Vale works in the metals and mining industry. It also operates a logistics fleet. It has headquarters in Rio de Janeiro, Brazil and is owned by the Brazilian government. It was founded in 1942. It is the largest producer of nickel and iron ore in the world. It also produces a variety of other minerals. Also, the company owns several hydroelectric plants in the country as well. The company exports and sells these minerals across the globe. In 2017, the company generated revenue of $34 billion (Vale, 2015). It has more than 76000 employees (US SECP, 2015). Over the years, the company has faced various industrial disasters while it continues to grow.
Following is a detailed Porter Five Forces Model Analysis of Vale:
Competitive Rivalry – High
Vale competes with various local and international firms. These include Usiminas, ArcelorMittal, Ferrexpo, Rio Tinto, and BHP. The industry continues to grow as more and more firms enter or expand into the mining industry. The fixed costs of doing business are high in terms of millions of dollars. As a result, the failure of sales can make a business go bankrupt. The products all the companies in the industry offer are similar. A company once established in the industry cannot easily exit as it has long-term contracts in place with mine landowners and buyers. Customers can easily switch to another seller once their current contract expires. The products are not complex making it easier for customers to make a buying decision.
The Threat of New Entrants – Low
Vale, being one of the largest mining companies in the country, has excessive performance and cost advantage. Although the products are not proprietary, the company offers a variety of minerals and ores that others do not. Vale has established itself as a brand in the industry. The switching costs for buyers are also low. The capital needed to enter the mining industry is large. Also, establishing relationships with logistic companies can take time. So can marketing. This makes it difficult for new entrants. Those already in industry have learned from their experiences and continue to improve. Government licenses are also needed. As a result, the threat of new entrants is low for Vale.
Bargaining Power of Suppliers – Low
The suppliers of this company are various landowners, power suppliers, and other inputs needed for the company. All of these are standardized raw resources in the industry and numerous suppliers can offer these to the company. Firms can easily switch to other suppliers as they are not bound for the majority of the raw material. However, for mine lands, there are long-term contracts that cannot be easily canceled. New suppliers cannot easily enter the industry as well as there are established relationships in place. The business is also important for suppliers. If a supplier attempts to force Vail into accepting its terms and conditions, it can easily switch to another supplier reducing their bargaining power to low.
Bargaining Power of Buyers – High
The number of buyers in the mining industry is moderate as they purchase thousands of tons in each purchase. They also establish agreements and contracts when purchasing these large quantities of ores and minerals. They can also switch to another seller if they find the rates or quality poor. The majority of the products are standardized so the buyer does not need a lot of detailed information about the products. They are not sensitive to price as well as they desire quality. However, customers cannot manufacture or extract their minerals or ores as they lack the required skills and machinery. As a result, the bargaining power of buyers is high.
The Threat of Substitutes – Low
There are as such no substitutes for the minerals and ores that are extracted from the ground. They play a vital role in the manufacturing industry. Even substitutes, such as plastic or paper, lack the durability, performance, and other characteristics metal ores can offer. Customers would also incur costs if they wish to switch to these substitutes as they already have machinery in place to utilize mineral ores. Thus, they are not likely to go for the substitutes leaving the threat of substitution to low.
References
US SECP, 2015. ANNUAL REPORT. [Online] Available at: https://www.sec.gov/Archives/edgar/data/917851/000104746915002553/a2223670z20-f.htm#dy17801_employees [Accessed 16 Dec. 2019].
Vale, 2015. VALE’S PERFORMANCE in 2015. [Online] Available at: http://www.vale.com/EN/investors/information-market/Press-Releases/ReleaseDocuments/vale_IFRs_USD_4t15i.pdf [Accessed 16 Dec. 2015].