Your firm has just landed a large client contract in Germany and secured an even

Question

Your firm has just landed a large client contract in Germany and secured an even larger supplier contract from Mexico. You are in the automobile stereo sound system business with the Detroit Auto Show, your signature event (product, advertising, etc.), and a potential deal with the Chinese and Brazilians projected to be signed and sourced in March and July 2016, respectively. What do you recommend your C-Suite consider and your risk management group do, if anything, about this increasingly international exposure? What financial instruments, if any, would be of help to your firm? Why is your firm even having this discussion?

Explanation / Answer

Risk and cost or two potential constraints in a project. These two constraints can affect this project's overall efficiency as well as productivity by a large margin.

Other company is dealing in stereo systems which has a very large competitive base in both of the countries obtaining best available solutions for the company for operating in China and Mexico.

Risk

Risk is one of the most essential parts which have to be managed in a project. By determining the level of risk in a specific project, overall efficiency as well as productivity of the specific project would be increased. Dependency risk as well as examining the probability of the significance leave direct impact on a project.

Risk tolerance of the specific stakeholders inside an organisation is always present. Establishing the specific risk tolerance is not defined anywhere in the concepts. Mitigating the risk is one of the most essential part of any project.

Cost

Cost is directly correlating with time. Time increases in each and every project overall cost also increases. Names of the cost according to the time is very necessary to create a working structure which can be specified for the overall work being done in the budget. Cost plays an important role in providing profits to the project as well as having efficiency as well as productivity of the specific project at the correct state.

One of the most important type of risk which company should keep in mind is risk of non payment

Some of the major non-payment risk are as follows.

late payment is the most important factor which is the major is in doing business as a distribution based system in India. Most of the time distributors send late payment which directly damages the overall financial management of a company.

Fluctuating business is also one of the major factors which are responsible for non payment risk. If the distributor faces the fluctuation in the market then it would also affect the payment for the supplier.

Negligence of payment is also one of the most concerned factors in doing business with a distributor based networking system. Distributor can deny the payment by saying out any reason as company does not have any verification methods available towards the distributor.

Bankruptcy is also a very major concern in non-payment risk involved in the specific country. If a distributor goes bankrupt then it would also affect the total payment which are prone to be made to the organisation.

Irrevocable letter of credit is an essential part of doing Overseas business. It works both of the sides, buyer and seller both are protected with the specific statement. A document of a bank which guarantees the payment and provides extensive security in overseas businesses when buying and selling goods.

From the buyer's side, bank issue a letter of credit this is pain to the seller if the seller is met with all of the requirements mentioned in the specific letter. It definitely increases the overall security in dealing with Overseas countries like India.

Letter of credit for buyers gives a surety to get the deliver product. In case the product is not delivered, stand by letter of credit is used as a payment tool and later the bank issues a penalty to the company who was unable to fulfill the specific order.

Irrevocable letter of credit definitely reduces the overall risk involved in the non payment. It supports the buyer as well as the seller in a positive way in which financial terms are kept in balance by the bank and buyers and sellers can easily do their business without worrying about the financial management as well as funds. This increases the level of protection for both the parties and also provides a better support to the overall business structure across different countries as the supplier and the receiver can easily do the business without having a fear of not getting paid.

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