The Success of Rio Tintos Moves to India - Essay Example

The Success of Rio Tinto’s Moves to India. Rio Tinto is one of the most prosperous mining and processing industry in the globe. It has its Headquarters in Westminster in the United Kingdom and in Melbourne in Australia. Their main activity is in Australia and North America. However, its operations are widespread in many parts of the world. These include South America, Europe, southern Africa, and Asia regions. The core activities in Rio Tinto are to source and process mineral resources. Rio Tinto’s chief products comprise of diamond, copper, aluminum, coal, uranium, and iron1. It smelts industrial minerals such as salt, titanium dioxide, and borates. Tinto’s machines include Bulldozer, compact excavation machines, shredders, and grinders2. The mine raw materials from the mines are treated using fans. After treatment stage, decomposition and purification process follows immediately. The result of the two phases is a semi-solid product. This product is concentrated to a finished final product. The report summarizes the results of feasibility study in India. Rio Tinto proposes to use India as a distribution centre for its copper products. This company has taken this decision because of limited copper ores in India. Their plans are to extract and smelt copper using the sophisticated machinery from their company in Australia. They will then export copper products to enormous market in India. In this way, Rio Tinto will tap the untapped Indian market. They intend to take advantage of the large populace population in India. Rio is confident that India will not import copper product anymore from other countries. It expects a fair marketplace in India. Expansion of market to any region of this world is a challenge3. This is a guiding principle at the heart of the Rio Tinto management. Rio Tinto seeks important details on India’s technology level, the available work force, and the type of infrastructure. Since India will serve as a distribution point, the company does not require a manufacturing plant. Rio Tinto is aware of possible market risk in the foreign nations. Technology is a very critical in the expansion of Rio Tinto’s. This is the reason why it has to do an in-depth research on market prospects in India. The report seeks to address many issues, which are central to the success of Rio Tinto’s moves to India. To start with, it will evaluate political environment in terms of India’s government stability. Next, it will discuss the legal framework with key interest in business law, labor laws, and taxation law. This is very crucial because the laws stipulate the procedures of export and import trade. The report will investigate both economic and socio-cultural environment. It will endeavor to assess tax policies, currency exchange rates, and inflation rates in India. Later it will survey the technological aspect of business environment and analyze external and internal factors, which affect Rio Tinto. This is the SWOT analysis. Finally, the report will give its recommendations to the Rio Tinto’s management on the feasibility of India as their market target4. 2.0 Political Environment 2.1. Government stability The India’s current government under Pratibha Patil has sound policies to promote direct foreign investments. The government embraces global trade links. They have a stable political system whereby they hold elections after every five years. Their rich democratic system receives acknowledgement globally. 2.2 Government and contribution Health investment policies attract a large pool of both domestic and foreign investors. The Foreign investment policy came into effect back in 1991. This policy has undergone through major reforms to suit the interest of investors. Currently the policy allows automatic and government-administered ways of investment5. The foreign investment policy is friendly enough to permits investor from outside to collaborate with either local or their foreign counterparts. 2.3 Analysis Indian government shows political will. The political system is has good structures to allow investors to invest in India. This is positive a conducive environment for Rio Tinto’s investment. 3.0 Legal Environment 3.1 Regulatory framework The regulatory framework in India has undergone extensive amendments to accommodate external investments. The rules and regulations on foreign investment are very much flexible. It allows anyone to invest in all her different sectors of economy. Investors can invest through two routes, namely, Foreign Direct Route and Government-approved rout. Direct route of investments gives 100% to products of mining. Mineral and mine Act of 1957 protects mining-derived products. The rules require investors to have valid passports and visas. The Management Act on Foreign Exchange advises the government to impose restriction on unworthy investments (Sople 2007:13-16). The government has legal powers to stop any business, which does not comply with business code of conduct. 3.2 Business Laws The Act of Foreign Trade, which became effective in 1992, regulates both imports and exports in India. This Act regulates and develops foreign trade. It streamlines import and expands export trade links with different regions in the globe. The Act empowers the government to restrict, deny, and manage both exports and imports from time to time. Indian business fraternity does not accept bribery and other antisocial practice. Formulation of export/import policies aims at making Indian home-based products gain international acceptance in the market. The current policy on Foreign Trade focuses at strategizing the export trade. This shows that there are some export/import constraints. 3.3 Taxation laws Taxation Income Act clearly defines the rates of taxation of foreign investors. Agreement on double taxation avoidance requires taxation of all income that accrues in India. This tames the taxpayers who avoid taxation in their homeland. Individual taxation has its basis on residential status and not citizenship. All persons living in India are subject to taxation on their income. 3.5 Analysis It is evident that India has well-structured laws conducive for foreign investment. The laws are very lenient for Rio Tinto expansion strategy. Rio Tinto can gain a lot if it grasps this opportunity. Liberalization of foreign investment policies is health for prosperity of Rio Tinto business activities. 4.0 Economic Environment 4.1 Interest rates (%) Reserve Bank of India reserves the mandate to make decisions on interest rates. The rates had a vary pattern since the year 2000. For instance in 2000 the rate hit 14.50% mark. This was an historical level in India. In April 2009, the interest rates went to the lowest point of 3.5%. On average, the Indian interest rate is at 5.82%6. 4.2 Inflation rate (%) Inflation rates in India expresses swings since 1969. In 1974, the rate was the highest in the history of India. At that time, it registered a 34.68%. However, in 1976 it attained low levels of -11.31%. Inflation rates from the year 1969-2010 stands at 7.99% on average. 4.3 Currency exchange rate ($) The Indian Rupee has been quite stable to the U.S Dollar. However, it has witnessed periodic volatility. For example, in 2006 the exchange rate stood at 44.86 to a U.S Dollar. In the year 2011, the Indian Rupee strengthened over U.S Dollar to exchange at 44.34. The Indian Rupee performed poorly in 2008-2009. At this time, it recorded a 51.50 exchange rate over U.S Dollar. 4.4. Free-market/command/mixed economies India has recently shifted to free market economy. This is in line with its economy liberalization plan. This places India in right position to comfortably deal with overwhelming supply and demand. In this market, there is no monopoly and supply and demand determines prices of commodities. This has led to India emerging one of strong economies in the world now7. 4.5 Economic trends/forecasts Indian ranks highly in its economic performance for the last couple of years. It has embarked on many economic reforms since the year 1991. A fresh glance at the trends in global market affirms that India has a lot in stores to become an economic giant. It projects its Gross Domestic Product to grow to 8.2% in the year 2011-20128. 4.6 Tax policies (%) Taxation Income Act gives a precise structure of taxes levied on foreign and domestic investors, Indian residents, and non-residents9. The foreign companies get 40% tax on their net profit. The Act also levies a 42.23% on taxable income that exceeds ten million Indian Rupees. Individual tax rate is subject to total income. For instance, non-resident pays a surcharge of 2.50%10. 4.7 Analysis The economic environment is relatively favorable in India. However, the constant inflation and currency exchange rate calls for wide consultation within the Rio Tinto management. This will help to devise sound strategies to deal with eventualities. 5.0 Socio-cultural Environment 5.1 Hofstede’s Cultural Dimensions Hofstede’s theories are applicable in various sectors in India as depicted below. 5.1.1 Collectivism Vs Individualism Indian communities demonstrate individualism. This has enabled different members of society to work tirelessly for their own growth. Individualism has a positive impact to Indian economy. 5.1.2 Power distance The caste system of governance in India has isolated her citizen. People have accepted the huge differences evident between the leaders and the followers. 5.1.3 Uncertainty avoidance India rates low in uncertainty avoidance. The citizens are eager to invest on many sectors of economy. They are prepared for any shortcoming. 5.1.4 Time orientation Indians focus on long-term benefits rather than the short-term lived rewards. It is ready to expand and invite foreign investors. 5.1.5 Quality Vs quantity of life Indian citizens live a quality life. They have stable sources of income. This is noticeable in the good health of Indians. 5.2 Analysis Hofstede’s Cultural Dimensions works to the advantage of Rio Tinto. The large distance in the political class in India will not affect Rio Tinto plans. The citizens serve as positive challengers to Rio Tinto. 6.0 Technological Environment 6.1 Technological infrastructure Indians are very competent in various sectors of technology. Their construction industry is very crucial to Rio Tinto to erect tall distribution centers for copper product. 6.2 Communication networks India possesses the most sophisticated forms of communications in the globe. These include internet, phones, telegrams, televisions, and radios. This makes India to receive information all over the globe. 6.3 Logistics networks India is in the process of streamlining its transport system. It endeavors to replace the railway system that has been the chief mode of land transport. 6.4 Analysis Despite the logistic networks, which are under renovation, both technological infrastructure and communication networks promises prosperity for Rio Tinto. 7.0 SWOT Analysis 7.1 Strengths Rio Tinto enjoys strong financial grip and competent, visionary human resource, and accurate communication systems. Its reputation spans the whole world. They encourage accountability and transparence in all their activities. This is instrumental to their efforts to expand to Indian markets11. Their well-established corporate policies make Rio Tinto smart to stand to any market challenges. 7.2 Weaknesses Rio Tinto faces some obstacles. These include, insider trading, aging employees, and lack of advanced ground monitoring technologies. This spells doom for the organization bold steps to stretch their products to India. 7.3 Opportunities Rio Tinto has wide range opportunities in India market. The country does not produce copper and its product. The high demand of copper in electronic industries is an opportunity for India acceptance in the market. The large economic well-off population promises many benefits for Rio Tinto. The economic, socio-cultural, and political systems are springboards for Rio Tinto’s success. 7.4 Threats Rio Tinto has to out-win giant companies with similar which have expressed their interest to venture in the mining industry as distributors. They will to set strong marketing policies for their product to capture enough sales and profits. 8.0 Recommendations The report recommends Rio Tinto management to set sound policies to deal with threats from their competitors. They need to invest in the newest technologies of mining. This will ensures faster extraction and processing of copper products. It will be a sure way to meet customer satisfaction. Bibliography Bouchentouf Amine et al, High-Powered Investing All-In-One For Dummies (New Jersey: John Wiley & Sons, 2011), 60-63. Rio Tinto. 2010 Annual report. Risk Management. Available at < http://www.riotinto.com/annualreport2010/overview/risk_management.html> Kanuk Alan, Capital Markets of India: An Investor's Guide (New Jersey: John Wiley and Sons, 2011), 59-63. Miller W. John. Alcan proves Costly to Rio Tinto. THE WALL STREET JOURNAL. Available at< http://online.wsj.com/article/SB10001424052970204642604577213480769650666.html> Stewart M. robb. Rio’s Profit Slumps 59% on Aluminum Impairment Charge. THE WALL STREET JOURNAL. Available at< http://online.wsj.com/article/SB10001424052970203646004577212272340025502.html Rio Tinto. Rio Tinto management system standard. Health Safety and Environment. Available at< http://www.riotinto.com/documents/ReportsPublications/RT_Managementsystemstandard.pdf Datamonitor. Rio Tinto – SWOT Analysis. Research and Markets. Available at < http://www.researchandmarkets.com/reports/577945/rio_tinto_swot_analysis> Read More