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MoD 3 Case Assign Global Financial Management BUS401 - International Business - Essay Example

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MoD 3 Case Assign Global Financial Management BUS401 - International Business Introduction During the period of 1993–1999, the financial condition of Nissan was not at the desired level as the company was under huge amount of debts and substantial losses with severely damaged brand image…
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MoD 3 Case Assign Global Financial Management BUS401 - International Business Introduction During the period of 1993–1999, the financial condition of Nissan was not at the desired level as the company was under huge amount of debts and substantial losses with severely damaged brand image. Credit assessment service companies had stated Nissan to reduce the position of the brand from ‘investment grade’ to ‘junk’. Nissan had to overcome difficult monetary and operational challenges with respect to economies of scale and cost reduction. At that time, Carlos Ghosn was requested to join Nissan as a Chief Operating Officer (COO) who will be liable for managing regular activities of the organization and report to the Chief Executive Officer (CEO). He was selected to recover the bad condition of Nissan and to make a strong position in the market by managing the global financial risk (CEO Quarterly Magazine, 2008). Question 1 In order to deal with the international financial risk due to currency volatility, Carlos Ghosn and Nissan had transformed the method of conducting international business by evacuating the Japanese concept where constancy was outplayed and moved towards American method of cutting costs and raising efficiency. Carlos Ghosn had executed the Nissan Revival Plan (NRP) in order to deal with the financial risk of the company. The NRP focuses on three aspects which are: Improvement of new vehicles Upgrading of the brand image of Nissan, and Reduction of operating cost Source: (Jones, n.d.) In order to deal with the global financial risk, Carlos Ghosn had reduced the staff overhead and shut down plants. Carlos Ghosn had focused on product quality, price and customer satisfaction. His multinational knowledge had empowered him to clasp cultural dissimilarities quickly and balance the eastern communism with the western egoism. The NRP was successful as it helped to reduce the operating cost and raised the revenues of the company. With the strategy of Carlos Ghosn, Nissan had been able to accomplish 20% reduction in purchasing expenditures. He had changed the productivity of Nissan in very short period of time and also accomplished the best monetary performance ever in the organization’s history. Question 2 Napolo’s 8 steps are a major strategy for handling the risk of currency volatility. The 8 steps plan is developed to create a commercial foreign plan to deal with the financial exchange risk. Nissan had followed seven steps which are: Step One: In the early stage, Nissan had recognized the organization’s values and goals in order to diminish the negative financial spotlights. The value of organization was to maintain good product quality, cost and customer relationships and the objective was to reduce the expenses, develop new model and increase the revenue of the company. Step Two: After recognizing the values of organization and goals, the exposures for managing the problems need to be identified (Napalo, 2005). Nissan had effectively recognized and dignified the exposure which was ‘operating exposure’ that ascended from foreign competition. The identification of economic exposure is much challenging compared to other two exposures (Scribd Inc, 2011). Step Three: After identification of exposure, there is need to assess the significance of exposure (Napalo, 2005). Several techniques can be used for assessing exposures. Nissan had identified the risk management rules and measures which can help to hedge the financial risk. Step Four: In the fourth stage, Nissan had identified purchasing alternatives which were appropriate at that time to survive in the competitive global business environment. Similarly, the level of authorization on the basis of the volume of dealings was established (Scribd Inc, 2011). Step Five: In the fifth stage, Nissan had identified strategies to manage the costs and deal with the currency fluctuations. The company had decided certain credit limits for high debt situation which needed to be maintained, so as to ensure success and to guarantee proper application of internal control (Scribd Inc, 2011). Step Six: In the sixth stage, Nissan had executed the strategy for reducing cost and increasing effectiveness. Nissan had closed five production facilities and also dismissed 20,000 odd employees through downsizing and abrasion (Ghosn & Ries, 2005). The strategy of Nissan had helped to successfully decrease 14% of the labor force. As a result of closure of production facility the company had reduced 9.5 billion USD in 2001–2002 as well as a 20% overhead cost reduction. The execution of strategy resulted in 50% reduction in debt (FundingUniverse, 2000). Nissan had also presented Z–series model and jumped into new market with two new models named ‘Murano SUV’ and ‘Quest Minivan’. Step Seven: In the seventh stage, Nissan observed the exposures through financial reports to certify that their market position is hedged properly (Choi, 1989). Nissan had not followed the eighth step i.e. the evaluation and the assessment of the performance of organization. Conclusion In the international market, organizations face the risk of changing exchange rate, product cost, and interest rate among others. Carlos Ghosn had revived Nissan from bad financial condition through his exceptional strategies and leadership. Due to his great management style he was also conferred with the best CEO awards in the year 2010 (CEO Quarterly Magazine, 2008). Revitalizing Nissan was quite difficult as the company was embraced with huge debt, but his diverse knowledge had made him suited for taking the challenge of Nissan. Today, Nissan is known internationally as one of the most popular vehicle manufacturers in the world and it had managed successfully to overcome the financial risks. References Choi, J. J. (1989). “Diversification, Exchange Risk, and Corporate International Investment”, Journal of International Business Studies, pp. 145 – 155. CEO Quarterly Magazine. (2008). A Special CEO Honor. Retrieved from http://www.ceoqmagazine.com/mostrespectedceos/ceo_nissan_carlosghosn.htm FundingUniverse. (2000). Company Histories & Profiles. Retrieved from http://www.fundinguniverse.com/company-histories/Nissan-Motor-Co-Ltd-Company-History.html Ghosn, C., & Ries, P. (2005). The Gaijin Who Saved Nissan. Retrieved from http://www.businessweek.com/magazine/content/05_03/b3916021_mz005.htm Jones, M. (No Date). Global Leadership Executive Best Practices. Retrieved from http://www.iim-edu.org/executiveseminars/Executive_Seminar_Global_Leadership_Nissan_CaseStudy.pdf Napalo, D. (2005). Managing FX Risk: An Eight-Step Plan to Establish a Corporate Foreign Exchange Policy. Retrieved from https://www.wellsfargo.com/downloads/pdf/com/focus/risk/manage_fx_risk_reprint.pdf Scribd Inc. (2011). Managing Operating Exposure and FX Risk. Retrieved from http://www.scribd.com/doc/67218323/Managing-Operating-Exposure-and-FX-Risk Bibliography Cable News Network. (2005). Carlos Ghosn: Nissan's Turnaround Artist. Retrieved from http://edition.cnn.com/2005/BUSINESS/04/20/boardroom.ghosn/ Dominguez, K. M. E., & Tesar, L. L. (2006). “Exchange Rate Exposure”. Journal of International Economics, 68, pp. 188 – 218. Kim, Y., & McElreath, R. (2001) "Managing Operating Exposure: A Case Study of the Automobile Industry", Multinational Business Review, 9(1), pp. 21 – 27. Read More
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