Strategic Position, Strategic Choice and Strategic Action (Implementation) for Bhp Billiton free essay sample

Several methods included in the analysis of strategic position such as company value chain, Porter five forces, SWOT and PESTEL analysis. A lot of those analyses are available in details in the appendix section. The strategic options have been formulated using TOWS matrix, Internal/External matrix and Ansoff Matrix. The recommended strategic choice is the most appropriate when taking the strategic position into account. Then we’ve discussed on the strategic action of our chosen strategy and recommendation was given. There are some limitations in the report which include the lack of strategic theories because we’ve concentrate more on apply different concept. Case Organisation BHP Billiton Group is world’s largest diversified natural resources company. The group has a global presence with more than 100 operations in 25 countries. It is headquartered in Melbourne, Australia and employs about 41,000 people. The group recorded revenues of $37. 48 billion of the six months end of December 31, 2011. We will write a custom essay sample on Strategic Position, Strategic Choice and Strategic Action (Implementation) for Bhp Billiton or any similar topic specifically for you Do Not WasteYour Time HIRE WRITER Only 13.90 / page The operating profit of the group was 9. 9 billion. It was incorporated in 1885 in Broken Hill, New South Wales. The main operation is about oil and minerals, such as iron ore, coal, copper (Cu), aluminium, nickel (Ni), oil, liquefied natural gas (LNG), magnesium (Mg), and diamond and so on. Billiton’s roots trace backs to 1860 and a tin mine on a little island in Indonesia, Billiton island. Billiton became a global leader in the metals and mining sector and major producer of aluminium and alumina, chrome and manganese ores and alloys, steaming coal, nickel and titanium minerals. Billiton also developed a substantial and growing copper portfolio. In 2010, BHP Company celebrated their 150th anniversary and three significant milestones: Billiton’s establishment on 28 October 1860 and BHP listing on the Australia and London stock exchanges on 29 June 2001. BHP Billiton’s strong presence and leadership position in a number of significant markets gives the group a substantial competitive advantage and also increases its cross selling opportunities. However, intense competition in the industry could lead to loss of market share and put pressure on the group’s margins. BHP Billiton, 2011) Current strategic positioning Internal Strategic Position Company value chain The value chain is based on the procedures of organization’s activities, such as material input, transformation, distribution, consumption, and services (Porter, 1985) Value chain for BHP Billiton 1. Inbound Logistics – supply chain management 2. Operations – Mini ng process 3. Outbound Logistics – distribution of commodities 4. Marketing and Sales activities inform buyers of commodities, induce buyers to purchase them, and facilitate their purchase. One of the five value chain primary activities in BHP Billiton is supply chain management which is the most costly and important factor in business operation. Freight expenses take a big part in total costs, due to the increasing cost of petrol, the transportation expense become much higher and is the largest expense in operations. BHP Billiton also focuses on sustainable development such as safety and health of employee and society which lead to establishment of a strong corporate citizenship. BHP Billiton works hard on protect workers from unsafe risks and try to achieve its goals without environmental damages. For the internal operation, the company established a stated value chain structure of people, process and knowledge networks. The management of company take the responsibility of resources allocation for specific areas and the performance of human resource as well as economic benefits. The five support or secondary value activities of product Ramp;D, technology, systems development, human resources management and general administration are key parts of the internal operations. Due to the shortage of skills, the employee costs have also been increased although the company has gone in quest for the support of government to train new mining workers. Key Internal Strategic Factors Summary BHP Billiton (Refer to appendix F) Critical Success Factors (Viability Requirements)| Strategic Capabilities (Strengths/Sources of Sustainable Competitive Advantage)| Financial LeverageEconomies of ScaleSustainability HR Competitive Positioning (e. g. benchmarking)Ramp;D Investment| Exploration Strategy amp; TechnologyNatural Resource Acquisition- Tier 1 Strategic Acquisitions (e. g. BHP Billiton merger)Organic growthHRM DiversificationMarket Research amp; Industry Forecasting| Strategic Capabilities Sustainable competitive advantage is the ability of a company to consistently outperform its competitors as a result of its resources and strategic capabilities. Strategic capabilities are the processes and systems of effective resource utilisation. A firm has sustainable competitive advantage to the extent that its has characteristics given by the VRIO framework (Black amp; Boal, 1994, p. 32). For any capability or resource, a strategic capability is valuable to customers, rare, robust (not easily imitated, substituted or acquired), and organizational structure and management is effectively deployed to secure its optimal value. BHP’s current strategy, which has existed for more than 10 years, is founded on commodity-based, geographic and market portfolio diversification and sustainab le company growth to generate high shareholder returns (BHP Billiton, 2012a). BHP focuses on tier one commodities. Tier one commodities meet the VRIO analysis in that they are scarce resources of high quality (limited substitutability) and quantity that can be effectively utilized due to their long life, expandable and low cost nature (Anglo American, 2009, p. 23). BHP describes its HR strategy as its foremost strategic capability for securing optimal value from its commodities (BHP Billiton, 2012a). It therefore focuses organizational activities and resources for optimal exploitation of the tier one commodities. Diversification is pursued as a strategy to reduce the environmental threats of economic cycles, commodity cycles (resource depletion) and local currency fluctuations (BHP Billiton, 2012a). Overall, BHP Billiton is positioned for growth and pursues both organic growth and strategic acquisitions (Zacks, 2012). The capacity to utilise business capabilities to identify and exploit tier one deposits ahead of competitors is crucial to sustainable competitive advantage. VRIO for Sustainable Competitive Advantage. Analysis Diagram. Reproduced from Carpenter et al (2011). SWOT SUMMARY (detailed analysis available in Appendix E) Opportunities * Exponential growth in demand * Intensive competition * Market penetration opportunities (increased consumption, developing economies) * Vertical integration opportunities| Threats * Shortage of skilled labour * Depletion non-renewable resources * Environmental regulation, taxes, sustainability costs * High inflation * Commodity price fluctuations * Shrinking market (China) * High operational costs| Strengths * Ownership tier one assets * 10 yr diversification strategy (effective risk management) * Industry leadership * HRM reputation * Sustainability Reporting * Strong financial position| * Weaknesses * CEO turnover * Failure to fully utilize marketing, media releases and public relations to attract investors, satisfy stakeholders, and strengthen industry position. | Current financial position BHP Billiton is currently enjoying a solid financial mainly attributed to rising commodity price and rising demand. Revenue had a 43% since 2009 and profit from operation increa sed by 160%. The company is also sitting on a very large cash flow which is mean they could be used for investment. The table above shows more information about the financial performance in the past 3 years The highest expense for BHP Billiton is transportation, mainly due to rising petrol costs. The total expense has improved compared to 2009, especially when we consider that the production of the company has increased considerably. Containing costs has been one of the main reasons why their profit had so much increase. More information about expenses in on the above figure EXTERNAL ANALYSIS Competitive rivalry The competitive rivalry is strong; the industry of mining has high profitable attractiveness which results to fierce competition. Western Australia is an ideal location for mining exploration which attracts companies from other countries. BHP Billiton competes with many mining companies such as Rio Tinto to get access to the scare resources in order to keep competitive advantages. Commodity Analysis The price of commodity had increased considerably in 2011 because the global recovery from the financial crisis gathered pace while developing economies was clearly leading economic growth. According to trend, we can expect the price to increase furthermore, but it is impossible to predict the market. Therefore BHP should position them to face any scenario possible. PESTEL analysis This analysis wills able BHP Billiton to get an idea of the external environment that may affect the business operation but in a global context. BHP Billiton will need to be careful of different countries of which different political, economic, social, technological, environmental and legal factor that may affect the strategic position of the business. Weak| Hold/Maintain| Harvest/Divest| Harvest/Divest| It is recommended that BHP Billiton pursue a growth strategy rather than consolidation or divestiture in order to maintain its market share within a highly competitive industry. This overarching strategy is suggested via a qualitative variant of the IE Matrix (Maxi-Pedia 2012). A growth strategy is recommended due to strong profit margin opportunities due to global growth in demand (strong external environmental trends) and BHP Billiton’s position as an industry leader with numerous, well established strategic capabilities (internal strength). This strategy can be pursue by acquisition of already established mining company. The new acquired company will need restructure as the management of BHP Billiton already has the expertise to deal with another mining company and thus excess employee will need to go. Therefore to facilitate transitioning process in the consolidation of new acquire company, BHP need have good communication with employees of that company, participation will be needed and cultural factors will need to be taken into account. B: Cost Leadership, Diversification and Mixed Options BHP Billiton can be analysed in terms of Porter’s generic strategies (Angwin et al. 2011). For major industry leaders such as BHP, focused strategies are unlikely. Cost leadership, diversification and mixed strategies are therefore considered as strategic options. Cost Leadership Cost leadership approaches are critical due to the number of external environmental threats that can negatively impact on the BHP Billiton’s profit margins despite high consumer demand. High operating amp; regulatory costs, commodity fluctuations, rising exploration costs, high remuneration benchmarking and high risk of project failure in politically volatile greenfields operations indicate the need to optimise efficiency gains along the value chain. In order to implement this strategy, the company must minimise the costs across the value chain, especially the supply chain where the company normally incur most of their expense. Diversification BHP Billiton (2012) recognises diversification is critical to distribute risk across financial investment and via a range of tier one products is critical to minimising impact of volatile commodity markets and a volatile global economy. Both BHP Billiton and its major rival Rio Tinto currently pursue a diversification strategy (Forbes, 2006). Therefore BHP Billiton will need to buy a completely different company and in different industry in order to minimise risk, thus the current management will not have the expertise to control that business. Therefore, there should be a different CEO managing the new acquisition. The business can get help from more qualified expert from BHP Billiton but it should operate independently from the management of BHP Billiton. Mixed Strategy While Porter’s generic forces suggest the pursuit of one exclusive strategic focus is necessary for maximum profitability and competitive strength, there is also recognition of the benefits of mixed strategic choices such as the strategic clock model of strategic options (Angwin et al. 2011). Miller (1993, p. 39) argues that for some industries, cost leadership and differentiation are complementary strategies, as product diversification can generate the requisite market share necessary for economies of scale. Mixed strategies can also be important for neutralising the risks of competitive forces by leveraging the capacity of these strategies to reduce competitive forces (Miller, 1993, p. 37). Recommended Strategic Choice: Mixed Strategy The indicators offered by Miller for pursuit of a mixed strategy are appropriate to the mining industry where competitive forces are high and economies of scale are required for competitive viability. The co-existence of the identical strategies of diversification in competitors of similar size (BHP Billiton and Rio Tinto) also indicates diversification is a critical success factor for the mining industry and not mutually exclusive to cost approaches. Our recommendation is therefore for an overall strategy of growth with a mixed overall corporate strategy that balances differentiation with cost leadership approaches. In this instance, a mixed strategy is therefore recommended. A joint focus on both cost leadership while continuing with its established strategy of diversification will enable BHP Billiton to distinguish itself from its chief competitor while minimising threat of reduced share prices over a predicted period of significant financial risk. According to the current strategic analysis of BHP Billiton, we recommend that they concentrate more on the costs leadership approach. Main threats to the company are that China demand is slowing down, commodity price fluctuation, rising operational costs and high inflation impacts arising from the global financial crisis. The forecast decrease in demand from China means that commodity price may also fell, which as a result could decrease the profit margin. The fierce competition means that BHP Billiton must have a competitive advantage, and in order to counter all those threats discussed in SWOT analysis, costs need to be minimised. Commodity fluctuation is cyclical and if efficiency is not improved now, especially when the company is enjoying a very good financial position, it won’t be sustainable in the future if the company does nothing about the costs because the profit margin could be low or negative. The main areas where costs need to be contained are the supply chain from value chain where freight costs is out of control and labour shortage lead to high labour costs. Other areas where costs need to be minimised is costs of failure to discover new reserve, maintain or enhance existing reserves or develop new operation, Climate change, greenhouse effects and related regulations and taxes and need for stronger corporate social responsibility. Value chain as a whole should be more efficient and costs should be minimised all across the company. Recommendations In order to reduce costs of shipping, the company can buy an already established Transportation Company. This is called backward vertical integration, where a company purchase a supplier (Essential Text, 2011). This is a very risky project and a lot of capital will be needed. But this investment will able BHP Billiton to have their own cargo company and could definitely reduce shipping costs. That company should have their own management because BHP Billiton cannot afford to divert the attention of their management team onto a company where they do not have expertise. Thus the cargo company will need to be an established one with an existing management and they should be able to operate like usual business independent but intra-company transaction must occur at a discount price and BHP will be able to get shipping service at a much lower costs. This strategic action can also help the differentiation approach strategy as BHP Billiton will not depend on others to deliver their commodities and on-time delivery will increase service quality. In order to contain labour costs, BHP Billiton must tackle the shortage of labour. Therefore they must invest in human resource development and give incentives to existing workers so that they can be retained. A higher supply of labour will mean lower costs. Thus BHP Billiton can try to establish partnership with universities globally where mining studies are offered. Students can be sponsored so that they have the incentive to work with BHP Billiton in the future. BHP Billiton can also have a strategic alliance with other mining companies. Strategic alliances are cooperative business activities, formed by two or more separate organisations for strategic purposes (Essential Text, 2011). An alliance with Rio Tinto (competitor) may be agreed in order develop the labour market. As a team, they may even have enough funds to open up facilities (like universities) where student can get a recognised certificate for mining studies. This can guarantee the supply of labour for their company in the future. There is a cost when BHP Billiton fails discovers new reserve, maintain or enhance existing reserves or develop new operation and this need to be contained too. The company can have strategic alliances such as joint venture with small mining companies which will able them to share costs. The company can even outsource this job to other companies in order to reduce the costs. But this objective is fundamental to the company because resources are very scarce and new reserves are very important to the survival of the company. Therefore costs should not be decreased at the expense of doing less work. Climate change, greenhouse effects and related regulations and taxes is going to be an issue to costs. In Australia for example, the government had plan to increase the effective tax rate in 2010 for mining companies which will adversely affect the financial position of BHP(BHP Billiton, 2011). Carbon emission limits is also going to be an issue because of new laws and if not complied, company may get fined and thus increasing costs. Therefore, while having a solid financial position, the company should invest in more environmental friendly technology. A powerful lobbyist in government could help their cause too but convincing politicians that those laws are going to be disastrous, especially the tax. If they try to lobby against carbon emission laws, this will go against their will to have a stronger corporate social responsibility. Lastly, Investing in latest technology/automation is our next strategic action. While this will help improve efficiency and improve costs, this can also help lower carbon emission by BHP Billiton and thus already preparing themselves for future compliance. This investment can also help in delivering better quality commodity and thus helping the differentiation strategy that will also be in place Conclusion If BHP Billiton follows our strategic choice, they will be able to counter threats that the business are facing. Efficiency is very important to get a competitive advantage over competitors. The mixed strategy choice also means a differentiation strategy will give customers choice of getting of choosing low cost product and premium product. References Anglo American. 2009. Anglo Ferrous metals- Minas Rio Project: Investor Presentation Brasilia. http://www. investis. com/anglo_report_pdf/AFM-Minas-Rio-FINAL. pdf Created 07/10/09(Accessed 22/04/12) Angwin, D. , S. Cummings amp; C. Smith. 2011. The Strategy Pathfinder: Core Concepts and Live Cases. West Sussex: John Wiley amp; Sons. BHP Billiton. 2012a. Our Strategy Delivers. http://www. bhpbilliton. com/home/aboutus/strategy/Pages/default. aspx (Accessed 22/04/12) BHP Billiton, Annual Report 2011 http://www. bhpbilliton. com/home/investors/reports/Documents/2011/2011AnnualReport. pdf(Accessed 1/05/2012) BHP Billiton Ltd (BHP) http://www. reuters. com/finance/stocks/overview? symbol=BHP(accessed 22/4/2012) BHP Billiton, Strategic Option 2007 http://pierre. benain. free. fr/MBA698%20BHP%20Billiton%20Report. pdf(Accessed 1/05/2012) Black, J. A. amp; K. E. Boal. 1994. Strategic Resources: Traits, configurations and paths to competitive advantage. Strategic Management Journal. 15(S2):131-148. (Scholar) Carpenter et al. 5. 4 Developing strategy through internal analysis in Carpenter et al. Principles of Management. http://www. web-ooks. com/eLibrary/NC/B0/B58/033MB58. html Published 09/08/2011(Accessed 22/04/12) Chamber of Commerce and Industry in Western Australia (CCIWA). 2006. Corporate Social Responsibility: A Submission to the Australian Government Corporations and Markets Advisory Committee. http://www. camac. gov. au/camac/camac. nsf/byHeadline/PDFSubmissions_2/$file/CCI_CSR. pdf(Accessed 22/04/12) Dickie, C. amp; J. Dwyer. 2011. A 2009 perspective of HR practices in Australian mining. Journal of Management Development. 30(4): 329-343(Scholar) Finlayson, E. 2010. Exploration and acquisition in the global mining industry. Paper presented at the World Mining Investment Congress. London. , 18th May 2010. http://www. riotinto. com/documents/Media-Speeches/World_Mining_Investment_Congress_18_May_2010. pdf(Accessed 22/04/12) Forbes. 2006. BHP Billiton and Rio Tinto: The Commodity Giants. http://finance. ninemsn. com. au/pfsharemarketinvesting/performance/8123679/bhp-billiton-and-rio-tinto-the-commodity-giants Created: 01/01/06. (Accessed: 01/05/12) Hay Group. 2011. BHP Billiton amongst FORTUNE Magazine/ Hay Group World’s Most Admired Companies. http://www. haygroup. com/downloads/au/misc/hay_group_-_fortune_press_release. pdf Created 07/03/12(Accessed 22/04/12) Hill, C; G, Jone. 2009. Strategic Management Theory: An integrated approach. Cengage Learning. Hubbard, G. amp; P. Beamish. 2011. Strategic Management: Thinking, Analysis, Action. 4th Edition. Frenchs Forest: NSW: Pearson Australia. MacLeod, A. , McGrath, R. G, I. C. MacMillan. 2005. BHP Billiton. www. marketbusting. com/casestudies/BHP%20Billiton. pdf Published 06/07/05(Accessed 22/04/12) Malone, S. amp; T,. Bergin. 2012. Analysis: Slower China economy a worry for Western firms http://www. reuters. om/article/2012/04/26/us-corporate-china-idUSBRE83P1IR20120426(accessed 26/4/2012) Michael E. Porter, Competitive Advantage: Creating and Sustaining Superior Performance (New York: The Free Press, 1985): pp. 62-67 (Scholar) Michael E. Porter, Competitive Strategy (New York: The Free Pr ess, 1980): pp. 34-44(Scholarly) Miller, D. 1993. The Generic Strategy Trap. Journal of Business Strategy. 13(1): 37-41(Scholarly) Porter, Michael E. , Competitive Advantage. 1985, Ch. 1, pp 11-15. The Free Press. New York. (Scholarly) Rio Tinto. N. d. Exploration: Rio Tinto Fact Sheet. http://www. riotinto. com/documents/ReportsPublications/corpPub_Exploration. pdf(Accessed 22/04/12) Zacks Investment Reseach. 2012. BHP Upgrades on Industrial Optimism. http://www. dailymarkets. com/stock/2012/03/26/bhp-upgrades-on-industrial-optimism/ Published 26/03/12(Accessed 22/04/12) Appendix Appendix A Group performance * Coordination between team members was not highly effective, group could have benefited from more face to face meetings, but strong leadership from one group member facilitated assignment completion. * Quality of work received was not of enough quality and had to be redone. Lots of time was lost in this process. * The lack of knowledge by member was a problem because the strategic choice and implementation are very complex and thus there was lack of idea. Only two member participated in doing strategic options and strategic implementation as well as the recommendation * We concentrated too much on strategic position of the business at the start, we had so much material that we had to put it on the appendix to satisfy the word limit. Content * Greater awareness of the range of strategic analytic tools and concepts available- not just those of the textbook (e. g. IE Matrix, TOWS, Ansoff matrix, Angwin et als compilation of strategy tools) * Challenging finding free accessible resources on the mining sector especially on industry benchmarking- most primary research available is proprietary with purchasing requirements. This is something that would need to be considered in budgeting for the strategic planning process in the work context. Challenging undertaking in a sector that is not the students vocational sector (this is because of the critical role of  understanding  internal and external factors in effective strategic planning) * We now got better understanding on strategic choice and implementation and therefore we have a better understand on the whole process of strategic decision. Appendix B PESTEL Political According to the annual report 2011, Actions by government or political events in the countries in which BHP operates could have a negative impact on their business. BHP operate in emerging markets, which may involve risk such as terrorism, civil unrest, nationalisation or nullification of existing contracts, leases, permits or other agreements, restriction on repatriation of earning and changes in laws and policy. In Australia for example, the government had plan to increase the effective tax rate in 2010 for mining companies which will adversely affect the financial position of BHP. Infrastructure is very important such as rail, ports, power and water is critical to business operation. Some countries may offer inadequate facilities. For instance, on 30 june 2010, the Australian competition tribunal rejected application for declaration of BHP Newman rail line but granted declaration of BHP Billiton’s Goldsworthy line and outcome for this process would govern whether access would be provided and on what terms on for Goldsworthy line which affected the business operation Economic BHP Billiton will be affected by the global economy, especially emerging countries such as India and China which contributed to the recovery of the global economy. They are also heavy users of commodity which directly affect BHP. (BHP, 2011). In 2010, China represented 25% of the total sales revenue, and BHP Billiton demand will be affected enormously if their growth slowdown. There’s is a slowdown the economy of China as the growth slowed down, and this should be of huge concern of BHP Billiton(Reutors,2012) Social BHP Billiton already has in place a community development programs that are driven by their desire to improve the quality of life of people in local communities by consulting regularly by local stakeholders. The plans identify stakeholders, describe their interests and relationships and contain a range of culturally appropriate engagement activities to encourage open communication. Technological This is an important factor for big company such as BHP because they need the best technology to help them be more efficient in their business. IT is also important to help them control their system. One of its strategies is to use technology to look beyond their current pipeline to secure a foundation for growth to future generations. Technology improvement will help them maintain high-quality assets by managing them in the most effective and efficient way as this is one of their main strategy. Environment One of the main business risks of BHP Billiton is climate change, greenhouse effects and related regulations and taxes. Carbon-based energy is a significant input in a number of the Group’s mining and processing operations and we have significant sales of carbon-based energy products and government around the world is concern with the present trend. Current and emerging laws relating to this issue will affect energy prices, demand and margins for carbon intensive product. For example, the Australian Government’s want to introduce a fixed price on carbon emission in mid-2012 and established an emissions trading scheme in 2015 as well as a mandatory renewable energy target of 20% in 2020. This will affect the way BHP Billiton operate and thus will need to adjust with the condition. Legal The business BHP Billiton is will probably mean accident can happen and this may incur legal obligation. According to the annual report, the company is normally involved from time to time in legal proceedings and governmental investigations of a character normally incidental to its business,. There could be face with claims and pending action and damages or clarification as a result. For example at the moment, the company is facing legal action in the Rio Algom pension plan where if lost, over hundred millions of dollars may have to be paid and thus affecting the strategic position of BHP Billiton Appendix C Porter Five Force Analysis BHP Billiton is facing with competitive external environment, which provide the assessment of source, strength, attractiveness and influence of the competitive forces that affect the objectives of the company. The management need to analyse competitive forces in the environment of industry in order to identify opportunities and threats. (Hill amp; Jone 2009) 1. Bargaining Power of Buyers Due to the low supply and high demand for natural resources, buyers have low bargaining power be faced with the scare resources such as metals, coals and petroleum which are not alternative of substitutes. Furthermore, the ompany has a good relationship with customers; the customers’ loyalty plays an important role in business operation, which means that the high quality of service is able to offset the influence of increased price. 2. Bargaining Power of Suppliers Bargaining power of suppliers has a high level influence on BHP Billiton in the areas such a s shipping, material, labor costs. The high mining exploration price make it limited to excavate new material and the equipment is expensive to replaced, both of these lead to high cost for the mining industry, which means that the bargaining power of suppliers is becoming much stronger. 3. Threats of New Entrants The scarce and shortage natural resources make the entrance increasingly difficult for new entrants, which bring a low threat of new entrants. BHP Billiton has high differentiated products with popular brand name and customer loyalty; the high customer switching costs are a barrier to the entrance. On the other hand, renewing and updating the mining facility and capability is a long term project, the industry required a heavy initial investment. All of these put too many barriers for new entrance to join this profitable and attractive industry. 4. Threats of Substitutes BHP Billiton has large natural resources and the substitute products are scarce, it is really difficult for buyers to make any alternative decisions which lead to a low threat of substitute. 5. Competitive rivalry The competitive rivalry is strong; the industry of mining has high profitable attractiveness which results to fierce competition. Western Australia is an ideal location for mining exploration which attracts companies from other countries. BHP Billiton compete with many mining companies to get access to the scare resources in order to keep competitive advantages, skilled labour are scarce, which lead to a high cost of employment. According to the Five Forces Analysis, BHP Billiton is deeply and negatively influenced by the bargaining power of suppliers and the competitive rivalry. Based on high quality of differentiated products, well-known brand and excellent mining staff, BHP billion keep the position as one of the largest natural resource companies and a leader of mining industry. Appendix E SWOT Analysis Strengths amp; Weaknesses BHP Billiton is among the world’s most admired companies, an exceptional performance category that is allocated to those with quality, effective systems; high innovation and HR strengths such as engagement and work: life balance (Hay Group, 2011). However, BHP failed to list in the 2012 competitive ranking; a loss of reputation that may reflect and create lowered stakeholder confidence. BHP Billiton pursued a consolidation and vertical integration strategy in 2001 with the merger of BHP Billiton, which greatly increased their market share and viability for an industry in its maturity stage. This has enabled BHP Billiton to reduce the impact of commodity price fluctuations and enhance competitive procurement of suppliers (MacLeod, 2001). BHP Billiton has centralized procurement of inputs to mitigate supplier power and is also pursuing supplier partnership strategies. The company also continues to exhibit growth in the form of 6 new projects (Zack, 2012). Weaknesses Weaknesses of BHP Billiton include CEO turnover and failure to fully utilize marketing, media releases and public relations to attract investors, satisfy stakeholders, and strengthen industry position (Gordon, 2007). Opportunities General global demand for minerals is increasing exponentially due to population growth and industrialization and urbanization of developing countries (Rio Tinto, 2010). However, mineral deposits are rapidly declining in known and exploited deposits (Finlayson 2010). This represents both an opportunity and a threat. Over-demand for non-renewable resources reduces the power of customers but increasing competitive pressure between firms for resource access. Threats Threats include under-supply of machinery (increased supplier power); under-supply of workers; commodity price volatility; rising operational costs and high inflation. (Zack, 2010). A further environmental threat for BHP Billiton, encountered by all exploratory mining countries, are country risks for Greenfields operations (Rio Tinto, 2010). These risks may be environmental, political or economic factors in the host country that may lead to project failure or project losses. Generally discovery potential correlates with greater risk ratings, as lower risk sites have already been explored. According to the annual report 2011, these are the main business risk that BHP Billiton will be facing in the future: †¢ Impacts arising from the global financial crisis; †¢ Fluctuations in commodity prices; †¢ Failure to discover new reserves, maintain or enhance existing reserves or develop new operations; †¢ Influence of demand from China; †¢ Actions by governments, including additional taxation, infrastructure development, permitting requirements and political events in the countries in which we operate; †¢ Inadequate human resource talent pool; operating cost pressures and shortages could negatively impact our operating margins and expansion plans; †¢ Climate change, greenhouse effects and related regulations and taxes; Appendix F Critical Success Factors for the Mining Industry Critical success factors are the most critical drive rs necessary to survive within a particular industry (Hubbard amp; Beamish, x, p. 81). In the mining sector, these include corporate social responsibility, y, z, zz. Sustainability Mining firms must demonstrate sustainability to mitigate the risk of reputational loss and resistance from local communities to their mining enterprise. Sustainability can be demonstrated through compliance, self-regulation and innovation. Corporate social responsibility is seen by BHP Billiton as a tripartite consideration of health and safety, environmental responsibility and sustainable development/community components. BHP sets CSR targets and internal standards through a corporate charter, an annual public sustainability report both for the corporation and its sites, voluntary compliance with the GRI Sustainability Reporting Guidelines and external benchmarking. (CCIWA, 2006,p. 15). Research amp; Technology Development. The ability to match competitors with exploratory finds that deliver returns is absolutely critical to the viability of mining businesses. Resource optimization includes strategic selection between Greenfields and acquisitions within portfolios. Rio Tinto, which has an exploration strategy to develop sustainable competitive advantage, can deploy resources effectively in exploratory mining, making Greenfields a source of greater long term returns than acquisitions. Exploratory mining is highly expensive with large research expenditure required to investigate quality, reserves and extraction costs (Finlayson, 2010). Greenfields operations in new markets and regions are also high risk and expensive. Finlayson (2010) notes that exploration and acquisition are complementary with the former producing long-term returns and the latter providing shorter-term resource returns. Due to decreasing global reserves of commodities, there is also industry pressure to develop and improve technologies for refining lower grade products and resource extraction of deeper deposits. Financial Leverage for Transnational Expansion amp; Longer Term Investment Returns The global distribution of tier one commodities means that economies of scale and transnational competencies are critical success factors for mining firms. Economies of scale enable highly effective supply chain management systems and provide sufficient liquidity for the longer term returns of exploratory mining. Exploratory mining at a site often takes approximately 4-5 years over which time expenditure is distributed. Research expenditure should commence when commodity prices are high but as commodity prices cycle over 1-4 years, expenditure cannot always coincide with optimal time in the commodity cycle. The company’s finances must be additionally sufficiently responsive to manage local cultural responses, legal, political and economic contexts in order to mitigate risks