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Rio tinto brand audit report

brand audit marketing strategy report - rio tinto - mining industry

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Rio tinto brand audit report

  1. 1. Page | 1 Brand Audit Report MMBA8017 Strategic Marketing, Term 2, 2020 Name: Amit Sati Student ID: 45692386 Company: Rio Tinto Industry: Mining & Extraction
  2. 2. Page | 2 Table of Contents 1. Executive Summary .................................................................................................. 3 2. Situational Analysis .................................................................................................. 3 2.1 Context ................................................................................................................. 3 2.2 Customers............................................................................................................ 4 2.2.1 Segmentation ................................................................................................ 4 2.3 Company .............................................................................................................. 5 2.3.1 Key Figures.................................................................................................... 5 2.3.2 SWOT ............................................................................................................. 6 2.3.3 Targeting & Positioning................................................................................ 7 2.4 Competitors.......................................................................................................... 7 3. Strategic Marketing Alternatives.............................................................................. 9 4. Appendices.............................................................................................................. 11
  3. 3. Page | 3 1. Executive Summary Mature Australian Mining Industry is witnessing higher demand for product segments such as copper and non-metallic ores. At the same time, stable demand and higher prices in well-established segments such as Gold, lower prices with stable demand in Coal and Oil, lower demand and decreasing price for Iron Ore1 will be observed. Overall Mining industry is expected to remain profitable with slow growth rate2. Rio Tinto is the second largest Mining company in Australia & globally. This report critically examines external factors such as economic trends, technological transformation, ecological factors, competitive analysis along with the Rio Tinto’s resources and capabilities. This report utilise strategic frameworks and marketing theories to come up with initiatives that would provide Sustainable Competitive Advantage to Rio Tinto in the Industry. 2. Situational Analysis 2.1 Context a. Strong GDP Outlook of Importing Countries: China, Japan and other Asia- Pacific Countries are the major trading partners of Australian Mining Industry. The expected economic growth and increase in domestic production in these markets provide growth opportunities for exports of mining products for Australia as more than two third of total mining production is exported 2. b. Surge in demand of Electric Vehicles: Sale of Electric Vehicles globally increased to about 1000% in the last five years and expected to lead the growth of 1 PWC. (2018). Aussie Mine 2018. 2 IBIS. (2020). IBIS Mining March 2020.
  4. 4. Page | 4 Electric Vehicles globally3. Mining Industry supplies Lithium, Nickel, Cobalt and other key raw materials for electric vehicles and other battery manufacturers. The demand for clean fuel globally will help the growth in this mining segment. c. Market Volatility: Volatile Commodity prices and dollar conversion rate fluctuation could be detrimental for profitability. Demand of Iron ore is expected to decline in the next few years4. Global coal demand is expected to be stable in coming few years but many countries are committed for transition to clean fuel, the coal demand is also expected to decline5 after 2024. d. Unpredictable & Extreme Weather Conditions: Unpredictable events such as Bushfires and Flash Floods created disruption in mining production recently. Unpredictability of extreme weather conditions because of global warming 6 remains a key challenge for the mining industry. 2.2 Customers 2.2.1 Segmentation Customers of Mining industry could be segmented into four major categories. Automobile, Energy, Manufacturing and Chemicals (Appendix 4.10). Energy Segment contributes about 46% of revenue share in the industry (Appendix 4.7) but declining global prices (Appendix 4.3, 4.4) is decreasing its attractiveness. Automobile and Manufacturing segment, which contributes to about 47% in revenue (Appendix 4.7) is expected to grow significantly because of increased demand of their output. 3 Global EV Outlook 2019 – Analysis - IEA. IEA. (2020). Retrieved 29 May 2020, from https://www.iea.org/reports/global-ev-outlook-2019. 4 Chia, K. (2020). Bloomberg - Are you a robot?. Bloomberg.com. Retrieved 29 May 2020, from https://www.bloomberg.com/news/articles/2019-09-12/iron-ore-s-glory-days-seen-numbered-as-china-s- demand-rolls-over. 5 Twidale, S. (2020). Global coal demand to remain stable up to 2024: IEA. reuters.com. Retrieved 29 May 2020, from https://www.reuters.com/article/us-iea-coal/global-coal-demand-to-remain-stable-up-to- 2024-iea-idUSKBN1YL005. 6 C2es.org. Center for Climate and Energy Solutions. (2020). Retrieved 29 May 2020, from https://www.c2es.org/content/extreme-weather-and-climate-change/.
  5. 5. Page | 5 Segment Alias Automobile Energy Manufacturing Chemicals Summary Increasing demand in electric vehicles will increase demand for raw material. Increasing demand in developing economies will balance decreasing demand in developed economies. Overall increase in demand but Ores required in Electric, Electronics & Batteries will grow faster. Demand will remain steady. Figure 1: Customer Segments (Detailed Segment Analysis - Appendix 4.10) A long-term business relationship is always valued by customers of the mining industry. Customers expect higher levels of order fulfillment in a given time frame. At the same time convincing customers for any new deal is not fairly simple and time consuming, especially Government agencies. Changing trend of social awareness and ethical sourcing is dominating the customers worldwide since the last decade. Customers are more comfortable working with suppliers invested in carbon-neutral sourcing and production. International Trade plays a very important role for Australian Mining Industry, with about two third of production exported to global markets. About 53% of production is exported to China and about 26% is exported to Japan (Appendix 4.7). As demand from both the economies are expected to grow the overall demand remains positive for the industry. 2.3 Company 2.3.1 Key Figures Rio Tinto is one of the leading companies in the Mining Industry with strong financial statements and long-term investments. Efficient operations, investment in research, technology, and intellectual properties provide higher profitability to Rio Tinto in the Mining
  6. 6. Page | 6 Industry. Return on Capital Employed for Rio Tinto was 24% in 20197, which is about twice the industry average8. Rio Tinto has a strong operations and supply chain network through Autonomous trains, trucks, drones, owned ships and contracted fleets. Focus on sustainability and employee growth initiatives strengthen Rio Tinto’s positioning in the industry (Appendix 4.12). Rio Tinto has invested US $45 million in 2019 in Research and Development to create sustainable competitive advantage in the industry 9. 2.3.2 SWOT Strategic Options using SWOT Strengths - Profitable Operations - R&D Investments - Integrated Supply Chain enabled with Robotics & AI Weakness - Heavy financial commitments in existing projects Opportunities - Increase in demand of copper & diverse ores / minerals - Increase demand of ores for battery (Lithium, nickle, etc) - Acquisitions of companies with synergies to maximise opportunities - R&D investments in diversified ores, mineral research to strengthen & safeguard position of assets Threats - Volatile Commodity & Dollar prices - Decreasing demand of Iron ore, coal & oil - Unpredictable weather conditions - R&D investments in reducing operational cost to manage fluctuations - Contingency plan to manage extreme weather - Diversification & Innovation for long term profitability Figure 2: Rio Tinto SWOT Analysis 7 riotinto.com. (2020). Rio Tinto Annual Report 2019. Retrieved from http://riotinto.com 8 BHP Group. Simply Wall St. (2020). Retrieved 29 May 2020, from https://simplywall.st/stocks/au/materials/asx-bhp/bhp-group-shares. 9 riotinto.com. (2020). Rio Tinto Annual Report 2019. Retrieved from http://riotinto.com
  7. 7. Page | 7 2.3.3 Targeting & Positioning Rio Tinto is targeting Automobile, Manufacturing and Chemical customer segments with Iron ore, Aluminium, Copper, Diamonds, Borates, Titanium and Seaborne Salt (Appendix 4.11.1). Existing high Investment, R&D projects (such as IP of Pilbara blend), technology implementation (such as AI and Robotics) in operations and supply chain provides competitive advantage in Automotive and Manufacturing Segments. Rio Tinto’s current positioning in the industry is “Pioneering Sustainable Human Progress (Appendix 4.11.2).”10 This positioning is well supported by investments in sustainability projects by the company. Further investments in clean fuel product segments, Robotics, Automation, Artificial Intelligence projects will be helpful in strengthening brand positioning in the market. 2.4 Competitors Australian Mining Industry has three major players accounting for about 32% of market share. BHP Group leads the market with about 15% revenue share, Rio Tinto is second largest player with about 12% of revenue share and Glencore has 5% revenue share 11. Rio Tinto leads the industry in targeting customers effectively with many competitive advantages in participating segments (Appendix 4.11.1). BHP and Glencore have higher capital investment in assets which makes Rio Tinto an asset light company with more return on assets. Equity of both the competitors is far more exposed to debts because of higher leverage Ratio as compared to Rio Tinto. (Figure 3) 10 riotinto.com. (2020). Rio Tinto Annual Report 2019. Retrieved from http://riotinto.com 11 IBIS. (2020). IBIS Mining March 2020.
  8. 8. Page | 8 Figure 3: Financial Comparison 2019 Both BHP and Glencore participate in all major segments in the industry with lower employee to profit ratio. Rio Tinto leads the industry in research and development spends that will provide the company with sustainable competitive advantage in the longer run (Figure 4). Figure 4: Resources & Capabilities Comparison 2019
  9. 9. Page | 9 3. Strategic Marketing Alternatives Following alternative marketing strategies are available to Rio Tinto in the mature mining market. These strategies are devised using strategic frameworks (ANSOFF & SWOT – Appendix 4.15, 4.17) and compared on strengths and weaknesses presented (Figure 5). a. Investment in Operational Efficiency: Investments in technology and process improvements will enable low cost production and increase profitability. This will also increase efficiency to meet higher demand and manage market volatilities. b. Investment in Field Research & Carbon Emission: To meet increasing demand from Manufacturing and Automobile segments, investment in field research would be inevitable. Investments in new projects to reduce Carbon Emission from processing would strengthen the sustainability positioning of Rio Tinto in the market. c. Strategic Acquisitions in Mining Industry: Strategic Acquisitions in mining industries in other geographies, such as India, Africa, South America would help to grow the business faster in under developed markets or developing economies. d. New Venture in Agriculture Adjuvants: Agriculture adjuvants will provide product breadth in the portfolio and reduce dependencies on Mining business. This alternative would also open possibilities in new markets (& geographies) as it compliments borate business. Canada and USA are in top 5 importers of pesticides and adjuvants12, North America will be fastest growing & Asia pacific will grow medium in adjuvants13. This presents unique opportunity for Australian exporters in agriculture adjuvant industry. . 12 OEC - Pesticides (HS92: 3808) Product Trade, Exporters and Importers. Oec.world. (2020). Retrieved 29 May 2020, from https://oec.world/en/profile/hs92/3808/. 13 Global Adjuvants Market | Growth, Trends, and Forecast (2019-2024). Mordorintelligence.com. (2020). Retrieved 29 May 2020, from https://www.mordorintelligence.com/industry-reports/global-agriculture- adjuvants-market-industry.
  10. 10. Page | 10 e. Supply Chain Consulting Services: Utilising the knowledge gained to implement Automation, AI and Robotics in Logistics and supply chain by providing Supply Chain consulting to other industries would provide a diversification strategy. This reduces the dependencies from existing products and markets. f. Joint Venture in Clean Energy Solutions: To capture the growth in demand of clean energy, strategic alternative of working in a partnership with businesses having unique proposition in clean energy is presented. This alternative would help Rio Tinto strengthen sustainability approach and diversification. Strategic Alternative Advantages Disadvantages Operational Efficiency Investments - Higher Profitability and Output - Managing unpredictable demands and weather conditions - High capital lock-in - Increased dependency on existing markets & products Field Research & Carbon Emission Investments - New ores / minerals mining for growing segments - Signifying Sustainability approach - High capital lock-in - Delayed returns Strategic Acquisitions in Mining - Faster new market growth - Lower knowledge acquisition investments - High financial risk - Culture assimilation risk Agriculture Adjuvants - New Venture - Reduced dependency on metal ore market - Reduced dependency on China, Japan (Asian markets) - Higher knowledge acquisition investments - Delayed returns Supply Chain Consulting Services - Reduced dependency on mining industry - Delayed returns Clean Energy solutions- Joint Venture - Reduced dependency on mining industry - Signifying Sustainability approach - High capital lock-in - Delayed returns Figure 5: Strategic Marketing Alternatives Comparison
  11. 11. Page | 11 4. Appendices 4.1 PESTEL - Australian Mining Industry Opportunities Threats Political 1. Governments across globe are in pressure to adopt Carbon Neutral policies14 1. Positive GDP growth of trading partner countries like China, Japan in long term 15 Economical 1. Volatile Commodity prices 2. Improving value of AUD 16 could reduce exports 1. Gold demand steady17 2. Copper, Lithium, Diversified ores demand increasing18 3. Increasing Demand of Electric Vehicles19 Social 1. Increasing Adoption of Clean Fuel / Solar causing Coal demand to decline gradually20 1. Automation, AI & other technology improvements to reduce operational cost 21 Technological 1. Cyber-attacks could create disruptions 1. Fear of unpredicted & extreme weather conditions will increase demand in manufacturing industries 22 Environmental 1. Unpredicted & extreme weather conditions causing disruption in production23 Legal 14 Darby, M. (2020, May 21). Which countries have a net zero carbon goal? Retrieved from https://www.climatechangenews.com/2019/06/14/countries-net-zero-climate-goal/ 15 IBIS. (2020). IBIS Mining March 2020. 16 The Latest 2020 Australian Dollar Forecasts from the Big 4 Banks. (2020, May 14). Retrieved from https://www.thecurrencyshop.com.au/forecast/australian-dollar-aud-forecasts-2020 17 PWC. (2018). Aussie Mine 2018. 18 PWC. (2018). Aussie Mine 2018. 19 https://www.iea.org/reports/global-ev-outlook-2019 20 Twidale, S. (2019, December 17). Global coal demand to remain stable up to 2024: IEA. Retrieved from https://www.reuters.com/article/us-iea-coal/global-coal-demand-to-remain-stable-up-to-2024-iea- idUSKBN1YL005 21 IBIS. (2020). IBIS Mining March 2020. 22 Hyde, R. R. (2020, January 29). How Profits Will Be Made As The Globe Heats Up (MON, RDS-A). Retrieved from https://www.investopedia.com/articles/investing/092215/industries-will-benefit-global- warming.asp 23 BHP Annual report 2019 https://www.bhp.com
  12. 12. Page | 12 4.2 PORTER 5 Forces – Mining Industry Sources 24 , 25 , 26 4.3 Coal Price Trend27 24 IBIS. (2020). IBIS Mining March 2020. 25 riotinto.com. (2020). Rio Tinto Annual Report 2019. Retrieved from http://riotinto.com 26 PWC. (2018). Aussie Mine 2018. 27 Coal2008-2020 Data: 2021-2022 Forecast: Price: Quote: Chart: Historical: News. (n.d.). Retrieved June 1, 2020, from https://tradingeconomics.com/commodity/coal
  13. 13. Page | 13 4.4 Crude Oil Price Trends 28 4.5 Rio Tinto Revenue Distribution (by product category) 28 Crude oil1983-2020 Data: 2021-2022 Forecast: Price: Quote: Chart: Historical. (n.d.). Retrieved June 1, 2020, from https://tradingeconomics.com/commodity/crude-oil
  14. 14. Page | 14 6.6 Rio Tinto Promotions 4.7 Mining Industry Revenue Share by segments 29 29 IBIS. (2020). IBIS Mining March 2020.
  15. 15. Page | 15 4.8 International Trade Mining Industry 30 4.9 Competitive Landscape 30 IBIS. (2020). IBIS Mining March 2020.
  16. 16. Page | 16 4.10 Segmentation – Mining Industry Automobile & Related Manufacturers Electricity & Petroleum Product Producers Consumer & Industrial Product Manufacturers Pharmaceutical & Chemical Producers Alias (aka) Automobile Energy Manufacturing Chemicals Business Type (Who) Large Businesses, mostly Multinationals (private limited companies), would prefer long term contracts Large Businesses, mostly country specific (could also be Government agencies in many countries), would prefer long term contracts Medium to Large Businesses, (private limited companies), would prefer long term contracts (smaller manufacturers buy from big manufacturers) Large Businesses, mostly Multinationals (private limited companies), would prefer long term contracts Needs (Why) They produce parts used in Automobiles (engines, body, transmission etc) They generate electricity & produce final petroleum products (Domestic or export markets) Wide range of manufacturers globally (producing Laptops, electric wires, toys, batteries, airplanes, trains, heavy machineries etc for consumers & industrial use) They produce medicines, solvents, agricultural adjuvants, cleaning, baking, other chemicals for both consumer and industrial use Demand Type (What) Iron Ore, Copper, Aluminium Coal, Oil & Gas Metallic Ores, Non- Metallic Ores, Minerals Minerals, salts, petroleum bi- products Future (what’s ahead) Increasing demand in electric vehicles will increase demand for raw material. Decreasing demand of output for them will reduce demand of Coal & Oil in developed economies. However, demand in developing economies (India, China, Africa etc) will still remain steady. Increasing demand of output for them will increase demand of Ores & minerals. Ores required in Electric, Electronics & Batteries will grow faster. Demand will remain steady.
  17. 17. Page | 17 4.11.1 Competitive Targeting Analysis Automobile & Related Manufacturers Electricity & Petroleum Product Producers Consumer & Industrial Product Manufacturers Pharmaceutical & Chemical Producers Alias (aka) Automobile Energy Manufacturing Chemicals Rio Tinto Products Iron Ore, Copper, Aluminium Not present Iron Ore, Copper, Aluminium, Diamond, Titanium, Lithium Borates, Seaborne Salt Rio Tinto Competitive Advantage Existing high Investment, R&D (IP of Pilbara blend), technology (AI Robotics), Logistics & Supply chain. Low cost Production. Existing high Investment, R&D (IP of Pilbara blend), technology (AI Robotics), Logistics & Supply chain. High perceived value by customers (their white and coloured diamonds are some of the world’s most sought-after gems). Low Cost Production. Largest market share in products owned (largest exporter of Seaborne salt). BHP Strengths Operational & supply chain efficiency, high investments High Market share, Automation, low cost production R&D investments, Free cash flow to support growth. High market share in few product segments. R&D investments, Free cash flow to support growth Glencore Strengths R&D Investments (no significant advantage) Market share, high efficiency model R&D Investments (no significant advantage) Early stage- no Competitive advantage
  18. 18. Page | 18 4.11.2 Competitive Positioning Analysis Brand Emotional Modifier Descriptive Modifier Brand Function Rio Tinto Pioneering Society (Human) Sustainable Progress BHP Bring Together Resources Better World Glencore Possibilities Local Communities Developing Talent 4.12 Key Figures, Resources & Capabilities – Rio Tinto Source: Riotinto.com
  19. 19. Page | 19 4.13 BCG Portfolio Analysis – Rio Tinto 4.14 GE-Mckinsey Matrix – Rio Tinto
  20. 20. Page | 20 4.15 ANSOFF Matrix – Rio Tinto
  21. 21. Page | 21 4.16 VRIO Analysis - Rio Tinto Resources or Capabilities Valuable Rare Inimitable Exploited by organisation Competitive Implication Financial Positioning - Profitability & Extra Cash Flow Yes No No Yes Temporary Competitive Advantage Fixed Assets - Fields, Equipment, Trains etc Yes No No yes Temporary Competitive Advantage R & D Function - Field Research, Automation, Technology Yes Yes Yes Yes Sustainable Competitive Advantage Cost Effective Production - Low cost operations Yes No No Yes Temporary Competitive Advantage Human Resources - Skill set development Yes No Yes Yes Temporary Competitive Advantage Contracts & Partnerships Yes Yes Yes Yes Sustainable Competitive Advantage Locations Yes Yes Yes Yes Sustainable Competitive Advantage
  22. 22. Page | 22 4.17 ANSOFF - SWOT Integration ANSOFF Strategy Strategic Options Reasoning (utilising SWOT SOs Market Penetration R & D investment in new mining field research To strengthen the position and safeguard heavy investments in assets. Market Penetration Process Improvement to further minimise operational costs Utilising extra cash flow to manage. fluctuations in demand, price, dollar. Be profitable in a slow growing industry. Market Development Acquisitions of companies with synergies from other geographies To maximise opportunities using extra cash flow and a strong balance sheet. Product Development Products in agriculture / farming adjuvants To maximise profit in long term the company should utilise existing expertise in borates and salt. This will counter the negative impact of threats faced by the mining Industry. Product Development Solar / Wind energy solutions for commercial use To maximise profit in the long term the company should utilise existing expertise from existing wind mill in South
  23. 23. Page | 23 Africa. This will counter the negative impact of threats faced by the mining Industry. Diversification AI, Robotics & Automation solutions to manufacturing, Shipping or other businesses Existing expertise in automation/ robotics could be utilised and used as a new product in new markets. Diversification & Innovation for long term profitability is critical.

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