SAP Project Part 2

Running head: SAP Part 1 Report 2

SAP Part 1 Report 2

SAP Part 1 Report

Institution:

Student’s name:

Date:

Define

The project is based on Freeport-McMoRan Inc., an American company dealing in the mining sector. The company operates in the mining industry with major competitors to the company such as Vedanta Resources, Peabody Energy, Nucor, Southern Copper Corporation and Newmont (Scarlett & Bish, 2019).

Five Forces Analysis

Buyer’s power: There is a high concentration of buyers relative to sellers being very high due to limited entry into the market by incumbents. Also, there is a huge volume particularly on oil and gas. However, there is low differentiation as there is much regulation on the quality of products in the mining sector particularly in relation to oil products. There is a lower threat on backward integration of buyers due to strict and costly standards to operate in the industry. Majority of the buyers have limited knowledge on the cost structures of the suppliers but are all aware of the prices of different products offered by the suppliers. Another crucial aspect in determining characteristics of the mining industry is that there is cost saving on buyers due to government’s regulation of prices of some mining products. Suppliers’ inputs to final products quality of final products is limited as there are less procedures done on mining products from the main inputs. There is a 53.3 % of total buyers cost that is spent on suppliers’ input (Roy et al, 2021).

Supplier power: There is low concentration of suppliers to buyers due to costly procedures and regulations used in governing the mining industry. The bargaining power is high due to absence of substitute products particularly on oil and gas products. The importance of customers to supplier is enhanced by the importance of the product which makes it basic for consumers to seek the products. There is limited differentiation of products among the suppliers which contribute to competition among the few suppliers in the USA mining industry market. The switching costs for buyers is low as the products are regulated by the assigned authority. However, the threat of forward integration by suppliers is high with big companies owning and controlling value chain of the mining industry. In general, the supplier force is strong in that some of the products are basic necessities in the economy.

Threat of entry: There is a great importance of great economies in the mining sector in that a company can only maximize profitability through sales as prices are subject to ceiling. Product differentiation is an important factor particularly with the competition. The industry requires huge capital investments which reduces entry into the market as well as increasing the switching cost of the buyers. Proprietary information contributes much to the market success and development of the products and the companies. There are government subsidies to promote production as well as ease to government distribution through the regulatory authority. The force is therefore low in terms of strength in the market.

Threat of substitutes: Mining industry has limited supply of substitutes which makes it more profitable provided a firm has access to the raw materials. There is low improvement in prices as they are subject to world oil prices for products such as gas products. This makes the force on threats of substitute generally low.

Intensity to rivalry: The company, Freeport-McMoRan Inc., has 6 major competitors as outlined in the discussion. This creates stiff competition given that the annual market growth is approximately 3.3 %. On average, a company dealing in such products incurs fixed costs such as labor, depreciation and insurance premiums. The company also has to incur storage costs for the products with major companies owning their own storage facilities inform of underground tanks and warehouses. There is a major impact of differentiation on customers preference which makes it a resourceful tool to the customers. The switching cost is low thus customers easily switch loyalty to products. Also, there are less exit barriers which result into threat of loss of market share. In general, threat or rivalry is very high. The mining industry is generally attractive for a market player that has access to resources (Hübner, 2021). 

PESTEL

There has been increased uncertainty in the economy characterized by recessions and political instabilities in the United States. With the recession, the company is likely to be affected by a decline in prices. The political climate characterized by riots may also affect the environment at which the company relies to market its products.

The company is also faced by environmental factors particularly unpredicted climatic variations. Due to increased industrialization and global warming, the weather experts no longer provide certain prediction on climate changes. This results into companies such as Freeport-McMoRan Inc. to formulate disaster plans and prepare for climate hazards which might affect the performance and profitability of the company. Changes in weather patterns affect the mining capacity of the company as the company has to be prepared of measures to secure the mines against damage. Finally, Freeport-McMoRan Inc. has to ensure absolute compliance with various laws governing trade and products in different markets. With the change in economic growth and patterns, more laws to regulate trade such as interest rates were adopted and implemented affecting the company’s pricing strategy. The company has to reduce the litigation risk by ensuring the compliance department is well-funded and functional.

Innovation

The mining industry is very innovative with firms adopting latest technology to cut on production cost and improve efficiency in their processes. Among the recent innovations include open pit mining, long wall mining among other technology advances.

Impact of Covid-19

Covid-19 had significant impacts on the United States mining industry with statistics showing an approximate loss of $30 to $119 billion in earning before interest and tax in 2020. In response to the Covid-19, the mining industry has focused on supporting the health and safety of communities as well as assisting governments in recovering supply systems (Laing, 2020).

Reference

Hübner, C. (2021). From global efficiency to local self-sufficiency-impact of changing consumer trends on the food industry (Doctoral dissertation).

Laing, T. (2020). The economic impact of the Coronavirus 2019 (Covid-2019): Implications for the mining industry. The extractive industries and society, 7(2), 580-582.

Roy, V., Desjardins, D., Ouellet-Plamondon, C., & Fertel, C. (2021). Reflection on integrity management while engaging with third parties in the construction and civil engineering industry. Journal of Legal Affairs and Dispute Resolution in Engineering and Construction, 13(1), 03720005.

Scarlett, N. V. Y., & Bish, D. L. (2019). Freeport–McMoRan automated PXRD–NIR mineralogy laboratory.