BHP Billiton - Core Strategic Management Concepts - Case Study Example

Cаsе study аnаlysis of BНР Billitоn аnd Strаtеgiс Сhоiсеs (Student’s Name) (Institution’s Name) (Course Code) Date of Submission 1.0 Introduction BHP Billiton Group is a company that deals in mineral exploration. Its operations are majorly based on oil, gas, aluminum, copper, nickel, iron ore, manganese, gold, zinc, silver and diamond. This company work under joint venture comprising of BHP Billiton Limited and BHP Billiton Plc (Hanson et al, 2014). The company does mineral exploration and mining in 25 countries across the globe. Its major activities takes place in Melbourne, Australia which is its headquarter. The company has a number of employees ranging from 41,000 to 50,000 employees. This report is focusing on the analysis of strategic management of this company to determine environmental issues and internal issues which affect the operations of this company (Palepu et al, 2012). The analysis involves environmental and situational scanning of the company operations to help in making strategic choice. 2.0 Core strategic management concepts The core management concept of BHP Billiton is merger and acquisition which this company uses as its main growth strategy to ensure that it has good market position and gain sustainable competitive advantage (Dodd & Graham, 2008). These two growth strategies are examined on the basis of ansoff matrix including market development, market penetration, product development and diversification. Merger-BHP and Billiton The amalgamation of these two companies ensures that this company becomes the leading mineral exploration and mining company in the World currently called BHP Billiton. This made the merger to have more than $38 billion enterprise value and also enable it to have stable capital outlay to finance its mining operations (Hanson et al, 2014). The amalgamation enables the company to acquire financial strength, international outlook and increase in expertise to create more expansion opportunities to the company. The reason for the merger is due to the fact that the two companies have a common interest since BHP deals in oil and gas and others while Billiton only operates in petroleum, copper, and steel. Acquisition This growth strategy is also used in BHP Billiton (Palepu et al, 2012). It also enables this company to increase its capital base by acquiring small companies at a cost. The acquisition help it to gain 100% control of companies such as Burr project and various additional potash exploration properties in Saskatchewan, Canada. This increases the exploration area of this company to approximately 14,000 km2. This strategy also increases the resource base and also influenced its future growth in other locations where there is economic crisis of potash (Dodd & Graham, 2008). This company also acquired WMC Resources at a cost of A$7.85 per share. The purpose of this action is to have high economies of scale that result from large corporation, have long life and also to have low cost assets. The aim of this is also to have market penetration in China. 3.0 PESTLE Analysis Political Factors This company is an international company that is exposed to high political risk in all the regions it operates (Palepu et al, 2012). Political factor greatly affect the operations of this company such as licensing, taxation and government stability ensure that the company achieved its growth strategies. It has to pay corporation tax which depends on the tax system of the country. Economic Factors BHP Billiton is also affected by economic factors such as inflation which is a serious risk in energy sector. The operations of this company are also affected by exploration expenses, labor cost and mining cost (Hanson et al, 2014). The increase in these economic factors may have adverse effect on the expansion plan and performance in general. The weakness in global economies is also cause a decline in demand in commodities and as a result can lead to reduction in price. Socio-Cultural Factors This company is also affected by socio- cultural factors which involve developing strong cultural and social relationships with all its stakeholders. It demands that this company should involve in the support of local communities and also finance the public amenities such as schools and roads (Dodd & Graham, 2008). This company ensures that it provides good work condition to its employees with the aim of motivating them to work towards the achievement of the company objectives. Environmental Factors BHP Billiton is one of the main producers of energy which produce gases and other substances which can pollute the environment. In the mining process there is emission of carbon dioxide that originates from fossil based energy which forms parts of the cause of global warming and greenhouse effect (Palepu et al, 2012). There are regulations which are meant to address the effect of climate change and this company must adhere to them to operate in countries with such measures. BHP Billiton is subject to EU ETS which look into factors that address climate change. Some countries like Australia has come up with natural emission trading scheme and mandatory renewable energy which is expected to reduce the effect of gases of 20%. 4.0 SWOT Analysis The purpose of SWOT analysis is to determine the strengths, weaknesses, opportunities and threats of the company. It will ensure that the results of SWOT analysis translate conclusions into strategic actions which allow this company to exploit the available opportunities and protect itself from threats. Strengths Strong market position BHP Billiton has a good market position. This is because it has good international relations with more than 25 countries (Hanson et al, 2014). The CSG organization structure enables it to acquire and manage high performing mineral resource in different countries across the globe. Easy access and a strong leadership position in various market segments provide it with a strong competitive advantage. Diversified revenue stream This company has a diversified revenue stream (Dodd & Graham, 2008). This relaters to business lines and geographies since it operates in different countries across the globe. It raises revenues from nine different business segments. These business segments revenues are shown in the table below. Business segment % revenue contribution Iron ore 20.5% metallurgical coal 16.6% petroleum 14.6% base metals 14.6%, energy coal 13.4%. Aluminium 8.5% The diversified business lines also ensure that the company gain high competitive advantage by protecting the company against business and potential risk such as adverse market conditions (McLaney, 2012). The global experience also enable this company to have protection against economic and political interferences that result from each country in which it operates. Superior Financial Returns BHP Billiton is able to produce superior financial annual returns to its owners by being able to payback its initial capital outlay within a short time (Hanson et al, 2014). This has increased the potential of this company to keep high credit rating which is important in increasing the global capital base. Customer Service BHP Billiton is also able to provide quality customer service which contributes to increase in high competitive advantage. Centralized marketing activities This company provides centralized marketing operations. This centralization is based in Singapore Hague and Antwerp (Palepu et al, 2012). The Singapore office only deals in Asian energy market and other such as metal, stainless steel and carbon. Hague office is responsible in the sale of diamond, energy and freight while Antwerp office sale diamond. These offices ensure that the products of this company are distributed and marketed across the globe. Weaknesses Safety concerns at Western Australia Iron Ore (WAIO) operations This company has a problem in safety in its Western Australia Iron Ore outlet. There were a number of accidents which took place in Pilbara (Hanson et al, 2014). This problem forced the company to take the action of reducing access to the mining site, improve the management of the site and furthermore change the existing strategies to reduce the working hours and moving rail operation from mine safety and inspection act to rail safety act (McLaney, 2012). The company also ensures that it improves traffic management regulations and eliminating all non productive operations during the daytime operations. Human Resource Issues This company currently does not have qualified human resource that can provide sufficient work operations. It also has less staffs that have enough qualification and experience on mining. Weak Corporate Communication There is a very weak corporate communication in this company (Palepu et al, 2012). This is because its staffs are not able to respond promptly to corporate enquiries through the use of current communication media. Opportunities There are a number of projects in pipeline to do. There are 29 feasibility phases which this company can invest in to produce more revenues in a cost effective manner. This company still has the potential to improve its brand position further by introducing innovative marketing solutions such as digital media and customer outreach. It also has the opportunity to introduce potash resource position in Canada (Hanson et al, 2014). This is because this strategy is strategically fit for its revenue growth. The increase in demand in potash fertilizer is an enabling factor that contributes to the need to invest in potash fertilizer in Canada. Threats There is a constant increase in the cost of energy, shipping and contract labor. This is a great threat which affects the overall revenues of the company (McLaney, 2012). There is also a great threat of political interferences. The threat of political instability and introduction of additional taxes such as tax royalties is a threat to its revenue generation. 5.0 An explanation and review of the strategies implemented by BHP Billiton BHP Billiton implemented both merger and acquisition strategies successfully and they enable this company to gain high competitive advantage and also to achieve high investment returns to the shareholders. Merger enables it to have a substantial financial base which makes it to finance all its long and short term operations efficiently (Hanson et al, 2014). These strategies also ensure that the company gain global presence which is important in increasing market position and also achieve more diversified revenue streams which come from different market segments such as iron, copper and oil and gas (Palepu et al, 2012). This therefore contributes significantly in high level of revenue turnover. 6.0 An assessment of BHP Billiton’s 2014 decision to split the company into two BHP Billiton’s 2014 decision to split the company into two will reduce its market revenues and financial base. This is because the splitting involves division of resources and human resources which may lead to may result into reduction in strengths which the company has gained as a result of merger and acquisition (McLaney, 2012). This will increase the number of weaknesses which the company has experienced when there above strategic growth strategies have been implemented. The reduction in returns will occur since the company will have less revenue streams which contribute significantly towards high revenue annually. 7.0 The Action BHP Billiton will need to do to sustain their success in the coming years. This company should also enhance its current growth strategy and also ensure that the company is marketed efficiently using current technology such as digital media and internet to reach many people across the globe (Hanson et al, 2014). It should also improve its safety operations and improve its human resource so that the company can have employees with the required expertise such as mining knowledge to increase its production capacity and mining and exploration management. Instead of splitting the company, it should just improve its corporate communication to enhance the decision making process to ensure that the company makes both long term and short term decisions which can improve the overall performance (Dodd & Graham, 2008). For high profit maximization, this company should not split but ensure that it opens other branches in countries like china, Japan and African countries to gain more profits instead of splitting. Conclusive Remarks From the above analysis it can be concluded that the merger of these two companies can be considered the most successful one in energy and mineral exploration industry. It provides a reasonable evidence of a successful merger with the intention to implement strategic growth strategies. The analysis show that merger and acquisition of the two companies has resulted to an increase in competitive advantage, increase in market position and also increase the financial returns of the company over the past decades. It is also necessary to conclude that financial, assets and bid strategy which this company has been using is experienced because of its efficient implementation of acquisition strategy. Recommendations The investment in mineral exploration and mining is a risky business venture which does not depend on the size of the firm. This is because oil spill has high litigation fees and high clearing capital costs which can make the company to make a loss (McLaney, 2012). This high risk can only be avoided by diversifying investments in different geographical regions to reduce the extent of loss that the company could have experienced. It is therefore recommended for this company to create more awareness and take advantage of the available opportunities such as investing in potash in Canada to increase its profit margin. It should also use marketing mix strategies to create the awareness and in return increase brand and market positioning. Bibliography Dodd, D & Graham, B. 2008. Security Analysis. John Wiley HYPERLINK "http://en.wikipedia.org/wiki/John_Wiley_%26_Sons,_Inc."&HYPERLINK "http://en.wikipedia.org/wiki/John_Wiley_%26_Sons,_Inc." Sons, Inc. ISBN 0-07-013235-6 Hanson et al, 2014. Strategic Management Competitiveness & Gobalisation (5th Asia-Pacific ed.), Cengage Learning: South Melbourne, Australia. McLaney, E. 2012. Business Finance: Theory and Practice, 9th edn, Financial Times Prentice Hall, chapters 1 and 2. Palepu et al 2012. Business analysis and valuation. (Mason, OH:South-Western College Publishing, 2012) fifth edition, Chapter 1. Read More