Strategic Marketing for Rio Tinto in South Africa

This report discusses the strategic marketing plan for Rio Tinto to expand its business in South Africa with a new product of gold. It includes a PESTLE analysis, market entry mode, market segmentation, and Porter generic strategy.

MG624 STRATEGIC
MARKETING
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EXECUTIVE SUMMARY
The present report is based in marketing of a new product in a new country in order to develop
the business and grow in the international market. Thus, for this Rio Tinto has been used and this
company is planning to expand in South Africa with its new product of gold. Therefore, for this
the PESTLE analysis of country was carried on in order to outline the opportunities and threat
which are been present in the market of South Africa. With help of PESTLE analysis, the
different opportunities and threat of entering into South Africa was highlighted. Also, after
assessing the success of product in new country different methods of expanding oversees was
discussed and was outlined that merger and acquisition was better as against of other methods
like joint venture or foreign direct investment. In the end the strategy of cost leadership was
selected as the optimal strategy for gaining competitive advantage in new country.
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TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................4
PESTLE analysis of Rio Tinto...............................................................................................4
Market entry mode.................................................................................................................8
Market segmentation............................................................................................................10
Porter generic strategy..........................................................................................................12
CONCLUSION..............................................................................................................................13
REFERENCES..............................................................................................................................15
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INTRODUCTION
Strategic marketing is defined as the process through which a company plans for the
development and planning of the new product or any promotion of the products and services of
company (Chernev, 2018). The current report is based on company Rio Tinto which is an Anglo-
Australian mining and metal company. The company was founded in the year 1873 and is
headquartered in London. For the development of company, it is planning to expand its operation
with new product of gold in South Africa. The major reason for choosing Rio Tinto is that this is
a growing company and they want to expand in new country as well. Thus, the present report
will start with PESTEL of South Africa that whether it is advantageous to go or not. Next it will
outline the different modes through which company can enter into new market. Also, the market
segment and target will be decided by the company. In the end with help of Porter generic
strategy the competitive advantage of company will be decided.
PESTLE analysis of Rio Tinto
Company is proposing to expand its business in South Africa for mining of gold. To
analyse the factors that may affect the business or expansion and for evaluating the opportunities
and threats influencing the business PESTLE analysis has been conducted.
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Figure: PESTLE analysis
(Source: Chapter 2 industry analysis, 2020)
Political factors- Political factors include the rules and regulations of government that
might affect the business. Government has a major role in business environment. They have
great influence in the working of company. As South Africa is a country with the political
instability it will be affecting the business of mining. However, as this is a mining company it
has to deal less with the consumers directly. Government regulations in South Africa encourage
investments from foreign that will be an opportunity. It also provides tax holidays over income to
the new businesses or companies establishing in country. The company is required to perform
the business operations after the after analysing all the rules and regulations of the country in
which it is planning to operate successfully. It should analyse the tax rates, tax benefits other
policies that companies are required to follow while carrying out the business in the country
(Kaplan and et.al., 2016). However, company may require to pay taxes over extraction of gold as
this causes depletion of resources of country. Also, the laws are liberal on cross country trade
that will be beneficial for it to trade outside the country.
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Economic factor- This includes macro environmental factors like interest rates, inflation
rates, foreign exchange rates and such factors. They are important as they consider the aggregate
demand and investment in economy. Micro environment factors include growth rate, inflation
rate and the business indicators like materials resources and such factors. There is a direct
contribution of mining to the GDP of country. The economy of South Africa is ranked 35th in
terms of GDP (Hristozkova and et.al., 2016). The economy of country is growing. It is having a
mixed economy and is having the freedom for industries to operate freely their business. It has
centralized economic planning and the governance regulations (Reis-Marques, Lages, and
Caminati, 2019). It is a large economy with industrialisation and diversifications. The economy
will support Rio Tinto in establishing its business. Every country is facing with the issue of
unemployment by establishing the business in backward areas company can provide business as
well as employment to the people living there. This can also help company in getting tax benefits
as well public support. This will create brand awareness in the country which will help to create
more business. Country have major contribution of mining and establishing other mine will not
face economic issues. The growth rate of country is adequate that will help in selling its products
within and outside country. Also, the loans are available at lower interest rates on mining
business that will be an opportunity for company.
Social Factor- Social Factor includes the culture and the factors influencing the
organisation like values, belief, attitude. These factors play great role in influencing the business
of marketers. It includes identifying the skills and knowledge of workers. It requires to
understand the attitudes and structure of society. They have to identify the influencing and
motivating factors of people in the society. Social factor is important for the business to be a
success. Company suffers unemployment on large scale. Rio Tinto will be providing
employment to many workers which help it in gaining acceptance from society. Mining is
activity that is depleting the resources and causing destruction in the environment it should
comply with all the policies that are essential for getting the support of people and avoiding any
discrepancies in future affecting its activities (Ogilvie, Vaughan and Peng, 2020). Also, as it is a
mining business and company has already issued regarding mining it has to work properly for
avoiding criticism. Company has to abide by the regulations regarding the mining for getting
acceptance in the society.
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Technological Factor- Technology includes various factors such as transactions,
equipment and technologies that make the business process easy and effective. Technological
advancement s of great importance to the business it cannot survive in the market if does not
make pace with the technology. Rio Tinto is having the most advanced technology in the mining
industry that is its strength. The establishments of business require the company to analyse the
areas where the extraction will be made. Country already so many mining companies that have
already extracted gold. Technological tools will help company to find right areas of extraction.
However, the transportation costs will be high in the country due to the distant location and high
fuel rates (Guedes, 2016). However, the technical machines and equipment will help company to
make the extraction of gold possible.
Environmental factor- It includes complying with environmental rules and regulations.
Company is poor against environmental concern and this could be major threat to economy. The
previous records may cause difficulty for company to obtain mining licence in the country. It has
to be very careful regarding the environmental factors. South Africa has strong rules against
environment and the mining business affects the environment. It is required to comply with the
state rules and policies for mining and taking steps towards environment protections (Parviainen
and et.al., 2018). The country is short with water therefore the company may use recyclable
techniques for making effective use of water causing least wastage
Legal factors- This includes all the laws and legislations which needs to be followed by
every company in order to work in proper manner (Varadarajan, 2018). Laws and legislations are
the guidelines which are issued by the government of the country in order to maintain the
working of all the similar companies. For Rio Tinto when they will go in South Africa then all
the legal system will be different and this will take a little time for the company in understanding
the legal system of the new country. Also, this will add on to the cost of the company because of
the reason that they have to do a research relating to all the law and legislation prevalent in South
Africa. Hence, this is a threat to the company as this will increase the cost and time of company
in expanding to new country. But this is also an opportunity because of the fact that if company
abides by all the laws and regulations then consumers will build trust on the company and this
will increase the sales of company.
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Market entry mode
In the highly competitive market, it is not possible for the companies to earn profits as the
competition is very high (Hollender, Zapkau and Schwens, 2017). Thus, to meet this companies
goes for international business wherein they try to do business in other country as well and to
increase the consumer base in new country as well. Thus, for this expansion in new country there
are a variety of options for the companies to increase their area of options. Some of the options
available for Rio Tinto are as follows-
Merger and acquisition- This is a method in which company try to either merge with
domestic country or try to acquire the same under its name. in merger the two companies
combine together and try to create a new company and acquisition is the takeover of one
company by another company. Both these merger and acquisition can take place in many
different types such as by purchasing the assets of another company or by purchasing the shares
of the company. The merger and acquisition are a good method of market entry because this
provides the advantage of economies of scale. This is majorly because of the reason that when
two companies combine together their assets and power is also added and this provides the
benefit of economies of scale (Banerjee, 2017). Also, this help the company in getting a pre-
established market and consumer base with help of this merger or acquisition.
Advantages
 The major advantage of this method is that it is cost efficient as both the companies will
merge their assets and this will increase their value
 Another advantage is that both the company will enjoy competitive advantage over other
competitors as the market share of both companies will combine and it will be high (Fuad
and Sinha, 2018).
Disadvantages
 Sometimes the merger and acquisition can also result in diseconomies of scale because of
increase in the size of business.
 Another disadvantage is that there might be loss in productivity of companies because the
business is not able to handle the business after merger (Salop and Culley, 2017).
Joint venture- This is another option through which the company can enter into the
international market. This is a method under which one company joins hand with another
company for a specific purpose or aim. As and when the aims or motive is being achieved the
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venture comes to an end and both the companies separate form one another (McDONALD,
2016). This is a method through which domestic country join hand with some company in
another country for a specific purpose and as the purpose is accomplished the project comes to
an end. Here both the companies agree to pool together all their resources and assets and try to
increase their working capacity for accomplishing the common aim of both the company. In
contract of joint venture, both the companies fix their ratios in which they will be sharing the
profits and losses to be incurred. The major reason for using this as a market entry mode is that
with this cost is saved to a great extent. This is because of the fact that both the companies
contribute their resources and this will assist both companies in reducing their cost.
Advantages
 Major advantage is that this help companies in sharing all risk and liability of running the
venture (Yue, Minh and Xiao, 2019).
 Another advantage is that as the project objective is achieved the venture comes to an end
and this saves cost of operating combine.
Disadvantages
 There might be possibility that the communication among both the parties may not be
clear and the resources are not distributed in proper manner.
 Another limitation is that there are many contractual limitations which might bring risk
and create problem in the venture (Shelar and Konnur, 2017).
Foreign direct investment- This is yet another method of entry to a new market or
country. Under this method the company entering into the new international market enter with
help of investing a huge amount in the business of that country. This method is more suitable
when the size of company is very large or operate at the large scale of business (OECD, 2016).
The major reason for choosing this entry mode is that the company gets the right to have control
over the operations of the company in which they have invested the huge amount of money. This
is because of the fact that with help of investment the company gets control over the working of
the other company and they need to work according to the requirements of the company which
has invested the amount at large.
Advantages
 The major advantage is that this promotes easy international trade and this is beneficial
for the company to a great extent (Crotty, Driffield and Jones, 2016).
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 Another advantage is that this will boost employment within the economy and this will
increase the level of economy.
Disadvantages
 This demotes the domestic investment and this result in loss for the domestic companies.
 There might be political risk in the foreign direct investment and this may hamper the
investment (Chauhan and Kumar, 2019).
With the help of above discussion, it is clear that for company to go global it is very
necessary that the company uses correct method of entry. For Rio Tinto it is advisable to go for
the option of merger and acquisition for entering into South Africa with the product of gold. This
is majorly because of the reason that by merging with another company the investment of setting
up new company in South Africa. Thus, this will lower down the investment money of company
in establishing a new setup in South Africa.
Market segmentation
The method of STP is a method through which the company decides for their target
consumers and the different segment of society which they will be targeting (Moutinho and
Vargas-Sanchez, eds., 2018). This is majorly because of the reason that if the consumers are
divided then it is possible for company to understand that which set of consumers is more
important for the company. Hence, when Rio Tinto will go and expand its operations in South
Africa then this method of market segmenting and targeting will assist company in
acknowledging that whether it will success in new country or not. The model of STP includes
three different stages that is segmenting, targeting and positioning which are discussed as follows
for Rio Tinto-
Segmentation- The segmentation is being defined as the process through which the
company divides all its consumers in accordance with their common characteristics. For
instance, the consumers can be divided on basis of demographics, behaviour, geographic or
psychographic segmentation (David, David and David, 2017). In demographic segmentation the
common characteristics are like gender, age, income status, education, occupation and others.
The geographic segment is the one wherein the consumers are divided on basis of area in which
they operate. For Rio Tinto at time of going in South Africa the will prefer the segment of
geographic and segmentation done on basis of occupation in demographic. For the segment Rio
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Tinto focuses on industrial segment because the industries will only be interested gold mining
and extraction.
Figure: segmentation
(Source: Market segmentation basis, 2020)
Targeting- After the segmenting of consumers on basis of common characteristics some
target from them are also selected. The target is defined as the person or thing which is being
focused. In model of STP the target is the consumer set which is being majorly targeted in order
to sell the product or services. The target is the person for whom the product or service is being
planned or initiated for the success of company (Kim, Shin and Min, 2016). For entering in
South Africa, Rio Tinto has to majorly target the companies which are having similar operation
relating to the company that is mining of metals and precious stones. Thus, the major target of
Rio Tinto in South Africa is the companies which operates in mining and extraction of iron, gold,
copper, aluminium, diamond and other related metals and stones.
Positioning- This is a strategy which is being used to position the brand or the product in
front of the target market. This is majorly because of the reason that if the product and services
are not properly positioned among the consumers then they will not have proper knowledge
relating to the product. Thus, they will not increase the popularity of the product and the
consumers will not get the proper knowledge of the product and services of the company. Thus,
for this Rio Tinto needs to position the product and services in front of consumers in such a way
that it attracts the consumers to a great extent (Josephson, Johnson and Mariadoss, 2016). Thus,
for this it is essential for Rio Tinto to provide the products of extreme high quality so that the
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consumers like the products and use it to a great extent. Here the target is the industries which
uses the metals and stones which are extracted and mined by Rio Tinto.
Porter generic strategy
This is a strategy which is being used by the companies in order to in order to ascertain
that which strategy is better for the company and its development. This strategy helps the
companies in gaining and developing competitive advantage of the companies over the other
companies (Julita Julita and Si, 2019). The competitive advantage is the benefit which the
company can enjoy over and above their competitors that is companies who are dealing in
similar products. This model of Porter generic strategy includes three different type of strategy
that is cost, differentiation and focus strategy.
Figure: Porter Generic strategy
(Source: Porter model of generic strategies for competitive advantage, 2018)
Cost leadership- This is a strategy in which the major objective of company is to become
a low- cost producer in the whole industry. This is majorly because of the reason that when the
company will be providing products and services at low cost then it will be beneficial for the
company as consumer will be attracted to a great extent. The major reason underlying the fact is
that if Rio Tinto will provide the product in South Africa at cost lower then the existing
companies then the consumer will get attracted towards Rio Tinto to a great extent (Porter
generic (competitive) strategies, 2019).
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Differentiation- This is another strategy under the Porter generic model which states the
company must focus on producing goods and services which offers unique quality to the
consumers. The main focus of the company in opting for the differentiation strategy is that these
unique features of the product will influence the consumer to pay a premium price as well of the
product. Thus, this will increase the profitability of the company and will add to the income of
the company and also the number of consumers will increase (Jakubzick, Randolph and Henson,
2017). The use of differentiation strategy will assist the company in doing proper research in the
market so that if any change is being witnessed then it can be added in the product range of
company. Thus, this will require a highly skilled and active workforce because if the employees
will not be working actively than the changes will not be adapted in proper manner and no
differentiation will be focused.
Focus strategy- This is yet another strategy under the Porter generic strategy model
which mainly focuses on the narrowing the segment of consumers and in that either focus on cost
advantage or the differentiation. The company is going for focus strategy then they have the
better loyal consumer because the consumer segment is smaller (Abratt and Bendixen, 2018).
Under this company either focus on cost or on differentiation focus. This is majorly because of
the reason that both cannot be focused together. It is so because of the reason that if company
goes for differentiation then automatically its cost increases and this neglect the cost focus
strategy. On the other hand, if the cost focus is used then company cannot go for differentiation
because if it will go for differentiation then cost will increase. It is pertaining to the fact that
differentiation includes heavy market research expenses and hiring of expert and skilled
employees and will add on to the cost of producing the goods.
Thus, it is advisable for Rio Tinto to take into consideration the strategy of cost
leadership. The major reason underlying this fact is that focusing on reducing the cost will
increase the consumers. Also, the company is entering into a new market of South Africa and
low cost will attract more of the consumers. As and when the company penetrates in the new
market it can raise its cost and earn more profits.
CONCLUSION
In the end form the above study it can be summarised that strategic marketing is very
useful for the company because it helps in planning for marketing of the product and services of
company. Thus, the present report focused on a company which is planning to star its operation
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in South Africa. Hence, for analysing the opportunities ad threats present in market of South
Africa PESTLE analysis was used (Kirova, 2017). Thereafter the mode through which Rio Tinto
can expand in new country was discussed and it was outlined that merger and acquisition is the
best method for expanding internationally. Further, the model of STP was used to decide the
segment and target of consumer and the segment was industrial sector and target was companies
dealing in iron, aluminium and other metals. In the end the strategy for gaining competitive
advantage was selected and it was cost leadership.
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