Economics Assignment: Ethical Issues Concerning BHP Billiton
Task: Prepare a well-researched economics assignment critically discussing about the global and ethical issues faced by BHP Billiton.
Globalization and Global Economy Introduction
The international trade and internationalization amongst different nations and companies have fostered economic growth in the world. Thus, it can be said herein economics assignment that relaxed protectionist policies in many nations have uplifted the global operation of many nations. In this view, many of the developing and underdeveloped nations reaped advantages through the internationalization with the developed nations. Many nations experienced changes in the sectors that include communication, transportation, technical advancements, and many other macros and micro changes in the operation and administration of the economies.
Recent issues in globalization
The corporation establishes in different nations and produces services and commodities to cater to domestic and international demands. Thus, not only products move easily around international boundaries but intangible products like knowledge, culture, and finances also get transferred from origin to international boundary (Shahbaz et al,2016, p 60). Many developing nations have experienced speedy growth and development due to international relations. On the contrary, “The Great Financial Crisis Of 2008" are appropriate examples of the risks that globalization has brought in many small underdeveloped and developing nations. Although, the opportunities from internationalization cannot be denied. In recent times, due to globalization two superpowers have emerged that are US and China who are the frontier of the digital economy.
Emerging trends in globalization
It is said that digitalization is in the infant stages in many developing nations but is gaining a mature stage through digital payments and services, e-commerce operation and introduction of 3d printing. In many developed nations, artificial intelligence has already replaced human administration in the commercialized sector of the world (Milanovic, 2016, p 495). Global economies are exposed to many risks through globalization that includes environmental risks, cyber crimes, increased inequality in income and wealth. Additionally, global exports have increased that has further raised the standard of living in many developing and underdeveloped economies.
Globalization adapting different cultures of nations
Globalization helps organizations in adapting different cultures of nations. The commercial units establish in different markets and operate aligning with cultural aspects like food, beliefs, working culture and many others. Thus, in many developing regions like India, Multinational corporations have been operating successfully for years. The companies have redesigned their structure like leaves policies, payment methods, working habits in alignments with the culture of the country (Bretos and Marcuello,2017, p 48). Another example can be cited from the establishment of Franchisee form of business in the food sector including McDonald’s, Pizza hut and many more. These companies do not use beef or pork made products in India due to the cultural belief of the individual.
Benefits of globalization
The commercialized units have largely benefitted from the cost of production that natural resources and human capital and other inputs. The developed economies establish in developing nations and use cheap labor, easily valuable natural resources for their manufacturing and production. Due to this, the cost of production is lowered and individual benefits from new improved branded products from foreign companies. The commercial units also provide employment opportunities in poverty-driven countries (Steger, 2017). Instead of globalization, global poverty was reduced by 35% from the year 1990. By the year 2010, 1.1 billion individuals moved out of the vicious circle of poverty. By exploring new markets, companies also benefit from new talents and creative minds from the international market. The economic benefits and consequences have accompanied globalization. Therefore, the winners and losers cannot be clearly stated in the context of globalization as both developed and developing /underdeveloped nations have benefitted.
Business introduction and description linking GlobalIssue
Introduction to the business
BHP BILLITON is an Australian resource extraction company that works in a global economy. The company activities include mining of minerals in the region of the US and Australia. The company has employed a base of 72000 that are engaged in marketing and selling in Singapore, Houston, and other regions. The firm has its headquarters in Melbourne and operates through a dual listed company structure. Thus, the firm earns under the name of BHP Group Limited and BHP Group PLC (BHP, 2020). The company aims to produce vest quality products through the best-recruited talents and ranks on top for producing "iron ore, metallurgical coal, and copper". The company is a follower of the ethical code of conduct and corporate governance.
Globalization venture of BHP Billiton
The company earns huge profits from operations in other countries. The US is one of the major countries, the company operates through. Thus, the operations in the US employed as many 4000-individuals excluding the suppliers and distribution centres. The company established in the US as an individual can be hired for direct jib but in developing nations it could majorly hire for indirect jobs. The company has also contributed to the development of undeveloped regions (BHP, 2020). The company had invested a huge amount in tax reforms and the production of goods and services in Chile. Due to the existence and financial support of BHP, Escondida copper mine is one of the world's largest copper producing region. BHP BILLITON has uplifted the local communities through investments in Escondida Foundations (BHP, 2020). The foundation emphasized development in areas of education, health, and other socio-economic development. Similarly, in areas of Pakistan, the Zamzama gas project has restricted facilities so the company invests in uplifting the local community for building the infrastructure.
Operational challenges associated with BHP Billiton
In the era of globalization, disputes from the United States have increased. Due to this global dispute, many economies have adopted protection policies thereby tightening the tariffs and rules of international trade. Thereby, trade has been growing at a slow leap with declining foreign direct investments. Such disputes often hamper the operations of a multinational firm like BHP Billiton (Ghemawat and Altman, 2019). Even in the increasing trend of globalization, market integration is restricted. It is said that multinational corporations only produce 9% of the global productivity from its international operations. The global exports raise the world GPD by 29%, but in absolute terms, only 20% of the commodities move across international boundaries once.
BHP Billiton faces significant trade-related barriers and challenges in the international markets with the prevalence of different and distinct trade-related barriers. This has led to the decreasing profitability of the company in order to do business in these countries. Moreover, there are several challenges associated with employment regulations and practices of individual countries that the company needs to abide by. Therefore
Cost related challenges
In the era of globalization, free trade is prevalent with reduced trade barriers but in reality, the G20 nations have levied1200 restrictions on international trade (Collins, 2015). Additionally, it is assumed that international trade pushes the price downwards due to high competition but many economies often deploy domestic currencies for gaining price benefits. In this view, approximately 161 nations impose Value Added Tax (VAT) while importing. The US does not impose while Europe charges 21.6% on imports (Collins, 2015). This creates a burden on multinational corporations like BHP Billiton.
Even in the worst ravages, BHP Billiton's diversity and scale have cushioned against several contemporary economic downturns, though it has not assisted its employees and stakeholders. Commercial market mechanisms have ensured that developing nations' raw material demand can be achieved and that suppliers can achieve sufficient investments for meeting new demand, this can also enable the discovery of raw materials.
Government inference in market
It has been noticed that government interference in the market poses a global threat. The company CEO stated, the company has experienced a 124% rise by exporting irons to China but the international relations amongst China and the US might impact the demand patterns of BHP Billiton products (Farrer, 2019). It is noticed many nations like China have increased capitalism, and their interference in supply chains has risen (Ghemawat and Altman, 2019). In the US, the president has increased tariff rates on the imports by China which further straddles the position of BHP Billiton. Thus, it can be said that international relations amongst the countries hamper the profitability of many multi-operational companies.
Ethical challenges with the business
The multinational corporation is charged for social injustice, poor working conditions, environmental degradation, and mismanagement. In this view, BHP Billiton was charged for environmental damage in Brazil. In 2015, Samarco Minercao SA is jointly owned by Vale and BHP Billiton which is responsible for the operation of two mining dams. The dams malformed due to which toxic iron of 50 million cubic meters was released destroying the villages situated near it. Approximately 19 people were killed while water supply was also contaminated. After the destruction, 262 million agreements was made with the government of Brazil for mitigation and adoption of corrective measures for the disaster. Some of the mentioned global issues impact many commercial units and domestic economies in this era of globalization.
BHP Billiton has been blacklisted in regard to ethical challenges. The company has been accused of poor labour practices in varied countries. The company did not recognize the collective bargaining for its new employees for some Australian operations. There need to be best practices accommodated as suggested by the International Labour Organisation, an arm of the UN. They have not abided by ethical practices not only in Australia but there have been similar issues in other countries as well. The company has focused on its own profits ignoring the greater benefits of its employees.
The report depicts that there have been safety issues with BHP Billiton that have considerably failed in the Brazilian dam. There were several flaws associated with the design of the dam system. This led to the catastrophic failure of the dam. When BHP Billiton was asked regarding its practices it failed to comment on the same (Saunders, Timson, and Desloires, 2015). The not-for-profit organization the Instituto Pristino also considerably failed to get any comment on any concerns regarding the report. These increasing number of challenges meant tremendous implications for the business of the company. It added more pressure on the company that was earlier already suffering from increasing pressure and stress, with weakening commodity prices. Weakening prices of commodities already implied tremendous amounts of challenges for the company leading to significant amounts of losses.
Conclusion – Opportunities /Challenges
The multinational national corporations often face many challenges in the international market. One of the challenges is maintaining economic prosperity amongst all the operating nations It is always stated that globalization creates economic prosperity through finance and technology (Milanovic, 2016, p 495). In the real-world scenario, many underdeveloped and developing regions have not achieved a boost in GDP while it was also noticed that poor countries were exploited by powerful nations. On the contrary, it was noticed that workers from developed nations experience pay cuts on due to the transfer of jobs externally. The employers often threaten job export which builds fear in the middle earner and they agree for the pay cuts. In this scenario, economically rich countries have become richer while poor countries also remained the same (Bretos and Marcuello,2017, p 48).
The other challenge is the increasing environmental degradation in many nations. In the closed economy scenarios, the natural resources were not economically utilized by the developing and underdeveloped nations. Due to international trade, the mines and other natural resources were used for commercial purposes (Shahbaz et al,2016, p 65). Hence, environmental degradation increased in many of the developing nations. In this regard, the companies have to comply with environmental standards that are expensive and increase the cost of operations.The countries have banned construction and other operations due to climatic change which hampers many firms like BHP Billiton.
Globalization poses many financial risks to corporations that operate in various nations. It has been said that financial interdependence has been increased since the era of globalization. The foreign direct investments have produced positive externalities amongst the developing and developed nations (Carp, 2014, p 352). Thus, macroeconomic globally have experienced a sharp increase in finance and economic integration amongst the nations. However, in the crisis, financial and economic flows increase capital instability that might impact the economic growth of the nations. It is observed that imbalances in the macroeconomic environment stimulate capital flows thereby influencing the economy (Carp, 2014, p 350). For instance, the Asian Financial crisis of 1997-1998 integrated risk in the global markets. It was characterized by withdrawing investments due to which financial risks spread to the nations globally. It can be said that the unfairprocess by financial institutions like IMF, financial crisis rises due to capital flows amongst the global economies.
Apart from the challenges, companies often reap the benefits of market expansion in developing economies. The market of the underdeveloped and developing economies is untapped and the multinational corporation earns huge profits by market expansion in these economies. Due to establishments in the emerging economies, the firms recruit local talent at relatively low costs (Bretos and Marcuello,2017, p 48). The cost of transportation and packaging is also reduced. The products and services are sold in the market and thereby creating its demands. In the developing economies, the cost of labor is cheap due to unemployment and high population. Thus, employment by these firms helps in raising the purchasing power and standard of living of the individuals. Many of the companies produce in one country where the cost of operations is low and export to othernation’swhere demands for the product arehigh. In this way, the firm earns profits while creating job opportunities in the region.
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