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

Forecasting yield volatility, There are several methods available to ...

There are several methods available to forecast yield volatility. But before that, let us look into the calculation of forecasted standard deviation. Assume th

What is the financial leverage effect and what causes it, What is the finan...

What is the financial leverage effect and what causes it?  What are the potential benefits and negative consequences of high financial leverage? Monetary leverage is the additi

How cash budget and capital budget relate to pro forma, Explain how the cas...

Explain how the cash budget and the capital budget relate to pro forma financial statements. The cash budget depicts the projected flow of cash in and out of the firm for fixed

Basic concepts of assessing trading strategies, Leveraging can be described...

Leveraging can be described as an investing principle where borrowed funds are invested in a part of the securities. Leveraging can magnify either returns o

Show the signs of overtrading, Q. Show the Signs of Overtrading? There ...

Q. Show the Signs of Overtrading? There are a number of usually recognised signs that a company may be overtrading. These are considered mutually with relevant financial data f

Common size and index analysis, sk company had the following balance sheets...

sk company had the following balance sheets and income statements over the last 3 years

Role of special purpose vehicle, The financial institutions tha...

The financial institutions that originate the loans sell a pool of cashflow-producing assets to a specially created third party that is called a

Special considerations for high-yield corporate bonds, High-yield ...

High-yield bonds are issued by organizations that do not qualify for "investment-grade" ratings by any one of the leading credit rating agencies

Explain the difference between cash and profit, Explain the Difference betw...

Explain the Difference between cash and profit Cash flow statement shows all the cash in and cash out for the organisation for that period. It demonstrates the cash generating

Pvif, how do we get the pvif of a perpetuity

how do we get the pvif of a perpetuity

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