Friday, September 05, 2008

MSMW Case Study: Foreign Market Risks

MSMW Case Study: Foreign Market Risks

As Gus stated there is no way to eliminate risks, we face numerous potential crises, as in chess, various weightings of variable risk exist dependent upon the choices our business makes. First on our domestic front, if we do not develop an export platform we face potential loss of market share due to new entrants in our regional market. We might quickly lose our share and thus close down. With a fully developed and successful export market, at least one, we might continue operation under such circumstances. However our currency exchange risks could also fluctuate against us.

If our market is Dubai, where the UAE dirham has been traditionally pegged to the US dollar we might see direct effects in transferring currencies and exchange risks which wildly fluctuated in the post 9/11 slowdown in global trade and the strengthening in the Euro. We might mitigate through partial payments, regular or monthly payments and/or full payments depending upon the trends and stability of our profit margins despite currency swings. While country risk is a factor we may mitigate by limiting foreign assets investment and in the case of the middle east occupy a high profit margin market segment at low sales volumes or regular monthly deliveries if forecast growth is met only a months actual losses would occur. Payment risk is possible and may be limited through L/C or other credit guaranteed transactions. We would seek to avoid project risks and bid bonds as these often represent losses especially in the UAE construction business as partners often default on contracts with projects left unfinanced and terms un-met with foreign partners left holding the bill.

Contingencies and scenarios planning provide some idea of course of action in cases of emergency, danger or doom. Force majeure often implicates losses not easily avoided as insurance companies could not exit with a profit if they were. Sudden labour problems could occur anywhere along the supply chain and turn profits into losses. Forwarding, futures trading, hedging, losses sharing, limiting exposures and managing pricing all provide some level of risk coverage but engage other risks at the same time. Risk management systems are meant to provide monitoring signals in the market or company which provide warnings in areas of capital risk, fixed assets risks, labour disputes, corporate espionage, nefarious partners and out right pilferage or theft. Risks must be outweighed by benefits to make a market attractive.

For example, are foreign investors now flocking to Krabbi or Phuket?

Do protestors have legitimate concerns? In the last five years these represented some of the largest per capita gains in provincial financial investments in Thailand according to Pocket Thailand in Figures 2008. However the south is often inundated by Bangkok investments sources aka government. Are benefits being distributed equitably to the local populace also overwhelmed by migrants form other parts of Thailand relocating to island locations with scarce resources? As in Koh Samui, regional village level governance is often at the hands of nearest hired guns or police and militia forces. Whereas in 1998 the government was appeasing locals with new schools and services the continued growth in tourism in these regions have compacted and forced many traditional fishing villages populations, often of Muslim or Indonesian descent, away from beachfront locations often through extortion, corruption, expropriation, and governmental meddling and pressure upon regional sustainable traditional living practices. Similar social unrest in difficult to manage coastal and international porous borders may be witnessed in neighbouring Penang, Malaysia where minorities are often removed from waterfront locations in favour of government and private investor profits. Mutual needs are not being met as is not the case in The UAE where a tiny population is well supported by government systems and services.

Growth often is uneven in developmental states and if poorly managed results in social unrest.

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