BHP Billiton and Strategic Choices - Case Study Example

BHP Billiton and Strategic Choices Name Course Lecturer Date Strategic Management Concepts BHP Billiton is one of the largest and renowned mining company is the world. The company has mine minerals such ass iron ore, gas, oil, petroleum and coal. The company applies various strategies in a bid to position itself in the mining industry not only in Australia and the United Kingdom but also around the world (Thompson & Macklin, 2009). The company has operations in six of the world’s eight continents one of the most promising strategies executed by the company is to acquire, own and take control of large, low cost, upstream, expandable and long life assets. These assets are spread by commodity geography and market. This strategy has come to be very effective after its merger in 2001. The combined forces enabled the company to exploit opportunities. The company's management considers this as a unique strategy, it has entrenched it as a key driver of market positioning and growth. Consequently, the company has been able to register record growth over the economic cycles; it was not affected by the global financial crisis. This is an indication of its strong financial base and market strength. This strategy is discussed in detail in this essay. The essay also addresses the company's demerger in detail. External Environmental Factors Impacting BHP Billiton Competing globally exposes BHP Billiton to serious competition from other established mining and exploration companies. There are multinational mining companies from other developed countries that provide stiff competition to BHP Billiton, there is strong competition for resources by these established mining firms (Wise & Zednickova, 2009). Some of the multinational companies that provide competitions to BHP Billiton are such as Alcan Inc, Anglo American (AAUK), Rio Tinto, and Companhia Vale do Rio Doce (RIO) as well as Alcoa (AA). These firms are multinationals and they carry their operations across various continents, they compete for fields with natural resources for mining. Bearing in mind that the natural resources are not found everywhere, the competition is unique in that the fields for mining are few but the mining firms are many. Moreover, mining needs qualified and expertise staff who can be able to provide the finest and quality products. These firms are also in competition for qualified and experienced staff that can be able to drive their growth and mining objectives. This leads to increased cost of hiring and maintaining qualified staff. This inflates the labour costs and thereby reducing the profit margins of the company (Wise & Zednickova, 2009). Another major issue facing the company is transportation infrastructures for its products. Besides the competition of natural resources fields and quailed staff, there is competition for transportation infrastructure. BHP Billiton faces completion in securing qualified mining staff and transportation infrastructure for setting up new development segments. Essentially, competition makes BHP Billiton to reduce its profit margins. It is forced by the market mechanism such as competition to lower its prices to the lowest levels in order to cope with the threat of competition. Positively, BHP Billiton has been able to cope effectively with the competition, this has made it to remain strong in the market as well as maintain its status as the largest mining company (Floris, 2013). It has developed good reputation over the past years; this is a major competitive advantage. On a positive note, there are emerging markets; these markets present BHP Billiton with a good opportunity to exploit. For example, there is increasing demand for natural resources from countries such as Russia, Brazil, China, India, South Africa and other industrial developing countries. There is very high industrial development and revolution in these developing countries; they have high demand for natural resources to power their industries and economies (Wise & Zednickova, 2009). The natural resources are a key contributor to their sustained economic growth. For example, there is very demand for coal in china. The developing countries are emerging as the largest consumers of oil; their populations are increasing at a very high rate thereby increasing the demand for natural resources. Notably, infrastructure development is a major development projects undertaken by these countries. This requires natural resources to construct and drive the development; this increases the demand for natural products in these counties (Stevens, 2014). Essentially, the emerging markets in developing countries present the company with a very good and realistic opportunity to exploit. It has good opportunity to supply oil and gas, copper, aluminum, metallurgical energy, iron ore, coal, energy coal, uranium, silver and manganese to the emerging markets. BHP Billiton Internal Environment BHP Billiton is a diversified portfolio company with diversified assets located in various continents. It is reputed natural resources multinational that provides wide range of quality natural resources products. One of the company's strengths is its experience and expertise in exploration and development of its diversified portfolio of assets (Bonn & Fisher, 2011). The company possesses the expertise and capacity to manage and construct new exploration and mining commodities, success extractions, product portfolios as well as transportation and marketing of bulk products. The demand for natural resources is increasing every month and every year, as such, the company's capacity, capability and expertise in mining these natural resources will be needed. Additionally, the company will be able to provide the customers with cost effective, demand efficient and timely supply and delivery of quality products mined and packaged with high degree of precision and customer service expertise (Verrender, 2014). The capacity and expertise of the company is evidenced by its strong leadership. The strong leadership is essential in realising the emerging opportunities. The strong leadership of BHP Billiton management is indicated by its ability to hire and maintain qualified and experienced staff. Moreover, the management strategy of owning and operating large, low cost, upstream, expandable and long life assets that are spread by commodity geography and market is a clear indication of strong and visionary leadership. This is a major internal factor in the success of the company. Managing and operating such portfolio of assets has been significant in the company's growth of profit margins and lack of exposure to currency and commodity fluctuations (Bonn & Fisher, 2011). Moreover, the company has experienced management team. The team provides clearly defined strategic objectives and targets. It has been able to help the company to wither competition and remain as the leading mining company in the world. It has also been able to acquire strategic mergers, demergers and acquisitions; these strategically position it in the market. Strategies Implemented By BHP Billiton The merger between BHP and Billiton in 2001 has been a significant strategy implemented by the company; it merged to become BHP Billiton. This merger increased the capital base of the company to acquire more natural resources fields as well as to invest in huge capital projects. As a result, it was able to stretch its financial muscle in acquiring more diversified assets from various continents. BHP Billiton vast size has increased tremendously since the merger; this is an indication of effective merger strategy. As such, it is able to serve multiple customers and supply products to high demand countries such as in China (Low, 2011). Another strategy implemented by BHP Billiton is strong corporate culture in execution of plans. The company enjoys good relationship with its stakeholders. The strong corporate culture in executing plans has enabled BHP Billiton to realise its objectives, this has propelled growth of the company. Effective corporate leadership is vital for the company's sustained growth; it helps it to develop supply sources for all its development portfolios. Assessment of BHP Billiton Demerger In 2014, the company management announced a decision to demerge. This was proposed by the management and put forward to the shareholders to agree or reject, the proposal is expected to be adopted by the shareholders. The demerger is a strategy by the management to extract the best value from its proposed divestments (Verrender, 2014). This will enable the respective split companies to concentrate and focus on specific diversified portfolios. The market movements and the changing nature of the natural resources market make the demerger to be a strategic move. It will reduce costs significantly, this will increase returns from productions. The demerger will place it better in achieving additional productivity benefits in its vital; diversified portfolios. At the same time, it will be able to create demand and hence new markets for its products. Importantly, the demerger will simplify BHP Billiton, it will be in a position to focus on small and large projects concurrently while still service different markets (Stevens, 2014). Essentially, the demerger will unlock shareholders value; it will also create new diversified mining and metals firm with heavy industrial presence in all its commodities. The demerger is another chapter in the growth of the company. The demerger will not affect BHP Billiton strategic priorities; it will enable it to focus on specific mining details. The resultant company will benefit from wealth of assets and experienced management. The adoption of independent business strategy in the form of demerger will help it to pursue investment prospects as well as growth that would otherwise not been possible without demerger. The demerger will simplify its more than 41 assets located in more than 113 countries. It will enable it to simplify to its proposed 19 assets across eight countries (Streetinsider, 2015). Essentially, the company must maximise shareholders wealth in order to sustain the growth and success. Recommendations The ever increasing demand for diversified natural resources is crucial to this company. The company should position itself to supply mining products and metals to these markets. These emerging markets are driven by industrial revolution and development. They present a new and lucrative edge to the company. It is highly recommendable that the company focuses on supplying products to these markets. The company should create a mechanism of making long term supply in these markets. These markets are new or additional markets and therefore will increase not only revenues but also the company's value (Seccombe, 2014). Still, the company should use the demerger to focus on serving the small markets. The company has neglected the small markets such as the African markets. Although they are not as productive as the markets in developed and developing countries, they play a significant role in cementing company's earnings. Therefore, it is recommended that the company focus on the small markets, it should explore, develop and mine small natural resources fields to increase its diversified portfolio base (Mayes & Pini, 2010). Moreover, it is highly recommendable for BHP Billiton to seek strategic partnerships and acquisitions. This is one of the ways of neutralising the competition and increasing its prowess in the market. As the marger in 2201, the company should focus on acquiring strategic business. they will not only consolidate its portfoliosd but it will also acquire new customers served by the acquired busineses. Athis is very important and hence BHP Billiton should implement this recommendation (Macklin & Thompson, 2010). References Bonn, I., & Fisher, J., (2011). Sustainability: the missing ingredient in strategy; Journal of business strategy, 32(1), 5-14. Floris, M, (2013). Strategizing as multi-modal and rhetorical discursive practice: a case study of the BHP Billiton's failed acquisition of Rio Tinto Low, E. (2011). Financing From the Perspective of Mining Companies (Doctoral dissertation, Thesis, Queen's University Kingston, Ontario, Canada). Macklin, R., & Thompson, P. (2010). The Big Fella: The Rise And Rise Of BHP Billiton. Random House Australia. Mayes, R., & Pini, B. (2010). The ‘feminine revolution in mining’: a critique.Australian Geographer, 41(2), 233-245. Seccombe, A. (2014, September 11). Obvious logic to split in AngloGold assets. Retrieved April 7, 2015, from Financial Mail: http://www.financialmail.co.za/features/2014/09/11/obvious-logic-to-split-in-anglogold-assets. Stevens, J. C. (2014, April 24). BHP Billiton eyes $20bn demerger. Retrieved March 7, 2015, from The Australian Financial Review: http://www.afr.com/markets/commodities/metals/bhpbilliton-eyes-20bn-demerger-20140423-ix9ax Streetinsider. (2015, March 17). BHP Billiton Ltd. (BHP) Plans Spinoff of South32. Retrieved April 7, 2015, from Streetinsider: http://www.streetinsider.com/Corporate+News/BHP+Billiton+Ltd.+(BHP)+Plans+Spinoff+of+South32/10378478.html Thompson, P. A., & Macklin, R. (2009). The big fella: the rise and rise of BHP Billiton. Queensland Narrating Service. Verrender, I. (2014, August 12). BHP Billiton to split mining company, spin off assets. Retrieved March 7, 2015, from ABC News: http://www.abc.net.au/news/2014-08-15/bhp-billiton-confirms-it-will-split-the-company/5674346 Wise, R., & Zednickova, J. (2009). The rise and rise of the B2B brand. Journal of Business Strategy, 30(1), 4-13. Read More