BHP Billiton and Strategic Choices - Case Study Example

Case Study Analysis: BHP Billiton and Strategic Choices Student’s Name Institutional Affiliation Professor’s Name Course Title Date Case Study Analysis: BHP Billiton and Strategic Choices Introduction BHP Billiton was formed through the merger of BHP Limited (Australian) and Billiton Plc (British). Since its inception in 2001, BHP Billiton has successfully expanded globally, through such strategies as mergers and acquisitions, delivering value for money, low-cost resource assets, and strong senior leadership team among others. However, not all of BHP Billiton’s investment strategies have been successful. In making these unwise deals, BHP Billiton has not been able to create a sustainable competitive advantage. Thus, BHP Billiton cannot deliver the same benefits as of rival firms, hence missing out on cost advantage. The purpose of this essay is to identify the core strategic management concepts raised in the case. In so doing, the essay evaluates the internal and external environment of BHP Billiton. In addition, the essay reviews the strategies implemented by the organization, over the years, which have led to BHP Billiton remarkable growth. Lastly, an assessment of the senior leadership team’s decision to split BHP Billiton will be carried out. External Environmental Factors Industrial Environment The industrial analysis will be based on the Porter’s five forces Model. The level of competitive rivalry in the natural resources industry is high as there are various firms offering similar products to those that are provided by BHP Billiton. BHP Billiton faces competition from other multinational companies such as Alcoa Inc., Rio Tinto Limited and Vale S/A. For this reason, the company continuously strives to deliver quality products in order to remain competitive. The company’s strengths in terms of competition are the loyalty to its customers, its unique products, reputation and marketing network. Any market, in which the existing firms are earning high levels of returns, attracts new entrants (Porter, 2007, P.2). Unless barriers to entry are put in place by the existing firms, the high levels of profits will decrease. There is a high level of entry barriers in the natural resources industry, thereby making BHP Billiton to have a low risk of market entry threat. The government creates barriers to entry through licensing. For instance, since the company’s proposed acquisition of Potash Corporation in 2010, the Canadian introduced laws that block the acquisition of local firms by multinational corporations (BHP Billiton, 2011). The bargaining power of customers for BHP Billiton can be said to be moderate. Consumers are able to switch from one manufacturer to another due to close similarities of the products offered by different firms. The bargaining power of suppliers for BHP Billiton is low since there are numerous suppliers offering similar products. BHP Billiton has different options and goes for suppliers with the cheapest prices. The threat of substitutes in this industry is considerably low due to low level of similarity of products offered by different competitors. Influence from the General Environment The general environmental factors that affect a business are summarized in the PESTEL analysis tool. They include the technological, economic, legal, social, political and environmental segments. In BHP Billiton’s case, economic and political/legal factors are the major concerns. Legal/Political Factors Issues like tax policies, trade union regulations and trade tariffs fall under the political and legal segments. These two segments are sometimes difficult to separate as they are intertwined. In the future, BHP Billiton could be hard hit with legal suits, especially due to the infringement of labor laws. Notably, high instances of riots and demonstrations in emerging markets as China could affect the company’s profit margins. Economic Factors These are the factors that exist in the economic segment of a business environment. For instance, fluctuation in global commodity prices will impact on the company’s revenues and profitability. In recent times, there has been a sharp fluctuation in the price of natural resources. Political instability in the Gulf States has been the main causes of natural resources recessions in the past. Emerging nations like India and China are promptly advancing and increased urbanization and industrialization in these countries have contributed in rising aluminium, nickel, alumina, iron ore, copper, and energy coal prices. Economic factors are, therefore, very important in BHP Billiton’s case. Competitor Environment Natural resources firms throughout the world have been steadily increasing. Many are well established operators with quality products and services such as Alcoa Inc., Rio Tinto Limited and Vale S/A. The advantage these operators have is that their brands are known all over the world. As a result, a client may opt for their products over BHP Billiton’s. However, BHP Billiton has a competitive advantage over the others because it introduces high quality natural resources products at a very competitive price. BHP Billiton also employs the latest technology available in the market to enhance customers’ satisfaction while increasing the number of repeat clients it hopes to serve in the long term. Due to the use of the latest technology in the market, customers are able to save money, the company is able to provide better customer service, reduce churn, and increase loyalty. Efficiency in carrying all the activities has provided BHP Billiton with a competitive edge over its rivals. The deployment of modern technology also ensures that there is no downtime whenever a customer is being attended to. As a result, there are few errors and increased sales. By anticipating rivals actions, responses and intentions, BHP Billiton has been able to a cut a niche in the highly competitive natural resources industry (Nolan, 2004, p. 204). An Evaluation of BHP Billiton’s Internal Environment According to Prahalad & Hamel (n.d, para 1), core competencies are the capabilities that enable an organization to perform exceedingly well over its rivals. The following are the core competencies of BP Billiton; rich diversified assets portfolio, management experience, supply chain management and size. In recent years, the company has emerged as a global leader in diversified natural resources. The company is engaged in the production and exploration of metals and other natural resources. BHP Billiton has operations in various sectors, including Aluminium Base Metals, Nickel, Alumina, Iron ore, Diamonds, Copper, and Energy Coal among many others. In addition, the company extracts and processes oil and gas and minerals throughout the world. Thus, BHP Billiton’s revenues are geographically diversified. However, the revenues are more concentrated in emerging markets like India and China. Diversification of assets allows the company to be stronger during tough economic times. Even the spiral effect of the recession in Europe and US has no major impact on BHP Billiton’s profits. BHP Billiton’s diversification strategy has played a pivotal role in enhancing the company’s bottom line. When many mining giants were facing financial problems due to the global economic crisis, BHP Billiton had sufficient cash flows thanks to the company’s diversification plan. BHP Billiton also has vast economic and financial resources and these are useful in countering competition and looming financial crisis (BHP Billiton, 2014, p. 2-3). Being an experienced and strong brand, the threat of competition, which gives a rise to a reduced market share, is effectively dealt with. The ability of the company to form mergers with other equally able companies ensures that it retains its market share. BHP Billiton has been growing its revenues through acquisitions and investments in the research and development activities. These mergers and acquisitions bring about different complementary competencies on the board. The mergers and acquisitions involve the combination of business strategic assets. The senior leadership team at BHP Billiton has built a strong organization by setting out a clear vision. The leadership team believes in maximizing on the BHP Billiton’s strengths and improving on the company’s shortfalls. The company leads by example, as well as acts as a mentor to its employees. The management team holds such leadership styles dear. In addition, they value the dynamism, professionalism, enthusiasm, work ethics, time management and control among others. These values have made BHP Billion emerge as the best in the natural resources industry. BHP Billiton has the superior management of its supply chain. It ensures that all BHP Billiton outlet stores in Australia and across the globe are well-stocked. Also, superior management of the supply chain ensures that a variety of BHP Billiton products are available in each store to meet the diverse needs of customers. Effective Strategies that BHP Billiton has used to Achieve Remarkable Growth BHP Billiton has used various business levels, corporate and international strategies to increase its growth over the years. Business Level Strategies The first business level strategy that the company adopts is cost leadership. According to Canadian Center of Science and Education (2012, p. 1), an effective cost leadership strategy starts with a quality product. BHP Billiton ensures this by producing quality products that captures the hearts and wallets of consumers throughout the globe. In addition, the company has successfully managed the prices of products. BHP Billiton pays intense regular attention to rivals’ cost positions. The second business level strategy that the company adopts is differentiation. BHP Billiton uses its vast tangible and intangible assets to create a differential competitive advantage. As mentioned earlier, competition in the natural resources industry is high, and therefore, the company uses innovation to create market responsive goods. Corporate Level Strategies BHP Billiton has been expanding and spreading its wings to cover the emerging economies that have greater attractions in investments. In addition, the company is striving to cover as many countries as it can. Corporate level strategies are absolutely essential for multiproduct organizations like BHP Billiton. The company uses resources, capabilities and core competencies to survive in the highly competitive natural resources industry. The natural resources industry is highly dynamic, and therefore, BHP Billiton constantly reviews its pricing policy and avoids risks in order to survive and not fall behind. BHP Billiton retrenches its employees as a short term measure during tough economic times in order to stay afloat. Today, the price of the copper has been at its lowest levels since 2009, and therefore, natural resources firms throughout the world have found themselves in a particularly vulnerable position. Organizations that deal with natural resources, including BHP Billiton have retrenched some of their employees. Recently, BHP Billiton reduced the number of employees at the Olympic Dam mine in northern South Australia in order to remain afloat. International Level Strategies International expansion is the main objective of BHP Billiton. The company invests in foreign countries in order to gain a larger share of the market. BHP Billiton understands the complexities involved in international marketing. Thus, the company has a clear understanding of the target countries, and this gives BHP Billiton insights in terms of logistics, tax laws, currencies, political, economic, culture among other aspects. Before BHP Billiton invests in a foreign nation, it considers various aspects such as the country’s economy, demographics, political stability, culture, and technological innovations among others. These factors determine whether the business will achieve success in a foreign destination or not (Keillor, 2013, p. 17). Mergers and Acquisition Strategies The company uses various entry strategies, including acquisitions, mergers and joint ventures to penetrate foreign markets. Among the successful mergers that the company has entered into includes the merger between BHP Limited (BHP) and Billiton Plc (Billiton), which led to the group being called BHP Billiton. In 2010, the company acquired Athabasca Potash Inc., which is a Canadian firm, and this allowed the company to rip various benefits such as increased production and efficiency (BHP Billiton, 2011). Furthermore, BHP Billiton has successfully used joint ventures to penetrate foreign markets. For instance, the company has entered into a joint venture with Rio Tinto and Wheelara. Joint ventures provide BHP Billiton with a competitive advantage because they involve pooling of resources. BHP Billiton’s Decision to Split the Company into Two On August 19, 2014, BHP Billiton announced its plan to split the company into two. The demerger plan will decrease the company’s profitability, and therefore, not recommended. Following this decision, the company will not be able to spread risks across the different PLEST environment. In addition, the company will not be able to rip tremendous opportunities available overseas e.g. low operating costs. Therefore, the company needs to employ cost leadership strategies to attract and retain their clients. In this regard, the company researches on consumer needs and produce goods that meet their needs. Conclusions and Recommendations This paper has addressed the current strategies adopted by BHP Billiton. The paper has examined the competitive position of BHP Billiton, internal and external environments affecting the company and the business level strategies. From the above analysis, it is clear that the company has a chance to maintain its competitive edge in the highly competitive natural resources industry. BHP Billiton employs various initiatives to maximize returns and achieve competitive advantage over competitors in the industry. For instance, the company has used strategies such as mergers, acquisitions and joint ventures to achieve significant growth since its inception. The mergers and acquisitions are aimed at bringing together different companies, to form a larger entity and dominate the market. However, not all of BHP Billiton’s investment strategies have been successful. It is recommended that BHP Billiton should exercise more caution in investing and making acquisitions in order to avoid incurring high costs. In addition, BHP Billiton should carry out competitive responses in order to counter the actions taken by the competitors. For example, if the competitors reduce the price of Iron ore, BHP Billiton should do the same so as to remain competitive. Reference List BHP Billiton, 2011. BHP Billiton Annual Report 2012. [Online]. Available at: www.marketbusting.com/casestudies/BHP%20Billiton.pdf BHP Billiton. 2014. News Release: Bhp Billiton Operational Review For The Year Ended 30 June 2014. [Online]. Available at: http://www.bhpbilliton.com/home/investors/reports/Documents/2014/140723_BHPBillitonOperationalReviewfortheYearEnded30June2014.pdf. Canadian Center of Science and Education. 2012. Hybrid Strategy: A New Strategy for Competitive Advantage. International Journal of Business and Management; 7(20), p.1-14. Keillor, B.B. 2013. Understanding the Global Market: Navigating the International Business Environment: Navigating the International Business Environment. Carlifornia: ABC-CLIO. Nolan, P. 2004. Transforming China: Globalization, Transition and Development. New York: Anthem Press. Porter, M. 2007. Understanding Industry Structure. [Online]. Available at. http://www.tlp.org/wp-content/uploads/2012/08/Understanding-Industry-Structure3.pdf. Prahalad, C.K. & Hamel, G. n.d. The Core Competence of the Corporation. Harvard Business Review. [Online]. Available at: https://hbr.org/1990/05/the-core-competence-of-the-corporation. Read More