This paper analyzes a case study of Rio Tinto Limited in relation to strategic management theory given the reaction of the firm to the recent global financial crisis. Rio Tinto limited is a multinational company dealing in metals and mining processes. The company's headquarter is based in London and management office is in Australia. The company began in 1873 when investors from different parts of the world bought mining ground that was at river Rio Tonto. This study will analyze the impact of Global Financial Crisis (GFC) on Rio Tonto limited. Many companies experienced the effects of the global financial crisis that occurred in 2008/2009. The crisis marked one of the recent tragedies in the world of commerce. Rio Tinto Limited felt the wrath of this financial phenomenon. Forbes ranked the company among the top five in Australia in 2007 when crisis was marking its first phase. The company offers a reliable study of application in Forster's work on strategic management.
The company is involved in the production of raw materials used in metal industries such as copper, diamond, bauxite, core, uranium, and iron ore. Rio Tinto is equally famous for mining industrial minerals such as titanium dioxide, gypsum, talc borates, and salt. The Strategic management theory has key elements that relate to Rio Tinto during and post crisis era. Both the internal and external environments must balance for the success of the business. The external environment affecting the operations of the company comprise of the customers, competitors, and the immediate community. Rio Tinto is based in Australia, though it has major branches in the United Kingdom and other parts of the world. According to the 2011 National Census, Australia has a population of 21,507,717 people. This means that the domestic market is equally big. Most of the products consumed within the country take place in the country's capital, Canberra, which is also known for its industrial prevalence.
The strategic management theory focuses on markets. It seeks to identify the plans of the management regarding the established markets and the new markets. What management strategies will ensure that the existing markets are retained? How can the businesses make an entry into other new places? Statistical studies reveal that Rio Tinto Ltd had the highest percentage of its investment in Australia and Canada with 35% and 34% respectively. Europe is 13%, the United States of America with 11%, and a 3% in Africa and South America each.
The financial crisis threatened the success of company compared to other Australian businesses like the National Australia Bank that has its activities centralized within the continent. Access into new markets proved difficult. Most of the capital was channeled towards activities aimed at saving the existing markets. Despite these challenges, Rio Tinto rose to create new links in Indonesia and improve its presence in most parts of Europe and America. In the recent past, the company has increased its entry into the numerous islands surrounding Australia (Rio Tinto, 2013).
The Role of the Internal Environment
Strategic management emphasizes on the role of the internal and external environments in achieving the goals of the business. Internal environment comprises of the shareholders and employees. Rio Tinto has a well-defined hierarchy of leadership. The powers and roles of the executive are stipulated in the company's constitution. The company has a large number of employees in the processing, manufacturing and delivery sectors. Protection of the employees' rights is paramount to prevent industrial actions that have rocked some companies in Australia. The activities of the company have both negative and positive impacts on the immediate community. The mines have created employment to the people. The infrastructure has equally improved to meet the standards of the business. On the other hand, the extraction of the minerals has caused environmental pollution. The chemicals used in the factories pollute the air. Physical damage to the land is a result of mining.
Rio Tinto was forced to reduce the number of employees in an attempt to minimize input during the financial crisis. However, as the crisis ended, the management has successfully increased the output, maximizing the profit that stands at 34,269 Million (Rio Tinto, 2013).
According to Forster's theory, the management should establish a marketing strategy on the products with considerations being made on the existing products and new products. The company constantly produced and supplied its initial products, majorly the minerals. Later, Rio Tinto added a list of related products. During the production, by products were obtained. They were used to process different products such as gold, nickel and silver. This effort increased the company's revenue. Similarly, a wider market was reached. These steps enabled the company to recover speedily from the effects of the crisis. With their established brand, the new products entered the markets easily. The consumer's loyalty gained a boost. The profits rose steadily and the company experienced a steady expansion.
The theory displays the strength of capabilities and competencies of the company. Identifying the existing skills helped the shareholders spot the missing ones. Before and after the crisis, the Rio Tinto's management organized exhibitions and events where workers displayed their creative ideas. With the help of the company, the ideas were processed and used to transform the company into its status. It is a creative and original idea that identifies a market niche. Once created, satisfaction is easily attained by the great creativity and originality that show its creation. The success of a company depends on its ability to exploit fully the potential of the employees. The Rio Tinto management is skillful and aggressive in exploring this secret explained in Forster's theory (Rio Tinto, 2013).
From 1929 to 2008, Rio Tinto has been involved in various acquisitions and mergers. These have enhanced its growth and evolution as a company. Such endeavors have come with benefits such as a bigger stock base, a wider market, and a variety of product brands. The table below presents the major mergers and acquisitions that Rio Tinto has managed to secure over the years in order to diversify its risks and income sources.
Year Type Company Country Product
1929 Acquisition Roxana Corporation Rhodesia
1962 Merger Consolidated Zinc Australia Zinc
1968 Acquisition U.S Borax U.S Borax
1989 Acquisition Kennecott Utah Copper Australia Copper
1989 Acquisition Coals and Allied Industries Wales Coal
1993 Acquisition Nerco
1993 Acquisition Cordero Mining Company U.S Coal
2000 Acquisition North Ltd Australia Iron ore
2000 Acquisition North Ltd and
Ashton Mining Australia Aluminum
2001 Acquisition Peabody Energy Corporation
2007 Acquisition Alcan Canada Aluminum
The company has made profits during its transactions. Loses have been incurred too.
a) The company sold its stock to raise 2.5 million pounds in 1929. From this cash, the company invested in the Rhodesian Copper Mining Company in 1930. The move saw Rio Tinto progress steadily in the market.
b) Rio Tinto's merger with Consolidated Zinc in 1962. This is considered one of the greatest achievements in the history of Rio Tinto (Rio Tinto, 2013).
a) The Spanish Civil War, World War II and Franco's nationalistic policies affected the company. British and French owned companies faced challenges in Spain during this period of instability.
b) After accessing the situation in Spain, Rio Tinto sold 2/3 of its mines in Spain. As a result, it lost the Spanish market and mines.
c) Four employees of Rio Tinto were arrested and charged with corruption and espionage in 2009. The four were found offering bribery in order to access Chinese state secrets. This is an international crime in most constitutions. The image that Rio Tinto had created eroded.
Criticisms Strategies applied by Rio Tinto and Recommendations
The company has received fierce criticism from environmentalist groups due to the effects of its mining activities on the environment. Focus is on the methods used in mining the precious minerals. They degrade the surrounding. The operations on coal conducted by the company contribute towards global warming which has adverse effects on earth. The extraction of uranium is unfriendly to the environment. The technology is also a raw material for nuclear technology that is dangerous to humanity. The Government of Norway displayed evidence on the environmental pollution caused by Rio Tinto and banned the company from investing in the country. Earlier on, the Norwich Government Pension Fund sold shares worth US$ 855 million to the company in an attempt to seek compensation for the damages caused.
To protect its image, the company should endeavor to encourage the use of environmental friendly methods while carrying out its activities. Currently, the company is establishing Green-washing projects to create environmental awareness amongst its staff. The company sponsored the Rio Tinto Long-Term Commitment Award to promote the creation of a healthy universe (Rio Tinto, 2013).
Human Rights and Labor Unions
Human rights groups and labor unions have persistently attacked the company over the possible violation of labor rights. The Construction, Forestry, Mining and Energy Union conducted an anti-Rio Tinto campaign after its attempt to withdraw its workforce from the famous Workforce Relations Act of 1996 introduced by the Government. The working conditions in the mines expose the lives of the workers to danger. While performing their duties, the workers' rights must be respected. The company should live to these standards, and show respect to the international labor laws that protect the workers. Working towards such steps will improve the status of the company to the benefit of the whole staff (Rio Tinto, 2013).
Achievements and weaknesses are part of any corporate world. Fostering his theory offers a framework towards success. Rio Tinton has managed to apply these skills in its endeavors, covering great steps in the end. Historical events such as wars have proven to be barriers. Nevertheless, with able leadership the company has striven to exploit its potential fully. The Global Financial Crisis was a daring wave. Rio Tinton survived it. The company should approach the current challenges with understanding and tolerance. Its goals should include environmental protection. It must also gear its stand towards protecting and safeguarding the rights of the workers in order to improve its global image. Rio Tinto limited also faces some criticism. The company has been criticized for environmental pollution. The company is further criticized by labor organization and human rights on kind of salary and workers welfare given in that company. The human rights group has criticized the company for having to embrace the rights and welfare of the workers.
Rio Tinto. (2013). 'Rio Tinto results for the year ended 31 December 2012.' Media release. Retrieved on 7 May 2014 from: http://www.riotinto.com/documents/pr801g_rio_tinto_results_for_the_year_ended_31_december_2012.pdf
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