Headquartered in Melbourne, Australia, BHP is one of the leading Global resource companies, run by a unified framework of Board and Management, involved in the extraction and processing of oil and gas along with minerals. It primarily operates in Australia and Americas under the structure of a Dual Listed Company: BHP Billiton Limited and BHP Billiton Plc, with an employee strength of about 60,000 (BHP, 2018). It supplies its products and services through sales leads of Singapore and Houston, USA. The organisation’s primary objective is to utilize its capital discipline to obtain maximum beneficial returns from its assets and establish long term relationships with its shareholders by way of creating values and enforcing future growth options. BHP aims to achieve this purpose through exploration, procurement, enhancement and market propagation of natural resources by means of geographic expansion, diversification of tier one assets, cost-effective economic strategies, emphasizing on safety and by implementing updated technology. These means have led BHP to position itself as one of the top producers of iron ore, metallurgical coal, copper, oil and gas across the world.
BHP Billiton had prioritized 3 strategic approaches with a view to ensure maximum output with optimized level of inputs. These included:
Productivity: The primary focus of the strategy subscribing to productivity is ensuring the safe maintenance of quality assets that guarantee stronger cash flow. Through productivity gains, the company was able to generate a free flow of cash over US$10 billion (BHP, 2018).
Simplification of Portfolio: In order to gain an upper-hand in the volatile economic environment, BHP strives to utilise the opportunities associated with the diverse range of portfolios to increase the per share value. The company had reached the heights of financial strength and flexibility that led to its prosperity at all points in the economic cycle. A significant example includes the demerger of South32 (the Guardian., 2018).
Capital Discipline: This particular strategy works on the principle of asset-integrity which is based on the framework of capital allocation. The framework also caters to the maintenance of balance-sheet strength. By paying minimum dividend under the pay-out policy, the company reinvests the surplus cash flow or resell it to the shareholders through additional dividends. By doing so, BHP had been able to achieve an overall reduction of 70 per cent in its capital expenses (Financial Review, 2018).
On 5th November, 2015, a fine waste dam at the iron ore mine of Samarco, Barazil had devastatingly collapsed. This construction was a partially owned BHP venture. It had polluted a large portion of Doce River Basin and its adjoining sea and killed around 20 people (Financial Review, 2018).
The second catastrophe in which BHP got involved was linked to the coal mines of Cerrejón in Columbia. As per the information brought into the limelight by an associate of the Organisation of Indigenous Women, the coal mines of Cerrejón had led to unacceptable impacts and deliberate violation of the fundamental rights of La Guajira Community (Ford, Steen and Verreynne, 2014). To condemn these impacts, the human rights activists and the land defenders participate in the BHP held Annual General Meetings, every year. Although the company had assured them of proper examination of the situation in order to change it for better, their promises did not get reflected in the official agreements with La Guajira Community.
With a view to overcome the effects of casualties and disasters, BHP had substantially restructured its priorities:
Growth and Development: BHP follows a cost-effective expandable strategy. It aims to recruit from different communities so that it can readily meet their changing needs and accordingly plan better strategies for future (Datta et al., 2014).
Powerful Market Position: BHP is an established organisation and involved in the marketing of coal energy along with oil and gas. This is one of its biggest strengths as it is the leading player in the global market (Mayes, McDonald and Pini, 2014).
Diversification: Unlike other refineries, BHP has been able to expand its base in various commodities such as Uranium, Copper, Manganese, Copper, Aluminium, Iron Ore, Silver and Nickel along with Petroleum, Potash and natural oil and gas (the Guardian., 2018).
Economy: BHP’s profitability is largely dependent on the market demand of coal and its price in the global market. Depending on its surge and dip respectively, BHP’s booming market with large cash flow or heavy losses will operate (Bice 2014).
Trading of Community: The commodity that BHP trades in is a volatile one which makes financial decisions a tough call under circumstances when market does not do well (Datta et al., 2014).
Locational Advantage: Due to abundance of natural resource, BHP has a huge opportunity in exploring such areas for the purpose of mining, throughout the year. This fact has also lend the company an advantage with respect to cost leadership strategy (Sykes, 2015).
Energy Efficiency: The main product of BHP consist of Energy. Going by recent statistics, the demand for energy has been rising steadily as it is an integral part of all functional operations for all industries (Richardson, 2016).
Availability and Cost Efficiency of Coal: BHP has established itself as the largest producer of coal, worldwide. This stability has delivered it a huge opportunity to increase capital in this industry (Mayes, McDonald and Pini, 2014).
Economic Trends: The number of developing nations across the world has been growing steadily and so has the demand for coal energy since it is the cheapest form of energy. This fact gives BHP a huge opportunity (Ft.com., 2018).
Maximum Benefits from Potential Assets: Through discovery of new resources and effective means to extract it, BHP has been able to obtain around 2300 billion tons of coal (Fish and Wood, 2017).
Alternative Sources of Energy: Researches are being conducted to explore the alternative sources of energy in order to preserve and safeguard the exhaustible resources such as coal and natural gas. This is one of the major potential threats (Londonminingnetwork.org., 2018).
Health Hazards from Mining: A large number of BHP employees suffer from the health hazards posed by mining. There are also risks of chemical hazard and hazards from air or water bourn pollution (Ft.com., 2018).
Government Regulations: A new regulation with respect to the EPA can substantially disrupt BHP’s profit making strategies as such restriction or rules imposed would lead the company to spend additional amounts on safety and clean-up measures (Grant et al., 2014).
The components of the determinants in the PESTEL Analysis tend to influence on the strategic drivers for BHP Billiton Australia.
BHP attempts to maintain a well-versed leadership ethos within its framework by emphasizing and improving the core relationship and communication between the leaders and the subordinates. It focuses on achieving the most refined skill in leadership by addressing the management needs and making the team operations effectual. BHP has already curved a niche as the leading coal producer, competing with three major industries namely, Alcoa Inc, Vale S/A and Rio Tinto Hill (Hill and Seabrook, 2013). In its effort to keep a fair competition, BHP has been able to exercise about 40% control in the market (Jupp et al., 2016).
To conclude the above report it can be said that BHP has been able to establish itself as a market leader in coal, natural gas and oil production across the world. With the help of effective strategies in corporate governance and market operations, the organisation has been able to gain competitive advantage over other industries in similar domain. Being in the extraction and marketing of coal which is the cheapest source of energy, BHP strives to make its business as cost effective as possible by optimizing its resources to maximise the production. Apart from few restrictive measures addressed by the pollution control board, BHP has mostly opportunities to help it carry forward its operation with the intended vigour. BHP also takes care of the hazardous effects of mining that its employees have to face. Another advantage in the form of public policies has facilitated its agenda to spread its market across the globe at reasonable price. By maintain effective measures against the popularity of the alternative renewable sources of energy, it can be said that BHP has a good prospect in creating a sustainable market in the years to come.
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