GSBS6008 Global Business Management | Multinational Company

Introduction

BHP Billiton is one of the largest mining companies having its base in Australia. The multinational company deals in mining as well as metals and petroleum products. Founded in the year of 1885, the company became world’s largest mining company in 2017 (Cottle & Keys, 2014). In addition to this, in 2005, the company announced an agreed bid with the VMC Resources, the owners of the Olympic Dam uranium, copper and gold mines located in South Australia. At present, the company has their mines in more than fifteen countries and deals in coal, iron ore, petroleum and copper. Along with the other European countries, the company has made its expansion in some of the Asian countries such as China, Malaysia, Korea and India. In this report, the company’s expansion and operation in India and China will be discussed and analyzed. Moreover, a comparative study of the success and failure of these two markets and further scopes of future developments have also been discussed.

Entry into India and China

BHP Billiton is operating in the Indian market for over thirty years. In the year 1980, the company made its expansion policy in India. During that time, the company only started with exporting coal to the Indian market. However, over the decades, the company started importing the iron ores and iron products. In not only India, but also the company is also one of the largest suppliers of coal in many countries of East Asia. Moreover, the company has been one of giant suppliers of energy coal to the Indian market. Energy coals are largely into use in the cement sectors. During the course of time, the company has started exploring in the mineral oil and petroleum, coal, diamond and iron ores (Ma, 2013). Moreover, the company has also set its foot in the fields of natural gas in modes of liquefied gas and LNG. As proclaimed by the economists, India is to be considered as one of the fastest growing countries. It is perceived that by 2050, the country will eventually grow to be one of the four largest economies of the world (Hurst, 2015). Moreover, the company has also acknowledged India to be one of the major countries that have ever increasing demands of natural gas and iron ores. As a result of the increasing industrialization, the country also has an ever increasing demand for steel products. Hence, the company aims at making profitable business in the Indian market. As the country also has ever-increasing demand for met coals, BHP is highly willing to continue trade in the Indian market for its diversity.

However, in the initial days the company has faced multiple problems in starting their business in India. The primary problem that the organization has faced was of finding proper infrastructure. Due to the shortage of proper infrastructure and availability of adequate space, the foreign organizations often find it difficult to find proper working space. Another important aspect that creates hurdle in the process of expansion is the shortage of quality workforce (Hurst, 2015). India is a country with vast workforce; however, the quality amongst the workforce is to be scrutinized. Moreover, the country is having a diverse culture. For the foreign organizations, understanding and dealing with these diverse cultures and languages become highly toiling.

In contrast to the market in India, the company has seen a rapid growth in the Chinese market. As the company has mentioned, they expect the Chinese market to be one of their largest and sustainable consumer base of the raw materials (Ma, 2013). As seen by the annual reports, the consumption of the raw materials is doubling with each passing decades. Moreover, the rapid urbanization and infrastructural growth is the primary driving force in the successful business in the country. However, the company more often complains of a decrease in the demands for the supply materials (Tian, Zhu & Geng, 2013). As the country of the largest population in the world, China is suffering from shortage of natural resources. Hence, BHP Billiton is incurring significant profit in the Chinese market by exporting their products and raw materials. Moreover, over the course of 30 years, the Chinese market has been claiming to be of 15% of the world consumption (Cottle & Keys, 2014). Hence, the market is considered as the significant one for the business of BHP Billiton.

Current State of Operation

With regard to the industrial scenario of the company in the Indian market, the company believes that the success of the company in dealing with the Indian market lies on various factors. The issues that have been found of having most importance are the relation building strategies and patience for the market. Moreover, it has also been pointed out that the business with the country depends mostly on the company’s appetite for the Indian market. However, over the years the company has pointed out that it believes in fair players and keeping up the reputation for the company (Cottle & Keys, 2014). Moreover, the Indian market needs to be adaptive enough in order to continue business with the globally recognized company. The company, although initially has been attracted by the evolving economy as well as the mineral sector of the country, eventually faced hurdles due to certain political and social issues. As a result of the stringent governmental laws, poor infrastructure and labor issues, the company faced severe problems in operating in the country. As seen monitored by the company, the business with India can be problematic as a result of the labor unrest, political red tapes and the unwilling nature of the local government to cooperate (Mitra Debnath & Sebastian, 2014). The mineral sections, as pointed out by the company, have taken under more progressive and business friendly policies. Proper implementation of these policies will be helpful in doing business in India, as the country can play a role of potential place to have business and invest.

The Chinese market has been a successful business field for the company due to multiple reasons. Over the course of time, it has been monitored that in spite of the economic turmoil that is being affecting the global market, China has been able to withstand the depression largely. The primary reason behind this is the significantly lofty rate of domestic savings. In addition to this, the country witnesses a rapid urbanization as well as development of the cities. The Chinese government plays a significant role in building favorable environment for business and foreign investments (Huang & Renyong, 2014). This acts as a great boost in the economy of the country. Moreover, the BHP Billiton is forging very actively with the Chinese market. As the government is playing a cooperative role, the company has started various joint ventures along with multiple Chinese organizations. In addition to this, the company is focusing more on the process of sourcing from the country. The country I also looking forward to many new investment opportunities in the country. Moreover, China’s position and importance in the World Trade Organization is to be considered of having high importance in this regard (Wu et al., 2015). The organization hence is acting towards the feasibility of Australia and China Foreign Trade Association.

However, China has a very strong cultural heritage that they value. In order to deal with the Chinese market, any foreign organization needs to be very cautious. The cultural differences between these two countries are also major issues that need to be addressed in this regard. Moreover, the process of entering into any economic market depends on the economic criteria of that is based on the efficiency of the operational market. In addition to that, the process of measuring and identifying the necessary actions that has to be taken in order to tackle the cross-cultural differences. In the context of Chinese market it can be said that the market differs vastly from that of the Australian working policies and cultures. The Chinese market is mostly run by joint ventures. Whereas, for any Australian organization, or western organization for that matter, aims at carrying out business single handedly, the Chinese market is just the opposite of it. Most of the Chinese organizations believe in joint ventures (Nicholson & Salaber, 2013). The aim behind this is to ensure the stability in the cases of economic turmoil. In addition to this, the Chinese market is difficult for the Australian company to deal with as a result of their stringent taxation policies. He Chinese government has levied import taxes upon foreign products. Hence, the BHP is facing difficulty in exporting their raw materials as well as their manufactured products. It has been analyzed, that the products that are manufactured in Australia become highly expensive for the Chinese market due to the export taxes.

Moreover, the Chinese working environment is vastly different from that of Western countries. In China, the corporate hierarchy is held of having high importance. In the business environment of the country, the managers and the leaders are distinguished than most of the western countries (Cooke, Saini & Wang, 2014). In addition to this, it is seen that the western organizations are highly eager in order to expand and capture the Chinese market in a rapid manner. However, most of the western organizations make mistake while being over enthusiastic and eager to expand in the Chinese market (Whalley & Zhao, 2013). As a result of this, he organizations often falter in the business. According to the Chinese culture, building prior relation with the possible partners is regarded as of high importance. Before signing deals, the Chinese counterpart will look forward to strong relationship.

While contrasting these two countries as the markets for the BHP Billiton, few similarities can also be found. Both India and China are huge and potential market for the export of minerals and ores (Milhaupt & Zheng, 2014). As the biggest possible developing countries in the world, both if the countries have a huge population and hence can be considered as potential markets of having high number of consumers. Similar to China, the Indian business and corporate environment also depends on the corporate hierarchy. For both of the countries, availability of huge workforce is highly beneficial for the business of the organization. In addition to this, the organization has faced several problems regarding the political and social turmoil.

Success and failure in the Markets

The factors that are being helpful in China’s sustainability include improved productivity, rapid infrastructural improvement and cost advantages. Over the years, the Chinese economy has risen significantly due to the improvement of the productions in all sectors. As a supplier of minerals and iron ores, BHP Billiton is looking forward to achieving a significant growth in the Chinese market (Whalley  & Zhao, 2013). Moreover, it has been observed that other than the natural resources, the country is not a favorable market for exports. Hence, it can easily be understood that the country is witnessing a significant development in the technological and industrial sectors. As a result of this advancement the Chinese market is estimated as to be potential and profitable market. However, as per the recent surveys, the demand for steel is decreasing in the Chinese market (Nappi, 2013). In recent years, due to changes in their governmental policies and changing economy, China is lowering down its demand for steel. The BHP Billiton has signaled that the industrial revolution of the Chinese economy that has been immensely supported by the Australian mining giant is slowing down. It has also been predicted that the demand for steel and iron ores will be decreasing around 60% by the year 2025 (Agrawal, 2015). 

In India, though the company has witnessed a significant growth, there are multiple factors that have affected the business of the company. Due to the poor infrastructure and stringent governmental policies, the organization has witnessed a significant loss in the organization (Franks et al., 2014). The world’s largest mining company has surrendered ten gas and oil exploratory fields that the company owned. The reason behind the surrender is the Indian Government has not grant permission of exploring these fields over several years. The government on their part has mentioned that the permissions are kept in hold by the Indian defence ministry, due to security issues. As a result of the delay in the New Exploration Licensing Policy (NELP), the country is about to witness an exodus of foreign investors (Agrawal, 2015). However, the BHP Billiton is still willing to have business with the country. Hence, it has not drew themselves entirely from the Indian market. They are holding on the major mining and oil refineries.

Future Developments

As per the researches and surveys that have been done in this regard, it is found that India is going to witness a significant growth in the sector of industry and basic infrastructures. Hence, it can be perceived that the country will be in need of more steel products and iron ores to sustain their growth. The Australian mining giant, BHP is banking on this hope of the infrastructural growth of the country (Bildirici & Bakirtas, 2014). In the coming few years the country is going to be one of the major forces in the industrial force. Hence, the demands for both iron ores and met coals are going to increase significantly. The estimated increase in demand for iron ores and steel is around 170 million tons by the year 2025 (Malhotra, 2014). In this regard, it is to be mentioned that the country has produced 97 million tons of unpurified steel in the year 2016-17 (Meyer & Peng, 2016). Moreover, it is pointed out by the economists that the construction and infrastructural growth will capture the majority share of the country’s growth. In addition to this, the organization is aiming at the copper market of India. It has been monitored that the country has increasing demands for copper. Moreover, India is a country that has significant copper mines. Hence, capturing the copper market will also be very beneficiary for the BHP Billiton. Adding to this factor is the closure of one of the prominent Indian natural resources company. BHP Billiton has monitored that in spite of the closure of the prominent organization, the international price of the metal has not been affected (Bildirici & Bakirtas, 2014). Hence, the organization can see potential growth in the Indian market.

BHP Billiton has seen a recurrent and significant increase in their business in the Chinese market. The country’s import of natural resources has witnessed a steady growth in the sectors of iron ore, crude oil and natural gas. Growth in natural gas import is seen to be around 26.9%, whereas for iron ore and crude oil are 5% and 10% (Deng, 2013). However, the company has seen a decrease in demand for iron ores and steel in the Chinese market. Hence, BHP is more willing to focus on the copper market in the coming years. The organization has realized that in the international market, copper is going to be the metal of having highest demands. As the Chinese economy has shifted to their second stage of economic growth, economists predict that the Chinese market will be demanding import of copper in near future. The organization believes that trade opportunities and development in the economic sectors can be seen as a result of the infrastructural construction.

Recommendation

BHP Billiton is one of the largest mining companies in the world. As it is widely known, the organization has made its expansion over several countries. However, the major expansion that the company has made is in India and China. Both countries have a huge chance of expansion and the market is ever growing. While dealing in these two countries, BHP Billiton should keep several factors in its mind. Culture plays an important role in both of the countries. For India, the cultural and language diversity play significant roles. Whereas, for China, tradition and cultural heritage play vital roles. In the context of Indian governmental policies, the organization have to deal with more patience. BHP can also take up a large scale of investment in the infrastructural and capital level. These investments tend to increase the demand for several metals such as steel and copper. Concerning the Chinese market, the increasing demands for copper is definitely to be seen. The country is making its expansion in the automobile and electronic sectors. Hence, the need of copper is going to be increased in the Chinese market. Moreover, the International Copper Association has predicted a steady rise in the demand of copper in the international market. The company hence, need to focus more on the import and export of copper. However, it can be easily said that the demand for iron ores in the global market  will not decrease. In contrast to that, it can be said that the demand for iron ores will eventually increase in these two markets. Both India and China is developing countries and are having a vast population. This signifies the fact that both of the countries  will have significant demand of iron, steel and copper ores due to the industrial growth.

Conclusion

To conclude the report, it can be said that both China and India are significant markets for any mining industry. As developing nations, the countries are having ever-increasing demands for metals. Over a span of thirty years, the company is trading in the Chinese and Indian market. These to markets, though being different, have similarities in the aspects of cultural importance. Moreover, both of the countries depend on the professional hierarchy. Hence, BHP need to be more cautious while dealing these situations. In the part of the governments, it can be said that both of the governments need to come up with rules that will help in foreign investments. Corruption is one of the major issues in both India and China. This aggravates the unrest within the country and eventually affects the business. Hence, the countries need to work towards reducing the factors that are affecting the business.

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