Bargaining Power of Suppliers - Case Study Example

Student Name> Strategic Management BHP Billiton is an energy company which came into being through a partnership between BHP and Billiton. BHP was Australia’s largest natural resources company with a diversified portfolio including minerals, gas, oil and steel. Billiton was the world’s most dynamic mining company with the best mining and metal operations. Today BHP Billiton is a world class business with the most diversified range of products and consumers. They are following an extensive growth strategy and reaping the opportunities. They are huge and still growing! Corporate Strategy (2008-2010) A corporate strategy for the company has to be devised such that supports their aggressive expansion plans. The analysis of the company via a SWOT and PEST analysis will help study the organization. Porter’s five forces will help analyze their competitive position in the market. The kind of diversification and expansion plan (merger/acquisition) will be devised for the company to support their long term plans and objectives. SWOT Analysis Strengths: BHPB is the largest diversified resources company in the world. They have a unique product portfolio since their operations are embedded around the world and they deal in almost all energy products. Their corporate social responsibility is commendable because they consider social responsibility and responsibility towards their stakeholders as a primary aspect when they state their threats and challenges and also when they devise their corporate strategy. The company has a unique quality and breadth of products. Their main strength is their diversified portfolio which includes a profound inventory with growth projects in every product portfolio. BHPB focuses on the consumer mainly while marketing its products. Their main aim is to fulfill the customer’s needs and wants appropriately. A consumer focused strategy is their strength because this way they retain their customers. BHPB has the most unique portfolio of the most diversified products, customers and that also across a number of different countries in the world. This is their major strength since it sets them different compared to their competitors. Their petroleum business is their edge and the strength of the company among the vast portfolio of products because they are a Fortune 50 company and this gives them an edge over competitors. Weaknesses: Their poor management of the safety of their workers at their mine at Cannington that is North West Queensland is a weakness. The Australian Workers Union assistant national secretary Ben Swan claimed that this was not the first accident at Cannington. There had been more of these accidents due to rock falls and the company failed to provide adequate safety to the workers over there. This has spoiled the company’s image and they have been blamed that they are not a socially responsible company. This can get their name in the news for all the wrong reasons. (Cranbourne journal news; 2008) BHPB is also having problems in meeting deadlines because they confessed recently that they will not be able to ship the Australian-mined coal that is further used for steel so as a result the steel prices will rise. This can again mar their image and also move the trust that the market has on BHPB. (Wall Street Journal; 2008). This shows they might be having problems in managing production or mining because there has to be a reason to why they were unable to meet deadlines. Opportunities: BHPB is a huge company and it still wants to grow. They have various opportunities to grow and expand further through effective mergers and acquisitions. They can also try to exploit new markets by expanding their business into more countries around the world which will increase their consumer base, market share and profits overall. The company has a good position and image in the market so it can use this position to devise their long term plans and strategies that will help them achieve bigger and bigger. Threats: BHPB has major challenges to face in the way of creating a sustainable position for the company in the longer run. The major challenge or threat to the company is to eliminate fatal risks like maintaining a safe working environment for their employees. They failed to do this recently. Maintaining occupational and community health is another challenge and a potential threat because to failed to meet this requirement. Their strategy aims to protect employees, contractors and the community. The major threat to the company since it’s in the energy sector is the challenge to subdue the Greenhouse gas emissions. The company uses fossils since it’s into the energy business as well. It is essential for them to take substantial steps against the emissions or it will cost them their image and sales. Another threat is effective management and access to resources since their business depends on it. They have made efforts by maintaining their license and meet regulations in order to overcome this threat. But if it goes wrong it can pose a major threat for the company. BHPB has positioned itself as a socially r responsible company and their strategy is aimed towards community development in every way and they make sure that when their operations close and come to an end they leave a positive image on the community. If the company fails to do this like in the case of not being able to provide safe working environment to workers this factor can pose a major threat to the company. 1 Pestle Analysis Political factors: BHPB has to follow regulations in order to maintain their license for accessing resources since their business is based on resources and they have to follow the regulations to avoid any problems. The company also has to face regulations and different laws in every different company they operate within. They have to do or they will be in danger to run out of business. The political environment of every country affects business as well. Political instability in a country can cause problems. Economic factors: The Company must be capable enough to deal with risks in order to minimize them and make way for opportunities for growth.2 These factors like the general price of resources may rise and increase cots and prices. The sales depend on the economy because a developed economy will consume more resources compared to a developing or undeveloped one due to financial constraints. Socio-cultural factors: Being socially responsible as a company is important and BHPB failed to provide safety to their workers due to which several died. This is a problem and they need to deal with it. Although their strategy is to maintain safe working environment for their workers but they failed to do so.3 Their strategy has set responsibilities towards the society like working to improve the general living standards, build self-sustaining communities, and enhance resource conservation to protect the environment, improve the balance between work and life, enhance biodiversity, increase and enhance economic contributions, build stakeholder trust. 4 They have community development programs and they also work to support human rights. They aim to provide the best to their employees and also their suppliers in order to be fair and have stable relationships with the important resources for the success of any business. Technological factors: BHPB is a company in the energy sector so they need latest technology to improve their methods of gaining access to resources and also managing them. They have to be aware of the latest technology and also purchase it in order to keep up with the competition and stay one step ahead of their competitors. Legal factors: These are the legal factors that include regulations and rules that companies have to follow. BHPB makes a considerable effort to maintain its license for accessing resources since it is the base of their business and the key to their success. Environmental factors: Their strategies aim to make the environment safer for all since they work towards reducing emissions of gases; they make sure that their processes do not contaminate the drinking water, they make sure their processes do not affect the land they are working one and they make sure that the waste material does not affect the environment and it is disposed of properly. Porters five force analysis: Threat of substitute products: BHPB is in the energy sector where resources and products are similar but services and portfolios differ. BHPB is unique in its diversified portfolio and also its services. It’s a mining giant and a fortune 50 company. The threat of substitutes is less because they have the most diversified product portfolio which gives them as edge over competitors. Companies can compete with them in single aspects of their portfolio but not overall. Since British Petroleum is their competitor in the petroleum business but BHPB has diversified portfolio unlike others so substitutes are less likely. Threat of entry of new competitors: Once again the company has a diversified product portfolio so new entrants do not pose a threat. Companies in the energy sector have to obtain a license before getting into business which is a barrier to entry but even if competitors enter the market they will have a limited product portfolio so they might compete with BHPB in any one product and that is also not very likely due to their strong position in the market. Intensity of competitive rivalry: The Company does face competition in different products of their portfolio but they always have other products to rely on. The rivalry is not intense because every company tries to set a league of its own and the established and well positioned companies do not face any problems in dealing with competition. There is competition in the market but the rivalry is not as intense as to result in price wars or other wars. Bargaining power of customers: The bargaining power of customers is nil in this business because consumers need energy and resources so the demand is inelastic and the companies charge high prices for these products. For e.g. when BHPB could not meet its commitment of shipping coal which is used for steel and as a result the price for steel shot up. Oil prices rise day by day and the consumers can not do anything about it. Bargaining power of suppliers: The suppliers bargaining power is relatively more and companies aim to have stable relationships with them. BHPB aims to have stable relationships with their suppliers. They aim to maintain a fair procurement process in every country within which they operate. They also follow the HSEC management standards. 5 BHPB needs to base its strategies on the analysis done through the SWOT and PESTLE. They must overcome their weaknesses and threats by cashing on their strengths. Expansion Plans: The company needs to implement an acquisition strategy after their successful merger. They now need to explore new avenues for growth in business. They can acquire companies to diversify and increase their portfolio. This strategy will help them grow into different markets and also gain sustainable competitive advantages. Most importantly the company can diversify and do vertical integration6 through which a company can own its upstream suppliers (Supply chain management) and downstream buyers. They can do an upward vertical integration by acquiring their suppliers. This can be done through acquiring the companies that supply to BHPB and if they are able to achieve this then the company will have total control over its supply and production. This will help avoid any late shipping like that of coal and the company will get bigger in the market so it can turn into a monopoly. They have already done a successful merger and now it is time for an acquisition but not just any company since a proper one will help them increase their business and future prospects. This type of acquisition will help them gain sustainable competitive advantages and development. This is related diversification and this is the best strategy for the company to explore new avenues and exploit new markets. Their growth opportunities will grow as well. Horizontal diversification is moving in to a new industry although there is a slight relation with the existing business. This type of diversification will not be suitable for BHPB because they aim to grow within their industry. The company can also do concentric diversification that is to diversify to industries with technological similarities. This can help the company grow within its industry and gain a wider base. Unrelated diversification in terms of corporate strategy is to plunge into a new business or industry.7 But BHPB does not want to do that because they aim to grow within their industry. But the company can get into a strategic alliance in which two independent companies set to meet objectives and goals but they retain their separate legal identities. This is like a partnership and through this they can explore new distribution channels in order to provide to new markets to increase profits.8 This alliance is a cooperation or collaboration between two independent companies. Joint Ventures are also an option to diversify where two companies form a new entity altogether as one company. The best option for BHPB is an acquisition strategy through concentric diversification that is to acquire the suppliers. This will increase its overall production processes and will also give it an edge since they will have complete control over their supply and production processes. The company can grow by acquiring companies that can find a new market for their products. They can acquire Alcoa that is the largest producer of aluminuim after Rio Tinto. When BHP has bid for Rio then bidding for Alcoa will also be beneficial since they will grow even bigger. 9 BHPB is now bidding for Rio Tinto and this will be a successful move for them due to the advantages and synergies. Comparative Chart (Boodarie iron and Rio Tinto). Due diligence. (Rio) Advantages: The Company will be able to expand into a new market, so that means it will gain a new market share and profits. They share synergies because their iron ore will have two uses and that is it can be sold as it is or in the form of boodarie. This means the value of the product will increase. Their strategies are similar as well. Disadvantages: There might be a problem for the employees to fit into the culture of the company. (Alcoa) Advantages: They are the largest producers and have operations in various countries so the strategies fit with BHP and also that this company will help to lead the world market. This way BHP can lead the world market in Aluminum. Disadvantages: The company is not a very environmentally friendly company because they have been added in the top ten most toxic companies in the world and they produce 9884,267 pounds of toxic material every year. Alcoa has been accused of more than forty-seven pollution violations according to law.10 Thus, BHPB will have to carefully devise its strategy and decide which company will be the most profitable acquisition. Due Diligence process: Acquiring resources to fund the project Time schedules Phase wise merger of two entities 1. Through the stock exchange. Long term. Depends on the market and the situation of the company in the market. Merging the strategic departments one by one. 2. Through issuing debentures. Long term. 10 or more years. Merging the culture by dealing with differences. 3. By taking loans. Short/long term. Merging the information systems and programs. 4. By mortgaging/selling assets. Mortgaged (It depends). Merging any unique activities and assets. Works Cited Alcoa. 25 January 2008. Bargaining power of suppliers. www.bhpbilliton.com; 25 January 2008. < http://www.bhpbilliton.com/bb/sustainableDevelopment/socioeconomic.jsp> BHP fails to meet commitment. Press Digest. Wall Street Journal (2008) 25 January 2008. < http://uk.reuters.com/article/oilRpt/idUKBNG5389020080125> Maintaining a safe working environment www.bhpbilliton.com; 25 January 2008. Minimize risks and give way to opportunities. www.bhpbilliton.com; 25 January 2008. Worker dies at BHP Billiton's Qld mine Cranbourne journal news. (2008) 25 January 2008. Social responsibilities. www.bhpbilliton.com. 25 January 2008. Strategic alliance. 25 January 2008. Threats to BHPB. www.bhpbilliton.com. 25 January 2008. Unrelated diversification. 25 January 2008. Vertical Integration. 25 January 2008. Read More