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CASE: BHP, THE BIG AUSTRALIAN GOING GLOBAL
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Early history of BHP
BHP's rich and varied history began in a silver, lead and zinc mine in Broken Hill in New South
Wales, incorporated in 1885.
One of the most lucrative deposits in the world at the time, it was later described in the London
press as the "best managed mine in the world".
In 1899, BHP leased an iron ore mine at Iron Knob in South Australia. Sixteen years later, in
1915, BHP ventured into steel making, commissioning its first steelworks at Newcastle, New
South Wales.
After World War I, BHP continued to diversify, forming a shipping fleet, as well as acquiring
coalmines and additional reserves of iron ore and limestone. BHP also acquired companies that
manufactured finished steel products.
Steel production was expanded in 1935, when BHP acquired Australian Iron and Steel and its
Port Kembla steelworks. A few years later, BHP established blast furnace and shipbuilding
facilities at Whyalla, South Australia.
In 1967, BHP entered the petroleum industry with a major oil discovery in Bass Strait, off the
south-eastern coast of Australia.
BHP goes global
Through the 1970s and 1980s, BHP's focus shifted offshore, acquiring Utah International Inc,
comprising coal mines in New Mexico and Queensland, as well as discovering copper in Chile-
this find became the Escondido mine. Closer to home, local projects included the North West
Shelf gas and liquid nitrogen gas (LNG) development off the Western Australia coast.
The first to globalise among BHP's three divisions (Table 1) was BHP Minerals. The
globalisation of BHP Minerals, started in the 1980's, is attributable to several factors:
- The worldwide investment portfolio (mines, exploration rights and unexploited deposits)
acquired with US-based Utah International in 1984 required BHP to adopt a more global
perspective and strategy.
- The target in profit growth set by BHP, plus a high proportion of businesses producing new
materials for steel making encouraged BHP Minerals to diversify exploration programs and to
develop potentially higher yielding minerals, such as copper in Chile and Peru, platinum in
Zimbabwe, diamonds in Canada, oil and gas in the Irish Sea and Vietnam, zinc, thermal coal and
precious metals and stones.
- Utah International's managerial strengths, coupled with BHP's financial and scientific
strengths, gave BHP Minerals competitive advantages in the exploration for and the development
of projects worldwide.
In 2000, BHP had approximately 35,000 employees based in more than 50 countries. Less
obvious perhaps is the fact that many of BHP's manufactured products are best produced in the
markets, which they serve so that the producer can respond quickly and flexibly to the changing
demand for particular varieties of his product. This is the reason why BHP Steel has roll-forming
20 International Trade and Investment

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pants in almost all-Asian countries. Roll forming is the downstream end of BHP's steel
operations The product can be required in a great variety of forms, and having production
locally is virtually essential to service a market. In the late 1990s BHP had production operations
in 25 countries as well as representatives in more than 50.
An important implication of the globalisation of BHP's business was that it has meant an
increased concentration on country risk analysis and concentration on mitigating and managing
risks to a business project that arise, not from the inherent commercial aspects of the business,
but from characteristics of the politics and the economics of the host country.
It appears that the drivers for BHP's globalisation have been the need to access the best available
mineral and petroleum deposits and the need to access markets by supplying them from local
production.
Table 1: BHP's standing on Fortune's Top 500 list, 1991, 1997, 2000
Year
Global Rank
Sales (US$B)
Profits as
Profits as
% of sales
1991
%% of assets
104
12.5
8.9
5.4
1997
219
17.5
1.8
1.2
2000
338
14.9
6.9
5.8
Source: adapted from Fortune,July 27,1992, August 3,1998. July 23, 2001
Approximately two thirds of BHP's sales have been outside Australia, and, more relevantly. one
third of its production assets are overseas. BHP's globalisation has been very rapid over the
period starting from the acquisition of Utah in 1984, and BHP's overseas assets have more than
doubled since then. In 1981, less than I per cent of BHP employees worked overseas, while in
the late 1990s the ratio went up to 28 per cent. To see the complex effects of globalisation on
BHP operations let's examine the recent case of steel operations.
Globalisation and BHP Steel
In March 2001. The US Administration announced its decision to apply tariffs of 30 per cent to
most categories of steel imports to the United States .The 30 per cent tariff on hot rolled coil
(used in vehicles and engineering) is estimated to affect about 40 per cent of BHP's $450 million
exports to the US by volume and about 80 per cent by revenue.
One good point of this decision is that relief from tariffs had been provided for slab
imports. which comprised over 40 per cent of BHP Steel exports to the US in 2000/2001. In
addition. BHP Steel stands to benefit through its 50 per cent interest in North Star, located in
Delta. Ohio, which is one of the lowest cost mini- mill operations in the US. and produces 1.5
million tones per annum. The US steel tariff decision is likely to lead to a higher steel pricing
environment within the US market, which will advantage US domestic steel producers. including
North Star BHP Steel. BHP Steel 's US customers are West Coast steel producers. who import
feedstock from Australia and other efficient suppliers
It is ironic to note that the US tariff decision, far from assisting these customers. may create
substantial impediments to their future competitiveness and unfairly_penalises importers of hot
rolled coil relative to slab importers.
US taxpayers have already paid dearly to keep the US steel industry going. US studies
estimate steel quotas cost American consumers at least US$732,000 per steel job

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Apparently, the main problem facing the Australian steel industry is not the US tart
ible 2: Change
BHP Business Gr
imports, but the prospect that Australia will become the dumping ground for the Non
(mid. 1990s)
surplus steel.
BHP Miner
Tariffs on steel imports in Australia have come down over the past decade or so from
BHP Pe
per cent to 5 per cent. Although a highly competitive producer, after painful restructuring in
BHP
1980s, Australia will be vulnerable when South Korea, Taiwan or Japan will redirect their step
exports from the US to the Australian market. A fundamental problem facing producers around
the world is that global supply exceeds demand by around 100 million tones, while global steel
prices are hovering at the lowest levels in 20 years.
It is very likely that Australia, the EU and other steel exporters affected by the US steel tariff
decision will take the US to the World Trade Organisation.
Note that BHP Steel will be 'de-merged' in mid-2002 and will become one of the top 50
Australian-owned manufacturers. The new company will preserve the name of BHP Steel for two
years.
BHP goes global one step further
On the 29th of June, 2001, BHP Limited and Billiton Plc completed their Dual Listing Company
(DLC) merger, with an estimated Australian value of some $60 billion.
Billiton, is one of the world's premier mining companies, with a portfolio of best-in-class mining
and metals assets. Via acquisitions, expansions and new projects, it was known for its innovation
and disciplined cost-efficiency in the global mining sector. Billiton's origins stretch back to 29
September 1860, when the articles of association were approved by a meeting of shareholders in
the Het Groot Keizerhof hotel in The Hague, Netherlands.
. Later in the year, the company acquired the concession to a tin-rich island, in the
Indonesian archipelago near Sumatra. The island was called Billiton (now Belitung), hence the
name. Billiton's initial business forays included tin and lead smelting in the Netherlands,
followed in the 1940s by bauxite mining in Indonesia and Suriname. In 1970, the Royal
Dutch/Shell group of companies acquired Billiton and accelerated the scope of progress of this
growth.
In 1994, Billiton was acquired by the South African-based international group, Gencor.
Agreement was reached to continue with the Billiton name, and to list the company as an
independent entity on the London Stock Exchange. Three years later, Billiton Plc, comprising
Billiton's operations and Gencor's non-precious metals assets, became a constituent of the FTSE
100 Index.
Throughout the 1990's and beyond, Billiton experienced considerable growth. Its
portfolio included aluminium smelters in South Africa and Mozambique, nickel operations in
Australia and Colombia, base metals mines in South America, Canada and South Africa, coal
mines in Australia, Colombia and South Africa, as well as interests in operations in Brazil,
Suriname, Australia (aluminium) and South Africa (titanium minerals and steel and ferroalloys).

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tariff
quON a
able 2: Changes in BHP's organisation structure
so from
BHP Business Groups
BHP Billiton's Customer Sector Groups
in the
(mid. 1990s)
(2001)
eel
BHP Minerals
Aluminium
BHP Petroleum
Base Metals
BHP Steel
Carbon Steel Materials
Stainless Steel Materials
Energy Coal
Exploration, Technology
New Business
Petroleum
Steel
Source adapted from BHP Billieten PLC Annual Repent 200]
The effect of the DLC merger between the two resource companies is that BHP Billiton Limited
and its subsidiaries and BHP Billiton and its subsidiaries operate together as a single economic
entity (The BHP Billiton. Group), with neither assuming a dominant role. Following the DLC
merger, the BHP Billiton group has assembled its major operating assets into Customer Sector
Groups (CSGs), as listed in Table-2
The BHP Billiton's principal activities are mineral and hydrocarbon exploration and production,
metals production, marketing and research and development.
In February 2002 BHP Billiton presented its first half year financial statement, reporting a
revenue of US$8.89 billion and a net profit of US $1.2 billion. The group chief executive Paul
Anderson said the result was a tribute to the strength of the combined group, which benefited
from a US $175 million currency gain as a result of a one-third depreciation in the South African
rand. Paul Anderson is credited for much of the recent performance improvement at BHP,
including the merger with Billiton. As Stephen Bartholomeusz put it:
Paul Anderson's greatest legacy to BHP, may go well beyond being the CEO who cleaned up the
company and modernised its culture. He may be remembered as the man who turned an Australian
-. company with international operations into a truly global but still Australian-rooted company.
Source: Bartholomeusz, Stephen, 2001
Case References
Robert Guy 2601, BHP Billiton Defies Global Gloom, AFR, 09/21/2001
Gluyas, Richard, Tattered rand bails out BHP, The Australian, p.21, 15 February, 2002
Bartholomeusz, Stephen, 2001, BHP Billiton merger, The Age, 21 March, 2001
http://www.bhpbilliton.com/bb/aboutUs/history.asp

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Case Questions:
1 BHP can be defined as
a Global corporation
b. Multinational Enterprise (MNE)
c. Transnational corporation (TNC) m
d. All of the above
Explain your choice.
2. Discuss the main factors that have contributed to BHP's globalisation
3. Outline the main elements of the strength of the BHP-Billiton company
4. Outline the main types of international business activities undertaken by BHP-Billiton
5. Discuss the main effects of globalisation on BHP Steel?

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