Twittbook or facewitter!! Could it be LINKEDBOOK?!!

Social media has been emerging in the last decade. But what is taking place is lately is a huge consolidation between social media ports. So lately, I cannot see the difference between Facebook and Twitter as it was 2 years ago. After adding hash tags to facebook, and after the huge number of photos that are being uploaded on Twitter, it made me to stop at a point and try to differentiate between both sites, and at the end I did not find any exclusive differentiator for any but in the minds of users and a little difference in the lay out.

Again, the same is happening for social networking sites for business professionals. Going through the latest updates and how users can make use of, I found that they are almost the same, with off course Linkedin being the most widely used between professionals. But at a fast comparison between Linkedin.com and biznik.com, I have noticed that both are emerging in the same way. Differentiators are melting between sites and still they are serving almost the same people in almost the same way. And again the differentiators are set at the mind of users only.

Will this lead to a further emerging in the social media?? Will we see linkedin entering the line of Facebook, or biznik users are tweeting on linkedin for other facebookers??

The answer in my point of view will be a total YES. It may take some time till the market of social media is more competitive and less differentiated; I guess we will see higher mix between goals and strategies between social networking websites. But the biggest question that I cannot find an answer now not even a guess: Will we see a merger between different social networks from different categories in one network?? And if it will happen, will it be soon??

Are tax incentives enough?

 

 

 

In my current experience in internationalization for a company, I am wondering if working in rural areas of emerging markets does really pay off. Emerging markets are offering relaxed tax percentages for green fields. Also, it is offering some relaxed laws with reference to other major cities in these emerging markets.

As a Portfolio manager for the current project, following finances and some technical issue, and in comparison with similar projects in cities in Emerging markets. I can barely see the difference regarding the capital cost that investors are investing to get advantage from relaxed taxes and laws.

The main cause of such low margin difference can be referred mainly to these reasons:

1-      Low services available at rural areas, such as limited transportation facilities to serve projects, especially when the project is manufacturing project that need medium to high supporting services to have a good final product that can serve consumers that are usually located in major cities especially in Emerging Markets.

2-      High sunk costs. This can be caused by the lack of resources available at rural areas, and together with limited transportation sums up to a delay in the operations that are scheduled upon project planning, because the huge difference between the project’s planner and the real situation on sites. This difference ends up in decreasing productivity and efficiency, and sometimes de motivational for executives and workers. With bearing in mind that rural areas have low financial services which in this case increase transaction costs and we can consider it as sunk costs.

3-      Cultural differences at rural area are extreme. This issue I faced after the energy of the first steps of the project has faded. The cultural differences generate a denial state for technicians especially when they feel that they are not gaining new experience that they were willing to have. Instead they have to go to lower profile to cope with the situation and as a result demotivation alters productivity. As a result it ends up to increase sunk cost of the project in a way or another.

4-      On the level of Operational costs, in my current calculations it will not differ much in comparison with major cities or close to major cities, including higher taxes in major cities. Also, if more than 30% of raw material for operations is not available in rural areas, it ends up with higher operational costs there.

5-        Many of investment encouraging laws in Emerging Markets looks really encouraging, but when it is the time to apply the laws at least 40% is not applicable, and this is a surprise because it is published usually with governmental news but on grounds you cannot feel it.

The summary of my current supervision over investing in rural areas in Emerging Markets recommends that many other elements should be included in the risk management study for the project. Also, new risk elements should be quantified to be calculated in the risk model before taking the decision of pursuing the project.

Also laws of investing in rural areas should be tested and bench marked with previous experiences, with taking the worst case scenario as the base for building the architecture of the risk model just to be in a safer zone. Finally, in my experience, Emerging Markets are risky and they are remunerating for companies, and the difference can be seen in the bottom line of many companies that worked there. But if the choice of location in Emerging markets is the issue to be negotiated, I fully recommend to go with more urban locations rather than rural where one risk model can be built and applied easily with minor modifications regarding investment laws in local environment. Also, governments should take care about rural areas in a better way, in either decreasing taxes to encourage more investments to arrive to rural areas (in the case where the private sector is responsible for building the services in rural areas), or increasing services in rural areas (in the case where public sector is responsible for building services in rural areas.

   

Link

10 Things to Know Before You Grow Global: Nair

An interesting article I found for growing global, Enjoy it

Delegation, Risk management and Internationalization

 

One of the most important problems that newly internationalizing companies may face is delegation. Before taking the first step in the process of internationalization for any company middle and senior management should change some rigid procedures that they usually follow for conducting any process in the business.

Flexibility in taking spontaneous decisions is required. Conducting the business in the same way before internationalizing will lead to organizational problems. Currently, supervising the process of an internationalizing company from one emerging market to another, I can see the deep problem of the extreme control of the CEO. Even though he is influential and knowledgeable, but liking to be the guy in charge for every finest detail in a micromanage environment is leading to complicated problems for both sites. The first working site, results and KPIs show a major decline of efficiency. All the employees depend on their decisions on the approval of the CEO to decline their own risks. On the other hand, the new site is facing the risk of crossing the deadline by months, since all the decisions are in a lag of time.

The process of internationalization calls for a new or a change in leadership. Controlled delegation governed with excellence of KPIs before interference should help in keeping under control the functions of the organization. Any mistake in the critical period of going to work in another country may lead into severe organizational change that calls for longer time to heal.

Risk Management function should take in charge the responsibility of the new change in the corporate. Keeping under control all the KPIs of excellence and creating new KPIs for new projects. Another category is the event risk, which includes the prepayment/reinvestment/early amortization, due to having a mortgage that may be depreciated or amortized, which may lead to early amortization of the asset and as a result may cause the security to be paid off prematurely, this applies for the case of moving equipment and machinery from site to another. Moreover, currency interest rate fluctuations may be included in the event risk, which may in its turn affect the prepayment rates on the underlying loans, it should be stated that MBS seems to be the most sensitive to changes in interest rates.

Delegation helps Risk management function to expect problems and barriers that may face projects in short term, keeping an eye on functional KPIs on existing projects and working with operations to set KPIs for newly held projects.

Working Capital Management in crisis

 

While I am doing my master degree I was exposed to the working capital in companies. Nowadays while I am looking for a job and through reviewing the balance sheets of several companies (listed and not listed), I noticed defects in managing working capitals in companies since the past 4-5 years. These defects caused bankruptcies for several companies, especially non-listed ones.

The most repeated defects –in my point of view- was decreasing receivables to the minimum in the first 6-12 months of the crisis, increasing payables to the limit, and of course reducing inventories to the minimum or even changing the method of inventories from MTS (make to stock) to MTO (make to order). This policy sounds a great strategy and increased the trust of share holders of the organizations at the first glance of the crisis. But what happened is that the crisis continued with its surprises, and the period is one of the longest in the history of many organizations.

I think that the point that these organizations neglected was the situation of its suppliers and its customers. Receivables were decreased to the minimum with synchronized changes in payment methods to decrease the time of payment. This change encouraged customers to look for new suppliers that give them more relaxed method of payments. These suppliers mainly were located in areas out of Europe and the United states; mainly new suppliers were located in emerging markets that were less impacted by the financial crisis.

Moreover, these organizations tried their best to have more relaxed method of payment, depending on their customer power according to Porter five forces. This in itself caused problems for the suppliers or they enrolled in the internationalization process.

Finally, they changed the policy of production to MTO mainly, especially for European companies. This point affected their customers in markets outside Europe, especially in the Middle East. Where customers like to have their orders shipped on the spot, because of the nature of the culture and method of working in their markets. This affected the sales of these companies and increased their liquidity crush.

To sum up, if the companies took long term strategies at the beginning of the crisis, they would have survived this crisis with much better results and higher bottom line for the upcoming ten years. The surviving companies should take a higher care of their working capital management. An example of companies that managed their working capital during the crisis is Siemens, because they were one of the fastest companies that managed to arrive to growth in its markets and they managed to increase their production and sales in emerging markets with saving its quality and positioning in the mind of their customers.   

Securitization process for Risk Managment

The definition of securitization: structures finance technique in which marketable debt securities are created from pool of cash-flow producing financial assets. The cash flows generated by the pool of underlying assets are used to make interest payments and to repay the principal of the securitized bond[1]. In the case of MBS and referring to securitization, it seems that the bond holder gave a loan for the buyer or the owner of the mortgage. In this situation the bank plays the role of facilitator between the customer and investment markets, where they lend the money to customers without worrying if the customers have enough assets to cover the loan. As a result the principal and interest payments for mortgages will be for shareholder.

Credit Default Swap is a kind of a counter party or insurance policy from a third party, so that it transfers the credit risk of one party to another. Where the lender or the owner of the MBS wishes to insure the credit risk of the borrower (the owner of the mortgage). So the counter party of the CDS agrees to insure the risk in exchange for periodic payments (insurance premium). If the owner of the mortgage defaults, the insurer that will purchase from the owner of MBS the defaulted asset, and the insurer pays the owner of the MBS the remaining interest on the debt and the principal. In summary, the buyer of the CDS receives credit protection and the seller guarantees the credit worthiness of the owner of the mortgage, and moving the risk from the holder of MBS to the issuer of CDS.

Risks arising from the use of such financial tools are wide; and maybe defined in several groups. The first risk is the liquidity risk that includes the credit risk, which in its turn, includes the risk of default or downgrading of the counterparty.

Another category is the event risk, which includes the prepayment/reinvestment/early amortization, due to having a mortgage that may be depreciated or amortized, which may lead to early amortization of the asset and as a result may cause the security to be paid off prematurely. Moreover, currency interest rate fluctuations may be included in the event risk, due to the movement of the prices of mortgages, which may in its turn affect the prepayment rates on the underlying loans, it should be stated that MBS seems to be the most sensitive to changes in interest rates.

One more risk should be included in securitization is the contractual agreements, this point includes the morality hazard in pricing the assets (here we can compare with what happened with Lehman brothers, when income for managers was upon performance, which may fuel a conflict of interest. Moreover, in this category we should also note the probability of the insolvency of the servicer.

---

[1]‘ Introduction to Securitization’ by BNY MELLON Cash investment strategies.

Value Based Management (VBM)

The definition of economical measures is functional formulation of processes in the determination of corporate objective; the economical responsibility of the evaluation of the performance constitutes one of the key steps in the design of the operative mechanisms of directional control.

Therefore, any measure of performance to be assessed should be done through objective presentation of the process. Basically, the goal is to address the capacity and the efficiency of the directional management versus the maximization of the value of capital of the action. In the process of research for such a goal, we have to keep in mind the interest of the shareholders to be saved and defended. In all of the levels of the organization, there should be a rigid discipline in the use of the capital invested.

The idea of corporate governance should be taking all of the needed decisions and actions to increase the value for the shareholders. Unfortunately, the goal of the management of a company is not always aligned with the interest of the shareholders. Consequently, some of the big companies do not manage the company on day-to-day basis to maximize the value of the shareholders (Martin and Petty, 2000).  

Value creation is derived from the unification of the opportunity and its realization. Opportunities must be considered at the moment they appear. Companies in the process of day-to-day management must have some employees who should make use of business opportunities for the company’s sake. The challenge is that the company should identify an incentive system to encourage employees to make them feel as if they are the owners and increase their entrepreneurial attitude.

Economical measures of the suggested solutions for managerial accounting; the key aspect lies in the capacity to integrate the control system of the company. Value models and especially Value Based Management (VBM) must provide a logical framework to orient the company’s strategy.

The essence of the configuration process of the control system should make explicit logical connections between strategies to achieve the purposes, the organizational structure and the system’s economical responsibility. For this point they cannot give predefined solutions; some indications interpret the conditions which ensure the development of the company over time.

The emphasis of the sustainability is done because the value is created in the time as the results of the continuous cycle of the decisions and strategic operations. The introduction of the Value Based Management must support the process of value creation; managerial performance has to be measured using metrics that can be connected to the results of values and shareholders satisfaction (KPIs).

 Finally, the performance measures proposed as a general model for corporate governance of modern corporate should aim to provide an effective response to the achievement of a goal.

Brand management and internationalization- Part 2

 Keeping in mind that brands are traditional way for customers to orient the product, also brands help customers to quickly make their decision turned to be a cultural symbol that reflects their social status or lifestyle. As a result, the brand has to have maximum clarity of profile and cutting edge of satisfying customer’s needs, which means paying closer attention to customer’s expectations. Sometimes the brand helps to broaden those expectations while trying to meet them, which emphasizes the brand’s core features before stretching them beyond recognition.

Overarching concept keeps every relevant aspect into account in order to form the brand personality, these aspects includes: the product itself, advertising and sponsoring, and sales and customer service, etc. Advertising is extremely important for any manufacturer, using newspapers, TV advertisements, and street advertisement, with recognizing the importance of social media in recent years. Companies has to produce some advertising videos only to be broadcasted over youtube and other social media channels, which also gives the brand another push for internet users and keeps the brand in their mind when it is the time to make a decision for purchasing a product.

Companies have to keep an eye on the brand-specific conception of the sort already emerging in between the young. Fine tuning and be technologically compatible with new products and trends between young generation is one of the most important goals, and internationalizing companies have to work on it on a daily basis, especially if the target markets are emerging markets where young population is the most important segment of the market. As a result, the brand will still have the reputation of being a leader in such segment that is increasing more and more with time. Moreover, such points may be considered as differentiators nowadays until they will be taken for granted in the future.

In conclusion, in the process of internationalization, companies have to drive down costs while also improving quality and tenacity of their marketing and sales organizations. Cutting cost and improving the product is a huge challenge, which results in the decision of improving distribution channels with an emphasis on service and customer relations, and most importantly: brand management. The result is of building such a model between sales, brand management and cutting costs was the design of sales and marketing processes that are more efficient and designed on global basis with the necessity to localize for markets needs but with the same emphasis of the brand, in the entire world. Investments in the brand will pay off in the future with having several options for the development of the brands with a major focus on high customer satisfaction and boosting sales as a short and long term strategies.  

Brand Management and internationalization-Part 1

Brands are one of the most important points that companies have to take care of, especially in the process of internationalization. Companies focus on positioning of their products in different markets to increase their sales. Brands are an asset for the future, because using brand management companies try to convince their brand features form an integrated whole. Moreover, the glut of models is stretching brands to the limit. Also, the brands of the future will be customer focused. 

The high competition is reshaping the rules that companies are adopting for conceptions of their brands. Development in the technology is similar, in general, and offering no differentiation between competitors, causing the evolution of sub small categories. The numerous numbers of models and categories is overextending the brands, this is resulting in the multi branding that manufacturers are facing, and moving brand management to portfolio brand management, which complicates the situation more and more, for example BMW added the brand of MINI, also BMW has done many changes in their image for the customer in the past 5 years, of stressing the JOY of BMW to Sheering the JOY of BMW. They are trying to attach with the customer emotionally through their advertisements in various channels, stressing the experience rather than the product itself.

Brand management and value should be at the top priorities of the company and have to be considered as a strategic issue that should be dealt with in a daily basis, because in the past companies was differentiating themselves from each other through their product, but differentiating through the product is no longer available for the following reasons:

1-      Consolidation of the suppliers of the industry, especially for international brands.

2-      Joint development and production projects even between competitors in order to cut costs.

3-      Interchangeable parts policy and standardization of parts which decreases the possibility of technological differentiation between competitors.

Traditional customer segments are getting smaller and smaller due to the singular needs of the customer that companies are trying to satisfy each single customer. Brand strategies of the big players are extremely complex and are even becoming harder to coordinate, and as a result, companies are trying to keep the image of its products, campaigns and sales and services structures constant all over the world. 

Risk management in emerging markets

In the process of internationalizing, companies should take care about their new framework of risk management, especially if the process of internationalizing is towards emerging markets. After crisis, companies should make their pricing process depending on their risk taken, and build a risk-incentive system.

First of all, the financial institutions have to define their types of risk and their risk appetite. This should be done by a risk appetite framework that takes into account the risk principles, strategic principles, governing financial objectives and some measures to rule and control the risk appetite. This framework should match the risky activities with the expectations of the shareholders  and to emphasize the institution’s risk management strong culture in a transparent procedures that allows everybody to be updated with the latest data and emphasizing the transparency in the framework of the risk appetite.

One of the most important points that all the firms should understand is their risk exposures, which may result in losses in their investments. Also, firms should take into account the periods of their risk exposure, especially with the OTC exposure and should ask for more collateral from their brokers to protect against default, and contentiously monitor their exposure to counterparties. As a result, risk governance should be a top priority and enters the strategic view for the senior management of any business.

Financial institutions should run a rigid credit analysis of counterparties. New divisions have to be created for structural credit positions and to monitor credit quality. Some emphasis should be applied on the abilities and quality of forecasting the future in all of the cases which include the worst case scenario.

Institutions have to understand the relation between credit risk and each type of risk represented in the Enterprise wide Risk Management system. Some models already exist for this integration starting from: Credit portfolio Models, when institutions have their internal credit models for risk management where thy differentiate risk on certain parameters. Internal Ratings: where ratings are given for the creditworthiness of an entity which reflects its ability to repay debt. Exposure limit: where institutions create a scale for exposure to a certain number of entities and categories, so that if the exposure hit the limit, trade with the entity will be blocked. Stress testing: is done to overcome some drawbacks of risk models that depend on historical data.

To help in managing the credit risk especially in crisis there are some recommended ways to follow: Risk base pricing, Covenants of the capital of the debtor, Credit insurance for receivables, Credit derivative to hedge the risks and Collaterals.

The framework for the credit risk should focus on the culture of the institution, the people and the organization with the emphasis on the importance of the technology in the recent days, IT systems, so that companies could enhance their forecasting to make the best decision. The framework should include in the core: Risk rating systems-e.g. RARAOC, business process improvements, data management using IT systems to deal with data and risk intelligence such as dashboards.

After building the framework, financial institutions should run credit risk assessments, and build a reporting dashboard system for the Enterprise wide Risk Management and after that they should start forecasting the future depending on the general situation, but more conservative decisions and approaches should be taken in crisis times.