ECONOMICS & THE LEGAL ENVIRONMENT

Economics & the Legal Environment



Economics & the Legal Environment

Rio Tinto's global entry strategy

According to Keegan (1999), a research found that it is important for companies to go global because seventy five percent of world market potential is outside its home country. Strategy of a business focuses on long term direction of the organizations (Johnson and Scholes, 2002). Rio Tinto's strategy is to maximize the net present value per share by investing in large, long life, cost competitive mines. Investments are driven by the quality of opportunity, not choice of commodity (www.riotinto.com). "Our strategy is to focus on large scale, long life and cost competitive mining operations and to invest throughout their lives so that they maintain their competitive positions."

The importance of environment assessment

According to Deresky (2002), the first thing that a company should do in setting global strategy is to define or clarify mission and objectives. Assessment of the external environment that the firm will face in future should be done next and also analysis of the company's capabilities in dealing successfully with the environment. Environment factors are significant factors that will influence the success of a company's global expansion. Rio Tinto's fundamental objective is "to maximise the overall return to shareholders by operating responsibly and sustainably in finding, mining and processing minerals - areas of expertise in which the Group has a clear competitive advantage" (www.riotinto.com).

Rio Tinto Ilmenite mining operates in Canada and South Africa, the risks of operating in different geographic area should be carefully considered. According to Deresky (2002), environmental scanning refers to the process of gathering information and forecasting relevant trend, competitive action, and circumstances that will effect operation in geographic area of potential interest. Hanson et al's (2002) found that a firm might not be able to control the general environment's segment and element; instead, it can gather the information required to understand each segment and its implication for the selection and implementation of the appropriate strategies. Thus, general environment assessment is essential, the general environment that should be considered are demographic, economic, political/legal, sociocultural, technological and global dimensions which affect the company's global expansion.

Economic

South Africa is a middle-income, rising market with abundant supply of natural resources, well-developed financial, communications, legal, energy, transportation and also a modern infrastructure which support efficiency in distribution of goods throughout the region and worldwide. Nevertheless, growth has not been strongly sufficient to reduce South Africa's high unemployment rate and devastating economic problems that lingered from the apartheid era, particularly poverty and lack of economic empowerment amongst the disadvantaged groups. According to CIA World Factbook (2005) South African economic policy is fiscally conventional, but realistic, focusing on targeting inflation and liberalizing trade as a way to increase job growth and household income. As I have mentioned previously, Rio Tinto is thus welcomed to have a mining operation in South Africa.

Whereas, Canada is a prosperous, high-tech industrialized society, who has entered in the trillion dollar class recently, according to World Factbook ...