This is the case about one of the leading players in global resource industry. In this case we will conduct an external analysis of the firm along with determining the conditions that can help company in leveraging the growth opportunity. The macro environment analysis will also be conducted so that external environment of the company can be analysed deeply. The global resource company is thinking of expanding its operation in different areas, this case will help in identifying potential of the opportunity.
This report is divided into few sections, Introduction, Firm Background, General overview, Growth Opportunity, Analysis. The report will discuss about the history of company along with providing the details, a growth analysis will be discussed along with the analysis of the opportunity. In this context the ratios of the company will also be discussed.
BHP Billiton is one of the leading companies in the global resources sector. BHP is among the leading producers of the world. BHP Billiton is the producer of the major commodities like iron, copper, and uranium ores since many years.It holds interest bothin the conventional andnon-conventional form of oil and gas as well as energy coal.BHP Billiton operates on a general strategy of owning and operating long life, large, expandable, and low cost and upstreamassets. The company diversifies by geography, market and commodity BHP Billiton has a portfolio of some of the best high-quality growth opportunities that continue to position BHP Billiton as a company that can fulfil the dynamic needs of the customers. The demand of the resources is increasing with the number of days and the company is effectively fulfilling the demand.
BHP Billiton was started in the year 1851 and since then, BHP Billiton is providing help to the communities, industries and economies across the world. The company was formed after the merger of BHP and Billiton. BHP (Broken Hill Proprietary) was involved in the silver, lead and zinc mines of Broken Hill, Australia. Billiton’s roots can be traced back to 1851, it was a tin mine on the island in Indonesia.Billiton also became the global leader in the mining and metal sector (BHP Billiton, 2016)
The BHP Billiton is operating in one of the biggest industries with Price volatility, geopolitical turmoil and rising costs. The industry environment is highly challenging but BHP Billiton is operating successfully with some of the best strategies and a business model.
The major divisions in which the company operates are as follows:
Minerals Australia– Minerals Australia, a business division of BHP Billiton includes the operations in Western Australia, Queensland and New South Wales and South Australia. The focus is on the copper, coal, nickel and iron ore.
Minerals Americas – The headquarters of Minerals Americas is in Santiago, Chile. It is the biggest producer of metals such as copper concentrate, thermal coal zinc concentrate and iron ore.
Petroleum – The petroleum business includes the exploration, development, production as well as marketing activities.
Marketing – The marketing division is responsible for all the market. Its function includes selling the products and purchasing the raw material (BHP Billiton, 2016).
Source: (BHP Billiton, 2016).
BHP Billiton also contributes actively in the serving the community in which it works. It believes in contributing to the communities, nation and the regions by strengthening the society. BHP Billiton engages and advocates the important issues by supporting the targeted development of different areas in which they operate (BHP Billiton , 2016).
The global resource sector has made significant contributions in the growth and development of the economies. There are number of growth opportunities that can be leveraged by the BHP Billiton. The opportunities however can be leveraged in the best possible manner if all the potential resources are integrated effectively such as finance and human capital (BHP Billiton , 2016)
BHP Billiton has a pipeline of projects which are on their feasibility phase. There are total 29 projects with over an investment of $17.5B (BHP Billiton, 2015).These projects include the diamond exploration projects which are potential enough to provide higher revenues. The company can execute its marketing activities in the most innovative way by increasing the use of social media tools. BHP Billiton can outreach the customers with the help of promotional strategies that are used by the company for promoting its natural resources and commodities. The airborne survey tool of the company has also identified the opportunities in the diamond exploration sector. The technology group of the organization can coordinate in context of developing the revolutionary technology that can reduce the cost structure of exploring diamonds. The major technologies on which the team can work on for leveraging the opportunities associated with diamond exploration are an advanced form of bio leaching (BHP Billiton, 2015),
In order to compliment the understanding of the overall general macro environment for BHP Billiton a PEST analysis is conducted below:
Political factors
BHP Billiton is one of the global resource companies that are susceptible to number of political risks factors prevailing in the global resource market (BHP Billiton , 2016) The political factors such as license to operate can potentially affect the ability of the company to execute its pipeline projects along with the diamond exploration projects (Reddy, 2001).Other political risks associated with company’s diamond exploration are civil unrest, terrorism, changes in government policy etc. Moreover theMineral and Petroleum Resources Development Act of 2002 has made several changes in the structure of mining and explorations. In future, the government has the potential to affect the operations of the company (BHP Billiton, 2016)
Economic Factors
BHP Billiton is also highlyinfluenced by the economic factorsespecially related to inflation in the energy costs, the costs of exploration, operation costs, labour costs and the material costs (BHP Billiton , 2016). The economic factors have the potential to adversely impact the expansion plans of the company. Moreover, the company presently is operating in an industry that is highly dependent on the recent strength of global commodities prices that are related with the health of the economy (Sadler, 2003). Moreover, as the operations of the firm are global and hence, it is also exposed to the risk of fluctuating currency valuations along with the general economic risks prevailing in the world. Any sort of weaknesses in the economies across the globe can cause a fall in the demand of diamond; this will eventually lead to an increased supply along with reduced prices which can further affect the company’s profitability. For example, the company is heavily dependent on the economy of Chinafor over 16.8% of the company revenue which is $6.6b (BHP Billiton , 2016)???
Socio-Cultural Factors
BHP Billiton is alsoinfluenced by some of the socio-cultural factors in context of starting the new operations such as diamond exploration (BHP Billiton , 2016).The socio cultural factors require that the company financially supports the local communities along with providing the resources such as roads, schools and housing. The new diamond exploration projects will also require the social approvals in addition to government approval (Hill & Jones, 2008). Such approvals will also affect the profitability andthe new mining and exploration projects will require the approvals in the form of ‘social approvals’, which can further increase the development costs. Currently, the company has taken several steps that can improve the conditions of the workers along with improving the quality of life (BHP Billiton , 2016)
Technology Factors
BHPBilliton is also affected by the technological factors as new exploration and mining activities are evolving with the number of days. The company has to adopt some of the best ways of exploration and mining so that the exploration costs can be reduced. The investments in the technological sector are vital for the company. The technological investments will affect the key strategic drivers such as the exploration projects of the company and the world class assets (BHP Billiton , 2016)
Profitability ratios
Source: (BHP Billiton, 2015).
By looking at the Return on Equity (ROE), it can be inferred that the money of the stockholders is being effectively used or reinvested for generating the income. The ROE of the BHP Billiton has shownvariation since last 5 years. ROE in year 2014 was 18.47% which is good sign. Net profit margin of the organization rose from 16.49% in 2013 to 20.58% in 2014. This rise in net profit margin can be because of tax rate cut.
Operating income ratios
Source: (BHP Billiton , 2016).
This ratio helps the investors to make best decisions so as to analyse the effectiveness of the investments in the asset. There is the fluctuation in the total assets and fixed assets turnover. However, the performance of operating turnover ratios is good.
Liquidity Ratio
This ratio shows ability of firm to fulfill its short term liabilities. It can be seen that current ration of company in 2014 was 1.23. This is quite lower in comparison to industry average. The quick ratio of the company has also increased over the period of time showing rise in level of inventory.
Solvency Ratio
Source: (BHP Billiton, 2016).
The interest coverage ratio of the firm hasrisen 38 times. This indicates that cost of capital has increased. Thus, there is need for company to look for sources of funds that are low cost.
The global resource industry has number of competitors who can affect the operations of the company. The competitive rivalry among the competitors is high; this is because the companies involved in mining and exploring oil are competing intensely for having an access to the natural resources like diamond across several Continents. The industry life cycle includes the four stages – introduction, growth, maturity and decline. The company is in its maturity phase, it will continue to be in this stage till it uses the best practise and strategies.
Source: (BHP Billition, 2011).
Some of the current competitors of BHP Billiton are as follows:
Rio Tinto
Rio Tinto is a leading company for global mining and metals. The focus of the company is on finding the sources along with mining and processing the minerals of the earth (Rrio Tinto, 2016).The company has the resources, capabilities and the people that can help in supplying the minerals and the metals. Some of the major industries are heavily dependents on the companies such as Rio Tintolike the construction, communication, transport and healthcareindustries (Rrio Tinto, 2016).
Anglo American
Anglo American is anotherglobally diversified mining business company. The company includes the world class mining operations. The company uses the latest technology to explore and process the minerals. The company operates in several products such as diamonds to platinum. It also includes the metals such as metals and copper (Anglo American, 2016).
Potential competitors
There can be two major potential competitors of BHP Billiton. The potential competitors have been given below:
Companhia Vale do Rio Doce (CVRD)
It is one of the leading producers of the important metals such asiron pellets, iron ore and other minerals. It is primarily owned by the Brazilian government. This company has played an important role in developing the resources especially in the region. The success of the company is based on the ability as well as the foreign expertise that can help in retaining the control (Republic of Mining, 2011)
Alcoa Inc
Alcoa Inc. is a leading American public company that is widely known for the manufacturing oflight-weight metals along with using some of the best advanced manufacturing techniques. It is the third largest producer in the world and is headquartered in New York City. The operational base of the company is in Pittsburgh, Pennsylvania. It has operations in over 30 countries. It is specialised in the light weight metals (Alcoa, 2016).
Source: (BHP Billition, 2011)
Bargaining Power of Buyers –The force of bargaining power of buyers isin the range of moderate to low in the case of BHP Billiton. The prices of the metals and minerals are determined by the industry trends.
Bargaining Power of Suppliers – BHP Billiton is highly affected by a high degree of bargaining power of suppliers. The overall costs of the suppliers are increased (Republic of Mining, 2011)
Threat of New Entrants- The threat of new entrantsin the global resource industry is in the range of moderate to low. There is a lack of capacity related to natural resources and oil. Entering in the global resource industry high capital is required. (BHP Billiton , 2016)
Threat of Substitutes-The threat of substitutes is also low. This is because less number of substitutes for raw materials products available. (BHP Billiton, 2016)
Rivalry among Competing Sellers- The rivalry among the competing sellers in the market is strong because all the mining and oil companies are competing strongly,to gain anaccess tothe important natural resources across the globe (BHP Billiton, 2015)
There are key success factors that are helping the BHP Billiton to attain success in the highly completive global resources industry. These success factors are discussed below:
Innovation – The Companybelieves in innovation, the major functions and practices that help the company in gaining a competitive advantage are innovated. (BHP Billiton, 2016)
Business practise – The company has adopted the best practices related to human resource management, finance, exploration and mining(BHP Billiton, 2016)
Corporate social responsibility – The corporate social responsibility arm of the company is also one of the strong pillars of success for the company(BHP Billiton, 2016)
Alcoa. (2016). Produts and services. Retrieved September 17, 2016, from https://www.alcoa.com/india/en/home.asp
Anglo American. (2016). We Create Value that Lasts. Retrieved September 17, 2016, from https://www.angloamerican.com/about-us/at-a-glance
BHP Billition. (2011). Sustaianbility report. BHP Billition.
BHP Billiton . (2016). Resourceing the future. BHP Billiton .
BHP Billiton. (2015). Resourcing global growth. BHP Billiton.
BHP Billiton. (2016). About us. Retrieved September 17, 2016, from https://www.bhpbilliton.com/aboutus/ourcompany/ourhistory
BHP Billiton. (2016). Businesses. Retrieved sept 17, 2016, from https://www.bhpbilliton.com/businesses
BHP Billiton. (2016). Global Locations. Retrieved September 17, 2016, from https://www.bhpbilliton.com/businesses/globaloperationsmap
Hill, C. W., & Jones, G. R. (2008). Essentials of Strategic Management. Cengage Learning.
Reddy. (2001). Basic Structure Analysis. Tata McGraw-Hill Education,.
Republic of Mining. (2011, June 17). Republic of mining. Retrieved sept 17, 2016, from https://www.republicofmining.com/2011/06/17/companhia-vale-do-rio-doce-cvrdvale-history-1942-1989-by-international-directory-of-company-histories/?doing_wp_cron=1474117304.2827050685882568359375
Rrio Tinto. (2016). About us. Retrieved September 17, 2016, from https://www.riotinto.com/about-us-108.aspx
Sadler, P. (2003). Strategic Management. Kogan Page Publishers.
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