Managing operating exposure and FX risk at Nissan.
Global businesses are often exposed to financial risks such as currency volatility. These foreign exchange (FX) risks affect all aspects of a global firm. Next, you will read about the automobile industry. Auto makers' operations and manufacturing can be affected by currency fluctuations. In the assigned articles and case you will find out how Nissan and other firms managed this FX risk.
Kim, Yong-Cheol & R. McElreath (2001) "Managing operating exposure: A case study of the automobile industry", Multinational Business Review. Detroit: Spring 2001. v 9, Iss. 1; pg. 21-27.
Book Review (2005) "The gaijin who saved Nissan", Business Week,1/17/2005, accessed 10/16/2010 at: http://www.businessweek.com/magazine/content/05_03/b3916021_mz005.htm
Napolo, D. (2005) "Managing FX risk; an eight step plan to establish corporate foreign exchange policy", Treasury & Risk Management magazine, March 2005. Accessed10/16/2010 at: https://www.wellsfargo.com/downloads/pdf/com/focus/risk/manage_fx_risk_reprint.pdf
Note: We also recommend you examine information on Nissan's websites below. Bandwidth restrictions may prohibit your accessing Nissan's website; however, it is still possible to complete the assignment without access.
What did Carlos Ghosn and Nissan do in order to manage global financial risk and why?
Did Nissan follow Napolo's (2005) 8 steps? Discuss which steps they did and those they did not follow.
Draw conclusions and list supporting references and cite sources.
Title: Managing operating exposure and FX risk at Nissan
Managing global finacial risk
In order for Nissan to perform better, Ghosn identified that the company had to drastically change the way it does business. The automotive industry is a large capital consumer and thus the first step that was necessary was to reduce the cost of doing business. Ghosn decided that the company should reduce the cost incurred in purchasing by 20%, decrease company capacity by 30%, close five of their plants, and to reduce the number of workers by 20,000 through layoffs and attrition (Book Review, 2005). This was a crucial step in improving the company's financial performance but was met with resistance from suppliers and the country at large since the external environment was more concerned with status quo rather than sound financial performance. Nissan had one thousand three hundred subsidiaries and thus was incurring large amount of cost to run the business. By reducing capacity and closing plants Ghosn wanted to reduce cost incurred to operate and maintain numerous plants.
In order to reduce global financial risk Ghosn put a system in place to reduce debts incurred by the company. He put measures in place to analyze company financial performance and developed strategies ...
The solution discusses managing operating exposure and FX risk at Nissan.