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BHP Billiton and Rio Tinto

Table of Contents

1. Introduction..................................................................................................................................3

2.0 KEY SUCCESS FACTORS......................................................................................................3

3.0 COMPETITIVENESS OF BHP BILLITON AND RIO TINTO..............................................4

4.0 FUTURE PROSPECTS.............................................................................................................6

5.0 ORGANIZATIONAL AND STRATEGIC CHANGES...........................................................7

6.0 CORPORATE GOVERNANCE IN INTERNATIONAL MINING BUSINESS.....................7

7.0 RISK MANAGEMENT............................................................................................................8

8.0 CONCLUSION..........................................................................................................................9

9.0 REFERENCES........................................................................................................................10

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BHP Billiton and Rio Tinto

1. IntroductionManaging an international business has become a big challenge in current global business environment.

Uncertain economic condition of the world economy has created many challenges in front of many

industries. This report analyzes the issues faced by metal and mining industry of the world in managing

the international business. Two international companies including BHP Billiton and Rio Tinto have been

selected for the analysis. Both the companies belong to the mining industry. BHP Billiton is an Australian

multinational company headquartered in Melbourne, Australia. It is a public company listed on NYSE,

LSE, ASX and JSE. Similarly, Rio Tinto is a British – Australian multinational company in metals and

mining industry having headquartered in London, UK. It is also a publicly listed company listed on

NYSE, LSE and ASX. Both companies are in the same industry and of approximately similar size

available in similar countries. This report further represents the key success factor of these companies in

the current changing business environment. An analysis of the competitiveness of these companies is

further presented in the report. A discussion of the organizational and strategic changes is also given in

the report to make these companies more competitive and profitable.

2.0 KEY SUCCESS FACTORSThere are many key success factors that can be considered for the success for these companies in the

international market. It is well known that the entire world is currently facing financial crisis and

economic uncertainty has increased but the impact of these uncertainties on these companies were very

rare. Main reason behind this is the diversity of the companies. These companies are involved in a

producing a range of products including iron ore, coal, diamonds, manganese, petroleum, gold, copper,

aluminium, nickel, uranium, silver and natural gases (Rio Tinto 2013; BHP Billiton 2013). These are the

natural resources demand for which is always high and that is why these companies got affected very

rarely as these natural resources are needs of the world and world cannot run without them. Secondly,

these companies are running in the metals and mining industry since several years, in fact more than 100

years. During this long period they have established themselves all over the world with strong financial

condition. Revenue for both the companies is more than USD 50 billion. Comparing these two it is found

that BHP Billiton is having stronger financial condition than Rio Tinto which is because of the merger

that took place in 2011. This competitiveness of the companies will be discussed further in the report.

One thing which is clear here is that, these companies are financially strong and can face the changing

global business environment very easily.

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BHP Billiton and Rio Tinto

Apart from the above mentioned internal strength of the companies there are certain important key

success factors which help these companies in successfully running their operations. These key success

factors are described below:

Exploration and Development: These companies are continuously involved in research and

development processes. Since, both the companies are involved in mining industry therefore

research and exploration becomes an important factor for the development of world class

commodities. Successful extraction of the metals from the mines is also an important key

success factor for these companies. There are many challenges that a mining company may face

while extracting metals from mines but these companies have managed themselves so well that

extraction has become an error free process. BHP and Rio are also involved in the transportation

of bulk commodities which reduces the transportation cost; which is a key cost for these

companies (Gordon 2007).

Skill and Capability: As it is discussed above that both the companies are running in the mining

industry since more than 100 years thus they have developed a strong workforce which is

skilled and capable of handling the international business in an uncertain environment. Both the

companies execute a cost effective and efficient primary and secondary value chain activity

which makes the presence of the commodities all across the world.

Sustainable Development: Development of the sustainability strategy is the most important

priority for both the companies. The sustainable development for BHP and Rio means do no

harms to the natural environment of the company where it is operating. Being an employer of

the choice in the mining industry and maintaining healthier relationships with its stakeholders.

Considering particularly BHP Billiton it is found that the company considers its dedication to enhance

and create long term shareholder value as its key success factor. Other important aspects of success

include mindful focus on the environment and the community in which it operates; and good corporate

governance (BHP Billiton 2012). On the other hand Rio Tinto considers technological development of the

organization and innovation as its key success factors. The company has created a Technology and

Innovation group (T&I) which focuses on the creation of sustainable value and competitive advantages

for the company (Rio Tinto 2013).

3.0 COMPETITIVENESS OF BHP BILLITON AND RIO TINTOAs far as global presence of both the companies is concerned, both Riot Tinto and BHP Billiton are

present all across the world. The common th9ing between both the companies is that both are Australian

companies and having their offices in Melbourne, Australia and London, UK. Both the companies are

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BHP Billiton and Rio Tinto

present in six continents of the world. Global reach of these companies are better presented with the map

below:

(Source: BHP Billiton 2013)

(Source: Rio Tinto 2013)

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BHP Billiton and Rio Tinto

Comparing the competitiveness of both the companies it can be said that BHP Billiton is more

competitive than Rio Tinto. Rio Tinto has concentrated itself mainly on Canada and Australia whereas

BHP Billiton has focused itself mainly on the stable economies including Australia, Europe and North

America. BHP Billiton has also stronger financial condition as compared with Rio Tinto. BHP Billiton

was the world’s largest company by revenue in 2011. It is formed after a merger of Australia’s largest

mining company Broken Hill Proprietary Company Limited (BHP) and the Anglo – Dutch Billiton Plc.

This merger has not only increased the global presence of the company but also increased the financial

strength of it. In 2012 the total revenue of BHP Billiton was USD 72.226 billion and total revenue of Rio

Tinto was USD 50.967 billion. Thus, BHP proves that it is more competitive than Rio Tinto (Ferry 2012).

4.0 FUTURE PROSPECTSBHP Billiton and Rio Tinto are among the top performer of the world in mining industry. But these

companies are facing challenges as well due to the uncertain economic condition of the main locations

where these have established their businesses such as North America and Europe. Due to debt crisis in

Europe entire world faced financial contraction and North America also experienced economic

slowdown. On the other hand in developing economies like India and China the demand is very uncertain.

This instability requires both the companies to strategize their future prospects in terms of

internationalization. The future prospects of these companies are discussed below:

BHP Billiton and Rio Tinto both have established themselves in developed economies and like UK,

America and Australia. Thinking about the Internationalization it is found that the companies are now

mainly focusing on China and India which are the emerging economies and have experienced very rare

impact of the global financial crisis. Both the companies are trying to establish their businesses in China

and India at greater scale but they are facing some challenges. First of all Chinese government is very

proactive and trying to secure its own supplies of essential resources. Also the state owned enterprises in

emerging economies are rising quickly to become competitors of these companies, thus the first goal of

these companies to establish their in businesses in these countries at a greater scale as soon as possible.

Chinese firms including Shenhua Group, Zijin Mining, and China Coal are big firms in non – ferrous

mining and presenting a tough competition in front of these companies.

Considering the consumption of the basic material in China and India it is found that these countries

consume fewer basic materials than developed economies but due to the large population of these

countries they have become largest consumers of basic materials. The above mentioned situation of the

emerging economies and developed economies suggest that BHP and Rio will be required to not just

diversify the production but their customer base as well (Ferry 2012).

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BHP Billiton and Rio Tinto

5.0 ORGANIZATIONAL AND STRATEGIC CHANGESAlthough both the companies have established themselves all over the world still there are certain

changes required which will enhance the competitiveness and profitability of the companies. Considering

particularly Rio Tinto it can be said that the company is required to focus on the developing economies as

well. It is already discussed above that China and India are the big potential market for the mining

companies and their huge population makes them a better location for consumption too. The only need

which is required is to establish the mining business at greater extent in China and India and Riot Tinto is

not considering these countries on top priority. Secondly the company is required to diversify its

production further. One way to enter into countries like India and China is to get merge with the local

companies. Merger has been a most famous strategy for international establishment for both the

companies. With this strategic orientation Rio Tinto will get mainly two benefits; first, a strong presence

in the fastest growing economies of the world and a great support from the local companies in

establishing their businesses. Rio Tinto has a big brand value all over the world and therefore convincing

the Indian and Chinese government will not be a difficult task for it.

On the other hand product diversification will also help Rio Tinto in enhancing its competitiveness. The

company should focus on production of shale gas, demand for which is growing all over the world. Its

main rival BHP has planned to spend USD 4.5 billion on the development of shale gas. It is estimated that

the gas extracted from the shale rock will contribute for the half of the supply of natural gas to the US by

2020. If Rio Tinto is ignoring this fact then it will not only damage the market share of the company in

upcoming future but also it would be considered as an irresponsible behavior of the company towards its

strategic planning. Thus, summarizing the description it can be said that two strategic objectives are there

for Rio Tinto: first, establishing its business in China and India at greater extent and second, diversify its

production and focus on production of shale gas (Rowley 2011).

6.0 CORPORATE GOVERNANCE IN INTERNATIONAL MINING BUSINESSWhile thinking about the establishment of international business, corporate governance seems an

important key success factor as the companies are required to manage their operations in different

locations as per the requirement of the locations. To manage the international business; an effective

corporate governance is necessary. Since these companies are running in mining industry and the

operational activities of these companies need extraction of natural resources of a location. There are

many rules and regulations that have been made to protect the natural environment of the different nations

and mining countries are required to follow all the rules and regulations. Better corporate governance will

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BHP Billiton and Rio Tinto

make the companies able to deal with these challenges efficiently. Structure of effective corporate

governance is presented below with a diagram:

(Source: BHP Annual Report 2010)

For an international mining business it is important to take long term and responsible approach towards

the group’s business. Better corporate governance will result in superior returns to the shareholders of the

mining firms. Long life and efficient operations can be achieved after effective corporate governance (Rio

Tinto 2007).

7.0 RISK MANAGEMENTAs it is discussed in the report above that the global mining industry is facing many challenges, the

companies running in the industry are required to assess the risks associated with operations and

performance and manage them. Risk is simply the uncertainty around the expected business outcomes.

Risk can also be taken as hazards that affect the business operations adversely (PWC 2013). The risks of

mining industry have now become more complex and extreme. Main risks of mining industry are

presented below which should be considered by both the companies at top priority:

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BHP Billiton and Rio Tinto

Resource Nationalism: Governments of different countries are focused on taking the benefits

of their natural resources on their own and foreign ownership on the natural resources has

become very difficult in current scenario. In this situation it is better to have healthy

relationships with the governments of different countries.

Unavailability of Skills: For mining industry highly skilled employees are required and mining

industry is facing the challenge of lack of skill globally.

Inappropriate Infrastructure: To run the mining operations excellent infrastructure should be

there but in today’s scenario access to the appropriate infrastructure at every place is not

possible.

Cost Inflation: There are many activities involved in the mining business which require high

cost and inflation in the costs is now a big risk for mining companies.

Capital Project Execution: As it is discussed above that there are many rules and regulations

made for the mining industry because it is directly associated with natural resources of a nation

and hence companies face challenge in executing their projects.

Social License to Operate: It is similar to above as mining activities pollute the environment

of the location therefore mining companies must get the social license for extraction activities.

Price and Currency Volatility: Already discussed, the financial crisis worldwide has affected

the prices and currency rates and since these companies are presents in many countries

therefore greater volatility in the currency rates affects the profitability of the businesses.

Fraud and Corruption: Since the mining companies are big in size therefore it has becomes

difficult to identify the frauds and eliminate them.

8.0 CONCLUSIONMining Industry is very large and demand for the mining products has increased but the current global

economic situation has affected the industry at greater extent. Companies which are present at world level

were able to manage their operations but the smaller ones faced big problems. This report discussed the

key success factors of two major companies of mining industry including BHP Billiton and Rio Tinto. It

has been found that both the companies have established their businesses in approximately six continents

of the world and are trying to expand their business in emerging economies like China and India. China

and India have been focused by these companies because they are the fastest growing economies and are

having huge consumption potential of basic materials. These companies are required to focus on the

product diversification to enhance their competitiveness.

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9.0 REFERENCES

Allan, B 2004, Strategic Planning for the Future, Accessed on 2 August 2013,

http://ro.uow.edu.au/cgi/viewcontent.cgi?article=1122&context=coal

Bansal, P 2005, Evolving sustainably: a longitudinal study of corporate sustainable development,

Strategic Management Journal, Vol. 26, pp. 197-218.

BHP Annual Report 2010, Our Strategy Delivers, Accessed on 2 August 2013,

http://www.bhpbilliton.com/home/investors/reports/Documents/bhpBillitonAnnualReport2010.pdf

BHP Billiton 2012, BHP Billiton Plc, Notice of Meeting 2012, Accessed on 1 August 2013,

http://www.bhpbilliton.com/home/investors/shareholderinfo/Documents/2012/

BHPBillitonNoticeOfMeetingPlc.pdf

BHP Billiton 2013, Our Company, Viewed on 1 August 2013,

http://www.bhpbilliton.com/home/aboutus/ourcompany/Pages/default.aspx

EY 2013, Business risks facing mining and metals 2012 – 2013, Viewed on 2 August 2013,

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Ferry, D 2012, Australian Miners Have Global Reach, Viewed on 2 August 2013,

http://beta.fool.com/catominor/2012/06/14/australian-miners-have-global-reach/5759/

Goerzen, A, & Beamish, P, W 2003, Geographic scope and multinational enterprise performance,

Strategic Management Journal, Vol. 24, pp. 1289-1306.

Gordon, J, L 2007, BHP Billiton: Strategic Option, Accessed on 1 August 2013,

http://pierre.benain.free.fr/MBA698%20BHP%20Billiton%20Report.pdf

Perry, J & Simonsen, H 1999, Risk identification, assessment and management in the mining and

metallurgical industries, The Journal of South African Institute of Mining and Metallurgy, pp. 321 – 332.

Peter, T 2012, Who Manages Risk? An Empirical Examination of Risk Management Practices in the

Gold Mining Industry, The Journal of Finance, Vol. 51, Issue: 4, pp. 1097 – 1137.

PWC 2013, Managing risk, Viewed on 2 August 2013, http://www.pwc.com/gx/en/mining/risk-

management/index.jhtml

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Radosavljević, S & Radosavljević, M 2009, Risk assessment in mining industry: apply management,

Serbian Journal of Management, Vol. 4, Issue: 1, pp. 91 – 104.

Rio Tinto 2007, Corporate Governance Standard, Accessed on 2 August 2013,

http://www.riotinto.com/documents/Investors/Corporate_Governance.pdf

Rio Tinto 2013, About Rio Tinto, Viewed on 1 August 2013, http://www.riotinto.com/aboutus/about-rio-

tinto-5004.aspx

Rio Tinto 2013, Our Business, Viewed on 1 August 2013,

http://www.riotinto.com/ourbusiness/technology-and-innovation-160.aspx

Rowley, E 2011, BHP Billiton sees future in shale gas, Viewed on 2 August 2013,

http://www.telegraph.co.uk/finance/newsbysector/industry/mining/8889446/BHP-Billiton-sees-future-in-

shale-gas.html

Sethi, S, P & Emelianova, O 2006, A failed strategy of using voluntary codes of conduct by the global mining industry, Corporate Governance, Vol. 6, Issue: 3, pp.226 – 238.

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