5 Forces

Topics: Rio Tinto Group, Retailing, Mining Pages: 5 (1464 words) Published: June 25, 2013
Strategic Management
Critical Essay Assignment 1
In this essay, the Porter’s five forces theory is used to analysis the industry structure. These five forces are Intensity of rivalry within the industry, Threat of substitute products, Bargaining Power of Buyers, Bargaining Power of Suppliers and Threat of New Entrants. Through them, it will know the industries profitability whether is high or low. Based on Australia’s industry, Mining and retail are the industries I chose to analysis.

High Profit Industry- Mining Industry
Australia’s mining industry has earned Au$84 billion of profit before tax in 2010-2011. It increase 32.4% compare with 2009-2010. It is the largest contributor to support Australia’s GDP. (Australian Bureau of Statistic2012) The amount of industry rivalry will be relative low if the industry is growing rapid. (Hubbard, G & Beamish, P 2011, p.78)On the other hand, all of the mining company around the world has their special commodities. So the product differences will be happened between different providers. For instance, BHP Billiton is refined in mineral exploration and production, and Rio Tinto Alcan is refined in aluminum smelting, technology sales and service, engineering services, smelting equipment sales and smelting equipment sales, and smelting consumables production. Because they have their specific product, so the industry rivalry will become low. As BHP Billiton is the world’s top mining company around the world. It can provide a very strong identify of the mining company. To the rivalry company, it is a strong competitor which they cannot fight down. Therefore, it is also low of industry rivalry. Overall, mining industry in Australia is at the mature and stable market and the intensity of industry rivalry is low. (Market Line, 2012)

In the mining industry, absolutely there are some different of materials can be substitutes by others. However, just a few buyers will replace metal with these alternatives, because they do not provide all of the same properties and are hardly 'drop-in replacements'. They are required to use the substantial re-tooling of an assembly line. Sometimes the switching cost is higher than the original product price. For instance, coal has a few substitutes in the power generation market like oil, gas and nuclear fuels. For example, coal has several substitutes in the power generation market: oil, gas, nuclear fuels, etc. At the same time, while power companies can modify the original energy mix to a small extent without incurring many costs, a totally transition to these substitutes would require investment in different generation facilities, which constitutes a very high switching cost. (Market Line, 2012) Overall, Threat of substitute product’s level is low because no company will in order to switch product and use more expend.

About the Bargaining Power of Buyers, because the mining commodities like coals and copper are useful to the whole world. In 2009, coal sales income increased by $4.6 billion during a year around the world. BHP Billiton is the biggest supplier in the world which record $4.1billion in coal income. As the most power supplier of mining industry in the world, the bargaining power of buyers will become small. As Australia mining’s company is the leader in the world and it provided diversify resources, so the buyer also need to respect them. To sum up, the bargaining power of buyers are low. ( Pui Kwan T, 2009)

Regarding to the Bargaining Power of supplier, the level is medium. However, the IT providers, producers of mining and production equipment and the raw materials are also the supplier in this industry. Company such as BHP Billiton, CVRD and Rio Tinto are the supplier to this industry. They supply nearly two-thirds of the processed iron ore to steel mills. Fortunately, BHP Billiton is also the supplier, so the mining industry can rely on BHP Billiton. Mining industry need to through these powerful suppliers to manufacture their...
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