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Chapter6SWOTanalysis
Strengths

Alcoa is the world leader in the production and management of primary aluminum,fabricatedaluminumandaluminacombined.Thecompanysproducts are used worldwide in diverse range of industries that include aerospace, alumina,aluminumingot,automotive,commercialtransportation,electric,energy, home and commercial building supplies, industrial products and services, packaging and consumer, specialty metals and others. In addition to aluminum productsandcomponents,AlcoaisalsoengagedinmarketingofAlcoawheels, fasteningsystems,precisionandinvestmentcastings,andbuildingsystems. Moreover,Alcoahas beennamedone ofthetopmostsustainablecorporations intheworldattheWorldEconomicForuminDavos,Switzerland.Thecompany has been continuously working to create optimized solutions that are not only successful,butalsosustainablevehiclesforthefuturegeneration.Alcoamakes sustainable products: almost 70% of the aluminum produced till date is still in use, equalling 480m metric tons (529m tons) of total 690m metric tons (761m tons)manufacturedsince1886. Intherecentyears,thecompanyhasmadeseveralmajorinvestmentsincluding Iceland, Juruti, Sao Luis and fastener acquisitions. These investments enable Alcoa to lower its cost base in its upstream primary businesses and increase presence in the most profitable downstream market, fasteners. To shape its portfolioforgreaterprofitablegrowth,AlcoaexitedthePackagingandConsumer business, acquired two high growth fastener businesses and agreed on a cashless asset swap with its joint venture partner, Orkla. This enabled the company to exit a noncore businesssoft alloy extrusion and to gain control of two smelters in Norway. These developments have made Alcoa the largest aluminumproducerintheworld. Additionally, Alcoa operates the worlds largest light metals research and development center, Alcoa Technical Center (ATC), located in Pittsburgh, Pa. The company continues to develop new alloys and processes serving the next

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generation needs of the automotive market. Furthermore, Alcoa spends a significantamountonitsR&Dactivitiestocontinueitseffortstoincreasetheuse ofaluminumthroughinnovativeproductsolutionsforitscustomers.In2008,the companysR&Dexpenses wereUSD246minvestinginnewdevelopmentsfora number of strategic projects in all business segments. On the product front, Alcoa has consistently introduced new products and technologies to counter competition. For example, the company developed four products for the commercial transportation industryfuel tank, landing gear, fifth wheel, aluminum composite panelthat provide customers with products that reduce weightandmaintenanceandoperatingcostswhileincreasingpayloadsandfuel economy.Inaddition,the2009AutomotiveNewsPACEAwardwaspresentedto Alcoa Transportation Products for technological advancement, innovation and businessperformance. ThecompanyhasalsoundertakenanumbergrowthprojectsinAustralia,Brazil, China,Iceland,Jamaica,Guinea,andRussia,allofwhichpresentopportunities for substantial growth. In total, Alcoas capital investments were approximately USD3,438min2008(excludingcurrencyimpacts).Ofthese,nearly58%related togrowthprojectsincludingtherefineryexpansioninSoLus,thedevelopment oftheJurutibauxitemine,theEstreitohydroelectricpowerprojectinBrazil,and projects at various facilities in Russia and China. These expansions have strengthenedAlcoaspositionandwillcontinuetoaddearningsgrowthinfuture years. Weaknesses Alcoas major sales are generated from the US market. In fiscal 2008, the US market contributed 53% share in the companys annual sales. Such over dependence on a particular region could prove detrimental to the companys growthincaseofanyeconomicdownturnsordemandfluctuationsinthatmarket. Opportunities The global demand for aluminum is expected to reach 67m tonnes by 2017, a CAGR growth of 6%. In 1970, aluminum accounted for 2.0% of vehicle curb weight. In 2009, aluminum's share quadrupled to 8.6%, and it is expected to scaleupto10.4%by2020.Thecompanyisplanningtocashinonthedemand in the high growth regions by investing in strategic growth projects, such as manufacturing facilities in China and other parts of Asia, bauxite reserves and
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hydroelectric projects in Brazil, potential smelter developmentinGreenland and Iceland,aswellassmelterpositionsinChinaandtheMiddleEast.Alcoascapital investments were approximately USD3,438m in 2008 (excluding currency impacts). Of these, nearly 58% related to growth projects including the refinery expansion inSo Lus, the development ofthe Jurutibauxitemine, the Estreito hydroelectric power project in Brazil, and projects at various facilities in Russia and China. These expansions have strengthened Alcoas position and will continuetoaddearningsgrowthinfutureyears. Aluminum serves as the solution to a challenged automotive industry. With an increasing focus on improved fuel economy and emissions reduction, Alcoa is helping car manufacturers explore ways to improve performance and reduce weight.Itisestimatedthatby2020,aluminum consumptioninlightvehicleswill growfrom17billionto28billionpounds.Alcoacommandsacompetitiveposition toseizethese opportunities,owingtoitsswiftactionstoanticipateandrespond totheeconomicdownturn,andthecompanysliquidityandflexibilitythatgiveita competitive advantage. The combination of Alcoas innovative advantages and the crucial role of aluminum in making transportation more sustainable offers strongprospectsforthecompanyslongtermgrowth. Threats Alcoa is subject to cyclical fluctuations in prices, economic conditions, and aluminumendusemarkets.Therecentglobaleconomicdownturn,coupledwith the global financial and credit market disruptions had a negative impact on the aluminumindustryandAlcoa The company is severely affected by uncertain factors including prices of raw materialsandfuelssuchasoil,aswellastheeffectofthesubprimecrisisand inflation,globaleconomicscenarioisexpectedtobelargelynegativein2009. Alcoa also faces significant price competition from other manufacturers of aluminum. In some of the key enduse markets (of fabricated aluminum products),thecompanysmajorcustomersexertleverageinthemarkettoaffect pricing. In addition, aluminum competes with other materials, such as steel, plastics,composites,andglass,amongothers,forvariousapplicationsinAlcoas key markets. Furthermore, reduction of demand in the North American market and pricing pressures from OEMs are expected to affect the company's net income,goingforward.
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