BSRE301 Business Strategy For Multinational Mining Organizations

Answers:

Introduction

One of the most successful multinational mining organizations is BHP Billiton, which was established through merger between BHP and Billiton in the year 2001. It is having its headquarter in Melbourne, Australia and London, UK. Through global market diversification it has achieved A$30.9 billion revenue, US$6.2 billion operating income and US$6.2 billion profit in the year 2016. The organization is listed under metal and mining industry and is related to mining, petroleum and metal extraction and steel production in the last couple of years. This report will discuss the BHP Billiton’s competitive advantage, trends in the Australian steel manufacturing industry, current business strategy of BHP Billiton in Australia including internal and external analysis.

BHP Billiton’s Competitive Advantage

The competitive advantage of BHP Billiton can be analyzed through the Porter’s Generic strategy. This theory suggests an organization towards gaining competitive edge through either of or combination of cost leadership, differentiation, and focus strategy. The competitive advantage of BHP Billiton has been shown through the Porter’s Generic strategy.

Porter’s Generic strategy

Cost Leadership

Cost leadership strategy suggest for being low cost producer within an industry for a given minimum quality of products. While considering BHP Billiton, it can be said that the organization offers its products at below the average industry prices for gaining enhanced market share in Australia. According to Price (2015), the organization offers lower prices to its clients and customers for its products like minerals, petroleum, iron, gold, oil, natural gas and others. In this way, the organization has grabbed huge clients and customers. Moreover, the cost leadership strategy encouraged several clients and customers towards taking its products. Pepper et al. (2015) pointed out that increasing customer and client base have increased the sales volume of BHP Billiton, which in turn increased its market share. BHP Billiton has grabbed 53% market share in Australian market through its cost leadership strategy.

Differentiation

Differentiation strategy suggests for adding some unique factor to the product ranges or an organization. Such strategy facilitates in providing unique value to the customers over the rival companies. In this way, differentiation through unique value helps an organization in creating competitive edge over the rivals. In case of BHP Billiton, the competitive edge of the organization lies in wide ranges of product portfolio. Moreover, Bellis (2016) opined that BHP Billiton is capable of providing wide ranges of mining products like Coal, Iron Ore, Copper, Nickel, Gold, Natural Gas, Petroleum, Uranium and many more. Moreover, the organization always maintains high quality of the products in all categories. The high quality copper concentrate is extracted from sulphide ore through flotation extraction process. On the other hand, Hubbard (2017) opined that the high-quality metallurgical coals of the organization are quite attractive to the customers and clients of Australia. Moreover, the premium quality of the iron ore and copper and other minerals has differentiated BHP Billiton from the others in the market and enhanced its competitive advantage. Such competitive factors have also increased the sales volume of the organization in the market.  

Focus Strategy

Focus strategy concentrates more on narrow segment and applying either cost advantage or differentiation for gaining competitive advantage. In Australia, BHP Billiton has directly focused on the direct customers, who need direct minerals. The organization has used differentiation strategy within this narrow segment for gaining competitive advantage through providing unique quality minerals. 

Trends in the Australian steel manufacturing industry

Australian steel manufacturing industry is extremely vital for overall growth of Australia Economy. It has created employment for almost 100000 people nationally. Furthermore, Arrium Limited (2016) opined that the multiplier effect of steel manufacturing company creates almost 3-5 indirect jobs for every direct job on steel manufacturing companies. Apart from economic benefit, the industry also offers high quality, safe and consistent supply of products for critical infrastructure. The industry has contributed almost 9% to the overall GDP growth of Australian Economy. Yellishetty and Mudd (2014) pointed out that Australia steel manufacturing industry is highly innovative and contributes more than 25% of its business expenditure to its research and development for enhancing the quality of the steels. 

While considering the latest trends of Australia Steel Manufacturing industry, it can be said that the industry uses latest technologies for manufacturing premium quality steel. Yellishetty and Mudd (2014) pointed that the ever evolving steel industry is developing cheap and efficient technologies for producing high quality steels. Advanced technology has also increased the production volume of the steel in the steel manufacturing industry.

The domestic demand of steel has been increased by 5% by the year between 2015 and 2016. However, global demand of steel has been reduced with huge production of steel in China, Taiwan, India and South Korea. Furthermore, Donovan and Hartley (2016) opined that the higher Australian Dollars have driven increased production cost, which includes key commodities like Coal and Iron Ore.  

Current business strategy of BHP Billiton in Australia

Market Penetration

With the progress of time, the organization has diversified its production base in multiple markets from Australia to Unites States. The assets are comprised of Onshore units, production unit and joint interest unit with ownership from 1 to 100% in international market. In this way, the organization has able to diversify its risk and take competitive advantage 

Consistent Business Model

Following strategic business model framework has led to the success of BHP Billiton.

Table 1: Business Model Elements of BHP Billiton

(Source: BHP Billiton 2016)

Internal Analysis of BHP Billiton

The internal Analysis of the organization can be analyzed through the framework of VRIO. It analyzes the ability of organizational resources and capabilities towards gaining sustainable competitive advantage.

VRIO Framework

Management Talent

The management of BHP Billiton is highly talented towards taking right decision at right time. Moreover, the management of this organization has strong capabilities towards assessing the market opportunities and taking decision for utilizing those market opportunities. Moreover, Mayes, McDonald and Pini (2014) opined that the group management committee of BHP Billiton always opt right policies and procedures in consultation with each other for business operations. Furthermore, the management of the organization has adopted horizontal communication policies for encouraging shared value with organization and fostering innovation through considering the input of all organizational members. Lodhia and Martin (2014) pointed out that the managers are also quite capable of managing the valuable human resource for getting their best effort towards organizational success. The managers effective decision regarding financing and strategy formulation towards getting organizational success in optimum manner.

Resources and Capabilities

The worldwide distribution network of BHP Billiton is high valuable for creating sustained competitive advantage. It helps them towards getting smooth flow of raw materials and finished goods. Chambers (2016) pointed out that the secret formula of BHP Billiton towards adding high quality in all their mineral products has led to sustained competitive advantage for the organization. Such secret formula cannot be imitated by any other organization s. Furthermore, Turner (2014) opined that brand recognition of BHP Billiton attracts huge volume of customers, which also adds to the sustainable competitive advantage. Apart from that, strong technological advancement has made BHP Billiton capable of producing premium quality minerals in large quantity. However, such technology can be imitated by other competitors. It has added to the competitive parity to the organization. On the other hand, de Villiers, Low and Samkin (2014) opined that talented and dedicated human resources of BHP Billiton have huge contribution to its competitive parity.

Table 2: Internal Analysis of BHP Billiton through VRIO

(Source: Created by Author)

External Analysis

Macro Environment Analysis (PESTLE)

Table 3: PESTLE Analysis of BHP Billiton

(Source: Bayari 2016)

Micro Environment Analysis (Porter’s Five Force)

Table 4: Porter’s Five Force Analysis of BHP Billiton

(Source: Lèbre, Corder and Golev 2017)

Conclusion

While concluding, it can be said that BHP Billiton is having a concrete competitive advantage in the worldwide market because of clear purpose and business model. However, it is facing tough operational challenges due to lack of transportation in developing countries. It is evident that usage of advanced technology, asset management techniques and good relationship with stakeholders has led BHP Billiton to achieve huge reputation in global market. However, in future it needs to reduce greenhouse gas emission at the time of extraction as at present it is the 19^th corporate polluter in the mining industry.

Reference List

Arrium Limited 2016. The future of Australia's steel industry. 16. Sydney: Arrium Limited, pp.1-21.

Bayari, C., 2016. Economic geography of the Australian mining industry. Tijdschrift voor economische en sociale geografie, 107(5), pp.552-566.

Bellis, J.F., 2016. The iron ore production joint venture between Rio Tinto and BHP Billiton: The European angle of a multinational antitrust review. In Emerging Issues in Sustainable Development (pp. 221-243). Springer Japan.

BHP Billiton, 2016. Resourcing global growth Strategic Report 2015. 15. Melbourne: BHP Billiton Plc, pp.1-68.

Chambers, M. 2016. BHP to focus on strategy. [online] Theaustralian.com.au. Available at: https://www.theaustralian.com.au/business/mining-energy/bhp-billiton-to-focus-on-strategy-and-development/news-story/6218fc52b8eb9f415fe26564202d10fc [Accessed 21 Sep. 2017].

de Villiers, C., Low, M. and Samkin, G., 2014. The institutionalisation of mining company sustainability disclosures. Journal of Cleaner Production, 84, pp.51-58.

Donovan, J. and Hartley, P., 2016. Riding the Iron Ore Cycle: Actions of Australia’s Major Producers (No. 16-15).

Holappa, L.E.K., 2017. Energy Efficiency and Sustainability in Steel Production. In Applications of Process Engineering Principles in Materials Processing, Energy and Environmental Technologies (pp. 401-410). Springer International Publishing.

Hubbard, T.N., Hubbard, T.N., Moore, M.J. and Moore, M.J., 2017. BHP Billiton: Mining Potash. Kellogg School of Management Cases, pp.1-13.

Lèbre, É., Corder, G. and Golev, A., 2017. The role of the mining industry in a circular economy: A framework for resource management at the mine site level. Journal of Industrial Ecology, 21(3), pp.662-672.

Lodhia, S. and Martin, N., 2014. Corporate sustainability indicators: an Australian mining case study. Journal of cleaner production, 84, pp.107-115.

Mayes, R., McDonald, P. and Pini, B., 2014. ‘Our’community: corporate social responsibility, neoliberalisation, and mining industry community engagement in rural Australia. Environment and Planning A, 46(2), pp.398-413.

Pepper*, A., McIntosh, P., Fitzsimmons, R., Gebhardt, T. and Dillenbeck, E., 2015, September. The Unconventional Global Endowment: Results of BHP Billiton's Global Assessment. In International Conference and Exhibition, Melbourne, Australia 13-16 September 2015 (pp. 283-283). Society of Exploration Geophysicists and American Association of Petroleum Geologists.

Price, G., 2015. Spotlight on seeds for BHP Billiton Iron Ore. AusIMM Bulletin, (Jun 2015), p.76.

Turner, P., 2014. A brief tale of two BHP-billiton mining proposals. Nature New South Wales, 58(1), p.29.

Yellishetty, M. and Mudd, G.M., 2014. Substance flow analysis of steel and long term sustainability of iron ore resources in Australia, Brazil, China and India. Journal of cleaner production, 84, pp.400-410.