BHP Billiton and Strategic Choices - Case Study Example

Case Study Analysis: BHP Billiton and Strategic Choices Student’s Name Institutional Affiliation Case Study Analysis: BHP Billiton and Strategic Choices The aim of this report is to analyze the management strategies that BHP Billiton has been pursuing over the years in its bid to establish a position in the market and gain a competitive edge. The report will begin by conducting an external analysis with a particular focus on the threats and opportunities facing BHP Billion in the industry. The report will proceed to analyze the internal factors and their contribution to the company's competitive advantage. The report will also involve the analysis of the strategies that BHP Billiton has implemented, including mergers and acquisitions that have contributed to its growth. The report will then evaluate the company's demerger move and conclude by providing the recommendations based on the analysis of the company. External Analysis Key Threats and Opportunities to BHP Billiton Although BHP Billiton has been involved in a number of strategic moves in its bid to establish a strong position and become competitive in the market, the company has been confronted with a number of external threats, which has greatly impacted its operations. Firstly, since BHP Billiton is a mining firm, its operations are under the threat of government regulations and environmental policies. Mining and exploration activities have been blamed for the global warming effects that confront the world today (Harrison and Pelletier, 2001). The activities involved in the exploration and mining operations releases a huge amount of carbon dioxide which causes the global warming effects. As such, a number regulation and policy measures have been introduced to mitigate the global warming problem. They include the Kyoto Protocol of 1997, the Asia-Pacific Partnership on Clean Development and Climate, and the European Union Emissions Trading System (EU ETS). Currently, the petroleum and gasoline assets of BHP Billiton in the United Kingdom are regulated by the EU ETS. As a way of minimizing greenhouse emissions, the Australian government set a mandatory renewable energy target of 20% by 2020 (Hubbard, Rice and Galvin, 2014; Hubbard and Beamish, 2010). These changes in regulations have significantly impacted the company's operations in most countries as the governments of different nations struggle to achieve their emission targets. In fact, the company reveals that it has been under pressure from NGOs and environmental advocacy groups (Hubbard, 2004; White, 2004). Accordingly, such pressure and government regulations have forced BHP Billiton to commit huge amounts of funds towards minimizing greenhouse gasses. Consequently, the policies and government regulations are likely to affect the cost, expansion program and financial performance of the firm operations. Stiff competition is another serious threat to BHP Billiton. The mining and exploration industry has quite a number of large firms that the company has to compete with for the market share. The major competitors that currently pose a huge threat to BHP Billiton include Rio Tinto (RTP), Anglo American (AAUK), Alcoa (AA) and Companhia Valedo Rio Doce (RIO). Despite the stiff competition, BHP Billiton has adopted effective marketing strategies that have ensured that it stayed ahead of its competitors. Furthermore, the threat of new entrant is very low. Additionally, analysis shows that BHP Billiton is under the threat of economic crisis. The company reveals that most of its operations in the European and the U.S. have been affected in the recent past due to the global financial meltdown that affected the countries (Caney, 1995). According to the company, the global economic crisis resulted in inflation which caused a huge increase in energy, labor, material and operation costs, as well as exploration expenses. These economic risk factors have the potential of impacting the firm's expansion and development plans, as well as profitability. Currently, BHP Billiton is highly susceptible to the fluctuation of currency valuations and the overall economic risks in developed countries. Despite the many threats that BHP Billiton has been facing in the mining industry, analysis shows that the company has numerous opportunities that it can exploit to enhance its position in the industry and gain a competitive edge over its rivals in the industry. Firstly, analysis shows that the firm has numerous pipeline projects that it can undertake to enhance its growth and profitability. Currently, BHP Billiton has 29 pipeline projects that require a total investment of $17.5 million. Investing in these projects could significantly increase the revenue source of the company in the coming years as long as the company undertakes the project cost-effectively (De Wit and Meyer, 2010). Secondly, BHP Billiton has the opportunity of strengthening its brand image by investing in innovative marketing strategies, such as social media. Additionally, BHP Billiton has the opportunity to enhance its brand image by minimizing the amount of greenhouse emissions from its operations. Already, the company has devoted to minimizing greenhouse emissions by 5% (Thompson and Martin, 2010; Hill, Jones and Schilling, 2015). Minimizing the greenhouse emission will be a good strategic move as it will help minimize criticism and pressure that it has been exposed to from environmentalists and NGOs over the years. Internal Analysis BHP Billiton's competitive advantage is attributed largely to its effective internal operations. Firstly, analysis of the company indicates that the success of the company is largely dependent on its value chain activities. The company's value chain activities fall into five categories namely, supply chain management, operations, sales, marketing, and distribution. In this respect, analysis of the company's internal environment shows that supply chain management is the leading cost driver for BHP Billiton. Additionally, the inventory management is also a critical activity of the company (Davies, 2000). Because of the firm's size, it has been successful in bulk freight, which has enabled it to become more efficient in its deliveries despite persistent rise in the cost of transport caused by an increase in petroleum costs. The company executives reveal that its freight operations account for 20% of its total costs. Regarding the operations value chain, BHP Billiton has invested heavily in developing bulk products as a strategy for minimizing the cost. At the same time, the company is currently working towards achieving sustainable development in its activities to ensure the protection of its stakeholders. The company executives reveal that its sustainable development initiatives aim at ensuring the health and safety of employees and the community that it serves (Barney and Hesterly, 2006). Currently, the company intends to introduce power trading and emission credits business operations as part of its future strategic growth initiatives to give it a competitive edge over its rivals in the industry. Additionally, the company's success is largely driven by its efficient distribution value chain. The company achieves this by operating a bulk shipping seaborne freight carriers. In fact, BHP Billiton has world's largest bulk shipping seaborne freight carriers. This has helped give it a competitive edge in the industry. Additionally, the company has an effective sales and marketing value chain activities which employ the matrix structure while all the reports are made at the company's headquarters in Melbourne (BHP Billiton, 2012). Analysis also shows that the company uses a customer-focused marketing function as part of its internal operations. Other internal capabilities that have contributed to the growth and competitiveness of BHP Billiton include efficiency in exploration and development, skill and capability, as well as its investment in sustainable development initiatives. Strategies Implemented By BHP Billiton Which Have Led The Company To Remarkable Growth BHP Billiton is arguably the world's largest mining company today. However, the growth and successes that the company has registered in the recent past is attributed to a number of strategic management initiatives that the company management has implemented in the past. The first strategy that BHP Billiton has pursued as part of its growth and competitive strategy was to seek a merger that has enabled the company becomes the largest mining firm in the world. Hanson et al. (2014) noted that BHP was a little-known company in Australia before the mergers that have made it a dominant mining company not only in Australia, but the entire world. According to the case, the merger between the BHP and Billiton that occurred on the June 29, 2001 was part of the growth strategy that the two companies pursued to enable them establish a position in the market and gain a competitive edge over rivals in the industry. In fact, the merger between the two companies has resulted in the creation of one of the leading diversified resources group. Analysis of the company shows that the successful merger between the two companies helped increase the company's market capitalization to $42 billion in 2003 up from just $28 billion at the time of the merger in 2001 (Ehlers and Lazenby, 2007; Elmuti and Kathawala, 2001). According to Paul Anderson, BHP Billiton has benefited from the merger in the sense that the company has gained financial strength, expanded its global reach and improved its business processes, which has resulted in a huge return for shareholders, personnel and clientele of the company (De Rond, 2006; Fitzroy, Hulbert and Ghobadian, 2012). In particular, the case shows that the merger saw the company saves $285 million which exceeded the cost saving estimate of $270 million set by the company. Additionally, the company has benefited from the merger in the sense that it has helped BHP Billiton increases its distribution networks to many countries across the globe (Hughes and Beatty, 2005). BHP Billiton's growth and competitive strategy have also been based on acquisitions. Analysis shows that the company has been involved in a number of acquisition attempts as part of its growth and positioning in the market where it operates. Although some of the acquisitions have flopped, some have been successful and has given BHP Billiton the opportunity to expand its market rich in other countries, which it had never explored. One of the successful acquisitions that BHP Billiton has had in the recent past is the acquisition of Athabasca Potash Inc (API). BHP Billiton reportedly acquired the Canadian company for $8.5 Canadian dollars (BHP Strategic Report, 2014). This acquisition was evidently an effective strategic move because it not only enabled BHP Billiton to expand its global rich into Canada, but also enabled the company to obtain complete control of Burr project and other of potash exploration projects that the company has been undertaking in the country (Peng, 2014; Porter, 2004). Additionally, the acquisition has benefited BHP Billiton in that it has enabled the company increasing its resource base, as well as increasing its presence in the global market, effectively enabling the company gain a competitive edge in the industry. BHP Billiton's growth and good performance are also attributed to the fact that the company has been ready and willing to take the risk by exploring every market in the remote and emerging markets. For instance, the company has increased its presence even in the risky countries, such as DR Congo, Mongolia, West African countries and many other countries across the globe (Swindells, 2004; Joyce, 2000). The strategy of exploring new market opportunities have enabled it gain register exceptional performance resulting in competitiveness. Other strategies that have contributed to the company's success include investment in research and development, having high skilled workforce, investing in sustainable development initiatives, as well as being highly innovative. Assessment Of BHP Billiton's 2014 Decision To Split The Company Into Two Analysis of the company shows that BHP Billiton has been facing a problem of the high cost and declining performance in some of its areas of operations. As a result, it appears that a demerger that the company is considering would suffice considering that it would help the company minimize the operation costs and improve its performance in the future. This is because the demerger will give BHP Billiton the opportunity to do away with non-core assets and streamline the company resources to only those which matter to the company most, including iron ore, petroleum, copper, and coal. The demerger, therefore, will give the company a chance to do away with the warehouse for assets, such as manganese, aluminum, and nickel by disposing it off to generate more returns that the company can use to finance its core assets and business operations. In fact, analysis believe that, by selling the non-core assets, the company could generate more than $25 billion based on the portfolios of the two companies (Chessell, Stevens and Macdonald, 2014). Therefore, the move to demerge the company would be a viable move that would help the company reduce cost, generate sales from disposal of non-core assets, which will eventually result in improved productivity and growth. Conclusion In conclusion, the analysis clearly shows that BHP Billiton has been successful in almost all the markets it has entered. The company has effectively used its strategies, such as mergers and acquisition to explore new market opportunities, especially in the emerging markets. However, because BHP Billiton is facing serious environmental issues, the company should consider investing more in sustainable development initiatives to minimize the criticism from environmental agencies and NGOs. Fortunately, the company has committed to reducing its emission by 5% which is a good gesture. Nevertheless, despite failing in its acquisition attempt in 2007, the planned demerger will be a good strategic move as it will result in cost reduction and improved productivity. References Barney, J., & Hesterly, W. (2006). Strategic management and competitive advantage. New Jersey: Pearson. BHP Billiton. (2012). 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