BHP-RIO TINTO

As internationalization and globalization increases in today's business society, it becomes ever more important for individual business to keep up with the development. The way a company ventures from their domestic market to new geographical markets is of great importance for how well the company succeeds with their overall business mission.

As for entering an international market, this process “...is a difficult one, which many companies still identify as an Achilles’ heel in their global capabilities. In fundamental terms, entering a new country-market is very like a start-up situation, with no sales, no marketing infrastructure in place, and little or no knowledge of the market” (Arnold).

There are various reasons for companies willing to enter international markets. Depending on these they choose different strategies, their performance goals, as well as forms of market participation. Sometimes a company simply follows its competitor, sometime a company follows the global strategy of internationalization and wishes to be present everywhere in the world.

Generally, there are reactive and proactive reasons to enter the new market:

-         Reactive: respond to demand discovered in another location; moving after competitors; more favourable regulations overseas; increasing  costs of production at home; chance occurrence;

-         Proactive: looking for advantages overseas; outrun of competitors; lower costs of labour, production, and energy.

There are following most popular ways to enter the new market:

-         simple export of the product

-         develop a joint venture to sell through an existing sales company in similar business

-         sell license to foreign company and collect royalties

-         contract a foreign company to do the business for a % of the sales

-         overseas office and subsidiary company set up

There are many factors that affect decisions of the managers of any company: tax changes, new laws, trade barriers, demographic change, government policy changes etc.

Political factors include degree of economy intervention; government priorities in terms of business support; political decisions in the field of education of the workforce, health care of the nation, quality of the infrastructure etc. Economic factors include exchange rates, inflation and interest rates, taxation changes. Among social factors there are changes in social trends having an impact on the demand for a company's products; willingness of individuals to work. Technology also plays a significant role, as it can make business develop faster. New technologies can reduce costs, improve quality. Environmental factors include the weather and climate change that can be crucial for some businesses and environmental politics of the country in special industries.

Every manager should remember that the lists of these factors do not help to make a right decision: to enter a new market or not; to purchase a foreign company or not. These lists have to be analysed in such a way that a manager should think about which factors are most likely to change and which ones will have the greatest impact on them. Each company should identify the key factors in its own business environment. Managers should decide on the relative importance of various factors and one way of doing this is to rank or score the likelihood of a change occurring and also rate the impact if it did. The higher the likelihood of a change occurrence and the greater the impact of any change is, the more significant this factor will be to the firm's planning.

The demand for metal in Asia and in the world continues to grow since 2006 and the metal industry turned to consolidation now. The BHP and Rio Tinto deal continues this tendency and if it is arranged, this will be the greatest deal in the history and the united company will be the third one in the list of the most expensive corporations in the world. Rio Tinto stated several times that it would like to develop on its own but anyway would think about the offer by BHP. A combination of BHP and Rio Tinto would create a firm worth about $350 billion. While BHP Billiton is the world's largest mining company, Rio Tinto is the third biggest.

“The quickest way to expand is through acquisition, obviously, but analysts said BHP was presented with a problem: most of the smaller iron ore players have mines that run at relatively high costs and produce lower-quality ores. Rio Tinto has high-quality, low-cost assets. Iron ore also represents a much greater percentage of overall production at Rio than at BHP, which also produces more copper and coking coal than Rio. In Australia, BHP would gain additional export facilities and rail lines, which are now operating at or near full-capacity for both companies” (Werdigier, Arnold).

Many Asian companies purchasing raw materials from the both companies today are afraid that this consolidation will lead to higher prices. China is the main consumer in this case and the whole country is developing several strategies in order not to allow this consolidation to happen.  

  The benefit of BHP-Rio Tinto deal for the two companies is quite clear: the combined company would have operations on six continents and a leading market share in iron ore, copper, aluminium and other vital natural resources. The managers of the two giants did analyze the key factors of this takeover before making their decision. But they seem not to pay any attention to one of the most significant legal factor: possible actions of the antitrust regulators around the world. Everybody understands that this takeover is not of public interest. The world's steel industry has already declared its opposition to this deal and this is not the end.