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Question: Analysis the Strategy of BHP Billiton. Answer: Introduction Purpose of the report The report has been prepared to carry out a study on the internal and external environmental evaluation of the Australian conglomerate BHP Billiton. Company Snapshot BHP Billiton is an Anglo-Australian multinational metal, mining, and petroleum Dual-listed Company that was floated in the year 2001 by a merger between Anglo-Dutch Billiton plc., and Broken Hill Proprietary Company Limited (BHP). The Australian-registered BHP Billiton Ltd. is registered on the ASE or the Australian Stock Exchange and the English BHP Billiton plc. is registered on the LSE that is the London Stock Exchange. Both the companies continue to exist as separate legal entities but carry out their operations as a combined group under the name of BHP Billiton. The central headquarters of the conglomerate BHP Billiton is based in Melbourne, Australia (BHP Billiton, 2015). Current Trends in the Australian Steel Manufacturing Industry The Australian Iron Smelting and Steel Manufacturing Industry have shown a considerable decline in the last five years. Industry sources predict that the revenue from the industry is expected to decline at the annualized rate of 8.5% over the coming five years. The IVA or industry value-added index which measures the overall contribution of the industry to the national economy is also being expected to shrink by an annual rate of 1.9% in the next five years. A reduction in demand for steel from the downstream markets, lower prices of steel, increased competition from the substitute products and import markets have been the major cause of this decline in the recent years (Iron Smelting and Steel Manufacturing in Australia Market Research, 2016). Internal Analysis of BHP Billiton Assets The BHP operates a large variety of oil and natural gas, mining, and processing operations in more than 25 countries across the world. BHP Billiton is the biggest company in terms of market capitalisation in Australia. This enhances the stakeholders and investors confidence in the company (BHP Billiton, 2015). Competencies The BHP Billiton is the worlds biggest diversified natural resources company and is engaged in mineral production and exploration. BHP is one of the largest producers of base metals, petroleum, specialty products, aluminium, diamonds, iron ore, energy coal, stainless steel, metallurgical coal, manganese, etc. in the world (BHP Billiton, 2015). BHP Billiton Share price trend The following figure shows the ten year share price trend for BHP Billiton. It is seen that BHP Billiton has seen a sharp rise in its share price from 2009 to 2013, and the share price being highest in 2011, when the profits were highest. However, a decrease in share price is seen from 2014 to 2016. A drop in share price is witnessed in 2016, due to decrease in profits and the share price is forecasted to be rising by 5% in 2017 (Stockopedia, 2015). Source: Stockopedia.com BHP Billiton Sales-Five Year Trend It is seen that BHP Billiton has witnessed highest sales in the year 2011, and since then BHP Billiton has experienced a drop in its sales. It is found that sales have been decreasing with and it is all time low in the year 2016 (Amigobulls, 2016) Source: Amigobulls.com BHP Billiton Profits: Five Year Trend The following figure shows the five year profits for BHP Billiton. All the figures are in billion. It is found that BHP Billiton has faced sharp decrease in its profits since, 2011 and the profit being lowest in 2016 and highest in 2012 (Amigobulls, 2016). Source: Amigobulls.com Strengths of BHP Billiton BHP Billiton has a product portfolio that consists of an extensive range of natural resources and holds the position among the worlds largest suppliers of silver, uranium, lead, copper, and aluminium. The company also happens to be one of the largest producers of metallurgical, coal, iron ore, and manganese (BHP Billiton, 2015). The companys energy coal section has eight operations across Australia, USA, South Africa, and South America, and provides thermal coal for general industrial uses and the electric power generation industry. This has also given the company an international presence giving a strong competitive edge over its rivals (Santos-Vijande, Lpez-Snchez, and Trespalacios, 2012). BHP Billiton has shown positive financial returns for the last ten years and through its share buyback campaigns have returned the capital to their stakeholders and investors. The profitability and the solvency ratios of the company exhibit its strong presence in the market (BHP Billiton: The future is yours, 2017). BHP Billiton has a good CSR policy and its active involvement in many social causes has given the company a positive image and added to the competitive advantage that the company enjoys over its rivals. Weaknesses of BHP Billiton The company is facing a lot of legal restrictions from the changes in laws, rules, and regulations in the country in the recent years (BHP Billiton, 2015). BHP Billiton has been facing a number of human resource issues which have affected the operational efficiency of the company. They are facing a shortage of skilled labour in many of its sectors particularly the mining section (Hesterly, and Barney, 2010). The internal and external communication of the company is very weak. The staff is not adequately trained in responding to the stakeholders queries and the media enquiries. The lack of effective corporate communication is detrimental to the growth of the company (Bourke, Smith, Stockton, and Wakefield, 2014). External Analysis of BHP Billiton Macro Analysis - PESTLE analysis Political environment analysis: A favourable political environment: BHP Billiton has been operating under a political environment which has generally been in the favour of the company. The company has received a lot of support from the government of Western Australia. The company has the advantage of being one of the biggest companies in Australia in terms of market capitalisation, which has resulted in the government support the company in many of its ventures (Clarke, and Branson, 2012). Economic factors affecting BHP Billiton: BHP Billiton like the other manufacturers is vulnerable to the economic factors like an increase in the cost of energy, labour, operations, raw materials, etc. which has a direct impact on the profits, expansion and growth plans of the company. However, the company enjoys a good credit rating as the company is one the biggest in Australia in terms of market capitalisation. Therefore, the company can improve its bottom line by its ability to raise capital at lower rates from the market. The business ventures like mining have proved to be profitable propositions, which have improved the financial standing and the brand image of the company (R, 2013). Social factors affecting BHP Billiton: The companies and businesses today are vulnerable to the socio-cultural factors of the communities they are operating from. BHP Billiton has always maintained a good rapport with the local communities it operates in and also with the local administration and has always been at the forefront of contributing to the development of the surrounding community. The company also offers good employment opportunities to the local people as it believes in hiring the local populace in its operations. This has enhanced the brand image of the company in the local communities which has given it a competitive advantage in the market (Hayes, 2014). Technological factors: Investment in the latest and cost-effective technology is one of the basic requirements of BHP Billiton to ensure safe, efficient, and to develop an ability to cope with the change in the market demand structures. The company is also dependent on the advancement in technology for the purpose of exploration and discovery of the new energy and mineral resources. The investment in technology has a major impact on the strategic drivers for BHP Billiton giving it a competitive edge in the market and improving the revenues of the company (Hogan, and Lodhia, 2011). Legal factors: BHP Billiton has always strived to comply with the laws, procedures, rules, and regulations of the country, which has ensured a positive government and local community support for the company. However, in the recent times, the company has been involved in some conflicts with the government and the administration over some issues and problems. This has acted as a deterrent in the business plans of the company and can affect its future operations (BHP Billiton: The future is yours, 2017). Environmental factors: BHP Billiton is a natural resource company and is susceptible to the public policies, laws, rules, and regulations regarding the environment. However, BHP Billiton has always followed a policy of sustainable development through its policies of causing zero harm and has even committed to the cause of reducing the emission of greenhouse gases in its operations. This has proved to be an advantage for the company as it continues to receive a lot of support from the international and national administrative authorities and local communities in its business ventures (Hayes, 2014). Micro Analysis Competitors and Strategic Advantage over Rival Companies The main rivals of BHP Billiton in Australia are multinational companies like Nippon Steel and Exxon Mobil. BHP Billitons business and competitor strategies are based on diversification by geography, commodity, and market. The companys strategy which has given it an edge over its competitors is the companys policy of holding or possessing and administering large, expandable, economical, prolonged-efficacy asset base which have been transformed by physical geography, raw material, and markets. The diversified asset base increases the flexibility of the cash flows of the company by reducing the risk of exposure to any single commodity or geographical location, enabling the company to maintain a good financial performance as compared to its competitors. BHP also has a very good CSR policy in place and makes efforts to improve the local communities and its recent environmental initiatives have made it easier to work and recruit from the local communities (Hesterly, and Barney, 2010). Opportunities The BHP Billiton group has many projects in the pipeline and if these are executed in a cost effective manner, they are likely to become good income generators for the company (Resourcing Global Growth Strategic Report, 2014). The company can use its financial credibility and its good brand name to further expand its scale of operations (Hesterly, and Barney, 2010). The company can seek out partnerships, mergers, and acquisitions with the local companies in the countries it already has its operations to further expand its business in those countries (Resourcing Global Growth Strategic Report, 2014). The BHP Billiton commitment to 5% reduction in greenhouse gas emissions can become a symbol of sustainable development for the company (BHP Billiton, 2015). Threats The developing countries in the world especially India and China are repeatedly turning to in-house manufacturing reducing the demand for BHP Billiton in the global market (Clarke, and Branson, 2012). The rising level of costs from the suppliers which includes a rise in shipping, energy, and contract labour costs, are proving a hindrance to the growth and development of the company (Hill, Jones, and Schilling, 2014). The political uncertainty and unfavourable political climate in its home country are proving detrimental to the growth of the company (Clarke, and Branson, 2012). The company is facing increasing competition from other international players like Nippon Steel, Exxon Mobil, and many more. This could become a major threat to the companys scale of operations in the coming years (Bourke, Smith, Stockton, and Wakefield, 2014). Conclusion BHP Billiton is recognized as one of the global leaders in the natural resources industry. In order to maintain its leadership position, the company is always looking for new ways to upgrade and optimize its practices and policies. However, in the recent years BHP Billiton has been dealing with strategic issues regarding uncertainty in the political and macro-economic environment, volatility in the costs of the raw materials at the manufacturing stage, complexity in operations due to the changes in the legal environment, and ambiguity in decision-making due to lack of clarity in certain variables and their role in the business strategies of the company like the change in political environment (BHP Billiton: The future is yours, 2017). To counter these strategic challenges BHP Billiton in addition to its existing policies will have to devise additional strategic planning approaches. The company will have to devise certain situational strategic planning strategies that will allow the company to develop different illustrations of the outlook and accordingly change their system of management to prepare for different outcomes in the future References BHP Billiton, 2015.BHP Billiton | Diversity a Source of Competitive Advantage. [online] Available at: https://www.bhp.com/media-and-insights/reports-and-presentations/2015/04/diversity-a-source-of-competitive-advantage [Accessed 20 Aug. 2017]. BHP Billiton: The future is yours, 2017,AFR Business Case Studies | [online] Available at: https://www.afrbiz.com.au/case-studies/bhp-billiton-the-future-is-yours.html?print=1tmpl=component [Accessed 20 Aug. 2017]. Bourke, J., Smith, C., Stockton, H. and Wakefield, N., 2014.From diversity to inclusion. [online] DU Press. 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