Discuss about the External Environmental Analysis For Small.
The business does not exist in vacuum but coexist with the surrounding and the greater markets. The external environment of the business is not under the control of the organisation and impacts the business positively or negatively (CGA, 2010). In both cases the business has to readjust is strategy to avail the positive opportunity or whether the negative impact. In the current report the example of BHP Billiton is taken to analyses the external environment impact on the business and measures taken through applying some definite models of business.
BHP Billiton is an MNC Company in the natural resource market. The organisation was formed through the merger of Billiton PLC and BHP Ltd in the year 2001 (BHP Billiton, 2018). As being one of the largest organisations in the mining sector the organisation operates in the production of copper, iron and steel, oil, aluminium and gas. The HQ of the organisation is in the city of Melbourne in Australia. The organisation current holds $98.3 bn as their market capital and have $33.95 bn in their sales figure (Forbes, 2017). In recent year the organisation is in some type of difficult in terms of revenue and business growth. After 2014 the higher growth rate of the business has seen some downward movement and that seems to bottom out in 2016-17 as the sign of improvement is visible (simplywall, 2018). Under these circumstances the report would try to identify the external cause of this decline in the business for BHP Billiton.
[Source: simplywall, 2018]
The business external environment is analysed through the PESTLE framework for the BHP Billiton. This framework would focus on the business macro environment to understand the challenges to later address those through proper business strategy (Newton, 2014).
Political and legal factors- as one of the largest mining company BHP Billiton has to consider the political factors operated from different region and also to trade the products to other region. The natural resources are owned by the country and authorised by the governments to be exploited by the privet enterprises. In the Africa continent BHP Billiton has large size of investments where the political instability can cause problem in production process. on the other hand the mineral product from the Australian region is sold around the world especially to China. Many bilateral agreements between the China and Australia on the 80’s lead the foundation of this strong trading relationship which also influenced the higher mineral exports to China (aph.gov.au, 2017). On the other hand the Australia and USA has close relationship and the relation between USA and China has an implication on the China-Australia relationship. In recent times the political relationship has deteriorated and that has developed the fear of Australian goods boycott in the China (Couriermail.com.au, 2017).
[Source: Minerals.org.au, 2015]
Economical factors- the consumption of mineral goods is directly related to the economic growth of the region or the world. The world economic forecast shows a 3.7% growth expectation in the 2018 which is a significant improvement from the earlier years (IMF, 2018). this would be a positive indication for the mineral exporter like BHP Billiton. On the other hand the largest consumer of mineral in the world is showing a downward trend in growth trajectory (IMF, 2018). This would impact the business in the mining exports negatively as the slowing demand means low imports of mineral in China. On the other hand other large emerging economic like India, is showing good prospect of higher growth rate and may help to compensate the slowdown in China.
[Source: Minerals.org.au, 2015]
Social factors- in the Australia the population is aging along with the increase in the average age of the population (Australia & Swan, 2010). In the mining sector this may create situation of shortage for hard labour. On the other hand the higher educational level and technology inclusion has helps the industry to have the right talent over the years. Some of the social issues that are closely associated with the mining industry are the issue of resettlement, managing sentiment of indigenous people, and the process of social life standard improvement. In recent times these issues as strong resistance for many projects in Australia and needs to be managed properly (Lloyd et al., 2013).
Technological factors- the technological advancement has improved the efficiency and the production capacity with proper economy of scale in recent past in the mining industry. But in recent time the debate is on the sustainability factor of the technology and the mining as a whole. The technology needs to be accepted by the population of Australia as more sustainable, reduced risk option (Issuesmagazine.com.au, 2018). The future technology use in that context has to look into sustainable part more otherwise intangible or tangible cost like reputation loss and closure or retro fitting cost respectively would have to be incurred by the organisations (Issuesmagazine.com.au, 2018).
Environmental factors- the industry has been the cause of concern for the Great Barrier Reef, negative impacted on the cultural or natural beauty or bio diversity of different region of Australia (Mudd, 2010). This is one of the significant concerns for the industry in recent time and needs to be death with proper strategy to make the industry much more sustainable.
The external situation of the mining industry would be addressed through proper business strategies by the BHP Billiton. Here the internal business environment would provide some solution.
Strength- long term strong financial performance and availability of large financial resource is one of the strength of BHP Billiton (BHP Billiton, 2018). BHP Billiton has fully processing facility of minerals through integrated system in Australians Olympic dam which is the one of the world biggest ore resource storage. It has the iron ore integrated process facility in Western Australia. Owing the BMC and the 1/5 ownership of Mitsui, BHP Billiton control large production of coal in Australia (BHP Billiton, 2018). It has large Nickel processing fully integrated facility in Nickel west. The diversified and large international presence based business of BHP Billiton is a source of strength.
Weakness- there has been some mishap in past in the operation of BHP Billiton which created some bad reputation (Northey et al., 2013). Corporate communication of the business needs to improve. The change in demographic would need for technological solutions for the proper production. Fluctuations in demand for export lead to negative growth from 2015 to 2017.
Opportunity- the better economic situation in the world economy is the most optimistic situation for BHP Billiton. Large emerging country like India is sowing strong growth prospect which provide good opportunity. On the other hand the better economic situation in the world would help in the improvement in the Chinese economy as being a large export oriented economy and this would help in the revival of demand in the China (De Beule & Duanmu, 2012). More reliance on technology and the automation process would improve the efficiency and economy of scale (Ralston et al., 2014).
Threat- over dependence on the exports where demand fluctuates with the economic situation is a threat. The competition in the market is significant and greatest efficiency is the demand. The political threat explained in the PESTLE is some cause of concern (Couriermail.com.au, 2017). The rising cost would reduce the margin further. The environmental and community impact because of the mining process is also significant threat for the business.
Strength and opportunity- the business strength would be useful to get advantage from the opportunities. The below list are the top iron ore importer in the world constitute around 97% of the exports (worldstopexports, 2018). BHP Billiton can use the opportunity of better world economic situation to export more to these countries because of the expected higher demand.
[Source: worldstopexports, 2018]
Strength and threat- the main threat is the political uncertainty, environmental and social pressure on the mining industry. Here BHP Billiton can use its large resource base and capital to find a innovative technological solution of the problem to make the operation more suitable. The political problem between China and Australia could see problem of exporting from Australia. But one of the strength of BHP Billiton is the large resource and production facility around the world. It can then fulfil the demand or iron ore from its Brazil based operation (bhp, 2007). On the other hand the political tie between India and Australia is good and as a fast growing economy India would need imported iron ore as the production gap shows between Indian and China (ironorefacts, 2018). BHP Billiton should use this option to compensate the lack of demand in China.
[Source: ironorefacts, 2018]
Weakness and opportunity- the main weakness of BHP Billiton is dependence on the demand of China for exporting mineral which lead to sharp down turn in the business (Christie et al., 2011). After a long time the world economic scenario become so optimistic and riding on this opportunity the business have to develop new markets to develop presence in wide geographical areas.
Weakness and threat- the past bad record in the social and environmental issues from the BHP Billiton’s side is a reputational weakness. The current increased concern for the world environment is a significant threat to business sustainability. Using more sustainable approach, technology and proper CSR strategy the situation can be minimised (Dashwood, 2011).
Conclusion
In conclusion it can be said that the external environment of BHP Billiton has impacted the business negatively in recent time. But the analysis also able to find the opportunity that lies in the current and future position. A batter management of these external environmental issues of the business are possible when the strength and weakness is analysed to evaluate those opportunity and threat existed for the business.
Reference
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