Category: BHP Billiton

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].

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.

Reference List

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Abstract

Careful management of challenges in any company is very important. Successor failure of a company is pegged on the way problems are handled when they arise. This is considered critical if the company is operating at a global level. BHP Billiton is a successful global mining company located in Australia. The company was in a fix after making a decision postponing the expansion of its major projects (Ker, 2012). This paper analyses the problems that arose after the delay in expanding the projects. The paper also looks at how the company tackled these problems, how successful it was in solving related problems, and the best practices it should have adopted, and the lessons learnt.

Introduction

BHP Billiton is one of the largest companies in terms of natural resources. The company has a wide variety of natural resources that include: Aluminium, copper, coal, iron ore, manganese, silver, nickel, titanium and uranium. This makes the company be among the largest world producers of these major commodities. In addition, the company has substantial interests in the mining of oil and gas. BHP Billiton is a global company operates in six continents with offices based in over 100 countries throughout the world (Dick, 2007).

The workforce of the company is made up of about 100,000 employees and contractors. The company’s main mission focuses on establishing a lasting shareholder value of natural resources globally. For quite some time, the company has had a record on delivering large shareholder returns by investing highly in mining projects. This has been attributed to the company’s ability to maintain its ownership and operating strategies in the long term and low-cost basis.

This has further been boosted through expansion and diversification of the company’s assets including commodity, geography and market. In this case, the company has been able to address the various needs of its customers. Apart from meeting the demands of its customers and emerging economies, the company is committed to safeguarding the communities where it operates and the environment at large (Thompson and Macklin 2009).

A recent decision by the company to delay its expansion plans in some of its major projects has caused great economic problems. This has hampered the overwhelming growth that the company has had for nearly a decade. This paper analyses the challenge that has been facing the BHP Billiton Company and the manner in which it has been coping with the challenge.

The problem emerged after the company decided to join its competitors in delaying the expansion plans due to the global financial crisis. This forced the company to hold back billions of money that were meant to expand its major projects. These projects include the Colombian Correjon Coal mine, the Canadian potash and the Zamzama Gas Plant in Pakistan. The Company’s board failed to approve the projects until the market stabilized.

Relative to Correjon Coal mine, it is the largest producer of coal in Colombia. However, on the world’s ranking, it is in fourth place (Kline 2012). In regards to the Canadian potash, this is the world largest fertiliser producer. The BHP Billiton acquisition of these companies was a big achievement. This helped the company in diversifying its commodities and hence, became more competitive. Therefore, expansion of the above projects was of much significance to the growth of BHP Billiton (Oleynik 2005).

The indefinite delay of these projects had a severe impact on the economy especially in regard to the Colombian Correjon Coal mine and Pakistan’s Zamzama Gas plant. On both of the projects, the delay is far much worsened by the inclusion of other problems. Since the acquisition of Correjon Coal mines, the BHP Billiton Company has faced major opposition from the inhabitants of the region. These communities have incurred massive displacement while making way for the expansion of the project.

In 2001, BHP Billiton displaced by force a Colombian community of African descent from their Tobacco farming land. This move triggered much opposition and campaigns from all over the world. Several negotiations took place to oversee compensation and relocation of the displaced communities (Zapach & University of Alberta 1997). The BHP Billiton failed to abide by the recommendation from the negotiations further worsening the situation. During the year 2007, a complaint was raised against the company.

Conversely, this was a big blow to the expansion process leading to lowered investment in the project. Notably, most of the money was channelled to compensate the displaced, repair home damaged by mine blasts and improve the infrastructure in the region. The low trends of investment in the project led to unemployment crises and cost pressures (Colhoun 2012). It was proposed that the expansion of the Correjon Coal mine project would have opened significant job opportunities in the region by the end of the first phase of the expansion.

As of 2008, the expansion process has already finished the pre-feasibility step awaiting the first phase of expansion to start. In addition, the unemployment crisis is increased by the withdrawal of my workers. This is attributed to poor, working conditions due to poor pay and exposure to hazardous coal dust. BHP Billiton Company decided to delay the expansion process because of the rough times it was facing by that time. This move was anticipated to create room for investigating an alternative expansion design that would be cost-effective. In respect to cost pressures, the move to delay the project triggered a negative influence in the currency and wage pressures within the BHP Billiton economic growth.

For the Zamzama Gas Plant, BHP Billiton experienced an expansion of the first development phase very swiftly. The company was committed to the second phase of expansion to further maximise the economic benefits for the company. As anticipated the second expansion phase, took longer to establish due to various challenges. The floods experienced in 2010 inundated several wells of Zamzama Gas plant and were the worst in the company’s history (The Nation Newspaper Pakistan 2012). As a result, the BHP Billiton management closed down the other remaining wells.

This sudden closure had a great impact on gas production leading to the immense decrease in production shares. Apart from a decrease in the shares, the plant produced toxic fumes, which put at risk people living near the plant to various diseases. The growth registered was the worst ever to be experienced for over a decade. Furthermore, delay in expanding the Canadian Potash project weakened the BHP Potash shares, resources prices and the decline in the demand of its commodities globally. This poses a greater risk on Canada’s over-reliance on extraction (Graham 2012).

The company’s shares dropped to a large extent compared to its major competitors, Rio Tinto and Fortescue. Within a span of six months, the company’s shares dropped by 15 per cent compared to that of its competitors. It was noted that Rio Tinto’s shares dropped by 10.7 per cent. On the other hand, Fortescue’s dropped by 14.8 per cent within the same period. What followed was the fall of the commodity prices together with the carbon tax. As a result, the company reported a 35 per cent decrease in annual profits, which was the first to be experienced in a span of three years.

This contributed to the investors losing confidence with the company’s leadership, particularly with Marius Kloppers’ five-year reign in the company. It is claimed that this period was characterized by failed takeovers coupled with delayed projects. This triggers worry in the shareholders who hoped that the problems will ease when the company presents its 2012 financial report. By further delaying the expansion of these projects, the company marked the end of the global mining boom that it had experienced for years. The fall in commodity prices did not affect the Company’s economy alone. China was amongst those countries that were affected. China provides a great market for BHP Billiton commodities. This caused a slowdown in its economy too.

In trying to cope with the problem, the company formulated plans to re-establish the projects back again. The expansion processes are not happening as planned, but the company proceeded in a different direction. First, the company targeted control of commodities prices. This move would ensure other economies of their investors resume their consumption growth for the commodities, which would trigger the development of these projects.

These BHP projects remain the major economic booster in the respective countries they operate. Therefore, they play a bigger role in providing employment. The current crisis from the delay in the expansion of these projects has contributed to this problem with the mining sector providing little employment opportunities slightly above 1 per cent. Solving all the challenges affecting Colombian Correjen Coal mine will change the company face in Colombia and the world at large. Since it is the biggest coal producer in the country, mine expansion would create many employment opportunities. In return, more production will be realised.

Likewise, the expansion of the Canadian Potash and Zamzama Gas plant would have the same effect. In addition, the problem will not be solved by allowing the expansion process to proceed as planned but rather in which format the process proceeds. This will be dependent on the commodity prices, the effect of the global financial crisis and the technological considerations (Organisation for Economic Co-operation and Development 2010).

Another approach used to overcome this challenge is cutting down the income-expenditure and real wages. This would lead to the company becoming increasingly competitive internationally, and thus experience fast growth. In addition, considerable employment opportunities would be created to overcome the existing high rates of unemployment. For the income, the government has to incorporate less spending and lower taxes particularly business taxes.

On the other hand, the BHP Billiton and other companies should lower their wage rates. This would ensure increased exportation and limited importation of commodities. Notably, this implies a high demand for commodities, which is followed by huge profits. Thereby, more investors and business partners both locally and internationally would be attracted to the company. Despite creating significant job opportunities, this approach would deprive the employees of an enhanced lifestyle. Nevertheless, this would be a huge boost to BHP Billiton in overcoming its challenges. High demand and increased exports would influence the expansion of the projects (Blandy 2012).

The approaches used by BHP Billiton to solve the challenge were irrelevant. In controlling the commodity prices, the company opted to lower prices, and this further worsened the situation. Although the move was meant to attract its major importers, it would be insignificant. The move would benefit the economies of the importers rather than the company itself. Lowering the commodity prices go hand in hand with lowering of the real wages and expenditure. The arbitration system and other unions disagreed with the initiative arguing that it was unfair both to the workers and the company.

Adoption of this policy could lead to the slowed growth rate of the company as compared to its competitors. This was attributed to the reduction in workers population and the economic activity. Although the move was meant to increase employment opportunities, it ended up decreasing the existing ones. Most of the workers migrated to other companies where they would earn a better income and restore their parity with their norms. Reduced economic activities in its projects discouraged investors and business partners. On the contrary, these approaches are best suited in making the company competitive on the international front (Blandy 2012).

Despite the failure of the above approaches, the company can still recover from this major challenge. The company needs to restore the prices of its commodities in order to make them competitive locally before traversing the global scene. Next, the company needs to embrace good leadership and management. As seen earlier, the complications in the company came as a result of poor decisions especially during the reign of Marius Kloppers.

The management decided to postpone the expansion of the projects without prior evaluation of the benefits and the consequences involved. They feared losing huge amounts of cash through investment in the projects at a time when the global market was experiencing financial crisis. Consequently, the company lost much money through declining profits and shares, as opposed to its competitors. Further, the company needs to formulate a more advanced system of supply analysis than the one adopted in 2004. This system needs to be incorporated with the latest technology. Lack of such a system forced the company to postpone the projects for long while searching for the best alternative.

For example, the company has formulated the strategy to expand the first phase of the Canadian potash mine project to four million tonnes. As described by Nickel (2012), the expansion of this project would require technology advancement. This technology is expected to have an enormous effect on the growth of BHP Billiton. It is estimated that, by accomplishing the expansion to 8 million tonnes by 2015, the Canadian potash mine will be the largest potash mine in the world (Nickel 2012). To date, alternative plans for the other projects, that is, the Correjon Coal mine and Zamzama Gas plant projects have not been reached.

From the above case of BHP Billiton, there are several lessons that many companies need to embrace. In the first place, a proper evaluation of all possible outcomes must be considered before making any decision regarding any investment. This is attributed to leadership and management of the company. BHP Billiton postponed the expansion plans for three of its major projects without evaluating the possible outcomes. The company was influenced by withdraw of its major competitors.

For this reason, BHP Billiton found itself in a bigger problem of its own making. This shows that BHP Billiton lacked good leadership to enhance better decision. In addition, it is observed that the company further implemented poor policies in trying to solve the problem it had created. In addition, each and every company need to be acquainted with the latest technology. Advanced technology may enable a company to overcome the arising challenges in a fast and easy way.

Lack of a new cost effective method caused the company to postpone its major projects for long. Finally, it is important to balance between the internal and external forces in a company. BHP Billiton concentrated on the internal affairs and paid little attention locally. BHP ignored the welfare of local communities particularly in the Correjon Coal mine. The initiatives used further worsened the situation rather than improving it (Zapach & University of Alberta 1997).

BHP Billiton is a well renowned mining company. The company has achieved much success in its operations for years. However, postponing of the expansion projects in some of its acquired companies immersed the company into a great problem. This delay caused a major downfall of the company’s economic growth. The commodity prices, employment rates, and the currency value were all affected leading to a decline in the company’s profits and shares. The key to restoring the company’s economic growth lies in overcoming this challenge. BHP Billiton needs a proper mechanism to facilitate the expansion of these projects. As time goes by, overcoming this problem seems like an elusive dream.

Reference list

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Dick, H 2007, The internationalisation strategies of small-country firms: The Australian experience of globalisation, Elgar, Cheltenham.

Graham, J 2012 BHP delays final approval for potash project in Saskatchewan after lower profit. Web.

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Kline, H F 2012, Historical dictionary of Colombia, Scarecrow Press, Lanham, Md.

Nickel, R 2012, BHP may double Canada potash mine’s 1st phase output. Web.

Organisation for Economic Co-operation and Development 2010, Corporate responsibility: reinforcing a unique instrument, OECD, Paris.

Oleynik, I S 2005, Australia: Mineral & mining sector investment and business guide, International Business Publications, Washington, DC.

The Nation Newspaper Pakistan 2012, Floods severely affects Zamzama gas production. Web.

Thompson, P & Macklin, R 2009, The big fella: The rise and rise of BHP Billiton, Random House, North Sydney, N.S.W.

Zapach, MD, & University of Alberta 1997, The sociocultural impact of El Cerrejon coal mine on the Wayúu of the southern Guajira, Colombia, University of Alberta, Colombia.