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BHP Billiton is one of the biggest mining companies in the world. It formed as a result of the 2001 merger between Broken Hill Proprietary, an Australian company, and Billiton, an Anglo-Dutch. The company has its headquarters in Melbourne. It has mining operations in more than twenty-five countries. These include Australia, Canada, U.S.A, South Africa and Papua New Guinea (BHP Billiton.com, 2011 p. 7). BHP Billiton processes a large number of metals.
These metals include aluminum, copper, silver and iron among other. The company has also small oil and natural gas operations in Algeria and Pakistan. It is listed on the New York Stock Exchange (NYSE) under the symbol BHP. The company offers large-scale exposure to different sectors of the supply chain hence enhancing pricing capabilities. By 2010, the company’s revenue amounted to more than $53 billion with a net income of close to $13 billion. It has a free cash flow of more than $16 billion and profit margins of more than 20%.
The company has gained from the skyrocketing prices of commodities such as copper and aluminum. Consequently, its profit increased by close to 90% between 2004 and 2005. Since then, BHP Billiton has been operat3ing on a milestone profit margin of 20 percent (Bouchentouf, 2011 p. 23). Nevertheless, the company cannot continue to bask in its past glory because commodity prices are dynamic, and prices of metals like copper, silver and aluminum cannot increase steadily forever.
This is the reason the company has to expand its operations overseas in order to retain its glory as a leading global manufacturer and exporter of metal and oil products. This report assumes that BHP Billiton intends to expand its business operations to China. As such, it details the various strategic issues that it would have to address in order to succeed in the mission.
In order for BHP to maintain or increase its market share, there is a need for the company’s management to come up with strategic plans spreading the company’s wings to areas where its presence is not yet felt or has minimum impact. One of these areas happens to be the People’s Republic of China (Donnely, 2011 p. 5).
In addition to the identification of the target market, there is a need to identify the product that is likely to sell inn the new market target. One of the most suitable products for a company to sell to China is oil. This is because China does not have oil deposits and therefore relies on imported oil products.
BHP provides various petroleum products. Its products are coupled with tailor-made to provide “customer satisfaction through competitive pricing, market services, logistical support as well as contact structure” (BHP Billiton.com). In the last financial year (2010), the company produced 159 million barrels of oil equivalent.
This volume consisted of 61% a liquid, that is, crude oil condensate and Liquid Petroleum Gas). The rest consisted of Natural Gas inclusive of Liquid Natural Gas (LNG). The company markets various premium crude oils and condensates. This is in form of under-term and spot contracts to refining and petrochemical consumers in the Asia-Pacific and Atlantic areas. Its Natural Gas is marketed to local markets such as Australia, U.K, Pakistan, Trinidad & Tobago, as well as the U.S (BHP Billiton.com).
In addition, it sells Liquid Natural Gas from its North West Shelf under long-term contracts to consumers in North Asia including some spot sales to the global market. Its Liquid Petroleum is marketed in both local and global markets. BHP also produces ethane from the Bass Strait fields and sells it under contract to consumers in Victoria, Australia.
Although BHP has had a tense relationship with China for the last two and half years, the prospect of expanding its oil market to China is a great leap. The rocky relationship was occasioned by the accusation that BHP aided in scuttling the 2009 Rio Tinto and China joint venture deal. This arrangement would have been China’s most promising mining adventure.
However, due to a price lobbying campaign, the plan backfired and saw Rio Tinto coiling itself (Doole & Lowe, 2007). Nevertheless, BHP’s CEO, Marius Kloppers expressed optimism for a joint Chinese investment. This is because he had completed the benchmark-price-negotiation scheme hence changing the tactics. As such, any new BHP’s joint adventure with China should put into consideration pricing issues.
This is will be endeared towards avoiding a repeat of what happened to Rio Triton Company. Nevertheless, given that, BHP has market shares in iron ore products in China, this has already makes things much easier for it to establish a market share in oil products (Dunn, 2008 p. 46).
Apart from joint-adventure issues, there are other factors that BHP has to consider before embarking on a mission to expand its market share of oil products. These include production and services factors. It should consider whether there are any intermediaries to the product or not (Virtual Advisor, 2011 p. 10). In addition, there should also be a consideration of local manufacturing conditions especially for oil because it needs refining and transportation.
These considerations may also extend to factoring in if there are adequate regional and local transportation and storage facilities. Under marketing, BHP will have to consider the limitations that exist for trade like high tariff levels or quotas (Stevens, et al., 2003 p. 67).
It may also require to be acquainted with the documentation required. If there are any local standards, practices and other non-tariff blockages, these will also be considered under marketing. Lastly, under marketing, BHP will have to consider if China has a policy that honors paten6ts and trademark protection.
In order for BHP to attain a considerable market share in oil products in China, its strategic considerations should also consist of public customer relations (Doyley, 2008 p. 12). This strategy is meant to establish trust relationship with the individual customers and thus attaining high loyalty.
Given China’s large population, there will be need for concerted efforts to establish a large share of the customer’s spending. The company can attain this through marketing mix or four P’s. These are product, price, promotion and place.
Since market expansion cannot be achieved without costs, BHP ought to be prepared to cater for the associated costs. These costs are in terms of labor sand facilities. This implies that the company will have to employ more workers in both technical and management positions. In terms of buildings and machinery, the company will have to invest heavily in durable and efficient infrastructure. These will include a new premise for the centralization of its operations as well as refinery and storage facilities (Czinkota, et al., 2008 p. 14).
One of the most fundamental considerations in the development of the required facilities named here will be location. Since BHP wishes to increase its supply chain to cover China, it has to factor in several considerations in the supply chain. To begin with, the company has to consider the number, location and capacity of the facilities that it is going to build. These include the refineries and storage facilities. There will also be a need to consider the maintenance costs of the service facilities in the future inn case of wear.
The selection of the location of a potentially new facility depends on a number of factors. One of these is the type of equipment that facility should use to handle a particular service (Drezner & Hamacher, 2004 p. 253). For instance in the case of BHP, it will require piping facilities and storage tanks to store the oil products. The former requires safety measure in the laying process while the latter needs a large ground space.
As such, apart from the fixed charge of opening a facility, the company will have to consider additional costs for safety measure and strategic locations. This is because oil handling needs extra safety equipment to handle fire emergencies. The location of the facilities will, especially the purifying ones, will need a strategic place with accessibility to cooling services. In that case, the company has to consider of having an n onshore plant.
The above considerations are only short term. The long-term nature of facility location decisions entails planning the operations of facilities in such a manner that they can cope well with an uncertain future (Drezner & Hamacher, 2004 p. 255).
In conclusion, though BHP is such a big company, care should be taken to avoid overtrading. This involves spending much of its profits in market expansion. As such, the company should factor in the expected returns.
In order for BHP to succeed in this new endeavor, the above discussed strategies will have to be coupled with stronghold in foreign partners in order to build awareness for the company in the targeted market. Other factors that can be considered include China’s chamber of commerce as well as the domestic banks.
References
BHP Billiton.com, “Petroleum” [online].
Bouchentouf, A, 2011, Commodities for dummies, John Wiley and Sons: New York.
Czinkota, M, et al., 2008, Fundamentals of international business, Wessex Publishing: Ohio.
Donnely, J, “BHP Billiton forges ahead with large, complex projects”, [online].
Doole I, & Lowe, R, 2007, International marketing strategy: contemporary readings, Cengage learning: Oxford.
Doyley, P, 2008, Value-based marketing: marketing strategies for corporate growth and share holder value, John Wiley and Sons: New York.
Dunn, J, 2008, Share investing for dummies, For Dummies: New York.
Drezner, Z, & Hamacher, HW, 2004, Facility location: applications and theory, Springer: Berlin.
Stevens, RE, et al., 2003, Market analysis: assessing your business opportunities, Routledge: New York.
Uzoma, E, “How to stimulate business growth through market expansion”, Helium, [online].
Virtual Advisor, “How to expand your business globally”, [online].
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