Business Environment of BHP Billiton-Free-Samples for Students

Question: Discuss about the Business Environment of BHP Billiton. Answer: Introduction Modern businesses cannot bear to avoid the environments in which they run their business operations. To analyze this large and changing landscape, companies should keep an eye on external environmental factors which affect the organizational business. There are some major factors which influence the business operations primarily. These factors are such as government and economic factors, consumer behavior, competitor strategy and public opinion. All of these environmental factors affect the growth and success of organizational business. The major objective of this report is to identify these environmental factors and provide solutions to the challenges which these factors pose. In this report, BHP Billion Organization is taken as an example to analyze the impact of external environmental factors. At the end, solutions are provided to deal with the risks and challenges posed by external factors. Organizational Background BHP Billiton is a multi-national corporation that was founded in the year 1885 in isolated mining town of Broken Hill. The company is operating its business in Anglo-Australian mining, metal and petroleum business. It is dual listed public company which is headquartered in Melbourne, Australia (BHP, 2018). It is positioned as the largest mining firm all over the world on the basis of its market capitalization. It has become second largest organization in terms of revenue. (Source: BHP Billiton, 2018) Currently, it has $98.3 billion as their market capital and $33.95 billion as sales (BHP Billiton, 2018). As the largest organization in the industry, BHP Billiton operates in the manufacturing of iron, copper, steel, gas, oil and aluminum. After the year 2014, the growth rate of the company is declining due to some factors. The below-report will examine these factors of BHP Billiton and provide the solutions to overcome them. External Environmental Factors and Companys Response Political and Legal Factors Political factors are one of the major external factors which impact the business and long term profitability of BHP Billiton in a market. In resource industry, BHP Billiton is operating its business being on the top position. Most of the natural resources are owned by the nation and authorized by governments. In Australia, the political environment is in the favor of BHP Billiton as it has a huge support from government. It is the biggest organization in terms of market capitalization thus government supports as it leads to the development of nation as a whole (Dobscha, Mentzer, Littlefield, 2015). Under this factor, one of the major aspects is the trade relationship between Australia and China and China is the major source of BHPs products. In order to response his factor, the organization has made its relationship better with China. It has invested hugely in African region as political instability can cause issues in manufacturing in this area. Additionally, BHP Billiton has chan ged its business operations and regulations according to initiatives and changes implemented by government. Economic Factors The utilization of mineral products is directly linked to the economic growth of the country. As mentioned above, the company is on the top in terms of market capitalization so it has better credit rating from top credit rating agencies. In the year 2018, World Economic Forecast is showing the growth of 3.7% that is a great improvement from previous years (Boasson Wettestad, 2016). It is a good indicator for mining organization such as BHP Billiton. In addition to this, BHP Billiton is experiencing risks from increasing costs of suppliers including shipping, energy and labor costs. To respond these factors, organization has dropped down its prices looking at the increased population and their living standards. The organization has focused on its brand image as a market leader in the natural resource industry that assisted it in dealing with these external factors (Geng, Sarkis Ulgiati, 2016). The decreased prices assisted the organization in resolving the issue of suppliers prices. Environmental Factors BHP Billiton is one of the major manufacturers of energy related products like oil, energy coal, uranium and liquefied natural gas. Energy is a major input in the mining and processing operations. The manufacturing of BHPs products has increased the emission of Carbon dioxide from fossil based energy consumption. It contributes to the greenhouse effects, global warming and changes in climate. The government has announced various regulatory changes to describe the effects of climate change. The petroleum assets of BHP are currently subject to the EU ETS. To address the climate change, the government of Australia has introduced the national emission trading scheme by the year 2010 and a renewable energy target of 20% by 2020 (Bergstrom, Randall, 2016). In some of its locations, emerging climate change regulations are affecting the prices of energy and demand for carbon intensive products. The compliance costs are increasing the operations costs of BHP Billiton that can impact its oper ating margins also. To deal with environmental risk, BHP Billiton is making investment in corporate social responsibilities. It has become aware that its people face the health risks and dangers from occupational exposure to manganese, silica, noise, fluorides and it is making best efforts to minimize these risks (ABC News, 2010). The company has focused on the emission of wastage and ensured that it will not affect the lives of society and environment. Falling Demand in China Under industry specific factors, it is one of the major factors that has affected the growth and success of BHP Billitons business. This factor has posed a significant risk on its business. China has developed as the global customers for oil and other commodities due to its population. It has become a major source of international demand for the production of oil and other commodities. BHP Billiton is a primary trading partner with China for its commodities like copper, iron, aluminum etc. that gives them competitive edge over other organizations in the industry. In current years, China represented 61% of international seaborne iron demand, 39% of copper demand, 40% of nickel demand, 43% of aluminum, 10% of oil demand and 48% of energy coal demands (Wheatley, 2012). This data indicates that BHP Billiton is experiencing danger in China as the demand for commodities has decreased in the country. (Source: Wheatley, 2012) In China, company generated the sales of 21.6$ billion i.e. 29.9% of its total revenues in that year (Guy, 2017). The reason behind this fall is slowdown in the economic growth of China that has resulted in the lower demand and prices for its products. It had an adverse impact on the overall performance of BHP Billiton and it has reduced its revenues. In order to respond the increased demand for oil and other commodities, China is increasingly seeking strategic self-sufficiency in the products. It is making investment in the current businesses and new development in other nations. These investments have negative effect on demand and supply balances and process that hamper the financial position of BHP Billiton. It has a large impact on the decision making process of BHP Billiton Organization (Ho, 2014). One of the best ways to deal with this issue is to develop country relationship with China. Frameworks and tools to resolve the challenges The above section of the report has included different factors which are affecting the growth and success of BHP Billitons business growth. To overcome these risks, BHP Billiton is using different strategies and frameworks. The company needs to analyze its internal factors to deal with the external factors. By focusing on the factors of SWOT analysis, it can use its strengths and opportunities to overcome risks and threats. Use of Strengths to overcome Threats From the above analysis, it can be stated that the major threats to BHP Billiton are environmental, political instability and economic pressure on natural resource sector (Schwaab, Koopman, Lucas, 2017). To overcome these factors, the organization can utilize its capital and resources to implement an advanced and innovative technology solution. This organization has a strong brand position all over the world so it can overcome the political and economic issues by using this strength. To deal with the issue of falling demand in China, the company can generate the revenues from other markets like Brazil. It can develop its trade relationship with India to increase its sales and profits. It will assist the organization to compensate the issues with China (Linnenluecke, Birt Griffiths, 2015). In this way, the company can use its strengths to overcome risks and challenges. Use of Opportunities to overcome weaknesses One of the major weaknesses of BHP Billiton is its dependence on china for the demand of oil and commodities. Fall in Chinas demand can lead the organization to down turn in its business. The company has the opportunities to strengthen its relationship with other countries like India and Brazil. It will assist the organization to overcome the issues falling demand in China (Smith, and Offodile, 2014). It needs to develop its presence in other geographical regions all over the world. Industry Specific Decision-Making Factors Diversified Revenue Streams This is one of the significant factors which can contribute to the external factors of BHP Billiton Organization. The revenue stream of BHP Billiton is diversified in terms of business geographies and lines. The organization generates the revenues and profits via nine segments. The company has its business operations in different segments and commodities like iron, coal, base metals, aluminum, manganese, stainless steel, petroleum etc. To deal with the political and economic factors, these factors can assist the organization (Mehrotra, Gopalan, 2012). If any country has economic slowdown then BHP can generate revenues from other areas. If one product generates lower revenues then it can generate from other commodities. In this way, company can make decision in the interest of organization. The diversified business provides the organization competitive edge over its major competitors by separating the firm against negative market conditions in metal industry. Moreover, its global pre sence decreases the exposure to political stability or economic conditions in single region (Msmith, 2016). Centralized Marketing Activities The customer-centric operations of BHP Billitons marketing are centralized in Singapore, Antwerp and The Hague. The Singapore office of the company emphasizes on Asian base metals, energy market and stainless steel and carbon raw materials. The Hague office emphasizes on petroleum, aluminum, freight and energy marketing whereas Antwerp provides diamonds on international level. These marketing offices include all the functions including product distribution and marketing from manufacturing point to final client delivery. The company has made the decision of centralized marketing activities to deal with the impact of external factors of environment (Hoyle Rhiannon, 2017). The centralized marketing operations enhance the efficiency of its marketing processes with every office managing end to end marketing activities. It enhances the product offering of the company that in turn increases the revenues of company. To deal with the Chinas factor, the company should practice effective risk management that will assist the organization in attaining more competitive advantage. Reduction in the operational emissions This is one of the major industry specific factors that can contribute BHP Billiton to deal with the adverse impact of environmental factors. In the reduction of GHG emission, the first step is to establish the benchmarks on which the company can measure the performance. After joining the Paris Climate Convention in 2015, BHP Billiton is engaged in making a public commitment to constrain the absolute GHG emission in 2017. With internal and external visibility on the emission target, the organization establishes about decreasing the emission through productivity program. This program of company includes all the aspects ranging from enhancing focus on preventive maintenance practices to decreasing the truck idle time. In addition to this, the company is looking for the opportunities to make investment in the advancements in low emission mining technology. For example, it is using bio-fuels as an option for diesel. In this way, company has made this decision considering the environmenta l factors. Conclusion In the limelight of above discussion, it can be concluded that BHP Billiton is one of the largest mining organizations in terms of market capitalization and revenue generation. The organization is facing some risks and challenges due to external environmental factors. These factors are affecting the business growth of the company. The company can overcome these risks and challenges by using its strengths and opportunities. There are some industry specific factors which can contribute to the external environmental factors of company. By the use of these factors the company can reduce the adverse impact of external environmental factors. References ABC News. (2010). Wait too long for BHP environment response: Greens. [online] Retrieved from https://www.abc.net.au/news/2010-12-03/wait-too-long-for-bhp-environment-response-greens/2360660. Bergstrom, J. C., Randall, A. (2016).Resource economics: an economic approach to natural resource and environmental policy. UK: Edward Elgar Publishing. BHP Billiton. (2018). Minerals Australia. [online] Retrieved from https://www.bhp.com/our-businesses/minerals-australia#. BHP. (2018). Our Approach. 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