STRATEGY ANALYSIS FOR IRON ORE SEGMENT OF BHP BILLITON
1. Company background,
BHP Billion, a merging cooperation of BHP and Billion in 2010 (BHP Billiton, 2011), is a world leading company in mining and resource exploiting. According to ASX data, BHP Billion has the largest business scales in the Australian market, AU$166 billion of market capital and AU$71 billion of annual operating revenue in FY13 (Australian Securities Exchange, 2014). Over 128,800 employees and contractors work in 26 countries worldwide to create value for their shareholders (BHPB Annual Report, 2013). The core business has been classified into five units: petroleum, copper, iron ore, coal and aluminum, making ...view middle of the document...
Although BHPB has larger business capital, the cross-fields strategy disturbed the deployment of resources for the core business. For instant, BHPB values their position in energy products market such as petroleum so that this segment would take approximately 40% of assets while it only turned into 20% of revenue (ASX, 2014). Consequently, the iron ore segment gained less emphasis than that of its rivals.
Externally, the threats could be analyzed by PEST model. It can be divided into three aspects, political, economic and social impacts.
126.96.36.199 Political impact: Mining industry is an industry with high level of energy consumption, which can be easily influenced by environmental policy of the government.
In order to reduce the guesthouse gas emissions, the Australian government has set the target to diminish carbon dioxide emissions by 5%, below 2000 level by 2020(Australian Government, 2013). This policy could have a significant impact on BHPB because of its nature of business-energy-oriented. Based on the data collected by International Energy Agency (IEA), 9% global CO2 emission could be blamed to the iron and steel manufactories (Efficiency, 2007). If the Australian government plans to keep its promise to Kyoto Protocol, harder and more rigorous requirement on the environment would be implemented in the near future. Thus the company has to spend more on environmental sustainability to make sure its operation abide by the government policy. More than that, it might also influence the cost of the new application to develop new resource if the company expects to expand its mining capacity.
188.8.131.52 Economic impact: Highly rely on the economical surrounding, especially on China’s economic trend.
From Y2012, China, the largest iron ore buyer in the world, intentionally slowed down the pace on economic growth, the demand on iron ore has therefore been decreased drastically (Wilson, 2012). This turned the iron ore market into bear market of surplus by $32 billion in January 2014 (Trefis Team, 2014). Relatedly, the commodity of iron ore price continually declined from 2013(TSI, 2014), getting nearer to the bottom point within a year. Although for company such as BHPB would be more concern about the return in the long term which means the price influence could be weaken by times, the unpredictability and pessimistic forecast on China’s growth flagged the potential risk for further development. As a matter of fact, most of these figures estimate that China will probably fail to reach the growth target of 7.5% in Y2014 (Trefis Team, 2014)( Guo & Zou, 2014).
184.108.40.206 Social: Conflict with aboriginal culture and workplace safety
The iron ore mining industry brought enormous economic benefit to Western Australia. Significantly, it creates job opportunities to solve the high unemployment rate in the aboriginal area (Hajkowicz, Heyenga & Moffat, 2011). However, due to the lack of cultural understanding, the residents...