Intangibility in Captive Financial Services Industry - Essay Example

Indeed, INTANGIBILITY of the financial product is the largest source of value loss in the captive financial services industry. Most if not all of thebusiness who are engaged into financial services providers rely much on the stability of whatever currency or monetary value it may be. It is because majority of these providers are relying much on the difference between monetary exchanges and with this, the higher the difference is, the higher their profits. However, there are also factors which affect and contribute in relation with the intangibility of certain asset, particularly, a financial product. In this regard, there are a lot of things and probability that might come into picture, and more often than not, it is due to VALUE LOSS caused by INTANGIBILITY. However, this kind of concern doesn't seem to catch the attention of even financial experts solely on the basis that majority of them fails to go back into the basics, and that is to search for the appropriate term for the word intangible. Upton III 2007 pointed-out that "there are times where it is desirable to value intangible assets for internal business purposes, whether they are related to taxation or not. For example, determining the appropriate value of an intangible asset (or set of intangible assets) may be necessary or useful for corporate planning, establishing royalty rates, inter company transfer prices or even litigation dispute and resolution (although often this is tied into taxation related reasons).Regardless of the reason, it is necessary to value intangible assets carefully and appropriately' 'The purpose of the intangible asset valuation is often to understand not only what the intangible asset is (and does) but also how it affects the bottom line. An ethical and conscientious valuation expert will keep this in mind, and will not fall prey to the desire to value an intangible asset in a biased man'" In this case, it is very important to understand that there are instances that intangible assets particularly with that of a financial one is sometimes the culprit in value loss of a certain financial or even a business enterprise. It is clear that the more the value that a financial or a business enterprise's assets are, the more the stable the business stands. In this case, it is very important to ensure the value of a certain financial asset. Looking into a much complicated picture, defining what intangible asset might create derailment on how value loss is created by intangibility of a financial product. It is an established fact that the major component of a service product is intangible. Upon analyzing this kind of premise, it is not impossible to consider finances as an intangible asset because it is subject to inflation or deflation of a country's economy. In the case of the aforementioned argument, the place where a financial service industry could set the pace of the businesses financial standing if it is doing well or not. In this kind of consideration, it is understood that monetary standing of a financial service industry is unpredictable day after the other- it is why stock market, along with its components is monitored day after day. However, one cannot fully understand the risk and devaluation of financial service providers with regards to intangibility of monetary asset if b2b is not yet defined. Of course, this kind of system is presently penetrating several or perhaps majority of the world market today. Furthermore, the website searchcio.techtarget.com (2000) defined it as "B2B (business-to-business), also known as e-biz, is the exchange of products, services, or information between businesses rather than between businesses and consumers. Although early interest centered on the growth of retailing on the Internet (sometimes called e-tailing), forecasts are that B2B revenue will far exceed business-to-consumers (B2C) revenue in the near future. According to studies published in early 2000, the money volume of B2B exceeds that of e-tailing by 10 to 1. Over the next five years, B2B is expected to have a compound annual growth of 41%. The Gartner Group estimates B2B revenue worldwide to be $7.29 trillion dollars by 2004. In early 2000, the volume of investment in B2B by venture capitalists was reported to be accelerating sharply although profitable B2B sites were not yet easy to find'" If this is the case, then it broke the old and conventional belief with regards to business practice in captivating consumers. In this kind of marketing and business strategy, the concentration doesn't focus on the consumers as the sole market but also, businesses as well. In this case, it might look favorable as the company or business enterprise will have a lesser costs on purchase of goods, utilization of services and the like through this kind of format. Majority of financial experts describes this as "Modern-day barter." This might look favorable and applicable to all business enterprise, as others address this kind of system as an exchange deal. With this kind of "favorable" system to some, there are still financial experts who disagree with this kind of practice to the extent of addressing this kind of system as "expenditures not savings." To add to that, there are experts who foresee the risk in engaging in this kind of system. Upon analyzing this, it is logical to say that these people would not react and provide such information without factual basis. On this note, knowing the implications and basis is important in order for one to be enlightened how financial standing becomes intangible in this kind of practice. The first premise would read and start with the price one has to pay in engaging into a b2b transaction. Here, giving an example enterprise to be examined is also vital to further understand this kind of system along with its risk and for it to be categorized as determinant of devaluation of a certain business asset. A business of car dealership and manufacturing is a perfect example to demonstrate this kind of system and how tangible assets become intangible and vice verse. In this particular case, there are a lot of factors why this kind of business is a perfect example to be categorized as such. The first particular problem here is the pricing of the product (car) to be sold. If the normal market reveals the price of the product where most of businesses utilize price as a marketing strategy, in B2B, non-revelation or keeping the price range with outmost confidentiality is a strategy in itself. Though it might sound weird and unfamiliar, this kind of practice is happening. While business is done electronically through internet, the bidding of prices might happen on telephone calls in which the individual who has the highest bid will eventually bring home the product. Here, the business has the luxury of dictating and accumulating the price range of the product (car) beyond the expected price of it- this is regarded as the positive aspect of it. However, in the negative aspect, the problem is within the same premise- What if the bidders don't meet the expected price of the product' This is a clear example of intangibility among the product as well as the asset of the business enterprise. This kind of situation is backed up by Mougaya (2000) stating that "if the company is on the sell side of e-business. It has to provide customized dynamic content, example product information, pricing, and product availability information. If the organization does not have systems in place it will not be able to provide this information in timely and accurate fashion. Similarly, on the buy side organization can consolidate purchases of similar goods across the divisions and thus achieve increased efficiencies. However, if they are do not have properly implemented and integrated systems they will not know what they are buying and why they are buying or if they are getting the best price. Properly implemented and integrated ERP systems across the company can play a very positive role.." If a person has to venture in this kind of transaction, this unstable premise must be included in the consideration. If selling and venturing in this kind of system is shaky and risky, then several measures must be taken into consideration in order to at least minimize if not eradicate this kind of problem. If the product along with the marketing of it particularly to the given examples which is car, if being entered into a cyber transaction, all of the information that are associated with it is now considered as data assets. With this kind of information at hand with just a click in the net, then vital information would also be available to competing product and could be a source of identity theft. However, these things are just tip of an iceberg. There are much complicated problems that would arise in engaging with this kind of business. In this case, it is very important to know what these threats are, which results in intangibility of assets. In this case, financial transactions could be the difference and would dictate the outcome of the success or failure of a business engaging b2b. Going back to the given example (Car Business Ventures), there are a lot of financial transactions and ventures that would definitely be in the picture. To those who can afford, wholesale financing is the common option. If we are to analyze, this one seems to be the safest of the financial options, as the money would be shelled-out instantly. Is there a risk in this kind of option' In this kind of situation, there are analysts who emphasized and stressed that there are risks in this kind of situation. If this is the case, it is very essential to know how assets could be intangible even in wholesale financing. Of course, the process in b2b is much faster than the conventional ones. However, the knowledge of the financer to the lending party is limited on the basis that the transaction is oftentimes done in the internet and there are huge chances of encountering prank and fake business partners in this regard. Furthermore, it is stressed by Castillo (2007) that "The wholesaler re-writes the Agreement with the Seller listing the new Borrower as the Buyer. This solves the paperwork issue. The Buyer will still have to fund the Assignment fee with some other source of funds. The wholesaler in this scenario is not protected because none of the paperwork demonstrates his right to purchase the property, nor the assignment fee to be paid. A separate agreement would have to be established with all of the parties. You see how this can get very complicated and cumbersome. By the way, even if you have a cooperative Seller you can not just list the inflated price (original sales price plus Assignment Fee) on the Agreement with a stipulation that the Assignment Fee portion will be paid to the "Wholesaler" at closing, because then the wholesaler's fee will show up on the Seller's side of the Settlement Statement appearing as if he acted as a Real Estate Agent. Note: This may be OK if the "Wholesaler" is in fact an agent. They'd need to check with their Broker'" However, the common problem in this is that when the other party failed to pay its obligation and in the same way, the collateral that was given depreciates, in this case, it is a clear loss to the business enterprise. The other threats include the likes of refinancing, retail and leas options. All of these impose different impacts and threats in the business in devaluating several assets and more often than not, it is the intangible ones. In this case, Weintraub and Ante in 2000 emphasized the disadvantages of b2b in any venture stating that "The same crash-and-burn financing cycle that mowed down consumer sites is now decimating B2B exchanges. After running up to stratospheric levels in the first quarter of this year, the typical B2B stock is down by 70% to 90%. And private venture-capital funding is quickly drying up as well. That wasn't the plan. Just like early consumer retail ventures on the Net, e-marketplaces for businesses showed huge promise. They are supposed to help buyers slash purchasing costs and discover new suppliers, products, and lower prices. Even better, business has been expected to snowball as suppliers are turned on to new buyers. The long-term prospects are still enormous. Sure, B2B e-commerce is embryonic today, accounting for a mere $215 million in 1999, or 1.4% of all commercial transactions, according to AMR Research Inc. But it is expected to explode: B2B e-commerce could reach $5.7 trillion by the end of 2004, and fully half of that will flow through exchanges'" -In this case, like any other transactions, if there are few people and business entities who patronize the product, the lesser the chances that the investment of the investor would return to him. In other words, there is no assurance that the return of investment is realizable. If the risks are these enormous, is there a way to bridge the gap between b2b as well as the desired profit of the business entities adopting this kind of system' The answer lies on how the company or the business entities reacts on the premise should such risk happen. Also, forecasting plays a major role in these companies to anticipate and formulate contingency plans to minimize and even avoid such things from happening. Upon analyzing these things, what are those measures that one must do in order to avoid such risks' There are things to be considered in doing such practice and since risks are high, then plans to lessen or avoid risks must be higher than the risk itself. The first thing that business entities must do is to promote this kind of system to others who doesn't know the system. Like in the example of car business, same competing products could work hand in hand in delivering and exchanging connections which play a vital role in the operation of such business. It could also be done with the sharing of suppliers. Also, Wyman (2006) stressed that strategies, targets and objectives must be " Targeting is not a subject to set the heart on fire, compared to the more visible excitement of new product launches, network make-overs or acquisitions. But in banking targets are what get huge numbers of people to do what the bank wants. Set the wrong target - whether in terms of what or how much - and they will be letting performance slip through their fingers. Planning processes are typically very heavily engineered in most banks to provide some reassurance that targets are right. In our experience, banks would do better with simpler processes that focus on a few principles to get the right targets to the right people." If there are a lot of risks, then strategies must also be great in number. In this particular case, it is also vital to include strategies such estimates of tangible elements and look for possible uses of such things to its fullest and making the most out of it. Perhaps, uplifting the quality of some tangible elements is also a tool in order to lessen the pressure of instability in some business. In this case, scrutiny of one's asset against the other business involved in the system can be used as barometer in entering transactions or just plain inventory of company's assets. In this case, how these intangibles becomes an important element in the company aside from the sales of those' Also, organizing business elements such as evaluation of every asset is also important. It is also vital that these assets are at least protected by insurance, by the nature of these assets; the element of untoward incidents is inclined with it. Also, to attract more markets, quality assurance is also vital. In this particular case, quality would help attracting more consumers. It is given that finances and monetary status of a certain business would remain intangible in any accounting and auditing books. Above all these maketing endeavors whether b2b or conventional, break-even analysis is the most vital tool in Bridging the value gap in captive financial services industry. After all, Bessin (2007) states that "One of the most important tools a direct marketer can learn to use is a Marketing Breakeven Analysis' This metric is key for both evaluating past marketing campaigns and planning for new campaigns.' Use it to determine where past campaigns were successful and not so successful.' Use it in the planning stage of a new campaign-for example, to determine whether anticipated response will cover costs.' Calculating Marketing Breakeven may seem like a job for an accountant and you may require the help of your accounting staff to get started if some of the numbers on your P&L don't have the needed elements broken out. 'But it's not that difficult once you get the basics down, and remember, it's an estimate, so the numbers need to be close, but not absolutely precise.' Marketing Breakeven Analyses generate such useful numbers.." Reference: 1) Upton III (2007) Intangible Asset Valuation [online] Concord, MA 01742: Innovation & Information Consultants, Inc.. Available from http://www.iic-inc.com/curr.intangible.shtml 2) searchcio.techtarget.com (2000) B2B. CIO Definitions [online]. Available from http://searchcio.techtarget.com/sDefinition/0,,sid19_gci214411,00.html < Accessed Aug 3, 2007) 3) Mougaya W. Opening Digital Markets Battle Plans and Business Strategies for Internet Commerce: Publisher McGraw Hill' ISBN 0-07-043542-1 . 4) Castillo (2007) Conventional Financing For Wholesale Deals [online] available from http://www.wholesaleb2b.com/wholesale-financing.htm 5) Weintraub and Ante (2000). Why B2B Is a Scary Place to Be. Business Week:New York and Los Angeles. 11 September 2000 6) Wyman (2006). Target Time Again: Setting the Right Front-Line Objectives. [online] available from http://www.oliverwyman.com/ow/158.htm accessed 'August 4, 2007 7) Bessin (2007) Marketing Breakeven Analysis'and Why You Should Care!. [online] available from http://www.lenser.com/newsletter_0606.html#feature. Accessed August 6, 2007 Read More