Corporate Strategy - Coal Mining in China - Case Study Example

Running Head: COAL MINING IN CHINA Corporate Strategy (Your Name) (Institution’s Name) Summary Coal offers substantial possibilities for diversification of energy supply and continued reduction in oil imports, given its abundant and geographically well dispersed reserve base. Its properties make it more suited to use in centralized system such as electricity generating plants, large industrial installations, and district heating systems, than in small installations where emission control is technically and economically less viable. In the absence of adequate attention to environmental protection, the extraction and use of coal has in the past had profound effects on the environment in many countries. These effects coupled with decreasing oil prices, were responsible for the shift away from coal towards cleaner fuels some decades ago, and coal still possess s a poor environmental image in the public mind. Recent technological and regulatory developments have to some extent overcome this image, but the nature of coal remains such that by comparison with other fossil fuels, greater precaution needs to be taken, and greater expense incurred in protecting the environment and human health when exploiting this energy source. TABLE OF CONTENTS Introduction …………………………………………………1 Methodology …………………………………………………1 SWOT and PESTEL analysis ………………………………..2 Five porter’s analysis …………………………………………3 Possible Long Term Futures ………………………………….8 Conclusion and Recommendations ……………………………9 Introduction Coal mining in China has been achieving considerable growth year after the other in terms of revenue earned as well as the reduction in extraction related deaths. It is characterized by high reserves, with complete variety though of uneven grade carrying high quality anthracite coal and cooking coal in small reserves. It is normally distributed widely with the northern and western regions being rich in coal reserves. Coal has been seen as a dilemma for the energy security in China, however this primary source of energy appears irreplaceable for lack of a close substitute. In the last fifty years or so coal has always accounted for over seventy per cent of the country’s energy resource. Other alternatives, for example, hydro electricity constitutes less than ten percent of the country’s major energy demand. Methodology The report will employ various tools in determining the competitive power of the China’s light engineering industry. These will include Porters five forces analysis in mapping the industry i.e. Threat of new entry, Threat of substitution, Competitive rivalry, Supplier and Buyer power. The report will identify key players in this industry as well as apply the PESTEL analysis in identifying changes occurring in the macro environment. It will also identify the structural drivers of change within the industry as well as discuss the industry using the life cycle model. Swot and PESTEL Analysis Beginning 2000, the consumption of coal has increased at an alarming rate averaging ten percent per year. Conversely, coal mining is also generating environmental and safety crisis in China. Although extraction /mining of coal has never been known to be a safe activity, China’s several, dreadful mining accidents has led to a stained history as far as coal mining in this country is concerned. For instance, 1,549 miners died in 1942 following an explosion of methane gas at Benxihu mine while similar explosion at the Laobaidong mine left 682 miners dead in 1960. According to the official statistics, 250,000 is the number of miners who have died as a result of mining accidents. Nonetheless, the working conditions in the mines have improved such that the number of people killed in these mines decreases as the decade’s elapses. For example, in 1950 a total of 70,000 people died following mining accidents while the figure reduced to 10,000 in 1990. On the other hand the annual death rates remains at a higher range (4,746-6,995) an indication that coal mines is still a very risky environment to work on. As compared to other countries for instance, India, the country lags behind as far as accidents reduction is concerned where its deaths accounts for 80 percent of the world’s total deaths. Given the country’s constantly growing economy and its reliance on this energy resource, these shocking statistics do not auger well with the future of the country’s mining. Investigating the distinctive complication of the country’s coal mining industry discloses its difficult features and gives possible measures to help revolutionize its worst impact. The subject of safety in China’s coal mines carries along other socio-economic evils in the Chinese society and hence, a solution must go beyond just stricter policies. It will necessitate a primarily diverse way of coal extraction so as to improve the status of the workers. Five porter’s analysis The appraisal will employ the Threat of new entry, Threat of substitution, Competitive rivalry, and Supplier and Buyer power in determining the competitive power of China’s light industry. Competitive rivalry Despite the fact that the industry faces stiff competition from its competitors, for example, the coal mining industries in India and the US, China’s coal industry still emerges to be the winner because the increased competitions do not amount to a loss of revenue in its part. Being among the world’s largest extraction company, the industry enjoys a wider marketing base thus gaining competitive advantage as more customers will join the company while the old ones will be retained as a result of its established market territories. The industry’s strategic international location adds to the competitive advantage. (Michael, 1998) The industry have got a well established mechanism which it uses in fighting the competitors cost ensuring that they remain in the market and do not loose clients. Switching costs may either involve decreasing or increasing costs depending with the rates in the market plus the available number of customers. However, various mining companies in the industry are always loyal to their clients, the continued customer loyalty gives them competitive advantage over its competitors. This ensures that the company does not loose its clientele to the competitors pegged in the buyer switching costs, customer’s loyalty, and continued fixed costs offered to the customers together with its corporate social and environmental responsibilities. (Michael, 1998) Threat of New Entry The total cost involved in setting up such a gigantic industry turns out to be too high for most investors from the other corners of the globe, this normally makes them to shy away from establishing related business which in return gives China’s light industry a competitive advantage over the others. Necessary time to start up a mining company and establish a wider customer base is also lengthy therefore adding to the competitive advantage of the company. The industry enjoys large economies of scale following its wide expansion since there is a series of mining companies in China. The benefits accruing from the economies of scale includes reduced cost of inputs and also curtailed costs of transportation translating into increased profits thereby putting the industry ahead of others as far as profitability is concerned. The increased revenue adds to the industry’s competitive advantage. (Michael, 1998) Advancement in technology in this China’s mining industry has been effectively carried out thus adding new customers to the long list a thing that ensures continued competitive advantage. The industry has employed a properly organized geographic representation across the world ensuring that each continent has access to its products thus giving the mileage in competitive advantage. Cost of its products do not keep fluctuating a thing that ensure a good customer base. The industry retains resilient and strong barriers to its market entry since they maintains high quality products that most of the competitors in this industry may fail to accomplish consequently locking investors willing to join the mining field. The competitive prices offered will simply put off new entrant since the industry enjoys economies of scale with recurring profitability. New entrants will offer higher price tags thereby failing to attract more customers leading to low profitability and eventual close down of the business. (Michael, 1998) Threat of Substitution Products as well as services offered by this industry are exemplary. However, this primary source of energy appears irreplaceable for lack of a close substitute. This guarantees that clients do not weaken its powers through substitution thus escalating its competitive advantage. (Michael, 1998) Buyer Power Coal mined in China has got a wider customer base making the number of customers to be very high as compared to that of its competitors. The weak buyer power guarantees a less strong downward pressure on the prices offered. Customers lack the ability of substituting products and services offered by the company whereas the costs of charging are high. All these make the industry enjoy competitive advantage over its business rivals. Supplier Power The coal industry in the China enjoys a moderate number of suppliers with high ability of substituting from one supplier to the other. The suppliers are loyal offering quality products to services. Cost of switching from one supplier to the other is not very high for the company due to its increased revenue sources a thing that ensures suppliers control in driving up prices. Possible long term future In the first scenario the trend in achievable growth is expected to continue even beyond 2050 with no likelihood of the consumption dropping to 50 percent. Moreover, with restricted petroleum resources, energy planners in China have heavily relied on locally copious coal in fueling modernization objectives. Significantly, China will highly rely on the underground operations as its primary method in extracting coal. This will in return create room for surface mining which is more advantageous in terms of safety and productivity. Underground Mining mechanization will triple the current productivity of six tons per work hour. In comparison China remains the only coal superpower with a minority share of its mining in the form of surface mines. Efforts by various governments to bring down the atomized and vast coal industry in China will always fail, this is so because the country’s coal demand continues to increase along with the industry’s vested interests and power. This will definitely increase and strengthen China’s global competitiveness thus putting it in a better world wide trading position. In the second scenario Political leaders might succeed in their effort to eliminate widespread corruption that has been witnessed throughout China’s coal industry .while Beijing increasingly becomes less and less lenient with corruption cases relating coal mining, provincial administration is taking increased measures on how to end the vice. For example, in the year 2006 seven directors based in Shanxi (the largest province in coal producing) were arrested and put on trial following corruption allegations relating to coal mining. The various places in China which complicates the effort of China government in trying to induce the local officials in obeying central policies will be clearly dealt with. At these regions where there is a belief that even capital punishment is not sufficient in holding the urge by the greedy officials to propagate the heinous act. Similar initiatives were undertaken in the month of august the year 2005 when Beijing initiated a major drive in cleaning the shareholding industry through the officials, this entailed the removal of personal investments by all heads of state as well as government employees. The third scenario will occur as a result of the second scenario whereby the emerging desirable working conditions will attract more workers. The conducive coal mining conditions will make it possible to retain and attract employees. This will give many technicians and engineers in the industry some motivation and job morale thereby avoiding the prevalent brain drain in this sector which brings about increased shortage of expatriates necessary in improving the safety standards at this mines. This will act as the voice of the Powerless i.e. the majority peasants who toil in the labor mines and who come form the rural areas that comprise of desperate occupants seeking jobs in the mine fields. The first scenario becomes the most likely to happen and ensure competitive advantage. Conclusion and Recommendations Although China has recorded considerable growth rate its mining industry is undergoing many challenges with the security of employees emerging to be the most disturbing one to the country’s government. Mining related deaths has continued a thing that has resulted in acute brain drain. This has weakened China’s competitive advantage. However if the above proposed scenarios are to happen then the trend will reverse thereby strengthening China’s competition in the global arena. Reference Michael, E. (2000): Competitive Advantage: Creating and sustaining superior performance. Cambridge, Oxford University Press Michael, P. (1998): On Competition. London, Harvard business school press, Mining in China available at www.infomine.com (Retrieved 5th December 2007) Read More