The Aluminum market in Europe does not have a good prospect to be expanded. Alcoa claimed that it will shut down the factory in Portovesme, Italy, and reduce the output of the factory in Spain. This is because Alcoa and European commission have argued for the power supply contract for a long time. Moreover, the European debt crisis led to a depressed economy. Thus, Alcoa decided to turn its market out of Europe and then start to look for other oversea markets. Although, Africa is one of the poorest continents of the world, in some countries, such as Mozambique, the economy has been growing steadily.
From this prospective, we recommend Alcoa to open up the market in Mozambique, South Africa. We conducted the research based on sources from on-line resources. Our proposal focuses on analyzing the operation of Alcoa and the opportunity of a new market. 2. About Alcoa Alcoa is the world’s most famous producer of aluminum and fabricated aluminum, and it is the biggest miner of bauxite and refiner of alumina. Alcoa has over 61,000 employees and over 200 locations in 31 countries. Alcoa not only provides hard alloy extrusions, forgings, Alcoa® wheels, but also has its expertise in other light metals.
The sales of Alcoa were $25 billion in 2011. 2. 1 Brief History Aluminum Company of America (Alcoa Inc. ) has 120-years’ history. During the 1920’s, Alcoa monopolized aluminum production in North America and produced more than 63 percent of the world output. At the end of World War I, Alcoa produced excessive capacity, especially for civilian uses. However, the war made Alcoa realize that it was very important to improve the quality of product, and Alcoa invested more money in research and development. In 1925, Alcoa entered the first external market, Canada, and it held over half the rimary aluminum in the world. In 1958, Alcoa started the first major overseas mine-to-metal venture in Suriname. After the successful venture in Suriname, Alcoa decided to expand the offshore ventures. In 1960s, Alcoa developed operations in Australia and Brazil. At the same time, Alcoa drove the strategy to focus on commercial real estate construction and fabricated products. The Easy-Open aluminum technology made Alcoa hold a large percentage of the canned beer market. In the 1970’s, Alcoa continuously expanded the overseas market and used mathematic modeling to control the production.
In the 1980’s and the 1990’s, Alcoa focused on producing non-aluminum products and was concerned about safety. From 2000 to present, Alcoa has made strategic mergers and acquisitions, such as Alumax, Reynolds. 2. 2 Business Operation Alcoa Business System (ABS) is the core used to manage Alcoa businesses. Here are its three principles: ?Make to Use The first principle is based on customers’ will and demand, such as single-piece production, on demand; defect free, at the lowest possible cost, made safely. ?Eliminate Waste
The second principle aims at exposing and solving problems and focuses on cost cutting and cost saving during all their manufacturing and business processes. ?The People Linchpin the System The third principle is concerned with creating on environment which satisfies people. Also, Alcoa tries to identify and solve problems, and link to their transition from “make to inventory” to “make to use”. 2. 3 Product Scope Alcoa produces various products, such as flat-rolled products, hard alloy extrusions, and forgings; as well as Alcoa® wheels, fastening systems, and precision.
Here are some important products of Alcoa: ?Aerospace Alcoa is the world leader in single-crystal technology for advanced castings that withstand the extreme temperatures of clean-burning aero engines. ?Automotive Alcoa builds a better car, truck, trailer or vessel. The reason for this is using more aluminum to reduce the overall weight of the vehicle, which significantly reduces greenhouse gas emissions. ?Building & Construction Alcoa has always offered unique advantages for designing the shape, appearance and sustainability of modern buildings.
These new aluminum components can achieve green building standards. Alcoa also provides high-performance glass, which allows for efficient light control, lower energy consumption, corrosion-resistance and immunity from the harmful effects of UV rays. ?Packaging Aluminum packaging solutions deliver freshness, convenience, and security for food, beverages and other products. For example, the aluminum bottle offers premium, high-end packaging options. 2. 4 Targeted Market According to the statistics, Asia, North America and Western Europe are the top three aluminum consumption areas in the world.
In Asian region, such as China, Korea and India, these developing countries have an increasing demand for aluminum. However, the total amount of aluminum consumed in America, Canada and Japan experienced a downward trend. At this point, Alcoa’s target market should pay more attention to China and India. Besides, although Africa is endowed with natural resources, aluminum resources have no commercially exploited value. Therefore, all the producing raw materials are dependent on imports from foreign countries in South Africa. In other words, Africa is mainly producing primary and secondary aluminum products.
As a result, if Alcoa exports other forms of aluminum products to Africa, Alcoa will gain a huge profit. Figure 1: Target Market of Alcoa 2. 5 Strength and Weakness Alcoa is the world’s largest miner of bauxite and refiner of alumina. Also, it has a long history started in 1888 so the company is an expert in administration and producing. In addition, Alcoa is the leading producer of primary aluminum and fabricated aluminum all over the world. Alcoa has received many records and good will, such as 100 Best Corporate Citizens 2012—Corporate Responsibility Magazine.
What is more, advanced techniques and unremitting effort in innovation make its products and services play an important role in the aluminum market. However, Alcoa is faced with the problem of pollution. For example, Alcoa’s pollutions made the residents who lived six kilometers away from the factories get sick. As a result, Alcoa was punished by the government in Australia. 3. New Oversea Market: Mozambique Located in Southeast Africa, bordered by the Indian Ocean to the east, Mozambique is one of the poorest countries in the world.
Mozambique is abundant in rich and extensive natural resources, and its economy is based largely on agriculture. Today, the economy is growing very fast in Mozambique, and the developed legal system makes Mozambique become a hope in this poor continent. We recommend Alcoa to enter this market, because of the prosperous development of Mozambique. 3. 1 Economy in Mozambique Mozambique is in the poorest region in the poorest continent of the world, Sub-Saharan Africa. Besides, it was considered as the second poorest country, with a per capita GDP below the African average. 4 percent of the population of Mozambique was below the poverty line in 2008. But, economic growth in Mozambique has been strong since the country’s civil war ended in 1992, and it has emerged as one of the fasted growing economies. Since 1996, economic growth has been stable; the economic growth rate was around 6. 2 percent in 2009. The inflation rate has been around its lowest level in a decade. Also, the real income grew rapidly, and it tripled in the same decade. Moreover, the real income has grown by 14 percent in 2001 and 11 percent in 2002.
However, Zimbabwe, a neighboring country, has declined 8 percent in 2001 and 6 percent in 2002. Currently, more foreign firms have invested in Mozambique, and these firms are mostly in the aluminum industry and mining industry. The foreign enterprises can enjoy tax privileges in Mozambique. In 2010, UK exported around 112 million pounds to Mozambique with imports at almost 78 million pounds. A British mining group has invested 1. 3 billion dollars in the country, which covered aluminum industry, tourism, and it leads to much foreign exchange.
The large towns and cities have been promoted by the influence of foreign investment; however, the influence does not apply to the rural area in Mozambique. We can infer that the economy in Mozambique is the hope of this region, comparing to other country in Sub-Saharan Africa. 3. 2 Political System in Mozambique During the civil war, the politics and economy were disrupted. Since the end of the civil war, the political situation in Mozambique has been stable. The government is determined to maintain national unity, and implements appropriate and pragmatic politic policy.
Mozambique held the first democratic elections on October 1994, under international scrutiny. Although some limitation exists, for example, the electoral process was boycotted in municipal elections in 1998; this election system can help the electorate to express their will. Mozambique now has developed an elected democracy, which gives rise to a strong legal system. Moreover, a good legal system protects private property and provides incentive to people to invest and produce by both domestic and foreign investors. 3. 3 International Relationship
Mozambique has very close relations with its formerly British-ruled neighbours in Africa, because these countries shared experience that fought against white rule. This led to Mozambique joining the Commonwealth in 1995. Mozambique also dispatched troops to contribute to the United Nations, helping them in peacekeeping affairs in Burundi, and participated in South African Development Community peacekeeping training and planning. 3. 4 Aluminum industry in Mozambique 3. 4. 1 Brief Introduction of the Market Alcoa is located in 31 countries all over the world. However, it is only located in two countries in Africa: Morocco and Guinea.
To start up a new business in Africa is a brand new challenge for Alcoa. Mozambique is growing rapidly in recent years. The Aluminum industry has a very significant impact on this country’s economy. In order to attract foreign investment and capital, Mozambique’s government takes special policy. The country is not the producer of minerals, but the overseer and promoter of mining activities. This is good news and a great chance for Alcoa to enter the aluminum market in Mozambique. The development of Mozambique’s economy urges big companies’ entry like Alcoa to provide funds and advanced technique.
The labor wage is low there, which is also a benefit for Alcoa. Aluminum is a key element in Mozambique’s economic growth. The export of aluminum accounts for nearly 60% of the country’s total export amount. The strongest rival is Mozal, which is the largest company among the country. However, the potential market is still huge. The construction of buildings and machines for production are all relative with aluminum. The fast growth of economy in Mozambique will drive the demand of aluminum. The domestic market can not satisfy the demand and will turn to foreign companies or investment.
It provides a great opportunity for Alcoa to gain a sizable market share in this new market. 3. 4. 2 Operation in Mozambique ?Geography Mozambique lies beside the Indian Ocean in southern Africa, and this convenient location is good for delivering goods or trading with others through marine transportation. Besides, it is relatively easier to generate electricity here by taking advantage of sea water at a coastal position. ?Natural Resources Mozambique is well endowed with natural resources, such as coal, titanium, natural gas, hydropower, tantalum, and graphite. However, the country’s natural resources are not fully exploited.
Mineral resources such as gold, gemstones and bauxite have not been mined yet. Mozambique’s natural wealth can satisfy Alcoa’s demand for natural resources. ?Transportation Under great efforts, Mozambique’s transportation infrastructure has been improved in recent years. The Africa Infrastructure Country Diagnostic (AICD) aimed at improving current infrastructure conditions in Africa. The first phase of the AICD focused on 24 countries that together account for 85 percent of the gross domestic product, population, and infrastructure aid flow in Sub-Saharan Africa.
Mozambique was included in these 24 countries. Transportation plays an essential role in a company’s business plan to purchase raw materials or deliveries of finished goods to customers. ?Local Government Policy Since its first trade policy review in 2001, Mozambique has taken actions to liberalize its trade regime. Its tariff was reduced in 2002 and again in 2007, with maximum rates lowered from 30% to 20%. Therefore, it is a piece of good news for foreign companies to directly invest in this market. ?Workforce Mozambique is a developing country.
Compared to developed countries, Mozambique’s labor cost is relatively low. As a result, it helps Alcoa reduce costs and increase revenue. Take the minimum wage for a 19-year old worker or an apprentice for an example: in Mozambique, the wage is 80. 5 US dollars per month, Australia is 1597. 1 US dollars per month, Brazil is 299. 6 US dollars per month, Jamaica is 215. 0 US per month, and China is 182. 5 US dollars per month. ?Economic Condition The economy was boosted in many aspects, such as mining, financial service and construction, which helped to push GDP real growth rate to 7. 2 percent in 2011.
Moreover, the consistence of high foreign direct investment (FDI) inflows, along with strong agricultural growth and infrastructure investment will drive growth to 7. 5 percent and 7. 9 percent in 2012 and 2013. Good economic conditions indicate Alcoa can gain huge potential profits. Figure 2: Real GDP growth of South Africa ?Advanced Technology Alcoa is the world’s third largest producer of aluminum so it implies that Alcoa has advanced technology and equipment. It well known that Mozambique has abundant resources, but aluminum firms in Mozambique can only produce limited types of aluminum products out of technology problems.
Under this situation, with its advanced technology, Alcoa can produce aluminum products which are extremely demanded by Mozambique’s market. 3. 5 Competitors: Mozal: Mozal, an aluminum smelter is belong to BHP Billiton, is located in the Maputo province of southern Mozambique. Mozal was the first major project for BHP Billiton in Mozambique and it was Mozambique’s largest private investment in the past 30 years. BHP Billiton is a leading global resources company and one of the world’s largest producers of major commodities.
Mozal is one of the largest smelters in Mozambique; the output of Mozal is more than 500,000 tones of aluminum per year. In the two construction phases, the project of Mozal contributed more than 160 million to the local economy. Especially the employment of Mozambican, which make good use of the local labor and stimulate the local’s contractors and suppliers’ profit. The local government and the Mozal’s operations teams have created a great achievement by cooperation. Harmonious industrial relations were created during the construction period; no days were lost because of any industrial action.
The local government and the Mozal have benefited a lot from needs-based infrastructure, social and community development projects. It’s a kind of win-win cooperation. 4. Evaluation Alcoa’s expansion in to Mozambique is a bold attempt as Alcoa does not have much experience of open up a new business in Africa. However, as one of the most famous companies in aluminum industry, it can provide adequate funds and mature management to support the operation in Mozambique. This country’s development relies greatly on foreign companies’ investment.
Government in Mozambique will provide preferential policy to Alcoa. Besides, the low labor cost in Mozambique helps Alcoa to save operation cost. Although Mozal, the strongest competitor, has taken the largest project in Mozambique, the potential for Alcoa to enter this market is strong. Alcoa has built up a good reputation, with a long history and rich experience in aluminum industry, and this cannot be competed by Mozal. We recommend that Alcoa should seize this opportunity to enter the aluminum market in Mozambique with its advanced technology and experienced management.