UNIT 407 INTERNATIONAL BUSINESS STRATEGY

Performance Report on Rio Tintos International Operations

Submission Date:February 18, 2014

Student Name:
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EXECUTIVE SUMMARY

With proven strategy and strong business model Rio Tinto Group approached the global
market. Through a thorough study for the Groups approach tointernationalize the operations
and structure of its production groups, it is found that this approach suits the strategy set by
the group to achieve its objectives in maximizing shareholders returns and creating
opportunities for improving many communities in the global. Also, it is found that Rio Tinto
developed a strong risk-management & decision-making processes that enabled the group to
compete against the limitations on its trades & operations.

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Considering further investment to make joint ventures with technical research institutes to
enhance the outcome of the technology group in Rio Tinto and accordingly reduce the cost in
is the most important suggestion among many others put in this report.
Considering a wide expansion in the GCC countries is one of the recommendations
introduced in this report which may be adopted by the group to enhance the profitable global
expansion.

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Table of Contents
EXECUTIVE SUMMARY .................................................................................................................. 2
Table of Contents .................................................................................................................................. 3
INTRODUCTION ................................................................................................................................ 4
1.

PERFORMANCE ANALYSIS .................................................................................................... 5

Approach to Internationalisation / Globalization ................................................................................ 5
Market Entry Strategies ...................................................................................................................... 6
Trades Limitations / Barriers .............................................................................................................. 7

2.

PERFORMANCE ASSESSMENT.............................................................................................. 9

3.

SUGGESTIONS .......................................................................................................................... 10

4.

CONCLUSION ........................................................................................................................... 11

5.

BIBLIOGRAPHY ....................................................................................................................... 12

6.

APPENDIXES ............................................................................................................................. 13

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INTRODUCTION
This report provides a brief analysis for the performance of Rio Tinto Group which used to
generate an evaluation on how well the organization is performing and highlighting some
recommendations to support Rio Tinto.
The report utilizes a thorough research on Rio Tinto, toconcentre on the following aspects:

Identifying, explaining & evaluating Groups Approach to Globalization, Market Entry

Strategies & Limitations/barriers (and how the group deal with these limitations)

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Putting a clue from an investor perspective on the opportunity of achieving future growth
for the group

Rio Tinto Group Profile:

Rio Tinto is a leading international mining group headquartered in the UK, combining Rio
Tinto plc.a London and New York Stock Exchange listed company, and Rio Tinto Limited,
which is listed on the Australian Securities Exchange.
Rio Tinto's business is finding, mining, and processing mineral resources. Major products are
aluminium, copper, diamonds, thermal and metallurgical coal, uranium, gold, industrial
minerals (borax, titanium dioxide and salt) and iron ore. Its activities span the world and are
strongly represented in Australia and North America with significant businesses in Asia,
Europe, Africa and South America.(Rio Tinto Group, 2012)

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1. PERFORMANCE ANALYSIS
Approach to Internationalisation / Globalization
Rio Tinto Groups approach to globalisation summarised bythe diversity in geography and
product/service to create and sustain the most valuable business for the stakeholders in line with the
groups objective, which will maximise shareholders return, maximize the economic benefits for
host government/communities, maximise the successful delivery of customers needs, creating
worldwide growth opportunity for employees and creating an attractive destination for investors.
Rio Tinto Groups approach to globalization is represented in the following main characteristics and
actions:

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Global code of business conduct: It is what the group call it The Way We Work and which
is considered the groups conscience(Rio Tinto annual report, 2012).Actually, this code is
another global approach to business by consolidatingthe principles, standards and polices to
form a mandatory reference for the groups global operational structure and external parties
(consultants-agents-contractors-suppliers). Through whichthe group ensures that its core values
(accountability-respect-teamwork&integrity) are expressed and maintained while managing the
economic, social and environmental challenges of its operation.

Improvement of industry-leading capabilities:

The aim of this improvement is to increase the groups competitive advantages.
o

Sustainable development (CSR involvement): increasing the global competitives

advantages through noticeable developmentsto the economic prosperity (economic
contribution), social wellbeing (Safety-health-community-people), environmental

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stewardship (Biodiversity-Greenhouse-gas emission-land-water) and strong governance

systems (human rights integrity & compliance).

o Marketing and operational excellence:efficient marketing leads the group to expand its
chain of supply based on better selection of long-term opportunities, and the operational
excellence leads the group to leave leading footprint in the industry at all the working areas
and accordingly adds more competitive advantages.

Market Entry Strategies

Group Strategy:Invest in and operate large, long-term, expandable, low-cost mines and
businesses, driven not by choice of commodity or region but rather by the quality of each
opportunity in the most attractive industry sectors(Rio Tinto annual report, 2012)
The group follows the systematic/strategic approach in market entry as it seeks opportunities with
long-term positive impact, and thereforethey framed a business model that ensures in all of its steps
an achievement of the groups global objectives. The following table illustrates the market entry
strategies in the business model:

Business
model
elements

Function

Explore
And
Evaluate

Find and study geological

targets, classify them based on
their characteristics and
prioritize them based on
perspective value. (Greenfields)
Evaluate additional values to the
new market/community Vs.
group's benefits from expanding
the existing extraction and/or
processing assets. (Brownfields)

objectives

Strategy

Increase the longConcentrate and limit the

term benefits of the
process to find large-scale
group and hosted
& long-life orebodies.
country/community.

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Identify the desired customers in

promising sectors and regions
and has an engagements with
their needs
Market and
deliver
Define the required supply chain
and any required developments

achieve the desired

recognition of
product's value

Long-term partnership
agreements with
customers.

Have the highest

capability in
covering supply
destinations

Invest in long-term
infrastructure's
expenditures (railwaysports-roads-power supply
facilities) and utilize
existing facilities under
long-term agreements.

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Trades Limitations/ Barriers

The group faces many barriers in sustaining their operations and commencing future
investments as well as in the trades of their products, and we can summarise the main
limitations by:

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To defeat such limitation, the group emphasized on joint ventures with national leading
Chinese companies to enhance its chances and presence in the region likethe joint venture
with Chinalco which granted Rio Tinto a better chance in market share as well as more
access to Chinese customers.

Financial position & low earnings: The group encountered bad financial position &
earnings due to significant impairments of assets in Aluminium business (case of Alcans
acquisition) and the coal business in Mozambique (case of Moatize Basin) as well as the
increase in operational cost (as shown in (Rio Tinto annual report, 2012)); which as a
result caused lower capability in financing their operations and future investments. Clear
example is the case of Simandou Project in Guineawhich has been halted for financial
issues (as illustrated by (Trefis, 2013))
To cope this limitation, the group emphasized on enhancing the performance through
adopting automated operations and following cost-cut plan across its operational
structure.

The increase of the international laws, regulations & standards in Health, safety,
environment & reclamation: Such increase added more complexity to the operations,
increased the cost and increased the opportunities of criticism by international
environmentalist group which eventually caused a slowdown in operations. Clear
example is the case of Grasberg mine in Indonesia which caused an exclusion of the
group from the Government Pension Fund of Norwaybased on claims regarding severe
environmental damage(as illustrated in (Wikipedia, 2014)).
To handle such limitation, the group invested in building up on their sustainable
developments (CSR involvement) to maintain good reputation.

Increased communitys opposition to the presence of the group in some rich

resources regions: such increase slow down the operations of the group and eventually
limits its expansion and future investments. Clear example is the case of Madagascars
Ilmenite where the effect of protecting the community & environment caused negative
implications to the operations (as illustrated by (Clifton, 2014)).

Skills shortages: the shortage in skilled workers as a result of high competition caused a
limitation for continuing the operations of the group as well as it increased the risk of
workers disputes about their wages and rights.
To cover such limitation, the group invested in long term partnership agreements with
universities like the University Of Western Australia and The University of Nottingham

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to increase the experienced workforce trades into the group and to the global mining
sector (considered part of CSR contribution to the global mining sector).

2. PERFORMANCE ASSESSMENT
Groups approach to globalization is maintained to a successful growing trend.As in regard to the
expansion in the geographic & product diversity which is clear from the operations map in
(Appendix I), the groupperformed hugeacquisitions in the past few years and invested in many
growth projects, despite that some of which were bad acquisitions in some sectors due to a
negative financial impact.And in line with this expansion the group maintained solid
internationally oriented operational structure, strong & improved regulatory code of
businessconduct and enhanced its industry-leading capabilities through developments
investments in several fields.

For market entry, group strategy is being developed and maintained constant over many years
and it is being structured to fit in the business model which is to be followed across its
operationalgroups.However, the plan to deliver this strategy was developed to the meet the
requirements of current circumstances, and recently it was dependable on strengthening capital
allocation and discipline, reducing cost with improvement of the performance at the existing
operations and delivering approved growth projects.
The results of delivering such solid strategy are reflecting the sustainable future growth; some of
the recent announced results are highlighted in (Appendix II).

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3. SUGGESTIONS

Exporting existing competencies to give the group advantage in the international market
Rio Tinto isexporting existing competencies through operational structures distributed in the
world based on the geographic concentration of the business, and they rely on information
systems technology to do so. I suggest that Rio Tinto shall consider further investment in
expanding the operational communication network to assure a successful achievement in this
aspect.\

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And regarding the labour, I suggest that Rio Tinto shall consider further investment in

establishing more training schools for certain workforce categories and getting cheaper
workforce into these schools before promoting them in the operations.
For materials requirement, I suggest that Rio Tinto shall seek the suppliers for long-term
agreements with conditions that assure stability in prices (overcome price fluctuation) and
assuring as much as possible exclusivity in supply to the group (overcome competition in
sharing same source of supply).

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4. CONCLUSION
By reviewing the general research and assessment done on Rio Tinto Groups approach to
globalization, market entry strategy and the associated limitations to the groups operations I found
that:

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In its global approach to achieve remarkable expansion in the geographic & product diversity
through acquisitions, joint ventures and the associated global operational structure, the group
confirmed its strategic commitment to Invest in and operate large, long-term, expandable business.
And through the improvements of its global industry-leading capabilities, the group delivered its
strategic commitment of creating and efficiently operating low cost and profitable business.
Also, through its approach to have global code of business conduct and the successful adherence to
this code, the group maintained its moral values integrated in all their actions and operations.

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Recommendations:

In order to sustain growing trend in its expansion, the group shall concentrate on recovering &
enhancing its financial position

Rio Tinto shall concentrate on GCC countries with its operations to capture prospective
opportunities in many fields like nuclear fuels supply to the GCC countries following UAE in
constructing nuclear power plants.

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5. BIBLIOGRAPHY
Books and Reports
Orr, S.2010. Unit 407 International Business Strategy. Chifley Business School

Websites
Rio Tinto annual report. 2012. Rio Tinto - Reporting center 2012. [Online]
Available at: http://www.riotinto.com/documents/rio_tinto_2012_annual_report.pdf[Accessed: 8 Feb 2014].
Trefis. 2013. Has Rio Tinto Halted The Simandou Project Over Financing Issues? -- Trefis. [Online]
Available at: http://www.trefis.com/stock/rio/articles/173717/has-rio-tinto-halted-the-simandou-project-overfinancing-issues/2013-03-13[Accessed: 12 Feb 2014].
Wikipedia. 2014. Rio Tinto Group. [Online] Available at: http://en.wikipedia.org/wiki/Rio_Tinto_Group
[Accessed: 12 Feb 2014].
Clifton, S. 2014. Mining Madagascar forests. [E-book] London: Available through: Online
https://www.foe.co.uk/sites/default/files/downloads/mining_madagascar.pdf [Accessed: 14 Feb 2014].
Rio Tinto Operations map. 2013. About_Rio Tinto_Brochure. [Online]
Available at: http://www.riotinto.com/documents/About_RioTinto_brochure.pdf[Accessed: 14 Feb 2014].
Riotinto.com. 2014. Rio Tinto announces record production for iron ore, bauxite and thermal coal in 2013 Rio Tinto. [Online] Available at: http://www.riotinto.com/media/media-releases-237_9539.aspx
[Accessed: 14 Feb 2014].

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6. APPENDIXES
Appendix I(Rio Tinto Operations map, 2013)

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Appendix II(Riotinto.com, 2014)

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