Strategic Planning and Management - Assignment Example

Strаtеgiс Рlаnning and Маnаgеmеnt 2. Are there strategic groups evident among the firms in the iron ore case? Discuss each groups' characteristics and member firms. (Approximately 400 words in total). A strategic group is defined as group of firms that over time employ comparable strategies, possess similar attributes, and have competencies and assets that are similar (Aaker & McLoughlin, 2010). Based on the information provided in the case study by Rice (n.d), a number of strategic groups can be identified. The first strategic group involves the large producers of iron, namely BHP Billiton and Rio Tinto. Being the major producers of iron ore in Australia, the two companies pursue similar strategies to obtain the best prices for their iron ore. For instance, both BHP Billiton and Rio Tinto have formed strategic alliances with steel mills in Asia, whereby the two ore producers have developed notable reserves in mines in collaboration with these companies. BHP Billiton and Rio Tinto also have similar market interests given that they are both members of globalORE™ , an organisation that establishes quality benchmarks for comparing iron ore grades from emerging and established producers. Another strategic group is that comprising emerging mining companies. Notably, both Western Desert Resources and Fortescue Resources faced the problem of having to access remote mine locations and transporting the resources produced. Although they were relatively smaller companies compared to Rio Tinto and BHP Billiton, Western Desert and Fortescue decided to establish their own infrastructure (such as road /rail), which they could use in exporting their ore. There is also a strategic group in the form of joint ventures between the two major players in the mining industry in Australia and various companies in Asia. For instance, BHP runs a joint venture involving Itochu Mineral & Energy of Japan, Wuhan Iron and Steel Group of China, Mitsui Iron Ore Corporation of Japan, and TangSteel, Maanshan Iron Steel and Jiangsu Shagang Group (all of China). Similarly, Rio Tinto is involved in a joint venture with SinoSteel of China, whereby the two companies run a firm called Channar Joint Venture. Another strategic group that is evident is that in which companies are involved in vertical integration – whereby one firm is involved in more than one aspect of the supply chain of iron/steel. For instance, Arrium is vertically integrated in that it produces iron ore from its mine in Middleback Ranges and also manufactures steel from its factory called Whyalla Steelworks. BHP was also at one time involved in the production of both iron ore and steel. Grange Resources is also involved in some local value addition to iron ore by refining and pelletizing ores of lower quality before exporting them. 3. What dynamic capabilities are evident in the iron ore firms discussed in the case? (Approximately 400 words in total). Dynamic capabilities can be viewed as firms’ capacity to manage their external and internal competencies so as to face their changing environments more competitively compared to their rivals (Leoncini & Montresor, 2008). This means that a firm can be said to be having dynamic capabilities if it is able to manage its internal and external competencies to deal with the environment in which it is operating, which gives it a competitive advantage over other firms. From the case study, a number of iron ore firms can be said to have dynamic capabilities as described next. To start with, both Rio Tinto and BHP Billiton have dynamic capabilities in the form of well-established infrastructure like rail and road networks and ports that enable them to transport their produce more rapidly than the upcoming firms. As an example, Western Desert Resources and Fortescue Resources faced challenges in terms of how to access the remote locations where minerals are located. The import of this matter can be seen by looking at the fact that Fortescue’s request to Rio Tinto and BHP to use their transport infrastructure was rebuffed. Thus, while smaller companies have to invest heavily in new transport infrastructure, Rio Tinto and BHP Billiton are able to use their existing networks to gain a competitive edge. The decision by Arrium to be involved in the production of both iron ore and steel can be said to be the company’s dynamic capability since this form of vertical integration makes it different from other companies. Since no other Australian producer of iron ore is presently involved directly in the production of steel, Arrium can be said to have a competitive advantage in this market segment through its production of steel. Grange Resources’ involvement in pelletizing and refining of iron ore is also a factor that can be considered as a dynamic capability. This is because by refining and pelletizing low quality iron ores before exporting them, the company is in a position to fetch better prices compared to the other companies which may export low quality ore without any value addition. Another source of dynamic capabilities is the formation of strategic alliances between various firms in the iron ore industry. For example, Rio Tinto and BHP Billiton have developed reserves in mines due to partnerships with steel mills in Asia. Similarly, several smaller producers of iron ore are creating long-standing supply liaisons with steel mills in Asia. The aim of such relationships is to ensure a steady market for the iron ore, which gives the concerned ore producers an advantage over their competitors.   4. According to the text, core rigidities are capabilities that become frozen, inhibiting necessary change. Based on the evidence in the case, does Rio Tinto have any major core rigidities? (Approximately 400 words in total). Core rigidities are well-established competencies that become so ingrained that they prevent an organisation from creating new competencies or from looking at new methods of doing things (Kren, 2010). The implication of this is that core rigidities are capabilities or opportunities that a firm relies on so much that they hinder it from becoming competitive in the long run due to lack of alternative competencies. In regard to Rio Tinto, a core rigidity is anything that obstructs the company from seeking alternative ways of doing thing in the belief that the current competencies are adequate. Rio Tinto’s core rigidities are outlined as follows. To begin with, despite having a diversified asset portfolio, the company has not invested significantly in measures that ensure sustainability and environmental protection such as recycling of scrap steel. The reliance on ores as the source of iron, though a good aspect given the high price of steel at the time the case study was written, could be a source of detriment for Rio Tinto in case steel prices plummet, especially due to slow economic growth in Asia. Additionally, the demand for steel derived from iron ore could go down in the future as concerns about the environment increase. As noted in the text, should such scenarios occur, the heavy investments made by Rio Tinto in the Pilbara region could turn out to be costly. This will mean that the heavy investment in Pilbara as well as the associated competencies that the company has in mining will turn to be unbeneficial. Another possible core rigidity is that Rio Tinto’s large scale of operation and focus on ore mining could be hindering it from trying other beneficial processes such as value addition to the iron ore that it produces. It has been noted that direct shipping ore (DSO) deposits are the most profitable. Since Rio Tinto has expertise in mining DSO, it seems to ignore aspects such as processing of the ore that could help in diversifying its revenue streams. Notably, companies such as Arrium and Grange Resources are involved in steel production and refining/pelletizing of iron ore respectively. That these companies are able to diversify their operations means that there is a market segment that Rio Tinto is overlooking. Finally, although Rio Tinto’s largest single prospective mine is in Guinea, the company is yet to start exploiting the resources there. This means that the company could be focusing too much on the mines in Pilbara and other parts of Australia because of the investments it has made there while overlooking a mine that could potentially be more lucrative.   References Aaker, D. A., & McLoughlin, D. (2010). Strategic market management: global perspectives. Chichester, West Sussex: John Wiley & Sons Ltd. Kren, L. (2010). Managerial accounting. In H. Bidgoli (Ed.), The handbook of technology management: Supply chain management, marketing and advertising, and global management (pp. 414-433). Hoboken, NJ: John Wiley & Sons, Inc. Leoncini, R., & Montresor S. (2008). Learning and firm dynamics: Theoretical approaches and empirical analysis of dynamic capabilities. In R. Leoncini & S. Montresor (Eds.), Dynamic capabilities between firm organisation and local systems of production (pp. 17-72). Abingdon, Oxon: Routledge. Rice, J. (n.d). The ore wars – the Australian iron ore industry. Case Study, 1-16. Read More