Fortescue Metals Group - Case Study Example

Assignment 3 Name University Company background/description Fortescue Metals Group was founded in 2003 and is currently based in Pilbara, East Perth in Western Australia and has approximately 2,500 employees (Fortescue Annual Report, 2016). Since its founding, the company has discovered and developed numerous iron ore deposits throughout the Western Australia state. As at December 2011, the group was the fourth largest iron ore mining company globally having 87,000 square kilometres of land that has enabled it to construct some of the largest mining holdings in the world (Fortescue Annual Report, 2016). This is attributed to the fact that the company deals in both iron and steel production which require enough space for conducting the production. Due to the company’s appreciation of culture in the management and human resource, Comtois and Slack, 2016, points out that the company has created an innovative and a leading brand name which has been recognised in the development of infrastructure besides the world class mining assets. The company has set up various mining projects which are responsible for the company’s operations which are the Chichester Hub and Solomon Hub (Fortescue Annual Report, 2016). The Chichester Hub is currently comprised of both Cloudbreak and the Christmas Creek. Cloudbreak in known to mine 40 million tonnes annually of iron ore while the Christmas Creek mines 50 million tonnes annually. Combining the production at Chichester Hub, it can be seen that the company produces an average of 90 million tonnes of iron ore annually besides the six million tonnes sourced from BC Iron. The Solomon Hub on the other hand is comprised of Firetail mines and the King’s Valley which make up the 70 million tonnes of iron ore annually from the Hub (Allen and Day, 2014). On average, the company produces approximately 165 million tonnes of iron ore annually which has seen the revenues culminate to $8,120,000,000 by the end of 2013 financial year. Cross-cultural integration In order to survive within any social setting, Yellishetty and Mudd, 2014, posits that companies have a responsibility of integrating the social, economic and political aspects in the management segment. For instance, Fortescue Group has integrated the indigenous culture in the management system of the company in a manner that the culture has a both direct and indirect impact on the decision making process (Wirth et al, 2016). To start with, the company has established the essence of economic activity that results from mining and how it contributes to the development of the social setting in which the company is located. As a matter of fact, forming strong regional ties with the community has enabled the company to access the pool of the locally available employees who provide services at a lower cost (Ross, 2016). Besides, the link with the stable local governments has seen the company benefit from the many social institutions like schools and health facilities and other attractive community sites for the employees. Furthermore, the company has provided economic independence through providing employment opportunities, training and business development for the community members. As a matter of fact, the Aboriginal employment at the company has risen over the years with major positions in the operations in the mainstream workforce being dominated by Aboriginal nationals (Roche and Mudd, 2014). Moreover, the inclusion of the indigenous stock exchange systems has been a move to facilitate indigenous access to the vast knowledge and expertise in the capital management system. This has been achieved through encouraging people to invest in social business enterprises (Raufflet et al, 2014). Such segments have utilised the elders offering consultancy to create conducive working environment for both the employees and the managers. Fortescue group has included indigenous training activities under vocational training in order to inculcate the family culture which has been developed at the company (Moran et al, 2014). For instance, the employees are treated fairly and the working conditions are secured to ensure that the employees feel safe while working in the company. Considering the few number of women included in the top level management, the company should consider including equality as one of the aspects that should be taken care of under culture (Raufflet et al, 2014). This will provide chances for the all the members of the community to be useful in the management of the company. Basing on the manner in which the company has involved itself in management and support of social amenities, it can be recommended that the company inculcates other cultural dimensions like religion in the family culture developed at the company (Merdith et al, 2015). For instance, the liberty for the employees to practice religion within the company since they spend most of their time at their workplaces will encourage team work amongst the workers. Therefore, it is important to inculcate the indigenous religion in the decision making process at the company to ensure that there is sanity and sobriety amongst the workers (Cleary, 2014). Strengths The company has gained a rich tenement land across Western Australia. This land which spreads across the Pilbara region is known to contain the largest iron deposits in the states making the region suitable for the iron mining activities. As a matter of fact, it can be noted that the geographical location of the company makes it possible to produce among the most iron ores globally (Sarkar et al, 2015). Therefore, this serves as a strength to the company since, the operation costs are reduced due to the limited distance between the mining field and the processing facilities. As such, the company is in a position to earn increased net profits. Moreover, the company’s location has become one of the strategic locations in the mining business due to the proximity to the fast growing markets globally, that is, China and Asia at large. This can be viewed as a competitive advantage to other mining companies world-wide since China has become one of te leading market and therefore securing a large market share at her market positions the Fortescue company at a more advantaged position compared to other companies. Having become one of the leading producers of iron ore globally, that is, fourth world-wide, the company has gained strong international relations that allow it to connect with other continents. For instance, since Australia depends on sea transport for shipping the products to other regions, the company is advantaged to be located closer to ports like Herb Elliot Port making it easier for the company to embrace seaborne trade of iron ore (Sarkar et al, 2015). The company has been known to be the largest within Australia and therefore has secured a large export market exporting well over 40 million tonnes of iron ore annually. Due to this, the company has presumed dominance of the mining industry within Australia and therefore controls larger market shares in regard to export of the iron ore. This has resulted in increased profitability and consequently boosted revenues for the company (Fortescue Annual Report, 2016). Due to the company’s strategic positioning within the mining industry, it has become possible for the company to increase the fund raising abilities (Sarkar et al, 2015). This is because the company has varied financial instruments which can be used to harness the capital required to improve a given segment of the business. For instance, the company has diversified into steel business and infrastructure which supplies more revenue to the company for setting up more processing facilities. Weaknesses Basing on the market situation, it can be demonstrated that there has been fluctuations in prices of both steel and iron. Due to this, the company revenue fluctuates and therefore weakening their credit market (Donovan et al, 2016). Therefore, most of the instances, is forced to drop plans that may be underway like the development of Iron Bridge in order to stabilise the credit market and enhance price regulation before resuming the plans (Cleary, 2014). Moreover, the Chinese steel mills are summed to influence the tax structure in the iron ore market. Since they cut down production at the company, there has been rapid increase in stockpiles building. As a consequence, the prices for iron ore continue to weaken and since the company depends on iron more than other minerals its position in the market is weakened (Donovan et al, 2016). The company’s overdependence on China has proven to be one of the major weaknesses for the company. This is because it has been noted that China is being perceived a one of the major markets for iron ore and therefore any fluctuations and imbalances in the taxation structure negatively impacts on the success of the company (Cleary, 2014). Discussion FMG has appreciates the Aboriginal culture in developing management policies for the company. For instance, the company has included indigenous studies in the vocational institutes to educate the employees and the community at large on the appreciation of culture at the company. This has translated to the company developing a family culture which is embraced by the employees. This culture demonstrates a sense of safety towards teamwork, that is, the employees feel safer working as a team to accomplish a task (Merdith et al, 2015). Therefore, the company has inculcated the collectivism culture to shape the relations between the employees. The company has developed various sustainability strategies in order to retain their position in the mining industry. This has been done through developing a reliable corporate social responsibility. FMG is focussed at creating long term and dependable choice by presenting themselves as corporate citizens who can be accepted by the community. The CSR developed at FMG takes into consideration not only the impact the company has on the outside environment but also the management quality. This has been seen in aspects like the management developing paternal responsibility towards the employees in order to ensure that the employees have an emotional connection to the company and the business. In so doing, the company generates quality management which respects the employees and the ideas developed by the lower level are also taken into consideration during decision making processes (Wirth et al, 2016). This has also been reflected in the company’s impact on the society as portrayed by Merdith et al, 2015. The company has developed strong relationships with the community through the various social facilities. Having developed a sound CSR, the company has set up training facilities for educational purposes which are currently utilised by both the employees and the community in general. This training program is focussed at providing and equipping the locals with the necessary skills that are needed in the mining sector and therefore, the company can in turn provide employment to such individuals (Wirth et al, 2016). Besides, presently, the company offers more employment opportunities to the Aboriginals compared the chances offered to the non-locals. This is because the company understands and appreciates the role the local stakeholders play in contributing to the success of the company. The environmental responsibility of the company has also developed to higher levels compared to other companies. As a matter of fact, the company regulates environmental pollution through filling up the open lands that are left after mining (Wirth et al, 2016). Through doing this, the company reduces the risk of leaving open quarries which may pose as a risk to the employees and the locals besides retaining the natural aesthetic. Being located in the Pilbara region, where the land is rich in iron deposits, the company promotes social responsibility through purchasing the raw materials within the state. This in return impacts positively on the community development since the company pays taxes besides utilising the local services that are offered by the community (Merdith et al, 2015). Recently, it has been established that the company believes in community investments. This can be seen in the company’s support of the local investments and projects that take place in such regions as Port Hedland and Shire of East Pilbara (Saunders, 2015) The sustainability at the company does not only focus on the local market but also the success of the company in the international sector. For instance, the company embraces exporting of the iron ores to various parts of the world in order to gain more market share in the global iron markets (Merdith et al, 2015). This can be seen in the way the company has formed strong attachments with China which happens to be one of the major importers of iron ore. The connection with China can be perceived as a means to gaining reputation in the face of the international market (Saunders, 2015). Having been ranked among the top economies in the world by the WTO, World Bank and IMF, China has become one of the fastest growing economies in the world which provides a perfect opportunity for the FMG to develop strong links with her. This is through importing of the smelting machines from China while exporting the processed iron to her. Therefore, the company embraces internationalisation and perceives it as an alternative to local market. Moreover, the company is located close to Herb Elliot Port which is strategic for sea borne trade. Having the strategic location, it can be deduced that the company has a competitive advantage over the other companies within Australia since it can engage in export of the mineral to other regions globally. This has a number of advantages to the company (Donovan et al, 2016). One of the advantages is that the company can reach external markets in other continents like Africa, Europe and America which provide better alternative markets for the iron ore compared to the local markets (Saunders, 2015). Another advantage is that, since there is stiff competition within Australia from companies like Rio Toronto, the company is able to gain other markets to increase the revenue for the company enabling the company to gain competitive advantage over the other competitors. As discussed by Merdith et al, 2015, it has been established that the company has put in place risk management program that is responsible for the safety of the employees at the workplace. This involves provision of the safety helmets that are worn on site, safety boots and gloves. Besides, setting up a compensation scheme for those injured at or dead on the job has provided a positive perception of the company (Donovan et al, 2016). However, the company is faced with numerous threats which endanger the company’s position in the iron ore market. These includes the increasing costs of labour due to the improved living standards that the employees have to uphold. This is feared will be a endanger the financial capacity of the company whereby the company strives to keep the workers well paid in order to retain them at the expense of reducing the profit margins (Cleary, 2014). Furthermore, there has been several sources indicating that the company has failed in preserving the environment in Pilbara leaving open quarries. This has led to a development of the term ‘Pilbara quarry’ and this has had a negative impact on the aesthetic condition of the region (Roche and Mudd, 2014). Therefore, the company has put in place steps to mitigate the problem by starting up fill up projects to reduce the ever growing number of quarries. As a matter of fact, there has been stricter regulations on mining from the government which threaten the survival of the company. For instance, the restriction on the amount of emissions from such companies has led FMG using biomass in iron smelting in order to regulate the emissions (Roche and Mudd, 2014). Due to the growing competition, these regulations coupled with the fluctuating prices, has cut down on the cash flow at the company which leave the company at a vulnerable state whereby it faces stiffer competition. The technological advancements in the mining sector is proving problematic to the company. Due to the growing competition, the mining companies are investing more in technological facilities which process the iron ores faster compared to the rate at which FMG does (Roche and Mudd, 2014). This has forced the company to enter into debts with other nations in order to purchase such machines and therefore limiting the company’s financial capacity. Recommendations Considering the strategic positioning of the company in the iron mining in Western Australia and globally, FMG has the opportunity to widen its market share through creating mergers with other minor companies within and outside of the state (Donovan et al, 2016). For instance, basing on the fact that the competition in the sector is growing at a faster rate, companies are looking for new means of attaining competitive advantage and by acquiring other mining companies in the same business, FMG gains competitive advantage besides reducing neutralising the stiff competition. Therefore, the acquired companies can be used as research facilities for the company besides being alternative operating sites for the company (Merdith et al, 2015). Australia is currently among the growing economies. This provides an opportunity for the FMG to take advantage of the situation and contribute positively to the success of the region (Howard, 2015). This will impact positively on the reputation of the company and generate a brand name for the company. Globally, there has been campaigns regarding equality and equity at workplaces. Considering the number of women employees at the company, it would be recommended that the management incorporates gender equality in the top management (Donovan et al, 2016). This can be through formulating policies that require at least a 40% representation of women in the management and the mining workforce. This will create a positive image of the company in the international face and the incorporation of the cross cultural dimension. Having such a vast land for mining, the company can diversify the production and marketing system to include new products and services (Howard, 2015). This is in the view that having generated reliable infrastructure for the shipping of the products form the mining sites to other regions, the company can as walk indulge in transportation of other commodities to far regions like Europe and Africa. This will boost the profit margins for the company as well as reducing overdependence on iron ores. Similarly, since the company has already acquired much holdings, it can be possible for it to invest in other minerals that are marketable both locally and internationally. For instance, gold and diamond mining is one of the lucrative enterprises that one can venture into. Therefore, forming acquisitions and mergers with other companies world-wide, it is possible to indulge in mining and processing of these minerals. This will raise the financial capacity of the company giving it a competitive advantage over their rivals (Allen and Day, 2014). Having more than 165 million tonnes of iron ore produced annually under the iron ore boom and only 50 million tonnes exported, it is evident that the larger portion is sold within Australia (Howard, 2015). Since there is stiff competition from other companies like Rio Toronto, it would be better for the company to engage in export of the iron ore to take advantage of less competitive regions where the iron is in high demand (Allen and Day, 2014). Challenges faced and how you overcame them During the research, we were faced with a number of challenges. One of the major challenges was the limited data on the policies put in place by the company incorporate the indigenous culture into the management of the company. This presented a challenge in determining the impact the culture has on the success of the company. However, the challenge was overcome by conducting the study using the qualitative research methodology which allowed us to incorporate data from governmental sources and similar companies. This enabled us to compare the policies developed at the FMG and other requirements put in place by the federal government concerning the setting up of mining companies. Through the comparison, we were able to draw significant conclusions in regard to the culturally related policies. Secondly, the research was conducted within a short period of time since the respondents had a fixed schedule. This provided a limited time frame to establish various aspects that are fundamental to establishing the link between the sustainability strategies and internationalisation within the company (Raufflet et al, 2014). On the contrary, the study included review of literature on the company that provided information concerning the perception of internationalisation and how the company enhances sustainability in the overall running of the company prior to conducting the interviews to save on time during the actual interview. Therefore, it was possible to draw meaningful conclusions on the sustainability programs put in place for the success of the company. Thirdly, the survey form used in the research was limiting for the respondents in that it utilised closed format which required the respondents to choose from the options provided. Due to this it was impossible to clarify various aspects of the responses. Therefore, it presented a challenge in determining whether the responses were objective or subjective. Contrariwise, since the survey involved live interviews, it was possible to ask the respondents to clarify on given aspects of culture, human resources and stakeholders’ participation at the company. Lessons learnt In summary, there are a number of lessons that can be learnt from the company’s weaknesses and strengths and how the company has set up the sustainability criteria. Firstly, the company has embraced indigenous culture by developing policies that enhance community’s participation in management of the program (Howard, 2015). This should be emulated by other companies in order to incorporate culture in the overall running so as to uplift the communities in which the companies are situated. Secondly, the company has set up social facilities like hospitals and training institutions that equip the locals with relevant skills. These experienced locals are then employed in the company to raise the living standards of the community (Howard, 2015). Therefore, this is a lesson for other companies and organisations to include the communities in the development agenda by providing employment opportunities to them as priorities compared to importing of labour (Raufflet et al, 2014). Thirdly, the environmental responsibility established by the company in ensuring that the environment is preserved through using biomass in the iron smelting in order to regulate the amount of emissions to the environment (Raufflet et al, 2014). This is a lesson for other companies in the same business in that they should be conscious of the environment in which they are located. This will maintain the beauty in the environment due to the valuable CSR that has been put in place (Howard, 2015). References Allen, C, & Day, G. (2014). Does China's demand boom curb Australian iron ore mining depletion?. Australian Journal of Agricultural and Resource Economics, 58(2), 244- 262. Fortescue Annual Report. (2016). 2016 financial year. Retrieved 14 October 2016, from http://fmgl.com.au/media/2862/fy16-fortescue-annual-report-final-with-cover.pdf Cleary, P. (2014). Native title contestation in Western Australia's Pilbara region. International Journal for Crime, Justice and Social Democracy, 3(3), 132-148. Comtois, C., & Slack, B. (2016). Dynamic Determinants in Global Iron Ore Supply Chain. Donovan, J., Hartley, P., & Billiton, B. H. P. (2016). Investigating the market manipulation hypothesis in iron ore. AusIMM Bulletin, (Jun 2016), 14. Ellem, B. (2014). A battle between titans? Rio Tinto and union recognition in Australia’s iron ore industry. Economic and Industrial Democracy, 35(1), 185-200. Howard, R. K. (2015). Lessons drawn from iron ore mining in the Yilgarn region of Western Australia. Mining in Ecologically Sensitive Landscapes, 95. Merdith, A. S., Landgrebe, T. C., & Müller, R. D. (2015). Prospectivity of Western Australian iron ore from geophysical data using a reject option classifier. Ore Geology Reviews, 71, 761-776. Moran, C. J., Lodhia, S., Kunz, N. C., & Huisingh, D. (2014). Sustainability in mining, minerals and energy: new processes, pathways and human interactions for a cautiously optimistic future. Journal of Cleaner Production, 84, 1-15. Raufflet, E., Cruz, L. B., & Bres, L. (2014). An assessment of corporate social responsibility practices in the mining and oil and gas industries. Journal of Cleaner production, 84, 256-270. Roche, C., & Mudd, G. (2014). An overview of mining and the environment in Western Australia. In Resource Curse or Cure? (pp. 179-194). Springer Berlin Heidelberg. Ross, D. (2016). Corporate Social Responsibility Initiatives in Australia’s Mining Industry: An Applied Stakeholder Approach. In Key Initiatives in Corporate Social Responsibility (pp. 261-278). Springer International Publishing. Sarkar, M., Habib, A., Ratti, R. A., & Westerholm, P. J. (2015). Does iron ore move Australian equity prices? An investigation of the pricing mechanism by industry sector. Joakim, Does Iron Ore Move Australian Equity Prices. Saunders, A. (2015). Fortescue slumps but talks up asset values. Wirth, H., Kulczycka, J., Hausner, J., & Koński, M. (2016). Corporate Social Responsibility: Communication about social and environmental disclosure by large and small copper mining companies. Resources Policy, 49, 53-60. Yellishetty, M., & Mudd, G. M. (2014). Substance flow analysis of steel and long term sustainability of iron ore resources in Australia, Brazil, China and India. Journal of Cleaner Production, 84, 400-410. Name: Contact Details (Email and Tel): Position: Company: For each statement, please circle the number which most closely represents the extent to which this principle currently describes your company. Not at all To a weak extent To a moderate extent To a large extent To a very large extent Principle 1: Alignment Our business has aligned employee behaviours with stated company values and direction. 1 2 3 4 5 Principle 2: Distributed Leadership In our business, individuals and work teams are assigned, and accept, responsibility for operational decision making and performance improvement. 1 2 3 4 5 Principle 3: Integration of Effort Our business is not a functional/ hierarchical organisation but a value creation/process focused organisation. 1 2 3 4 5 Principle 4: ‘Out-Front’ Our business takes a lead in determining industry standards and practices. 1 2 3 4 5 Principle 5: ‘Up-Front’ We apply high standards of integrity and openness in everything we do. 1 2 3 4 5 Principle 6: Resourcing the Medium Term Our business is able to effectively balance short-term and medium term issues and requirements. 1 2 3 4 5 Principle 7: Time Based Time is a critical organisational value in our business. 1 2 3 4 5 Principle 8: Bias for Action Our business is good at implementing ideas and strategies. 1 2 3 4 5 Principle 9: Learning Focus Everyone in our business is involved in a learning/development program. 1 2 3 4 5 Principle 10: Discipline We invest in policies, procedures and standards and apply a strong systems perspective in our business. 1 2 3 4 5 Principle 11: Measurement/Reporting and Publication Our business measures and reports to our employees, the financial and non-financial performance information needed to excel. 1 2 3 4 5 Principle 12: Customer Value In our business, all employees strive to enhance customer value creation. 1 2 3 4 5 Principle 13: Capabilities Creation Business and organisational capabilities are defined as priority areas for development and investment. 1 2 3 4 5 Principle 14: Micro to Macro Our employees know how their individual efforts contribute to business success. 1 2 3 4 5 Read More