RIO TINTO: Define globalization and identify three central elements/themes of globalization that are reflected in this case reflects

RIO TINTO’S ACQUISITION OF ALCAN [1]

Foreign takeovers of Canadian-owned businesses continue to happen. One of the biggest foreign
takeovers in Canadian history a few years ago, triggered a great concern among many Canadian
observers that there is a “hollowing out” of corporate Canada. That takeover was by Rio Tinto, a
mining company from Britain, that completed a $38-billion (U.S.) deal to buy the 105-year-old
Canadian aluminum maker Alcan Inc. (headquartered in Montreal). Rio Tinto is the world’s third-
largest mining company, a heavyweight in commodities such as iron ore, copper, industrial
metals, diamonds and bauxite, a key ingredient in the production of aluminum.
The purchase of this Canadian company worried some Canadians who assert that Canada’s
corporate sector is being “hollowed out” by a lot of foreign takeovers, especially in our resource
sector. In the recent past, foreign companies have taken over Canadian miners Inco, Falconbridge
and LionOre, and steel makers Dofasco, Algoma and Ipsco. Other Canadian companies including
computer chip maker ATI, Four Seasons Hotels and Hudson’s Bay Co. have also gone to foreign
buyers in recent years.
The deal made Alcan a subsidiary of Rio Tinto – a global company headquartered in Britain (and
Australia). Alcan is now helping its new parent Rio Tinto expand into India and China. Together,
Rio Tinto and Alcan now form the world’s No.1 aluminum producer.
Some critics have suggested that the loss of control of Alcan is “devastating” for Canada. “When
you lose the guts of your economy to foreign owners, you lose the heart and soul of your
country,” one observer said. In addition, some have called on the Canadian government to “use
the reins of power to curtail these kinds of takeovers” in Canada. “It’s not just the loss of a
business, it’s the further erosion of independence and the ability to control our own destiny”, say
some Canadian observers.
Rio Tinto executives have tried to reduce Canadians’ fears about the loss of Canadian assets,
saying the company is committed to Quebec and Canada. In addition, government
representatives such as the Bank of Canada governor have tried to reduce fears of these foreign
takeovers, saying that the quality of management is more important than the nationality (foreign
origin) of a company’s ownership. According to the Bank of Canada governor Dodge, “What
matters, really, is that firms are well managed, and that they make the investments that are
necessary to take advantage of global opportunities…then in fact that would actually be positive
for Canadian employment and output.”
Critics of this foreign takeover, including business writer David Olive, argue that such takeovers
are putting Canada further behind on the global business scene and turning us further into a
“branch plant economy”.
Olive makes the following cynical observation:
“There are advantages to working in a plantation [i.e., the Canadian “branch plant”] economy. No
responsibilities, for one thing, no need to innovate, or to recruit and retrain the best workers, or to
understand the culture and buying habits of potential customers in faraway markets. There’s no
need to strive when someone else is giving the orders”.

CASE QUESTIONS (TOTAL 7.5 MARKS)

Answer the following two (2) concept application questions. Keep in mind that in addressing the
questions below, you must apply the concepts, theories or frameworks discussed in class or in
the assigned readings. Make any assumptions that you feel are necessary.
Question 1 (total 3.5 marks):

Define globalization and identify three central elements/themes of globalization that are reflected
in this case reflects
Question 2 (total 4 marks):
Describe 4 factors that may likely have pushed/pulled Rio Tinto to go global (i.e. to come to
Canada)?

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