On the 27th September 2013, it was reported in the news that mining company BHP Billiton Limited had put on hold its expected project of expansion of the Olympic Dam owing to a challenge of resources. This brought to the fore the issue of competitive challenges in the company which is regarded as one of the biggest mining company in Australia and indeed, in the whole world. As a consequence, this paper seeks to analyze the company BHP Billiton Limited, also listed in the Australian Securities Exchange, with a view to exposing the competitive challenges that the company faces and how to overcome them. This paper shall also conduct an overview of the company’s history, operations and performance. The paper shall also explore the competitive landscape within which the company operates as well as the competitive challenges that the company faces. In addition, an internal as well as an external analysis of the company shall be done in addition to the strategies adopted by the company to counter the challenges. In conclusion, this paper shall set out recommendations on strategic management that are needed in addressing the competitive challenges.
Historical overview
BHP Billiton is an Anglo Australian mining company with its main headquarters in Melbourne and a top management office in London in the United Kingdom. Based on the reported 2011 revenue results, the company stands as the largest mining company in the world by revenues. In addition, by the month of February of the same year 2011, the company was the third largest company in terms of market capitalization. BHP Billiton was formed following a merger of the Australian Broken Hill Proprietary Company Limited (BHP) and the Anglo-Dutch Billiton Plc. The mining company traces its origins in the year 1860 on the 29th of September when a meeting of shareholders approved the Articles of Association in a hotel in Hague, Netherlands. The company as constituted subsequently acquired the rights to mine on the mineral-rich region of Billiton and Bangka Islands in the Netherlands just two months after its formation. Some of the earlier business ventures by the firm included the smelting of tin and steel which later extended to the mining of bauxite in Indonesia in the 1940s. The year 1970 marked the acquisition of Billiton by Shell which led to an acceleration of growth and two decades later, smelter of tin and lead which was stationed in the Netherlands was shut down. At the onset of 1990 till this day, Billiton has experienced phenomenal growth to emerge as one of the biggest mining companies in the world. In particular, the company has diversified its portfolio to encompass aluminum smelters in Mozambique and South Africa, nickel mining in Colombia and coal mining in Australia, Colombia, South Africa and Brazil. The year 2001 saw the merger of Billiton Plc. with Broken Hill Proprietary Company Limited (BHP) to found the current BHP Billiton Limited..
After the merger that resulted in the formation of BHP Billiton in 2001, the steel business was spun off and in the year 2003 BHP Steel changed its name to BlueScope Steel. The company further announced a $ 7.3 Billion bid for another mining company known as WMC Resources who owned a consortium of gold, copper and uranium in several mines in South Australia and Queensland. In June 2005, the takeover by the company essentially meant that the company had gained 90 percent acceptance. In August of the same year, full ownership was announced following compulsory acquisition of the remaining 10 percent of the shares that had not been initially agreed upon. Another hostile takeover bid was made by the firm in the year 2010 at a value of $40 billion against Potash Corporation of Saskatchewan of which was a major strategic move. This move by the company was strategic in the sense that it marked the company’s diversification away from its initial preoccupation with resources that had a high exposure to carbon price risk such as petroleum, coal and iron ore. However, in the month of November of the year 2010, the company announced its intention to drop the offer for the Potash Corporation of Saskatchewan. The year August 2012 marked the announcement by the company that it was shelving its $ 20 billion Olympic Dam expansion project in Southern Australia owing to a fall in commodity prices and a reduction in global economic growth. Indeed, it is this expansion project that is the subject of the study in this paper which poses as a competitive challenge that beset the firm. The pulling out from the expansion project was also marked by an announcement of a freeze on the approval of other expansion projects.
Operations
The company as it currently stands has a workforce of over 49,000 and has set shop in over 25 countries where it conducts its mining and processing operations. In its quest to set foot in the industry, the company has around ten primary operational units or segments usually known as Consumer Sector Groups. These are units where the company specifically engages in iron ore, aluminum, energy coal, petroleum, uranium, manganese, mineral exploration, diamonds, base metals and stainless materials processing. The company’s operations also stretch to several countries including Australia, Angola, Algeria, Chile, Brazil, Canada, Colombia, Guinea, Indonesia, Mozambique, Pakistan, Peru, South Africa, Trinidad and Tobago, Suriname, the United States and the United Kingdom.
Performances
As already set out, the year 2011 financial results indicated that the company ranked as the largest mining company in terms of generated revenues. At the financial year ended June 2012, the company had a presence in over 100 locations and had a total petroleum production of 222.3 million barrels of oil. Over the same period, the company recorded a total aluminum production of 1.2 million tones. According to the latest financial statements released by the firm in June 2013, the company made net profit margin of16.79%and an operating margin of 29.14%. There was a return on equity of 15.93% and a return on average assets of 8.28%f for the year 2013.
Competitive landscape
A competitive landscape of the company demonstrates a full and complete view of how this company and its competitors stack up against each other. This landscape extends to sales, employees, profitability and growth and it is useful for the conduct of a competitive analysis, identification of trends as well as in devising the corporate strategy. A good grounding of the competitive landscape is essential as it enables a company to know and appreciate its competitors. Such an analysis of the landscape may begin with the identification of competitors followed by an analysis of their strengths as well as weaknesses. It must always be borne in mind that a clear understanding of a company’s competitive landscape is essential for strategic marketing projects to thrive. Some of the rivals of the company include other major mining companies in Australia and in the world.
Internal and external analysis
Whilst doing both an internal and external analysis about the company, it is crucial to begin with an examination of its strategy as laid down in the firm’s website. The company prides itself of a proven and disciplined strategy of diversification. It states its strategy as being that of working and operating a low-cost, long-life and expandable assets diversified by geography, commodity and market. The company is of the view that the diversification strategy is responsible for the continued positivity in its cash flows as it serves the purpose of reducing the exposure to a single commodity or currency. The analysis of BHP Billiton can best be done through a SWOT analysis so as to elucidate on the strengths, weaknesses, opportunities and threats that encumber the company in the market. It equally sheds light on the structure of the business, as well as the operations, history and products that the company avails.
Some of the strengths of the firm include the dedicated customer service portfolio offered by the firm. More so, the firm usually passes any increases in prices of its products to its customers thereby avoiding a limit in cash flows. Another key strength of the firm is its ability to post impressive financial result in a consistent manner. The company has delivered impressive financial results. This was made possible by an aggressive buy-back program which had the effect of returning capital to the investors. A key strength of the company is that BHP Billiton is a renowned natural resources company with a diversified portfolio assets being one of the largest supplier of uranium, silver, copper and aluminum.
Among the weaknesses of the company include a weak corporate affairs department and a shortage of trained staff. The absence of qualified staff who are trained in the mining sector have hampered its operations. There is also the need to improve measures of gross margin and the long term financial return on equity so as to make it at par with its competitors. The corporate affairs department at the firm is not responsive to enquiries using new media.
Opportunities abound for the company. There are a total of 29 projects whose feasibility studies have been done and if they are so executed, they could be a source of important revenue for the company. The company should also take advantage of creating awareness of the brand among its customers. This may be done by making use of innovative marketing solutions and using other media tools. In addition, following the passing of the Kyoto Protocol, BHP Billiton gave a commitment to reduce the emission of greenhouse gases by 5%. Proper management of this commitment can act as a source of environmental sustainability and development.
BHP Billiton continues to face several threats in the market. One of the3 biggest threats is the rising costs of supplies, staffing issues and inflation which have inhibited the growth of the company. Further, the hostile political climate in its home country, Australia where the company has received an unfavorable ruling from the government relating to infrastructure access and dynamics of politics cannot be wished away. Another threat lies in the company’s overly dependence on China for natural resources. The company now faces the tricky issue of working to fulfill the demand while remaining competitive at the same time.
Competitive challenge
The Chief Executive of BHP Billiton Andrew Mackenzie recently announced that the company will put on hold the Olympic Dam expansion project unless and until a technological breakthrough comes up. The executive officer cited the resources challenge as the inhibiting factor to the continuation of the expansion project. However, the company said that it will continue to secure productivity gains across the business so as to keep the mining operations running. The expansion of the project was initially shelved by the former CEO Marius Kloppers on grounds that there weak commodity prices coupled with skyrocketing costs. The focus for the company was rather to advance heap-leaching technology rather than expanding capacity. Mackenzie decried the sluggish prices of uranium which has continued to pile the pressure on the mining sector.
The current unpredictable economic climate calls for strategic measures if businesses intend to remain competitive and relevant in the market. A number of competitive challenges face the firm. Some of the challenges include innovation and changes in technology where mobile devices, social networking and cloud computing form potent tools that rival other technological options. Another challenge faced by the firm lies in the management and retention of its qualified staff and the consequent elimination of the poaching of its talent by its rivals. Without doubt, the retention of experienced and talented workers leads to increased productivity. More so, regular encouragement of workers and appraisal by management increases their productivity whenever they (appreciated) feel appreciated. Since job dissatisfaction ranks as the single biggest reason for the loss of staff, regard must be had to this crucial sector. Another challenge that is facing BHP Billiton is the need to reduce overheads and putting in efforts that enable cost consolidation. Indeed, the stop to the expansion project is hinged on the unavailability of resources.
Formulation and implementation (current strategies)
Currently, it is evident from the strategy as expressed in the firm’s website that the company’s main strategy is in diversification. The company also seeks to recruit high trained workers to help in the growth of the company in the financial markets. More so, the company’s strategy is aimed at increasing, developing and growing the portfolio one tier resource base that distinguishes the company from its major competitors.
BHP Billiton has employed several other strategies to gain the competitive edge and counter the competitive challenge that faces it in the cut-throat competition being witnessed in the mining industry. In the year 2001, the BHP Limited and Billiton plc merged to form the current BHP Billiton which now stands out as the world’s largest diversified resources group. The merger resulted in an enterprise value of over $38 billion and a good asset base of low cost and increased life operations. The merger also enabled the firm to gain a global scope, financial fortitude and better skills. It must be recognized that the major reason informing the merger was the portfolio of interests of both companies. It may thereby be said that the merger strategy was aimed at growth of the company and to fend off competition from its rivals. The integration of the resources of both companies and competencies of both firms has created a sustainable competitive advantage for BHP Billiton.
Another current strategy employed by the company is acquisition of other similar firms as evident in the year 2001 acquisition of Athabasca Potash Inc. The acquisition provided BHP Billiton with the full control of the Burr project and other exploration properties situated in Saskatchewan, Canada. The reason that informed this acquisition strategy was the need to enlarge the resource base of the company and enable future growth of the company in different markets.
The next strategy that has been put into practice by BHP Billiton in a bid to overcome the competitive challenge that afflicts it has been done through joint venture. In June 2009, the company entered into a non-binding agreement with Rio Tinto to establish a production joint spanning the entire area of iron ore assets in Western Australia. The venture will be owned equally between the two companies and is bound to unlock the significant value from the company’s resources. The synergy created by the two companies is sure to reduce costs through the use of smaller rail hauls. The joint venture will enable BHP Billiton to serve the international market which is continuously growing.
Recommendations
It is evident that a good knowledge of a company’s competitive landscape is an imperative for the formulation of sound policies and strategies. It is also the case that the company is faced with competitive challenges that require putting in place adequate measures to address the problem. Some of the recommendations to be used in a bid to gain a competitive edge and dilute the competitive challenges that exist include studying the rival’s websites where information on the rival’s position and differentiation strategy can be harnessed. In the alternative, it is recommended that the company subscribe to the rival’s mailing lists so that one can obtain information about their latest products, contests and promotions. It is also important to follow a competitor through social media like twitter and face book so as to get invaluable insights on how their brand engages with their customers. Another key strategy that can be employed entails the setting up of Google alerts for industry keywords as well as competitor’s names. This critical tool can be used to identify what people say about one’s brand and thereby adjust accordingly. Asking their sales team about trending hot topics and attending trade shows and trade fairs are other ways of gaining a competitive edge.
Conclusion
As has been explained in this paper, BHP Billiton is a large conglomerate in the mining and processing industry. It mainly thrives on diversification as a strategy but has recently been faced with challenges. It, therefore, calls for new strategies to counter the measures put in place by its rivals to torpedo it from the top position it occupies in the mining industry.
It is evident that the merger of the company has led to the growth of the firm so as to meet the challenge that is represented by competitiveness in the market. It may also be concluded that the financial and asset strategy of BHP Billiton is mainly characterized by acquisition. BHP Billiton wanted to acquire the profits streams and asset potential of its acquisition targets such as Athabasca Potash and WMC Acquisitions. Further, the entry of BHP Billiton into potential markets such as China has enabled the firm to gain a market foothold in the mining industry.
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