone. According to McKinsey Global Institute, 20% of the high end workforce in fields such as finance, information technology, can continously work from remote local post Covid-19. This presents a really great opportunity for Iron Ore to hire the very best people irrespective of their geographical location.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Global Business industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Iron Ore can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Iron Ore can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Better consumer reach
– The expansion of the 5G network will help Iron Ore to increase its market reach. Iron Ore will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Global Business industry, but it has also influenced the consumer preferences. Iron Ore can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Low interest rates
– Even though inflation is raising its head in most developed economies, Iron Ore can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Creating value in data economy
– The success of analytics program of Iron Ore has opened avenues for new revenue streams for the organization in the industry. This can help Iron Ore to build a more holistic ecosystem as suggested in the Rio Tinto: Takeover Fears and Price Negotiations with China case study. Iron Ore can build new products and services such as - data insight services, data privacy related products, data based consulting services, etc.
Loyalty marketing
– Iron Ore has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Developing new processes and practices
– Iron Ore can develop new processes and procedures in Global Business industry using technology such as automation using artificial intelligence, real time transportation and products tracking, 3D modeling for concept development and new products pilot testing etc.
Buying journey improvements
– Iron Ore can improve the customer journey of consumers in the industry by using analytics and artificial intelligence. Rio Tinto: Takeover Fears and Price Negotiations with China suggest that firm can provide automated chats to help consumers solve their own problems, provide online suggestions to get maximum out of the products and services, and help consumers to build a community where they can interact with each other to develop new features and uses.
Lowering marketing communication costs
– 5G expansion will open new opportunities for Iron Ore in the field of marketing communication. It will bring down the cost of doing business, provide technology platform to build new products in the Global Business segment, and it will provide faster access to the consumers.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Iron Ore can use these opportunities to build new business models that can help the communities that Iron Ore operates in. Secondly it can use opportunities from government spending in Global Business sector.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Iron Ore can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Rio Tinto: Takeover Fears and Price Negotiations with China, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Threats Rio Tinto: Takeover Fears and Price Negotiations with China External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Rio Tinto: Takeover Fears and Price Negotiations with China are -
Instability in the European markets
– European Union markets are facing three big challenges post Covid – expanded balance sheets, Brexit related business disruption, and aggressive Russia looking to distract the existing security mechanism. Iron Ore will face different problems in different parts of Europe. For example it will face inflationary pressures in UK, France, and Germany, balance sheet expansion and demand challenges in Southern European countries, and geopolitical instability in the Eastern Europe.
Capital market disruption
– During the Covid-19, Dow Jones has touched record high. The valuations of a number of companies are way beyond their existing business model potential. This can lead to capital market correction which can put a number of suppliers, collaborators, value chain partners in great financial difficulty. It will directly impact the business of Iron Ore.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Iron Ore needs to understand the core reasons impacting the Global Business industry. This will help it in building a better workplace.
Increasing wage structure of Iron Ore
– Post Covid-19 there is a sharp increase in the wages especially in the jobs that require interaction with people. The increasing wages can put downward pressure on the margins of Iron Ore.
Technology disruption because of hacks, piracy etc
– The colonial pipeline illustrated, how vulnerable modern organization are to international hackers, miscreants, and disruptors. The cyber security interruption, data leaks, etc can seriously jeopardize the future growth of the organization.
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Iron Ore business can come under increasing regulations regarding data privacy, data security, etc.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Regulatory challenges
– Iron Ore needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Global Business industry regulations.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Rio Tinto: Takeover Fears and Price Negotiations with China, Iron Ore may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Global Business .
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Iron Ore in the Global Business sector and impact the bottomline of the organization.
Stagnating economy with rate increase
– Iron Ore can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
High dependence on third party suppliers
– Iron Ore high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
Easy access to finance
– Easy access to finance in Global Business field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Iron Ore can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Weighted SWOT Analysis of Rio Tinto: Takeover Fears and Price Negotiations with China Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Rio Tinto: Takeover Fears and Price Negotiations with China needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Rio Tinto: Takeover Fears and Price Negotiations with China is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Rio Tinto: Takeover Fears and Price Negotiations with China is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Rio Tinto: Takeover Fears and Price Negotiations with China is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Iron Ore needs to make to build a sustainable competitive advantage.
