Analysis Of Australian Iron Ore Industry

1. Considering the evidence relevant to each of the Five Forces relevant to the iron ore industry discussed in the case, do you consider it an attractive industry to invest in? (Approximately 400 words in total).
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).
3. What dynamic capabilities are evident in the iron ore firms discussed in the case? (Approximately 400 words in total).
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).

Five Force Analysis of Iron Ore Industry

According to a research conducted by Lucintel, a global consulting the iron ore industry is predicted to reach US $379 growing at a CAGR of 9.9% by 2018 (Lucintel, 2013). After analyzing global market trends, it was found that though the market seems to be declining in the period of 2012-14, it is expected to catch up due to recovering demand for iron ore in the emerging economies. The fives forces in the iron ore industry are as follows:

• Bargaining Power of Buyers – Consumers prefer the long term contracts for a consistent quality grade of iron ore at reasonable prices. Besides the fact that, there has been great demand from emerging economies like India and China, who are undergoing rapid industrialization. The number of sources is limited whereas the demand is huge, leading to a imbalance between the two.
• Bargaining Power of Suppliers – There is a dearth of highly skilled labors for the iron ore industry leading to an understandable increase in their bargaining power. Iron ore operations are cost intensive, which is even more noticeable in lower grade iron ores.
• The threat of Substitutes – Around 98% of the iron ore produced is used to produce steel. While in the emerging economies, the availability of scrap steel is limited, however, in developed countries like the US, scrap steel is being used as the raw material for the production of steel. Therefore, the trend is moving from the iron ores to scrap steel, which can be considered as a substitute.

Strategic Group Analysis

While conducting the strategic group analysis, there were three strategic groups found, when the parameters analyzed were as mentioned below:

• Revenue – Represents the latest revenue figures for the companies in the units of billions of US dollars. It represents the company's earnings through its various businesses. It may be noted that the revenue numbers are of the company as whole and do not solely represent the iron ore business of any company.
• The region of Operation – The region of operation represents the number of countries the company operates out of. Naturally, the number of products and activities the company is involved in the more diversified it will be in its regions of operation. Another remarkable characteristic of these firms is their tendency for mergers and acquisitions to gain competencies in the newer area of businesses. Since this will lead to a lesser learning curve and make the business profitable much sooner than expected.

Dynamic Capabilities

The dynamic capabilities (Feiler & Teece, 2014), exhibited by the iron ore industry are as mentioned below:

• Cost Reduction through process improvements and efficiencies – The iron ore industry which began in as early as the 1950's, has been one of the major contributors to the development of human living. And this has been possible due to rapid development in technology and process automation.
• Rapid Diversification – In each of the companies discussed in the case study, one noticeable factor was the organization decision for expansion to newer regions and minerals (other than iron ore) for increasing the access to raw materials. Other minerals that companies have been working on are bauxite, aluminum, gold, copper, gold, diamonds etc.
• Cross Venture Collaboration – Many of the firms in the iron ore industry have collaborated with other steel making counterparts, to provide them with iron ore as per their requirements through shared knowledge and capital investment. One the largest consumer of iron ore is China, backed by its ever increasing rate of industrialization, poor iron ore concentration, building newer homes and newer factories. Therefore, an increasing number of iron ore companies are collaborating with the steel making Chinese counterparts, for increasing funding, process improvements and maintaining consistent demand for iron ore.