Cross-sector analysis, Financial Management

Assignment Help:

Cross-Sector Analysis:

The growth of a country depends upon how fast a country can adapt to deregulation and internationalization. Deregulation and internationalization put competitive pressures on the producers, who fundamentally change the structure of the economy. With the advent of technological revolution, there has been fierce competition, which has forced the companies to change their focus. There are four major ways in which changes in economy have made business expansions to stay longer and recessions less probable. These are:

Changes in Corporate Behavior: The pace at which the overall channels of production can change with the changes in business environment reflects the degree of resistance of a particular country in terms of declining growth. Countries in recession which are able to act fast according to the situation are likely to be in a better position than the firms which are slow to take up the advantages of the opportunities prevailing with the changes in the business environment. For instance, fierce competition has forced the companies to adopt a pull strategy instead of a push strategy whereby, the consumer needs and preferences are given the top priorities and the producers are price takers rather than price manipulators. In other words, the producers have lost their power to control prices and now the forces of supply and demand freely determine the prices. As a result, the corporates are looking for new tools and mechanisms to cut costs to increase their profit margins. This corrects the problem of oversupply and underemployment. Another important tool for inculcating efficiency with the firm's operating system is the adoption of just-in-time and other management tools that reduces the ratio of inventories to sales and other significant ratios.

Introduction of Temporary Labor: The temporary labor or ad hoc labor also helps in business expansion. Temporary labor mitigates the pressure on the companies in terms of payroll when the business is in slump. The temporary workers can be easily laid-off at the time of slump. Temporary labor also leads to lower wage inflation. Wage compensation costs are made more flexible by linking an increasing proportion of compensation to profits. For example, introduction of Employee Stock Option Plan (ESOP), where the employee wage is dependent on the stock price movement of the firm. The basic purpose of ESOP is to make employee wages more flexible. Ad hoc labor allows the firm to retain valuable workers as the firm need not be required to lay-off its employees at the time of slowdown. The retrenchment of ad hoc employees also provides a buffer against the declining revenues when the business is in slump.

Financial Deregulation: The next important factor is intensifying competition in a country's financial markets through financial deregulation. Financial deregulation means, deregulating interest rates and making them market determined rather than imposing any ceiling on the interest rates offered by certain institutions such as commercial banks, credit unions, etc. For instance, the transformation of US mortgage financing system has made housing transactions more flexible to changes in the interest rates. With this deregulation, housing industry experienced quick changes between booms and busts. This deregulation brought about a marked decline in the cyclical volatility of housing activity and its sensitivity to interest rates. Deregulation of the financial markets also helped the US economy to stabilize by making household net interest receipts more responsive to changes in market interest rates.

International Diversification: Internationalization of a country's economy would also help it to protect from recessions by diversifying both its supply lines and revenue base. When there is a slump in demand locally, global demand might rise which will strengthen the country's economy and will help in recovering the slump in local demand too. Similarly, when there is an increase in demand within the country, then the country's needs can be met by imports from other countries.

 


Related Discussions:- Cross-sector analysis

364-day t-bills, 364-Day T-Bills The Government considered that it is i...

364-Day T-Bills The Government considered that it is important to develop government securities market for monetary control. It also had an intention to ensure that government'

share-appreciation mortgages (sams), High interest rates in the earl...

High interest rates in the early 1980s brought about this innovative mortgage arrangement. SAMs use inflation as a way of paying for the property. The lender agre

No external financing for new proposals, No External Financing for New Prop...

No External Financing for New Proposals: If a firm have sufficient retained earnings with it as required by the new proposal, then the firm may not raise any external finance. In

Determine principal balance at the end of the term, 1. CompuSystems was sup...

1. CompuSystems was supposed to pay a manufacturer $19,000 four month ago and another $14,000 two months from now.  CompuSystems is proposing to pay $10,000 today and the balance i

Explain the exposure is the regression coefficient, Explain the statement: ...

Explain the statement: “Exposure is the regression coefficient”. Answer: Exposure to currency risk can be suitably calculated by the sensitivity of the firm’s future cash flows a

What is non - diversifiable risk, What is nondiversifiable risk? How is it ...

What is nondiversifiable risk? How is it measured? If not the returns of one-half the assets in a portfolio are perfectly negatively correlated along with the other half-which

Explain the advantagesand disadvantages of mbo, Explain the Advantagesand d...

Explain the Advantagesand disadvantages of MBO Advantages of MBO Disadvantages of MBO Sale can be arranged quickly   Manag

Long-term solvency ratios (financial leverage ratios), Long-Term Solvency R...

Long-Term Solvency Ratios (Financial Leverage Ratios)   Debt-Equity Ratio = Total Debt / Total Equity à It is a measure of a company's debt utilization. It gives the ex

State the traditional approach of financial management, Traditional Approac...

Traditional Approach of financial management Traditional approach to the scope of financial management refers to its subject matter, in academic literature in initial stages o

Un number, 1. UN Number is a four digit number assigned to a potentially ha...

1. UN Number is a four digit number assigned to a potentially hazardous material (such as gasoline) or class of materials like corrosive liquids. 2. UN Numbers are assigned by U

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd