Introduction
The case study narrows down to the kind of the international strategy that Shandong Gold would use in running its business in the Canadian economy. The study of gold mining in the context reflects on the interest of Shandong Gold in acquiring TMAC, which is a Canadian gold mining firm that has established a range of investments in the industry. TMAC had already expressed the interest of selling the firm to any willing player that would be ready to run the operations. Further attention has been given to the idea that Shandong Gold, which is a Chinese-based enterprise with a range of international investments. The desire to enter the Canadian gold mining industry implies its interest to invest in an extra foreign country that would make the business more profitable. Based on the introduction, the proposal is first interested in highlighting the obvious issues attached to the Shandong Gold’s acquisition of TMAC. Again, same attention is given to the opportunities and the business environmental analysis. This means a relook into the PESTEL analysis, the porter’s five forces and the proposed strategies that would work for Shandong Gold.
Issues and Opportunities
A range of issues and opportunities could equally be identified in the case study. First, it could be noted that TMAC allowed the acquisition to take place as a result of financial hurdles. Based on the case study, it is evident that TMAC failed to pay most of the rollover debts. Perhaps, the downturn in terms of the stock market was due to the COVID-19 pandemic that affected the better part of the year 2020 (Ivy Business School Foundation, 2021). This is believed to have made it hard for TMAC to substantially raise the needful funds especially from significant securities market. Based on these facts, it is evident that TMAC was never willing enough to let the company to be acquired by Shandong Gold.
The second issue revolved around the cultural differences, with the cultural setup believed to define the foods, traditions, the social norms and even the holidays. Shandong found it hard to manage the Chinese and the non-Chinese teams as a result of the cultural differences. It is worth noting that Shandong Gold only experienced the management of the Chinese mines which remained cost-efficient. The Chinese employees are known for working for extremely longer hours as compared to the non-Chinese employees who would want to have time off, vacations and weekends. Again, the experience with the Inuit people that belong to the Hope Bay meant that Shandong Gold would encounter an extra cultural hurdle (Ivy Business School Foundation, 2021).
As reflected in the Canadian law, development on the resources said to be located within the indigenous residences calls for permission from the Inuit people. The case study indicates that operation of the mines requires the involved company to have a good relationship with the Inuit people who are said to be very optimistic. In addition, the case study indicated the nuances of policies, the foreign politics and the relations. Some of the decisions said to be made by some of the political leaders are thought to impact the raw material costs, the labor laws, the transportation infrastructures, the taxes and the company operations. While Shandong Gold remained optimistic over the fact that the project it was running under the acquisition would end up observing the requirements attached to the Canadian investment law.
In addition to the requirements, it is evident that the Canadian and the Chinese governments had already signed what would be referred to as the Foreign Investment Promotion and Protection Agreements, abbreviated as FIPAs. Under the agreements, the two countries promised each other over the essence of having the most-favored-nation treatment. While the agreements remain significant in terms of creating the friendliest business environment, it would only make an addition to the already bunch of laws, agreements and policies that remain too many to be observed at the same time (Ivy Business School Foundation, 2021). Apart from the issues highlighted in the context, it is equally evident that Shandong Gold can still have a range of opportunities that can still be exploited. The company can still make use of its financial and technical resources in running the activities while learning the dynamics linked to the gold market.
Business Environment Analysis
PESTEL analysis is largely regarded as a tool or a framework that is essentially used in the analysis and monitoring most of the macro-environmental factors. The factors include:
Political factors:
Political factors alert on the structures behind the government policies, labor laws, the foreign trade policy and the tax policies among other regulations deemed significant in any country. The case study took note of the fact that Canada stands out as a federal country that has three fundamental territories and ten provinces (Ivy Business School Foundation, 2021). This means that reclamation of the mines, construction and management, development as well as mining are all defined by the jurisdiction attached to each of the provinces. Each of the provinces is believed to have the necessary mineral tenure system as well as the mining legislation. Again, Canada has defined both the mining rights and the prospecting rights known to be needful at different stages of the mining process.
Economic factors:
Economic factors are known for being the determinants of the economic performance of any country or region (Frynas & Mellahi, 2015). Some of the factors under observation include the disposable income, the unemployment rates, interest rates, the economic growth and the exchange rates. In the year 2018, Canada is believed to have attracted around 15% of the entire investments that were directed towards the global mineral resources. The mining industry equally remains key in Canada when it comes to its positive influence on the indirect and direct income as it accounts for over 4.7% of the Gross Domestic Product experienced by the country.
Social Factors:
Social factors define the dimension attached to the general environment that reflects on the demographic characteristics that may never be limited to the values, customs and norms encountered in a country (Frynas & Mellahi, 2015). Notable social trends that attract attention may not be limited to the lifestyle attitudes, income distribution, career attitudes and the population. It is evident that Shandong Gold started feeling the cultural differences risks due to the differences in terms of the values between the Chinese and the non-Chinese employees (Ivy Business School Foundation, 2021). Again, the Inuit people of the famous Hope Bay stand out as the key factor in the operation of the gold mines by Shandong Gold and any other company that has interests in the Canadian gold mines.
Technological factors:
Most of the technological factors are said to pertain innovations and the scale of innovations across different industries. Gold mining requires the most sophisticated technologies that would run the production process. Shandong Gold prides itself with the most advanced technologies that would allow it to carry out the exploration and the mining processes.
Environmental factors:
Environmental factors are said to have become important as a result of the carbon footprint targets, the pollution targets and the exploitation of the raw materials. In the Canadian context, the gold companies are required to check on the safety, the relationship that companies have with the indigenous residents and environmental protection. Perhaps, this might have been one of the reasons as to why Shandong Gold developed a special team that would concentrate on the environmental protection policies, resource conditions and the investment environments.
Legal factors:
Legal factors are known for covering a spectrum of the laws and political factors. Canada is said to be observing two significant approvals in the mining industry. They include the Investment Canada Act and the Competition Act. Again, the investment law fosters the examination of the transaction, and the harm national security.
Porter’s Five Forces
Porter’s five forces is a fundamental model known for identifying as well as analyzing the five competitive forces known for shaping the industry. In the Canadian gold mining industry, the five forces can be explained as follows.
Threat of New Entrants:
The threat is low due to a number of reasons (Vining, 2011). Gold exploration and mining are highly capital intensive. This must have been the reason as to why TMAC had to pull out. Some of the existing firms are fond of absorbing the smaller players.
Bargaining power of the buyers:
Buyers only exercise moderate power due to minimal differentiation of the products. Again, the demand as well as power determined by the buyers remain dependent on the segments as well as the varieties attached to the end uses. The pricing advantages are largely derived from the currency behavior.
Bargaining power of the suppliers:
Suppliers exhibit two kind of powers, which include both the low and high power. First, suppliers exhibit high power as it is the case with the land ownership as well as the estimated reserves as noted with the Inuit people. Again, suppliers exhibit low power when it comes to specialization of the mining companies.
Threat of substitution:
There is low threat due to lessened metal recycling efforts and the pressure placed on the changing costs and industrial demands.
Rivalry among Competitors:
There is an extremely competitive landscape as a result of a mix of the multinational companies. Most of the competitive firms are said to have specialized in specific metal or focused on a single geographical location.
Proposed Strategies
Based on the analysis, it is evident that Shandong Gold would end up enjoying fortunes of exploiting the new gold mines, but would still face a range of challenges. It would be noted that TMAC was compelled by financial challenges to let the company to be acquired by Shandong Gold. While TMAC Executive agreed to provide the interim team that would run the management before Shandong Gold takes over, it is still doubted the kind of a move the executive would take after the deal happens (Frynas & Mellahi, 2015). If the TMAC executive is absorbed by the competitor, then it is possible that the executive would share out the details of the acquisition thereby ruining the market value of Shandong Gold.
Based on this, it is highly proposed for Shandong Gold to forge a strategic partnership with TMAC, which means that TMAC would carry the face of Shandong to the market. The strategic partnership would allow the two companies to take the advantage of experience and expertise needed in the foreign markets, such as the Canadian gold market (Ivy Business School Foundation, 2021). It is evident that international partnership provides a platform for leveraging on the local brand equity, which is appropriate in terms of driving the foreign influence to the local markets. Shandong Gold would enjoy a range of benefits from the strategic partnership. First, Shandong Gold would cut down on the costs of buying all investments and the shares that belong to TMAC. Instead, TMAC can propose the amount that Shandong Gold should give out for the purposes of retaining of forming the partnership.
It is worth noting that Shandong would easily learn its way into the Canadian market without forming the special team that has been relevant in terms of conducting the market research. Secondly, Shandong Gold would adopt a ready management team that understands the Canadian laws, policies and the agreements that have been there before. For instance, TMAC had already made an agreement with the Inuit people. This means that Shandong Gold would have the opportunity of riding on the groundwork that would have already been prepared by TMAC. Therefore, the strategic partnership would ensure that the two companies learn about the synergies and further take advantage of the combined forces.
The second proposal is that Shandong Gold could take TMAC as a wholly-owned subsidiary. Instead of Shandong partnering with TMAC, Shandong can proceed with the acquisition and regard TMAC as a subsidiary (Jing, 2018). This means that Shandong Gold would have retain the prevailing management, as well as the infrastructure with the interest of maintaining the targets. Operating TMAC as a subsidiary of Shandong Gold would solve a range of problems and issues that Shandong would face if it chose to push its team into the Canadian gold market. First, it would help to sort out the issue of the cultural challenges that come with working with the Chinese and the non-Chinese employees. Instead, Shandong Gold would only focus on establishing a global team that would run the management (Frynas & Mellahi, 2015). The retention of the TMAC’s face in the operations of Shandong would help the company in exploring the market, given that TMAC has a better understanding of the local market and the local players.
Recommendations
The proposal has surfaced two fundamental strategies which when adopted can make Shandong Gold more successful in its new market. However, the following recommendations still remain more fundamental in the context.
- Ø Shandong Gold needs to pay more attention to the local requirements, which can be costly if violated or ignored. For instance, the case of the Inuit people requires the mining companies to have a good understanding of the location.
- Ø Foster strategic alliances that would enable the company to venture into more areas in gold mining.
