Discuss about the Case Analysis of the Company.
FMG is the third largest exporter of iron ore in Australia. The company was founded in the year 2003. It has a market value of 300 million Australian Dollars since its establishment. The company has been growing at an astonishing rate and has developed a very good reputation in the market. The Iron ore of the company are mainly exported in china. The company has been making plans to expand its operations in Brazil which is a country rich in mines so that it can increase its output. The main engagement of the company is in the exploration and the development of the mining. The report contains the Macro environmental analysis and the industry analysis of the company that includes the PESTLE analysis, SWOT analysis , competitor analysis and Porter’s Five forces analysis of the company.
Porter’s Five Forces Model
There are five forces that are analyzed in the Porter’s Five Forces Model. The factors that are analyzed under this model are:
- Bargaining power of Buyers
- Bargaining Power of Suppliers
- Threat of new entrants
- Threat of substitutes
- Rivalry among competitors
Bargaining power of Buyers: (Low)
The bargaining power of the buyers in the company is low. The buyer of the company products includes steel companies as the 98% of the iron of the world is used for the production of steel. There are large number of steel companies that are operating over 65 countries and the suppliers of the iron ore is less so the buyers bargaining power is low. The producers of the iron ore are small. The company was the world’s 10th largest producer of the iron ore in the year 2013. While the countries like Brazil and Australia are the top two exporters of iron ore and they covered 70.3% of the total export of the world. The producers of Iron ore are small in number and the steel companies are fragmented whereas the iron ore companies are concentrated.
Bargaining power of suppliers: (High)
The bargaining power of the suppliers is high in the case of the FMG Company. The main reason for the high bargaining power of the suppliers is the intervention of the government. The company cannot operate without the support of the government. The demand of the iron ore is increasing in the various countries due to which the suppliers have a good hold in the market and they have a high bargaining power in the market.
Threat of substitute products: (Low)
The iron ore is an essential raw material in the production of the steel and there is no other substitute of the iron ore in the production of the steel. Due to which the threat of the substitutes becomes very low in the market.
Threat of new entrants: (Low)
Though the threat of the new entrants is quite low in the industry but it has an increasing trend. There are many strict barriers and restrictions for the new company to start its operations in the already established industry. This automatically leads to less threat of new entrants. Moreover the requirement of the investment and the capital is also large in the iy high in ton ore industry is high due to which it becomes very difficult for the new companies to start their operations in the market.
Rivalry among existing firms: (High)
The Rivalry among the existing firms is high as there is a highly competitive environment and there are many competitors who are giving tough competition to the company. The level of the concentration is very high in the industry. There are large numbers of competitors in the market that are providing similar products at low cost for the production of the steel.
The PESTLE analysis analyzes the Political. Economic, Social, Technological. Legal and Environmental factors that affects the company.
There are various political factors that affect the company. Some of the factors due to which the company is affected are:
There are many changes in the policies of the government from time to time that makes it difficult for the company to expand its operations in the various new countries. The political environment of the Brazil has changed as there was a change of the government that can affect the company as the company was planning to expand its operations in the Brazil. the government of the Brazil Is very much stable with the passage of time that encourages the company for more foreign investment. The company has built sound external environment in terms of the working conditions in the foreign country in the foreign country.
The various economic factors that affect the working on an organization include:
The interest rates of the banks keep on changing as the time passes. There are many banks that keep on increasing the interest rates. This increasing interest rate affects the investments of the company.
- The inflation rates also keep on increasing in the various companies due to which the currency of the company appreciates and that simultaneously hits the stable economy of the country.
Currency exchange rates
- The rate of the currency does not remain stable and keeps on increasing with the passing year. These increases in the currency exchange rates affect the exports of the business.(Bradely, 2015)
- The awareness for protecting the energy and the natural resources is increasing due to which there is a big threat on the companies like the Fortescue metals group limited.
There are various social factors that affect the companies who are planning to expand their operations in various countries as the cultural and the society of every country is different. The companies like the Fortescue Metals Group have to adapt to the corporate strategies so that it suit the working environment of the company in which the company is operating. (Smith, 2015)
The various technological factors like the infrastructure and the communication networks affect the development of the company. There are few countries which are not developed properly and have slow development ports along with that they have inadequate infrastructure. As technology is considered to be the backbone of the operations of the company it is very important for a company like the Fortes cue to be technologically advanced. (Rigour., 2015)
There are various legal factors that affect the company that is expanding in international markets or in various other countries. The factors that affect the company legally include Labor laws, business laws, Taxation laws. (BAC Reports, 2015) The rules and regulations of the various countries are different due to which the foreign direct investment of the company is affected.
The various strengths of the company are:
- Strong market occupation
- Focusing on mineral exploration
- Expansion of market share
- Advanced exploitation technologies
- High manufacturing efficiency
The various weaknesses of the company are:
- Decrease in the iron mines globally
- Inexperienced operations in the countries like Brazil
- Financial crises
The various opportunities of the company are:
- Economic growth
- Political stability
- Favorable foreign direct investment
- Rich in energy resources
The various threats that are being faced by the company are:
- Global economic recession
- Risk in the exchange rate
- Increase in the cost of labor
- Decrease in the demand of steel
- Poor transport facilities
Business Level strategy of the company
The business strategies are the decisions that are made by the company for maintaining and creating the competitive advantage. Under the business level strategies the company evaluates the product line and the target market for the identification of the competitive advantage. The company has various business level strategies that it is planning to implement for a good output generation. Some of the business level strategies of the company include:
Expanding production capacity: The Company has planned to expand its production capacity so that the increasing demand of the iron ore can be met. For increasing its production capacity the company has planned to increase its areas of operation.(Capital cube, 2016)
Enhancing an effective company governance
The company has enhanced the governance of the company for the effective operations of the company.(FMG, 2015)
Corporate level strategy
The strategies that are identified by the company outside its industry. The company needs to make use of various strategies for contributing towards the efficiency and profitability of the company. The various corporate level strategies of the company include:
Diversification: one of the corporate level decision of the company is weather to diversify the product line or not. The company plans that the products and services it is offerings shall offer lucrative returns and there shall not be high costs for the entry of the new products.
Value creating strategy: The Company shall try to implement the strategies that help in creating the values of the products and services. All these strategies help in adding real values to the business and its products and services. The key idea for value creating strategies is diversification.(Nguyen, 2014)
Value neutral strategy: When the company is not much concerned with allocating the resources and the manpower in its business then the company can go for the value neutral strategy. The value neutral strategy helps in shoring the plans of the business operations. The company can plan for creating synergy between the various departments, securing a steady cash flow and working on the reduction of risk. The company uses the strategy of flexible debt structure and it has various plans for the construction of infrastructure facilities and the ports. The company is making different arrangements for bringing in new technology and innovative equipment for strengthening its operations.
Competitor analysis of the company
Though iron is a bit dull metal but the Fortescue Metals Group has thought that the shine of the iron is as bright as that of the gold. The company is the third largest miner of the Australia and it has more than 1 billion tons of the iron ore reserves. The main competitors of the company are BHP Billiton Limited, RIO Tinto Limited and International Ferro Metals limited. The company gives a very tough competition to its various competitors and tries to grab the market share. The company has been continuously expanding its operations in the different countries. (Dima, 2016)
Recommendations and conclusion
After analysising the company from various different aspects it can be found that the company ahs many major weaknesses. It is recommended that the company shall try to cooperate with the various other mining companies so that it can strengthen the financial capability and can further increase its competitive advantage. (Hurst, 2016) The company shall work on the improvement in the operations of its management system so that it becomes more flexible in operating in the new environment that requires the management system to be more adaptable. The other recommendation for the company is to develop a better welfare and strategy plan so that it can hold its employees and can further improve the loyalty of its employees for investing in various other countries. Lastly, the company before expanding its operations in other countries shall study the regulations and laws of those countries in a careful manner so that there is reduction in the punishment charges for violating the various laws and regulations of the country. The company shall try to control its costs. The company shall have various risk management plans so that it can overcome the various risks that it might face during its operations in the various countries.
BAC Reports, 2015. market publishers. [Online] Available at: https://marketpublishers.com/report/industry/metallurgy/fortescue_metals_group_ltd_swot_analysis_bac.html [Accessed 20 August 2016].
Bradely, J., 2015. Chron.com. [Online] Available at: https://smallbusiness.chron.com/types-corporate-level-strategy-60147.html [Accessed 20 August 2016].
Capital cube, 2016. capitalcube.com. [Online] Available at: https://www.capitalcube.com/blog/index.php/fortescue-metals-group-ltd-value-analysis-asxfmg-may-27-2016/ [Accessed 20 August 2016].
Dima, J., 2016. Comparative Perspectives on Global Corporate Social Responsibility. Australia: IGI global.com.
FMG, 2015. FGML.com. [Online] Available at: https://fmgl.com.au/media/2590/fortescue-annual-report-fy15.pdf [Accessed 20 August 2016].
Hurst, L., 2016. China's Iron Ore Boom. New York: Routledge.
Nguyen, L., 2014. Prezi.com. [Online] Available at: https://prezi.com/x9pbgkbr4dps/fortescue-metals-group-ltd/ [Accessed 20 August 2016].
Rigour., 2015. conversation.com. [Online] Available at: https://theconversation.com/au/topics/fortescue-metals-group-642 [Accessed 20 August 2016].
Smith, S., 2015. chron.com. [Online] Available at: https://smallbusiness.chron.com/difference-between-corporate-strategy-business-strategy-57411.html [Accessed 20 August 2016].