Business Strategy Of BHP Billiton Ltd - Myassignmenthelp.Com

Question: Discuss about the Business Strategy Of BHP Billiton Ltd. Answer: Introduction BHP Ltd was established in the year 1885 and has its headquarters situated in Melbourne in Australia who operates in more than 25 countries globally (BHP, 2017). The company made a quick recognition of available resources in mining business in mid-1800s as mining industries had less governmental regulations with huge investors pouring in those days. The company followed a trend of mergers and acquisitions in its long run one of which was made with Billiton group in the year 2001. The company after acquisition was named BHP Billiton. One of the biggest ventures of BHP Billiton is AUD 2 Billion mine that was started in Western Australia and brought huge progress to local community by giving employment opportunities to them. Currently, BHP Billiton has more than 100,000 employees, including contractors, worldwide and revenue realised is around AU $61.2 billion annually(Market Watch, 2017). Many incidents took place in the company like BP Oil spill, Takata Air Bags problem, Volkswagen em issions scandal and Global financial crisis but with strategic approach of the company, it sustained the market enormously. Internal Analysis Assets As shown in the figure below, BHP Billiton leads the global resources companies with outstanding portfolio of assets. The shareholders value plan is designed to provide the management with opportunity to concentrate on the issues by amalgamating BHP into a sole Australian tax resident listed company(ValueWalk, 2017). Figure: Mining and Petroleum Assets of BHP Billiton Source: (ValueWalk, 2017) Competitiveness BHP Billiton like many other big industries has to face constant threat from its competitors and has to face rivalry among them. One main competitor of BHP Billiton is Rio Tinto and relation between them always prevail unbendable fight(LinkedIn Corporation , 2017). Several equally balanced competitors present made the industrial growth rate slow down. Few other competitors of the company are Amcor and Alcoa Inc. Other issues like higher storage costs along with other fixed overhead costs make the company difficult to protract. Constant threat of new entrants also becomes challenging for BHP in sustaining competitiveness(BHP Billiton: Resourcing the Future, 2014). Sales, profits, share price BHP delivers high returns to its investors through share buyback policy which gives the company A credit rating in global market. As shown in the figure below, the company reported an annual sales growth of 19.6% to $18.8 billion and profit of $3.2 billion as compared to losses made in the last year that was $5.7 billion. The recent information from the company states that a target of $39.93 per share will be indicated in stock exchange thereby increasing 8.3% than present value(Yu, 2017). Figure: Sales and profits of BHP Billiton Source: (Yu, 2017) Strength and Weaknesses Although the weakness of the company requires BHP to improve the measures in gross periphery and long term fiscal return on equity to match with its peers. The company also faces human resources impacts such as lack of qualified staff and training. The company gains opportunity in working with wider market and has lots of upcoming projects to execute(Rodrigo, 2013). By utilising innovative and social media tools, company can strengthen its brand position and reach to its customers by promoting brand awareness. BHP Billiton is also working on reducing gas emissions as shown in the below figure that shows its positive environmental responsibility. Figure Greenhouse Gas Emissions by BHP Billiton Source: (BHP Billiton: Resourcing the Future, 2014) Threats which company faces are from rising costs of suppliers and corporate collaborations. Governmental threat also has been constant for the company along with political issues with instability in Euro Zone in the home country. The strength which the company gains is its strong portfolio, as shown in the figure below, and thus gives an advantage to rule the mining industry(Rodrigo, 2013). Figure: Product Portfolio of BHP Billiton Source: (Continnum, 2011) External Analysis Pestle Analysis The company as large as BHP enjoys favourable governmental support as they work to support economical activities of the country. The company also holds a strong economical reputation while accessing low operational costs, and has advantage over its competitors in raw materials. The cash flow of AUD was recorded 14.6 billion which made investors lose stress about their returns(Barakaat Consulting, 2017). The mining of raw materials have always proved to be a profitable business and since the company holds a strong reputation, it gains an advantage over it. Socially, BHP has always tried to respect the sentiments of local people and has successfully connected large number of people directly or indirectly to the company. Mining opportunity was first recognised by BHP and through it; the company had been able to invite more scrutiny from environmental and local communities while inviting investors from around the world to invest in. Thus with good rapport BHP follows while dealing with t he investors and local communities, the countrys economic condition are enhanced. Technologically BHP can invest more in order to improve it growth strategy. Presently the technology followed by the company to extract Nickel by combining acid pressure leach with atmospheric lead has helped to gain competitive advantage over its competitors and increased companys cost benefits. Although the company follows strict legal ethics, recent mishap in the factory premises had caused to raise conflicts between BHP and government(Barakaat Consulting, 2017). Thus possess a weakness of the company that could harm its reputation. Environmental analysis of the company has always been favourable to BHP as climatic condition of Australia has been even for the running of the company. Micro Analysis While making micro analysis of BHP, it can be seen that it has the most powerful competitive strength in the Australian market although rivalries can be recognised due to high strategic stakes. Also many competitors give tough competition to the company and makes company follow diversified strategies in order to gain competition. Major competitors of BHP include Rio Tinto, Nippon Steel, Exxon Mobil, Anglo American, Royal Dutch Shell, Chevron Corporation, etc.(Continnum, 2011) These along with new entrants have been a major concern for the company where the management needs treading cautiously. The low switching costs also makes customers divert to another company. BHP Billiton is a well established firm and thus threat regarding new entrant in minimal but shall be considered in making companys strategy. The bargaining power of customers seems quite powerful as they are the one who increases the monetary aspect in supply chain. On the other hand, loyalty within customers are hard to m aintain and any circumstance where switching is good, they does not hesitate in changing the company. The suppliers power seems weak for BHP as many raw material suppliers are present in Australian market due to availability of enough mining resources. The company has highly built infrastructure and strong market capture which results in making the power of new entrant weak. The increased profit earning of BHP higher than its competitors even during the time of recession shows its power in its field(BHP Billiton: Resourcing the Future, 2014). CURRENT BUSINESS STRATEGY To enhance proper functioning of the business, BHP Billiton adopts strategies that can prove beneficial for its business functions and ensure overall growth of the company. The BHPs headquarters that access all its global functions is situated at Melbourne, Australia and BHP Billitons at London, United Kingdom (Samarco, 2016).. Both the companies are run by combined team of management and holds similar board of directors. Shareholders also hold equivalent voting rights and have equal economic hold in the company as a whole. The companys strategy is to operate long term, huge, cost efficient, expandable and up streaming assets in diversified manner by utilising all available resources, geography and market. The company also follows a stable organisational structure, as shown in the below figure, and has facilitated itself to distribute superior precincts through fiscal and service succession for many years(BHP BILLITON FINANCIAL STATEMENT, 2017). Figure: Organisational structure of BHP Billiton Source: (BHP BILLITON FINANCIAL STATEMENT, 2017) The number of days taken by BHP to change the sale into ready money as compared to other firms is very fast which shows that the company has superior management. Major customers dealing in materials mined by BHP consists of brass mills and electricity generating utilities. The company has always delivered superior profits to its shareholders with having a disciplined execution quality of staunch strategy of operating and purchasing. The strategy of the company enables it to expand its flexible assets globally while utilising all available resources to its maximum. The companys diversification strategy depends on the availability of natural resources available at those locations where they purchase or sell the products(Gordon, 2007). CONCLUSION The above analysis suggests the company to manage its operations more tactically as any mineral based industry is risk endeavoured whether it is any small enterprise or a huge like BHP Billiton(Hobbs, 2013). With change in demands among customers and risks of oil spills, the companies clearing costs may augment and affect the commodity price that can make BHPs profits impulsive. Therefore acquiring assets in geographically diversified areas along with quality maintenance can provide secure returns and growth expansion. The company must also look more strategically in its threats and current issues and create more technical and modern approach to deal the situations. After making internal and external analysis of BHP, on concluding note it can be said that the company possess strong market presence in Australian market and with strategic management policy it follows, has the ability to become one of the largest company worldwide. REFERENCES Barakaat Consulting, 2017. 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[Online] Available at: https://pierre.benain.free.fr/MBA698%20BHP%20Billiton%20Report.pdf [Accessed 16 September 2017]. Hobbs, M., 2013. Climate change is a strategic risk for BHP: Dunlop. [Online] Available at: https://www.afr.com/business/climate-change-is-a-strategic-risk-for-bhpdunlop-20131018-j08n6 [Accessed 16 September 2017]. LinkedIn Corporation , 2017. BHP Billiton vs. Rio Tinto. [Online] Available at: https://www.slideshare.net/eholmes80/bhp-billiton-vs-rio-tinto [Accessed 16 September 2017]. Market Watch, 2017. BHP Billiton Ltd. ADR. [Online] Available at: https://www.marketwatch.com/investing/stock/bhp/financials/cash-flow [Accessed 16 September 2017]. Rodrigo, 2013. BHP Billiton SWOT Analysis and Porter Five Force Analysis. [Online] Available at: https://writepass.com/journal/2013/01/bhp-billiton-swot-analysis-and-porter-five-force-analysis/ [Accessed 16 September 2017]. Samarco, 2016. BHP Billiton outlines strategy to grow value. [Online] Available at: https://www.bhp.com/media-and-insights/news-releases/2016/05/bhp-billiton-outlines-strategy-to-grow-value [Accessed 16 September 2017]. ValueWalk, 2017. Elliot Management The BHP Shareholder Value Unlock Plan. [Online] Available at: https://www.valuewalk.com/2017/04/elliot-management-bhp-shareholder-value-unlock-plan/ [Accessed 16 September 2017]. Yu, M., 2017. Great Recovery by BHP Billiton: An analysis of the worlds largest miner. [Online] Available at: https://www.gurufocus.com/news/502226/great-recovery-by-bhp-billiton- [Accessed 16 September 2017].