Friday, July 10, 2009

Rio Tinto Mistakes In China

Rio Tinto (RTP) claims that it is surprised by allegations from Chinese authorities that key executives were involved in stealing state secrets. The business media paint China as a big bad government arresting innocent people. The reality is that a lot of hard ball meetings have been held behind closed doors. We do not truly know what went on.

Rio Tinto and employees want to characterize themselves as small and relatively powerless. The Chinese are not stupid. The Chinese are subtle and astute. Rio Tinto did in fact have the power of a sovereign state, acted tough and probably did not think their way through the relationship.

Being shareholder driven they are influenced by quarterly EPS. Being a commodities firm they are all too familiar with price fluctuations. They probably acted for the here and now. Long term stable relationships are usually the most profitable and risk less. Rio Tinto has not been successful with the China Card. What ever they were negotiating is now kinked.

The advantage definitely goes to other parties who were competing with them for markets, influence and relationship.