The Issues Of a Business Strategy

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Company: Size: Large Industry: Mining Business Activity: Mining and Quarrying Type of Entity: Public Corporation Number of Employees: More than 10,000 Country: Japan Headquarters: London U.K. Yearly Revenue: Greater than $25 million Gender: Male Subject: International Business Keywords:



Dermot_Vibert_Issue_2: Can you describe an important issue that you had to resolve? A foreign company is facing a challenge in Japan. The profits associated with selling the High Purity Pig Iron to the distributor of 35 years is down significantly due to a lower market price per tonne and sales that are denominated in Yen as opposed to U.S. dollars. (Note the company sells in U.S. dollars in other markets). This is no small issue for the company as this distributor supplies the product to almost one hundred foundries in Japan. So what should the company do?


Cause of issue

Dermot_Vibert_Cause_2: What caused the issue and why was it important? The company is a in Japan and values long term business relationships over short term spot sales. At the moment, worldwide demand for high purity pig iron is down as is the general state of the economy. The market driven per tonne selling price of pig iron has decreased dramatically in line with the worldwide downward trend in metallics caused by reduced demand in China. The distributor, a manufacturer of foundry consumable products, sells the companys high purity pig iron together with their own line of products, both mutually compatible and attractive as a package for foundry customers. The distributor employs metallurgists who are experts in foundry raw materials. The relationship has been mutually advantageous for both the company and the distributor over the years. Furthermore, the number of similar manufacturers who can package the companys product with their product line is few. The distributor refuses to purchase in U.S. dollars claiming that their business conducted with the end customer is all in yen. They want to minimize their currency risk. Recently the U.S. Dollar has appreciated dramatically against most global currencies, include the Japanese Yen. A year ago the Yen was 80 to the US Dollar.




Dermot_Vibert_Q1: Can you tell us a bit about yourself and your career path to date?My name is Dermot Vibert. I live in Japan. I have been there for 24 years. I went to university in Montreal, McGill University. I did a BA in East Asian Studies, then a MA in Geography. I then went to Japan in 1988 on the Jet Program where I worked in a high school for three years teaching English. I then entered OKI Electric and spend six and a half years in their electronic components business section, and then in 1997 December I joined Rio Tinto Japan. I have been with them every since.Dermot_Vibert_Q2: Can you describe a typical workday for yourself?I will wake up perhaps at 6:00. I leave the house at 7:00. I walk to the train station, which is about an eight minute walk. Then I take an hour and a half train into Tokyo, and then I walk from the final station into our office. I will get to the office about 8:15, 8:30 perhaps. I will then work until perhaps 6:00 in the evening. Maybe two or three evenings a week I will go out with a customer and after that I will return home, so I have a pretty full week.Dermot_Vibert_Q3: What is your role in the company?I have a number of jobs at Rio Tinto Japan. One of them is I look after our titanium and zircon for Rio Tinto Iron Titanium in Japan and Korea. I also am manager of the president’s office for Rio Tinto Japan. I also have a role in external affairs activities for our company’s branch.Dermot_Vibert_Q4: Can you describe your leadership style?I in general tend to lead by example where possible, and I also try to encourage my coworkers or subordinates in a positive manner. I prefer not to use harsh criticism and I certainly do not shout.Dermot_Vibert_Q5: What does your organization do and how is it different?Rio Tinto Japan has two functions. One, there is a buy-sell operation which our aluminum division is involved in, and then we are also the liaison office, basically the support office for a number of other business units who have business dealings with Japan.Dermot_Vibert_Q6: What does your organization do and how is it different?Rio Tinto Japan has two operations. One is a buy-sell operation which is linked with our aluminum division. Then we have our service provider operation, which basically covers all of the other business units who are doing business in Japan. We facilitate business between them and our customer base here in Japan.Dermot_Vibert_Q7: Who buys your company’s products and services?Rio Tinto sells to a broad range of industries in Japan depending on the particular raw material product that we are selling. For example iron ore will go to the steel industry, coal will go to the power companies or to the steel energy, aluminum will go obviously to the automobile industry, titanium will go to the pigment industry, or the titanium sponge industry, copper goes to the smelters, salt, we also have a lot of business in Chlor Alkali side of business, so there are many industries into which we sell Rio Tinto products in Japan.Dermot_Vibert_Q8: Can you describe the industry within which Rio Tinto Japan competes?Rio Tinto Japan is located in Tokyo. We have 27 employees. We look after between 13 and 14 products, and Rio Tinto sells these products into dozens of industries.Dermot_Vibert_Q9: Can you describe the organization of your company and why does it take this form?Rio Tinto is a publicly listed company. It is headquartered in London. We have the following business groups. We have aluminum, copper, diamonds and minerals, energy, iron ore, exploration, technology and innovation. In Japan, as we are a liaison office and a buy-sell operation we have approximately 27 staff at the moment in one location.Dermot_Vibert_Q10: Can you describe the flow of activities or value chain of a typical product sold by Rio Tinto Japan?Let us take titanium feed stock. The product is mined in either South Africa, Madagascar, or Quebec. The product is then the ilmenite which is the core product. It is brought to our smelter which is either in Quebec or Richards Bay, South Africa. The product is smelted and therefore upgraded to become a slag or an upgraded slag, which basically means that the TiO2 content is a higher purity than what was the case when it was taken out of the ground in either rock form Quebec or in sand form in Madagascar or South Africa. This slag then is brought over to our market here in Japan. It is then sold to pigment makers, the majority, and also to titanium sponge makers. The pigment makers use the titanium slag to make pigment which they then sell to the panes, plastics and paper industry in particular. There is ink as well. The titanium sponge manufacturers will make sponge out of our product, and they will sell this to a number of industries including the aircraft industry, well it makes its way to the aircraft industry. It also can be found in products such as glasses, golf clubs, water desalination plants, jet engines, and various other applications.Dermot_Vibert_Q11: How do firms compete within this industry? in Japan with its various natural resource products and minerals. We basically will compete in the various industries with other major mining companies on price, on relationships, on quality, on supply reliability, and various other factors. Obviously they are not always of the same importance, but usually all of these points are important.Dermot_Vibert_Q13: Can you offer some insight about pig iron?Pig iron is an for daily life. It is made from iron ore, rock ilmenite, or heavy-mineral containing beach sands. Pig iron is available in different grades high purity, foundry and basic – with different prices for different applications. High purity pig iron is required in the leading edge ductile iron foundry industries which are located in Japan, Korea, northern Europe, the United States and to some extent China. Ductile iron is a particular grade of iron and it usually requires high purity pig iron to make it. Cast made from high purity pig iron are used to make critical cannot fail parts. One particular application for pig iron is for the manufacture of cast ductile iron parts for automobiles, machinery and wind turbines, to name a few. More specifically, ductile iron parts are cast in foundries using high purity pig iron together with scrap metal and energy as the raw materials.Dermot_Vibert_Q12: Can you comment on the market for pig iron in Japan?The market is dominated by two large domestic suppliers, the companys competitors, who are able to receive the highest premium due to their excellent products, assured quality and reliable supply. Another company, a foreign manufacturer, which has been supplying into the market for over 50 years is the only other company who can get this high premium. All other competitors, who are importers of high purity iron manufactured in other countries, must suffice with lower margins as foundries are reluctant to rely on them due to past problems. The Japanese foundry industry has a history spanning one thousand years, is very conservative in nature and is very difficult to penetrate. The foundry industry recognizes the prices set by the two domestic suppliers as being the market price. No foundries are willing to pay a price higher than that of these two companies, who once they set their prices tend to maintain that pricing level for a significant amount of time.

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