TOI-OHOMAI Institute of technology MGMT.7930 STRATEGIC MANAGEMENT SEMESTER 1, 2017 ASSESSMENT 1: ENVIRONMENTAL ANALYSIS CRITIQUE (PART A) Student name THOMAS JESVIN Student id 27038412 Course code MGMT.7930 Assignment name ENVIRONMENTAL ANALYSIS CRITIQUE Name of lecture NEIHANA JACOB Due date/time APRIL 7th 2017 / 4 PM   TABLE OF CONTENTS 1. Background of Business...................................................................... 3 2. Analysis of External Environment........................................................4 2.1. Macro Environment...............................................................................4 2.2. Industry Competitive Environment.......................................................5 2.3. Competitor Analysis ............................................................................6 3. Conclusion ...........................................................................................7 4. References..............................................................................................8   BACKGROUND OF BUSINESS This report provides a clear picture about BHP Billiton and its key businesses globally and the environment in which it functions. BHP Billiton is an internationally acclaimed natural resources firm with key functions involving discovery along with acquiring, development and sales and marketing of natural resources globally (BHP Billiton, 2017). The vision of the organisation is to focus on renewable and sustainable energy, integrity as the core value, gaining respect globally, better performance, and accountability in actions and deeds towards its stakeholders and the overall society. As per BHP Billiton (2017a), the organisation came into existence around 150 years ago when BHP and Billiton had been two separate entities and Billiton was started in 1851 in the island of Billiton and later became the world leader in iron ore and aluminium along with other such natural resources. BHP was incorporated in Australia in the year 1885 and had a strong specialisation in zinc, silver, and other such natural resources. Both the companies merged in 2001 and became market leader in minerals and natural resources. According to BHP Billiton (2017b), the organisation is a dual listed firm with the headquarters of BHP Billiton Group in Melbourne, Australia and of BHP Billiton PLC in London, UK. Both the firms are run by similar boards of directors and are handled by a single management team. The scope of BHP Billiton is global while dealing in natural resources ranging from nickel, aluminium, manganese and have also ventured into other resources like oil and gas. Scope limitation is that it deals only in natural resources and has never ventured into other businesses. The major strengths of BHP Billiton are that it has a strong market position with steady financial performance and diversification of revenues. The primary weaknesses are steady decline in aluminium production and weakness in performance of stainless steel division. The major threats are reducing demand from China, intensifying competition, and climate change. The known opportunities are scope of further acquisition.   ANALYSIS OF EXTERNAL ENVIRONMENT Macro Environment As per Hanson, Hitt, Ireland, & Hoskisson (2011), organisations need to analyse both internal as well as external factors to gauge the current scenario and plan accordingly for the future. Also as per Olsen (2017), the external analysis is the assessment of external opportunities that the organisation can cash upon and the threats that the organisation has to be wary of. The major external factors are: • Political/legal: This factor majorly looks into the government and legislative scenarios of countries. In this scenario, since BHP Billiton is diversified globally, external government strategies and rules should be considered in decision making. The law of the foreign land about natural resources should be carefully considered and areas of political turmoil should be avoided. • Economic: Since BHP Billiton is a global firm with frequent acquisitions, the economic strength of those countries should be taken into consideration. • Socio-cultural: This factor majorly deals with the social and cultural aspirations of the foreign land where BHP Billiton functions. As per BHP Billiton (2017c), on the positive front, the company invests around 1% profit before tax into community development and by facilitating domestic purchases to support home countries. • Environmental: This factor has become a key contention point for natural resource companies due to the issue of global warming and other environmental concerns. Extraction of natural resources leaves a deep rooted impact on the environment and the sensitivity of this issue is highlighted in their charter where BHP Billiton highlights their efforts towards reduction of green house gas through various green house gas reduction programmes (BHP Billiton, 2015). • Technological: This is another major factor in this industry since innovative thinking in technology is essential for beating market competition. BHP Billiton has achieved giant strides in technological innovations, which has aided their desire to enter into new businesses like oil and gas. Industry Competitive Environment As per Porter (2008), there are 5 primary forces that lay the platform for industry competition. These forces might be weaker, moderate, and stronger depending on the type of industry we are focusing on. These five forces help us to judge the competitive environment in which a particular organisation functions. These forces are depicted in the below image. Analysing from the BHP Billiton perspective, these five forces are: • Threat of new entrants: According to Gordon (2007), when the industry enjoys strong profitability, this threat is relatively high which hampers the profitability of existing organisations. Although the profitability factor is there, in the scenario of BHP Billiton, this is moderate to low since idle or unused natural resources are relatively less which is a demotivator for new companies to enter this business. • Threat of substitutes: Again such threat is low in the case of BHP Billiton as there are not enough raw materials to create substitutes globally. Also, according to Gordon (2007), the company enjoys surplus of natural resource assets since it is a market leader. • Bargaining power of buyers: According to Gordon (2007), this refers to the buyers bargaining capability depending on supplies available. In BHP Billiton’s scenario, this force is very low since there is not enough supply of natural resources and therefore buys have no choice but to stick to giants like BHP Billiton for their supplies. • Bargaining power of suppliers: This force refers to the power of suppliers depending on organisational demand. It is relatively high for BHP Billiton since supplies of labour are less and raw materials and energy supplies are expensive. As BHP Billiton enhances their operations, this force will be higher due to supplier costs (Gordon, 2007). • Industry rivalry: The degree of rivalry between the natural resources industry competitors is very high since there is cut-throat competition to attain access to natural resource reservoirs globally. There is also strong competition for quality labour and reliable supply chain (Gordon, 2007). Competitor Analysis The two forms of competitors are direct and indirect competitors. Direct competitors could be termed as those who engage in the same nature of business as BHP Billiton. Major concern is posed by those organisations who have strong market share in comparison to the host organisation, like that of Rio Tinto Limited and Glencore PLC that have strong market shares similar to that of BHP Billiton. Direct competitors can prop up anytime and therefore BHP Billiton has to be cautious in their approach. On the other hand, indirect competitors are the ones that can provide substitutes to buyers and they can enter the industry from other sectors as well. According to Porter (1980), strategic groups could be termed as the group of organisations within a particular industry that work on similar strategies as to the host organisation. Strategic grouping could be done based on distribution channels, supply chain, market strategies, degree of vertical integration, quality of goods, pricing comparison, market segment, geographical diversity, and brand value. Such grouping provides the organisation an idea about its direct competitors and also to gauge the opportunities available to extend its business. BHP Billiton can be grouped within the transnational strategic grouping due to the diversity and global presence in the natural resources industry. Such companies have vast stakes internationally. In such grouping, it should be noted that there is strategic heterogeneity on the part of organisations from the developing nations. Also, it should be noted that BHP Billiton utilises standardised technology, has limited product differentiation, and is highly impacted by international exchange rates. The biggest advantage for organisations in this sector is the high market demand for supplies globally (Gordon, 2007). The metals and natural resource organisations like BHP Billiton indulge in huge spending to cater to their product demand and other new entrants or existing small players would need to toil hard to increase their supplies and neutralise existing prices. Therefore, BHP Billiton will be able to sustain its market leadership if it keeps competition at bay through innovative technology. CONCLUSION This report analyses the external environment in which BHP Billiton operates. The research proves that BHP Billiton is a leader in the natural resources industry. The key impacting factors of the external environment have been identified through the PESTEL analysis. When we look at the company website, we find that these external factors are duly taken care of through enhanced quality and market centric solutions for its customers. Through research, it has been identified that BHP Billiton positions itself strongly within the market through capacity enhancement, the nature of commodity supplies, and the transnational nature of its services. BHP Billiton also enjoys a strong portfolio of natural resource surplus. Although the five forces analysis rates BHP Billiton as a strong global player in natural resources, the present scenario of environmental issues posed by greenhouse emissions and climate change pose the biggest challenge for companies in the natural resources industry like BHP Billiton and innovative ideas related to sustainable energy would decide the winner within the industry in the coming future.   REFERENCES BHP Billiton. (2015). Greenhouse gas emissions reduction. Retrieved from http://www.bhpbilliton.com/community/case-studies/delivering-ghg-emissions-reduction-projects BHP Billiton. (2017). Our company. Retrieved from http://www.bhpbilliton.com/our-approach/our-company BHP Billiton. (2017a). Our history. Retrieved from http://www.bhpbilliton.com/our-approach/our-history BHP Billiton. (2017b). Structure and Strategy. Retrieved from http://www.bhpbilliton.com/our-approach/our-company/strategy BHP Billiton. (2017c). Our approach. Retrieved from http://www.bhpbilliton.com/our-approach Gordon, J. L. (2007). BHP Billiton: Strategic options. Retrieved from http://pierre.benain.free.fr/MBA698%20BHP%20Billiton%20Report.pdf Hanson, D., Hitt, M. A., Ireland, R. D., & Hoskisson, R. E. (2011). Strategic management: Competitiveness and globalisation (4th Ed.). South Melbourne, Australia: Cengage Learning. Olsen, E. (2017). Internal and external analysis. Retrieved from https://onstrategyhq.com/resources/internal-and-external-analysis/ Porter, M. E. (1980). Competitive strategy: Techniques for analysing industries and competitors. New York, NY: Free Press. Porter, M. E. (2008). The five competitive forces that shape strategy. Harvard Business Review, 86-104.