The paper "Strategic Planning And Management - the Ore Wars" is a perfect example of a management assignment. According to Porter (1979, p. 137; 2008, para. 3), the five forces that affect the attractiveness of industry include the rivalry that exists between players in the same industry; the threat of products which customers can use as substitutes to the product that a firm produces; the power that buyers have; the power that suppliers have; and the threat posed by potential entrants to the market. In the case study, industry rivalry does not seem to be high as the major iron ore producers seem to be Rio Tinto and BHP Billiton.
However, there are other emerging second-tier and potential producers of iron ore. Still, the different players do not seem to have major market wars, thus indicating that new entrants would not face too much opposition. In relation to the threat of substitute products, the case indicates that recycled steel could become more preferred in future. However, one gets the impression that China is still a huge consumer of iron ore, and as such, the demand for the product may go on unabated in future.
This could be interpreted to imply that the market is attractive in this aspect. The bargaining power that buyers wield appears substantial in the iron ore industry going by the joint venture investments that Chinese steel millers have made with some iron ore producers. Additionally, the buyers’ preference for contract ore purchases as opposed to spot market prices as indicated in the case study by Rice (n. d., p.4) is another indication that buyers have substantial bargaining powers. Arguably, this makes the industry unattractive to new investors because they may not have the liberty to set market prices for their products. According to Rice (n. d., p.6), some of the major suppliers to the iron ore industry are makers of monster trucks used for transporting the ore from the mines to the ports.
Since the suppliers (e. g. Komatsu and Caterpillar) are few, their bargaining powers are arguably high, thus making their supplies costly to investors. This makes the industry arguably unattractive. Finally, the threat of new entrants is arguably low judging by the capital intensive investments that new entrants have to make especially in transport logistics.
This may be a good thing for investors on one hand (i. e. because the industry is not flooded with too many players), and a bad thing on the other (i. e. because investors would have to invest too much money in entering the new market). Q2. Strategic groups evident in the case study and their characteristics Hunt (1972, cited by Reger & Ruff, 1993, p. 103) describes strategic groups as consisting of firms who have similar business strategies. The symmetry of operations in different firms and the characteristics of each group are used to gauge if an industry has strategic groups.
The following strategic groups are evident: Large iron ore producers: This group consists of Rio Tinto and BHP Billiton. Being large producers, they have similar interests in getting the best prices for their products. In the case study, it is indicated that the two companies have engaged in similar vertical integration strategies. They also share similar interests in the market as indicated in the two being part of globalORE™ , which according to Rice (n. d, p.
5), is a trading platform which upholds specific quality benchmarks and market regulations. Emerging mining companies: This strategic group includes the like of Western Desert Resources and Fortescue Resources. Although they are not as big producers like Rio Tinto and BHP Billiton, these iron ore mining companies are similar in their dedication to make it in the mining industry regardless of the challenges. For example, both companies have had to invest in building road and rail infrastructure that has been necessitated by the need to transport their iron ore to ports, from where it can be shipped to the markets abroad. Prospective iron ore producing companies: This strategic group is made up of firms which have mined from they are yet to start producing iron ore.
Such include Grange Resources and Western Desert Resources. Though not expressly stated in the case study, one would argue that these firms have similar strategies, which are meant to ensure that they start iron ore production and export. Since their production volumes are low compared to the major producers, both firms would be concerned about competing in the market, and would hence be keen to develop strategies that enhance their competitiveness. Vertically integrated companies: This is a diverse subgroup because as indicated in the case study, firms pursue different strategies.
BHP Billiton and Rio Tinto, for example, have pursued partnerships with steelmakers in China. On its part, Grange Resources pelletises its ore as a vertical integration strategy, while Arrium has opted to invest in steel milling. Although their strategies are different, the common theme among these iron ore producers is their pursuit for value addition in a manner that will improve their respective competitive strategies.
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