BHP Billiton and Strategic Choices

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Introduction

The BHP Billiton Limited is a mining company that is known worldwide for discovery, acquisition, production, and market products that are obtained from natural resources. The company conducts various operations such as mining of ores such as iron, uranium, copper, and aluminium among others.

It also mines oil and gas resources. Most of its resources are derived from North and South America, Africa, Europe, Asia, and Australia. The company is based in Melbourne, Australia. The main sale points are located in the USA, Singapore, and Belgium.

In 2001, the Billiton Company established a merger with BHP, another that dealt with oil extraction and processing. This approach was among the plans of the company to accomplish its goals.

The strategic choices that are made for a company are responsible for the effective planning and direction that promote proper management of operations in times of crisis with a view of maintaining profitability. This essay presents a case study analysis of the strategic choices of the BHP Billiton Company.

External Analysis

Opportunity of Expansion

The external analysis of a company emphasises on the external opportunities and threats that face its operations. Such factors exist within the external environment within the company’s market niches. The opportunities that can be exploited by the company include unidentified gaps that exist in the market.

Others include new market niches and growth opportunities (Chakrabarti, Singh, & Mahmood 2007). The threats that exist in the external environment include the introduction of new products by rival and entrant companies in the market (Lei & Slocum 2005).

Various factors that include the existence of regulations or laws that open opportunities for particular businesses while posing threats to others influence the existence of external opportunities and threats.

The BHP Billiton Company has thrived in a competitive environment due to several factors that include external growth due to the acquisition of smaller enterprises and collaborations (Dimitrakopoulos & Sabour 2007).

The BHP Billiton Company has embraced mergers and acquisition as a growth and positioning strategy with a view of improving its competitive advantage. The company’s mergers and acquisition techniques are based on market development, penetration, product innovation, and diversification (Lei & Slocum 2005).

According to Kumar (2006), the two practices underpinned the purchase of a 42 billion dollar asset in the year 2003, broadening of the company’s scope, and absorption of a more skilled labour force. This state of play resulted in improved financial stability.

Increased returns from oil, gas, aluminium, copper, nickel, iron, and metallurgical coal among other natural resources were also noted. The merger of both companies to form the BHP Billiton Company has ensured proficiency and excellent management that has improved its progression and expansion (Kumar 2006).

Threats to the BHP Billiton Company

Primary threats to the BHP Billiton Company encompass problems such as greenhouse effects on the environment. Financial issues arise in cases where the global economy destabilises. This situation usually has adverse effects on the performance of various markets in the international arena (Kumar 2006).

Environmental Issues

The energy source for the operations of the BHP Billiton Company is non-renewable resources. The interventions involved in the generation of this kind of energy contribute to the greenhouse effect that results in global warming thereby causing climate change (Ford, Steen, & Verreynne 2014).

According to Deegan (2002), many governments have stipulated laws and regulations that inhibit the excessive use of fossil fuel as an energy source due to its negative effects on the environment. For example, the Kyoto Protocol of 1997 among others has been enacted to fight against environmental degradation (Deegan 2002).

Similarly, the European Union Emissions (EUETS) has stipulated various regulations that caution the use of energy sources that cause greenhouse effect among industries within the European regions. The BHP Billiton Company operates on a global scale since it has established various fuel plants in the United Kingdom.

As a result, it must abide by such regulations to ensure sustainable operations with a view of conserving the environment (Ellerman & Buchner 2007).

The government of Australia has also introduced regulations governing the environmental conservation that mandate everybody to use renewable energy sources that are also clean. The target is to ensure that 20-percent of the population and industry adhere to such stipulations by the 2020.

Such practices are threats that affect the operations of the BHP Billiton Company adversely (Lenzen, Dey, & Foran 2004; Ellerman & Buchner 2007). Notably, the current trends of energy consumption have been shifting from the use of fossil fuels to clean and renewable sources such as solar and wind.

The regulations and laws on environmental conservation have changed the demands of fossil fuels and other carbon intense products in various parts of the world where the company’s branches are located.

The BHP Billiton Company also incurs costs due to the implementation of the regulations, development or purchase of new equipment, and change of operational activities (Lenzen, Dey, & Foran 2004).

From the above illustrations, it can be noted that a threat of environmental factor and conservation has resulted in detrimental effects on the overall performance of the BHP Company due to the reduction of its financial performance and closure of some plants.

Presence of New International Markets as a threat

Many companies in different parts of the world such as China, Brazil, and Russia among others have invested a lot in the consumption of natural resources (Porter 2008).

The acquisition and mergers that had been accomplished by the BHP Billiton Company face threat due to the competition for raw materials and the market for the manufactured products.

O’Shannassy (2008) notes the companies spend less on the transportation of raw materials and products due to their immediacy to the location of markets. Other threats include political instabilities in various countries where their operations are located. This situation has led to the reduced performance (Visser 2006).

Other threats are related to social issues such as corruption and bribery that lead to the reduction of company’s overall performance. For example, the BHP Billiton Company operations in Cambodia where bauxite was being mined experienced problems of corruption and bribery (Azapagic 2004).

The case alleged that the management of the operation was paid approximately 3.5 million US dollars as a bribe.

Other threats include competitors such as the Anglo American Plc, ExxonMobil Corporation, ThyssenKrupp AG, BP Plc, Chevron Corporation, Nippon Steel Corporation, Royal Dutch Shell Plc, and Total S.A. among others (Azapagic 2004).

Analysis of Key Issues in the Internal Environment

Proper application of strategic management involves the analysis of the internal environment analysis of the business. This strategy involves the identification of business strengths and weaknesses by analysing its competitive advantage of the business.

The management must ensure that the enterprise is unique with adequate resources to carry out its activities (Hill, Jones, & Schilling 2014).

The key issues pertaining to the internal environment that arose in the BHP Billion Company included change management, employee motivation, culture transformation, and streamlining of financial performance among others (Ireland et al. 2001).

Effective control of such internal factors requires a company to apply the theory of strategic management. This theory postulates that a system of formulation should be carried out based on the company’s mission, purpose, and objectives (Cacioppe, Forster, & Fox 2008).

Such factors form the framework for the direction towards the achievable targets. The theory further elaborates the nature, form, and extent of evaluation, corporation levels, and formulation of management decisions.

In this case, the mission forms the basis of the operations and success of the company (Ireland et al. 2001; Cacioppe, Forster, & Fox 2008).

Change in Leadership and Management in BHP Billiton

After the merger between the BHP and Billiton Companies in the year 2001, a new CEO, Brian Gilbertson, was appointed. In the light of the new leadership, several managerial positions were also changed to incorporate the vast company (Govindarajan & Trimble 2010).

The CEO resigned later due to incompatibilities with other management staff. Mr. Chip Goodyear (Fréry 2006) filled the position. After some time, the management successfully spearheaded various operations in minerals, petroleum, and steel (Cacioppe, Forster, & Fox 2008).

Change in Culture of the Company

The current culture fostered by the BHP Billiton Company embraces appreciation and rewarding of employees and ethical standards. It also supports corporate integrity among its employees (Hambrick & Fredrickson 2001). The leadership aspect of the company exhibits a culture of diversity, strength, and accountability.

It further fosters a strategy that is based on large, long-life, and low-cost operations that are expandable in upstream assets. The culture of the company also characterises diversification of commodities, market segments, and geographical locations (Graetz & Smith 2010; Hambrick & Fredrickson 2001).

Explanation and Reviews of the Strategies implemented by BHP Billiton Growth and Current Performance Merger-BHP and Billiton (2001)

A strategic management theory embraces better formulation of plans and directions that foster proper guidance to ensure progressive profitability and apt crisis management.

The strategies stipulated in the theory suggest a wholesome growth by ensuring proper implementation of growth, trademark, and technology strategies among others (Hanson & Stuart 2001). The merger of the BHP and Billiton Companies in 2001 ensured resource diversification.

This set of circumstances has brought about approximately 38 billion dollars as an enterprise value that comprised assets based on lower costs and longer operations (Driussi & Jansz 2006). The reason for the merger was mainly to adopt an expansion and development strategy for sustainability of benefits.

It brought about a combination of various operations that included oil and gas, coal, copper, nickel, iron ore, and manganese production and distribution. The Billiton Company incorporated the idea of mining and distributing petroleum, copper, and steel.

The implementation of the plan led to a breakthrough that further resulted in the success of the management and growth of a consolidated company (Jenkins & Yakovleva 2006).

Acquisition of Athabasca Potash in 2010

The purchase of the Athabasca Company in 2010 ensured that the BHP Billiton Multinational gained a 100-percent control of various projects such as Burr and Potash exploration in Canada (Seewald 2010).

The acquisition was done to provide a stronger base to build Potash resources for the future growth of the company in various geographical regions and diversified markets. This strategy was principally meant for capturing the potential markets in Canada (Hitt, Boyd, & Li 2004).

Acquisition of the WMC Resource in 2005

The operations combined WMC, Olympic Dam Copper, gold, and uranium in West Australia and Queensland. The main objective of the project was to maximise the performance and market penetration in China (Shapiro, Russell, & Pitt 2007).

Joint Ventures with Rio Tinto in 2009 and Wheelara in 2004

The Rio Tinto Company produces iron ore. On the other hand, Wheelara established a joint venture with four companies namely the Wuhan Iron and Steel, Jiangsu Shagang, and Tangshan Iron and Steel Companies (Connolly & Orsmond 2011).

There was a non-binding treaty between the BHP Billiton and Rio Tinto that was meant to combine the world’s iron ore deposits to ensure improved infrastructure and growth at the international level. The growth efficiency ensured proper market penetration and maximisation of product recovery (Battellino 2010).

The venture was also to cover the iron ore resources at both the present and near future. Both assets and liabilities were to be shared between the BHP Billiton and Rio Tinto on a 50-50 percent basis. To accomplish this objective, the Rio Tinto Company received an equity interest of 5.8 billion dollars.

On the other hand, the joint venture with Wheelara was mainly established for a long-term security of products and maintenance of market shares (Sauvant 2010; Battellino 2010).

An assessment of the BHP Billiton’s Decision to split the Company into two

Delivery of values and returns to the shareholders become a burden to the management in most cases. This state of affairs can influence decisions to demerge initially amalgamated companies (Billiton BHP 2005).

The BHP Billiton Company decided to demerge in 2014 to create a new venture called the NewCo. The chief reason for demerging was to increase the value of the company’s shareholders for effective management (Cavvada 2015).

Therefore, the BHP Billiton Company only focused on iron ores, copper, petroleum, coal, and potash that continuously resulted in higher profits (Cavvada 2015). The advantages of demerging the BHP Billiton Company include effective management and improvement of the shareholder value.

Although such advantages are exhibited, various disadvantages such as immediate reduction of stock prices due to the increased and intense buy back of shares by existing investors are associated with such decisions. Another disadvantage is the accrued debts, and minimal (or no) returns on capital (Billiton BHP 2005).

Conclusion

The essay has evaluated the BHP Billiton Company and strategic choices. From the above analysis, it has been noted that the BHP Billiton Company has implemented the theory of strategic management that focuses on long-term development and market strategies with a view of fostering improved management.

Most companies fail to perform in markets at the global level due to poor implementation of strategic management choices. The BHP Billiton Company has been exhibiting a similar situation in the past few years due to demerging of the organization.

As a recommendation, ventures should focus on growth strategies that embrace planning and various factors highlighted in the strategic management theory.

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