RELATIONSHIP BETWEEN FINANCIAL CRISIS, EVENTS AND ANNOUNCEMENTS
Analysis on the Effects of the European Financial Crisis on M& A Returns
The current society is exposed to the news of financial crisis, and most companies strive to make ends meet, despite these news. The news on financial crisis is still very new fresh in the minds of European companies. Particular attention is geared towards culmination of financial crisis in Europe following the 2007 subprime crisis, which had begun in Europe but immediately became a global affair. This is one occasion that led to economic restructuring to avert any possible crisis, and to foster economic stability in Europe. The subprime crisis in Europe started with the fall of Lehman Brothers Bank, due to its nature of continuous borrowing. Therefore, the financial failures that rocked Europe becomes stepping stone for developing new policies that would amicably solve any future crisis. With the fall of Lehman Bank, the safety of banks was castigated, and his doubt transcended to more economic crisis ever witnessed in Europe. Saving in banks were reduced with the collapse of mega banks and in Europe; a condition that made banking sectors to become fluidly and unattractive. In a quick response, people developed much precaution and skeptical towards making savings with banks, but instead considered other avenues of saving. This is yet one financial crisis that will be evaluated in this research and in lieu with the M& A financial institutions in Europe. The situation that rocked Lehman Bank was not an isolated case of financial crisis, but extended overboard to capture other banks like Fannie Mae and Freddie Mac or Merrill Lynch. Another instance that marked a mega financial crisis refers to the collapse and bankruptcy of banks in Cyprus (Fahlenbrach, Prilmeier,& Stulz, 2012, p.2143). These are just a few events that marred the European economy amidst heighted financial operations in the financial institutions. With the collapse of strategic financial and economic sectors, the entire Europe was compelled to undertake massive restructuring program with the view of curtailing any possible threat to its economy. This is one point where the financial crisis attracts certain announcement into the European sector.
The research question finds its application where various sectors of the European economy had to undergo restructuring in order to comply with the change of economic atmosphere. As mentioned above, financial crisis is worst-case scenario that any economy would ever wish to face, but stringent measures must be instigated in the financial and economic landscape with the view of mitigating any future occurrence. M& A is part of the financial institutions that existed, before, during, and in the aftermath of European financial crisis. Therefore, their roles towards sustaining the economy are evaluated in lieu of the financial crisis that the continent underwent. The haphazard change in the financial landscape of Europe is largely attributed to the steps taken by different players. This is yet another causal effect that the research seeks to clarity. The heightened economic state in Europe sanctioned tremendous restructuring processes, which involves a contingent of technological and financial remedies. This crisis had attracted vested interest including the International Monetary Fund, which came in aid of this adverse situation. The pronouncement following financial crisis in Europe led to the reduction in the number of banks to 6.682. This is another element discussed by this research, as it seeks to enhance an understanding on the real cause on this trend. In addition, the roles played by M&A banks towards this incident are highly evaluated.
This study is primarily focused on the effects of M&A transactions on the financial sectors following the financial crisis that hit Europe. This aspect then brings us to the definition of research problems and various questions attainable to this it, and how it signified various operations in the European financial sectors. This study is done with respect to the increased number and magnitude of M&A’s in the financial sector following the European financial crisis. The financial interplay that was witnessed in Europe became dramatic and led to the generation of new financial models in line with the M&A financial transactions. Based on this, there was a possibility that an incentive was created for a larger number of bargains in the European market. This led to the introduction of acquirers who could gain huge financial advantage out of the M& A deals they obtained. At this point this research in intensively geared on evaluation the effects of financial crisis in Europe, and whether it offered larger potential gains to the M&A deals. This is the thesis of this research, and it intends to research extensively into the financial effects that M&A deals had to the economic and financial landscape of Europe.
Problem Statement and Research Questions
From the foregoing discussion, this research has its thesis anchored on the value created by the M&A’s before and during the European financial crisis. The term M&A, refers to the financial sector within the European Union, and has crucial financial mandate. Therefore, the announcement by M&A’s will be evaluated based on the deregulation and harmonization platforms. In this case, the effects of M&A’s announcements are tested and verified. Therefore, this test will act as a theoretical framework of varied effects of the financial crisis on M&A activities and value creation. The main problem statement of this essay will be based on the following question;
“Does the financial crisis influence the value created in M&A transactions in the financial sector in Europe?”
This is the central pills to this research question, and it is distinctively divided into various research questions. What are key differences in form of value creation in before and during the economic crisis that was recently adopted by through the undertaking involving M&A’s in Europe. This first question seeks to evaluate the effects in value created as a result of adopting M&A in Europe following its crisis. The difference in value creation is so strategic towards evaluating the central thesis of the essay, which is the effect of announcements to the European economic crisis. The second question is aimed at the differences in the value creation between cross-border M&A transactions and the national M&A transactions in the entire Europe. The third question examines the differences between M&A’s within and outside the European Union. These three questions are instigated with the sole mandate of establishing the effects of M&A’s transactions to the financial crisis that hit Europe. These effects are considered based on the pre and post effects that the transactions had into this crisis.
Structure and Plan of the preliminary Research Paper
Provision of a complete essay requires establishment of answers to the underlying questions. This requires adoption of various models that will be applied in answering these questions. Validation of thesis in this essay requires application of several models that justifies the answers to different questions. The first part of this essay will focus on the literature review that handle various models of research about M& A’ into the financial sectors. The first part of literature review presents the results from former academic papers, which talks about M& A’s in the financial., sector. Here, the European situation is analyzed in two perspectives including the pre and post European crisis. Various theoretical frameworks are highlighted regarding the financial crisis in Europe. In addition, this theoretical framework will help in the selection of ideal variables, which collectively supports the thesis of the essay. Therefore, the investigation of various variables provides basis for supporting factual evidence that supports the main thesis of the essay. In the next chapter, data collection and research design will be formulated in an outline format. This is then followed by descriptions empirical method used in answering research questions postulated above. Design of this study is a breakthrough towards the unfolding of the essay, which remains locked under the research study. The fourth chapter under study design involves evaluation of the results of the empirical tests already done. In the final chapter, the conclusion and recommendations are given with regard to the research questions postulated above. This short description gives an orderly pattern under which the entire research will exist. In addition, the structure of this research gives sure step towards evaluation of different aspects of study.
The literature on M&A’s is popular on the US markets, but not so on European markets. This is attributed to the current studies involving application of M&A’ s in the financial sector, which revealed that over 85% of such reviews were focusing on the US markets. Because of influent coverage of M&A’s into the European financial sector, it forms an area of great interest in exploring the financial status of the continent. One significant instance that has led to corresponding study into the European financial industry is due to the increased availability of data. This aspect makes it capable in conducting further research on the European financial industry, in line with the M&A’s financial deals (Dajcman, 2012, p.955). Some article gives specific and credible coverage resulting from practices that enhance financial viability into the European financial market. For instance, increased wealth of shareholders based on the mergers has so far been applied as gauge points into the European banking. On the other hand, the large statistical deals that existed between 1988 and 1997 exhibited that performance of bidder and the target have great statistical significance to the economy. However, there exist cross sectional variation in terms of such deals, but one thing that has stood stationary relates to the positive abnormal returns around the announcement between domestic bank to banks deals, and through other economic means such as diversification into the insurance deals. With further investigation, the results showed that M&A with security firms as well as foreign institutions did not exhibit positive abnormal turns to the economy. The significance of M&A’s financial transactions and deals has been adopted be various schools of thoughts in explaining its effects on the Europeans financial crisis that hit the economy. These scholarly points are supported by facts, and this is one scenario that this essay roots its foundation.
The second paper that shows positive results was written by Betel, Schiereck and Bahrenburg2004. In this research, an investigation of over 98 large M&A’s of the European acquiring banks ware made between years 1985 to 200. The main aim of this investigation was to establish drivers of excess returns to the shareholders of various participants including; bidders, targets and combined entities after sequent mergers. Based on this research, the findings revealed that a significant CAR of 16% was realized for the target firm with a small negative return of only -0.20%, which was considered insignificant. The findings later revealed combined abnormal returns of 1.29%, a value that hold significance at the 10% level margin. These two cases give a credible platform for conducting an investigation to the thesis of the essay. With positive net returns, the effects of M&A’s financial transactions and deals can be validly investigated and ascertained (Dajcman, 2012, p.957). This is one functional pillar of conducting research into the financial crisis of European based on its financial announcements. The effects of these announcements re equally captured within the limits of effects on returns stated above.
Despite the positive outcomes realized above; some research papers maintains negative position regarding the M&A’s transactions and deals on the European economic crisis. Morck, Schleifer and Vishny find negative returns with regards to the M&A’s financial transactions into the European economy. According to these scholars, loss of value is considered a good investment; while the negative bidder returns are a result of stock financing that culminates to a release of information on the acquiring firms. The prospects of acquiring firms are evaluated in the context of value and its targets. For instance, a hypothesis is postulated in relation to the reasons why acquiring firms undertake M&A’s and lose value. This reason is justified on the grounds that acquiring firms tend to overpay for their respective financial targets. The set of papers that show negative results concerning M&A’s deals give contrary statement to the main topic of discussion, and this is another means that the essay will validate the assertion under hypothesis under review.
The third category of research highlights mixed results with regards to the investigation of M& A deals with CAR around crucial announcements dates. This paper is postulated by J. Campa and I. Hernando, 2003, and considers the performance of European Union financial industry between the years 1998-2002. According to their findings, merger announcements generated positive excess returns to shareholders of various target companies, and this occurred around the dates of announcements. In addition, the investigations revealed that the returns for the shareholders of the acquiring firms did not appreciate much since it exhibited a practical zero percent around the announcement dates (Neck, Blueschke, & Weyerstrass, 2013, p.372). This revelation comes one year after the returns were essentially zero for both the target and the acquirer. Additional postulates into this third class of illustration shows that bank mergers, which have the capability of enhancing value upon announcements, are distinguishable from those that have not generated any value. Scholarly reviews affirm abnormal returns around the date of announcements of merging banking firms based on the activity and geographic similarity or dissimilarity. In this regard, the empirical results shows that banking mergers in which the banks have similar activity and geography enhance stockholder value by 3.0%, while the other type of merger has absolutely no value creation. The third aspect of this study is presented by Beitel and Schiereck, and finds similar results to the previous studies. In their outcome, they find that most M&A studies focuses on the US markets when considering bidder returns, and the lose value. On the other hand, they find positive returns on the CAR’s of the targets and combined entities.
The literature review gives predictable outcome of the study, and this forms the point where the research will be oriented. Based on the three aspects of research, results indicate that M&A transactions of European acquiring banks can be considered average, as well as successful. These two researchers conduct a test whether M&A’s might add more or less value than the complete sample. In this context, they present a predictable outcome and conclude that geographic diversification contributes towards the destruction of value for bidders, which seems to have no positive impact (Neck, Blueschke, & Weyerstrass, 2013, p.374). This outcome may be attributed to certain factors that potentially bar the firms from achieving their fullest operational scope. These factors are summarized as; a smaller synergy potential and fewer redundancies of difficulties merging the different cultures. At another level involving targets, positive abnormal returns were established.
From the literature review, alongside scholarly discussion, it is evident that no clear-cut conclusion can be drawn, and this calls on for further research. The effects of M&A deals happening in the European financial industry is an interesting topic of study, and requires exclusive evaluation. This forms the basis of enhancing discussion, and making further illustrations into the main thesis of the essay. Subsequent discussions will either enhance or discredit the three postulates inscribed in the literature review, and with the view of answering research questions and validation of the thesis.
Dajcman, S 2012, ‘Time-varying long-range dependence in stock market returns and financial market disruptions – a case of eight European countries’, Applied Economics Letters, 19, 10, pp. 953-957, Business Source Complete, EBSCOhost, viewed 10 March 2014.
Fahlenbrach, R, Prilmeier, R, & Stulz, R 2012, ‘This Time Is the Same: Using Bank Performance in 1998 to Explain Bank Performance during the Recent Financial Crisis’, Journal Of Finance, 67, 6, pp. 2139-2185, Business Source Complete, EBSCOhost, viewed 10 March 2014.
Neck, R, Blueschke, D, & Weyerstrass, K 2013, ‘Trade-Off of Fiscal Austerity in the European Debt Crisis in Slovenia’, International Advances In Economic Research, 19, 4, pp. 367-380, Business Source Complete, EBSCOhost, viewed 10 March 2014.
Vallascas, F, & Keasey, K 2013, ‘The Volatility of European Banking Systems: A Two-Decade Study’, Journal Of Financial Services Research, 43, 1, pp. 37-68, Business Source Complete, EBSCOhost, viewed 10 March 2014.
Default Risk Premium
A Default Risk Premium is the fraction of a supposed interest rate or yield from a bond that corresponds to a recompense for the likelihood of failure to pay (default) (Afik & Simon, pp. 1-10). In light of this definition, therefore, it is understood that the phrase is used to refer to the additional fee that a lender collects for the apparent possibility that whoever borrows the money will fail to pay back the given loan. From this definition, it is clear that default risk premium is significant and its relationship with the probability of defaulting is not monotonous. The default risk premium increases with an increased chance of defaulting, however, it declines when the chance of default reaches a specific level. Contrarily, the default premium declines when the possibility of default is low.
This implies that the default risk premium plays a key role when it comes to the pricing of credit derivatives, when the possibility of default is moderate, but its effect becomes less important when the possibility of defaulting becomes very high. The interest rate charged on bonds or loans depends so much on the default risk premium. If the market conditions are harsh, then the companies operating in the market would have to pay a higher default risk premium, otherwise, a lower default risk premium is paid. Since the United States dollar is one of the most commonly traded currencies in the international stock market, the trend of the default risk premium can be determined in regard to the market conditions in the United States or the dollar exchange rate. In the current situation, the international market environment in terms of trading the dollar is not tumultuous or turbulent. The risks that are likely to be incurred due to harsh market conditions are minimal. This trend has been so for the past months of the year and is likely to remain, thus the default risk premium is likely to remain low in the next six months.
A yield curve risk refers to the danger or risk that is experienced due to a serious shift or change in the market interest rates due to making investments in fixed income instruments such as bonds. In this case, the records show that the yield rates are constant for the first six months at either 0.08 or 0.09 (U.S Department of the Treasury, 1). The yield curve will therefore remain flattened.
Afik, Zvika, and Simon Benninga. “Expected Bond Returns and the Credit Risk Premium.” Available at SSRN 2373845 (2014). < http://www.fma.org/Nashville/Papers/Afik-Benninga_EBR_1jan14_final.pdf >.
U.S Department of the Treasury. “Daily Treasury Yield Curve Rates.” Office of Debt Management. 2014. Web. 20 Mar 2014. < http://www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/TextView.aspx?data=yield >.
The Boeing Company
The Boeing Company was founded in 1916, by William E. Boeing as an aircraft manufacturing plant in the US. At its onset, it had a meager 28 employees whose operating expenses were approximately $700 per week. During this early period spanning approximately 30 years, the company was involved in massive mergers and acquisition in a bid to increase its infrastructure, employee skills, and to alleviate competition from emerging companies. Therefore, following this successful business strategy, the company has grown and diversified its operations to become the second largest global aircraft manufacturer and the second largest aerospace and defense contractor going by revenue accumulation and sales volumes. It has an employee base of approximately 170,000 and is a stock component of the Dow Jones Industrial Average.
The company’s operations are divided into five main sections: the Boeing defense, space, and security (BDS), Boeing Capital, Boeing Shared Services group, Engineering, Operations and technology, and the Boeing Commercial Airplanes (BCA). Based on its 2013 annual sales figures, it is currently 30th in the ‘Fortune 500 list’ and 95th in the ‘Fortune Global 500’ list. Its aircraft manufacturing division is responsible for at least 40% of its total revenues generated and its planes are considered as being a part of 75% of the global airline companies, and operate aircrafts in 150 countries globally. Its main competitor is the airbus located in Europe, which is considered as the largest aircraft manufacturer owing to its sales and revenue volumes. In the defense and space division, the company’s main competitors are Lockheed, Gen dynamics, Raytheon, and Rockwell.
The company has continually upgraded and reformed its financial portfolio to suit its growth and development plans. For instance, between 2011 and 2013, the company has reduced the number of its employees by 2000 in a bid to reduce its operating expenses, with the current annual revenue per employee estimated at $514,388. Between 2009 and 2013, the company has also increased its asset valuation from $62.053 billion to its current $92.663 billion. During this same period, its debt has reduced from $12.924 billion to 9.635 billion. The current ratio is used to measure a company’s abilities to pay its debt within the current fiscal year, though investors prefer a low current since it shows ability to grow its portfolio using its current assets. Currently, the company’s current ratio is approximately 1.26, which shows a positive outlook for the company.
In 2013, the company’s net revenues were approximately $86.623 billion, which represented a 5.81% increase from the previous fiscal year. The net profit for this same period increased from $3.9 billion in 2012 to $4.585 billion, with the net profit margin increasing from 4.8% in 2012 to 5.3% in 2013. The operating cash flow is derived from the company’s earnings from sale of products or services. It is generated from a company’s income taxes from earnings before taxes and depreciation (EBITDA), and is used by an investor to check on the value company’s earnings. Currently, Boeing is considered to have an operating cash flow of approximately $8.18 billion, which is a partial figure that financial analysts have used to predict that Boeing has a meager 14% chance of experiencing financial distress in the ensuing two years.
At the NASDAQ, the company’s stock is priced at $121.89, and has had a 52-week high of $144.571 and a 52-week low of $83.52, which represents an 83% lower value than its current value. The company’s average stock daily volumes traded is approximately 4,942,159 compared with a total volume of 6,065,600. The earnings per share (EPS) are the portion of the company’s stock that is apportioned to every share of common stock. Currently, Boeing’s earning per share is estimated at 5.96, which is at or near that of its competitors in both the aircraft manufacturing and defense and aerospace industries. Investors to determine the company’s profitability, especially when compared with its competitors usually use EPS. The price to earnings is another key feature used by investors to determine a company’s earnings and profitability. For instance, a lower PE denotes lower earnings and lower profitability for a company. Boeing’s price to earnings is estimated at 21.57, which is currently higher than those of its major competitors, such as Lockheed (18.23) and General Dynamics (16.73).
According to the company’s dividends growth rate, there has been an incessant increase in the dividends payable to shareholders over the past fiscal years. Data indicates that the dividend payable to shareholders has increased from $1.233 billion in 2009 to $1.642 billion as of December 2013. This increase is representative of the company’s rise in profit margins and reduction in the debt ratio. Another measure of a company’s profit and growth sustainability is the use of the retained earnings. These retained earnings are the portion of the income generated by a company that is left after deductions of taxes, dividends payout, and distribution to the company owners. This amount is used by investors to ascertain a company’s suitability to maintain its growth forecasts through profit retention, rather than liability acquisition. In 2013, Boeing’s retention earnings were estimated at $32.96 billion. The high value of Boeing’s retained earnings is in line with industrial averages that have to retain their income to sustain various investments in the manufacturing sector.
The book value per share is another measure used by investors to ascertain if a stock has been overvalued or undervalued. It is useful for the investor to liquidate his shares safely based on the book value per share since it can act as a price determinant of the common shares. This value is however devoid of such considerations as intangible assets like goodwill, intellectual property, and brands. If the book value per share is currently higher than its current traded stock price, then the company can be considered as been undervalued. Boeing’s book value per share is labeled at 19.90, whose value is considered as being below average when compared to other related companies and their competitors.
In investment circles, firms that have the capability to generate cash flow margins that are more than 5% are considered as sources of income. In the case of Boeing, the company has managed an average cash flow margin of approximately 4%, which is considered as being relatively medium. It is projected that this cash flow margin will be maintained at 3.3% over a five-year term, which shows good ratings for the company. Therefore, based on the data generated from the above analysis, it is plausible to confidently advice clients to hold on to their shares of Boeing since based on current and future projections, the company’s future is bright and its stock will experience a robust growth.
Saudi Holland Bank
The article chose is “HRM Context: Saudi Culture, “Wasta” and Employee Recruitment Post-Positivist Methodological Approach, the Case of Saudi Arabia”. It discusses issue of nepotism and its likely influence on the recruitment of professionals in the Saudi Arabian banking industries, among the mentioned banks during study is the Saudi Holland bank .it showed that nepotism does not affect hiring in the banking sector.
The services offered by Saudi Holland bank include
- Personal banking
- Credit cards, savings and investments, home finance, personal finance and E-banking
- Business banking
- Shari’ah accounts, business accounts, business finance, cash management, business credit cards, treasury solutions, trade finance solutions and electronic banking
- Corporate banking
- Corporate products: Shari’ah compliant, structured finance, structured solutions, central treasury division, murabaha investment and correspondent banking
- Corporate E-banking, structured finance, global trade services and insurance
Bupa offers health insurance to large and small companies, expatriate residents, families and other financial products for home citizens. The two companies in that they both offer financial products which are aimed at helping customer during the time of need. The two companies target individuals and business, this is evidence by the attractive products and plans to suit both the businesses and individual person.
The only similarity is that both the products deal with the benefit of investing or saving for the uncertainties in future. Another similarity is that they both target companies and individuals. The difference comes in their different industries; Saudi Holland bank is in the banking industry and Bupa in insurance industry. The bank has a subsidiary insurance company called Wetania insurance company and has the full ownership of Saudi Holland insurance agency. Through this company, Saudi Holland bank offer services which rivals the services offered by Bupa in Saudi Arabia.
Although Saudi Holland owns other companies, it also offers services to customers and therefore it cannot be term as a holding company. It however qualifies as a branching organization because it is associated with other companies.
C + S + L + MA = D + NDB + EC
Where by C=cash assets (96,619,000)
S= Security holdings (18,783,967)
MA= Miscellaneous Assets (2,085,990)
D= Deposits (76,813,386)
NDP=No deposit borrowing (3,054,640)
EC=Equity capital (21,007,936)
The bank’s interest income considers the savings, deposit by customers and other institutions. Customers’ deposits include SAR 967 million (2013: SAR 713 million) of margins held for irrevocable commitments and non commission based deposits amounting to SAR 31 billion (2013: SAR 25 billion). The interest income was accrued from the special commission available for sale, commissions available for sale, advances and loans, money due to other banks and financial institutions.
The total income commission was 952,230,000 for the year 2014 and it included income earner from credit card products, trade finance, corporate finance and advisory as well as the fund management and brokerage. The bank had income of 166,168,000 whereby foreign exchange was 96, 292, 000, derivatives was 69,649,000 and others 236,000. This therefore means that the bank made a total interest income of 20, 062,000 for the year 2014.
Interest expenses includes the debt the company owes other businesses, customer deposits, subordinated debt and negative value of the derivatives.
SAUDI HOLLANDI BANK ANNUAL REPORT
14. SUBORDINATED DEBT
Subordinated debt represents the following debt securities:
Issued on December 12, 2013:
The Group issued SAR 2,500 million unsecured subordinated Tier II Sukuk which are due in 2023. The Group has the option, subject to the prior written approval of SAMA, to redeem these Sukuk at their redemption amount in December 2018 or in the event of certain changes affecting the taxation and regulatory capital treatment of these Sukuk. The commission rate paid on the above averaged 6 months SIBOR plus 155 basis points (2013: 6 months SIBOR plus 155 basis points).
Issued on November 26, 2012:
The Group issued SAR 1,400 million unsecured subordinated Tier II Sukuk which are due in 2019. The Group has the option, subject to the prior written approval of SAMA, to redeem these Sukuk at their redemption amount in November 2017 or in the event of certain changes affecting the taxation and regulatory capital treatment of these Sukuk. The commission rate paid on the above averaged 6 months SIBOR plus 115 basis points (2013: 6 months SIBOR plus 115 basis point).
Issued on December 30, 2009:
The Group issued SAR 725 million unsecured subordinated Sukuk”Mudaraba Certificates”, which were due in 2019 with an option to call at the end of five years (2014). The Group exercised the option of early redemption of these certificates at their redemption amount in December 2014. The commission rate paid on the above averaged 6 months SIBOR plus 190 basis points (2013: 6 months SIBOR plus 190 basis points). All the required approvals from regulatory authorities were obtained for the purpose of redemptions. The Group has not defaulted on any principal or commission repayments and there have been no breaches with regard to any of these liabilities during 2014 or 2013
My Role as an Individual
Role is to discuss the Saudi Holland bank and a competing company, Bupa. Next is to look at the financial statement and draw the attention of other class members to specific areas in the statement. I should also work close with other group members to come up with relevant questions and answers which might help the group and class advance their knowledge on the topic.
The Dispute between Apple Inc. and the Chinese Government
Apple Incorporation, through their company AAPL has sued the Chinese government agency and local company over a struggle for patent rights associated with their product ‘Siri’. The case was officially launched by Apple, on Monday, against the Chinese State Intellectual Property Office and developer of softwares Zhizhen. This dispute came into existence when Shanghai Zhizhen Network Technology accused Apple Incorporation of copying their robotic product known as “Xiao I Robot,” which was developed in 2004. Apple is accused to have used the same features in the robot when developing their ‘Siri’ product, since the two products worked in a similar manner. This kind of dispute has come when Apple is gaining miles in the Chinese market with regard to selling Smartphones. In fact, China Mobile and Apple were already getting into a partnership that has been in the making for several years.
Looking at this scenario in a technical aspect, one of the largest markets that Apple enjoys up to a 7% share market is China. Secondly, Apple has already caught up with the Korea based manufacturer of Smartphones, Samsung Electronics Company Limited, in addition to other local companies such as Lenovo, and Huawei Technologies. Logically speaking, Apple is enjoying a state of mutual benefit in China, and this means lots of money or profits being earned by the company due to its activities in China. Nonetheless, the decision made by Apple Inc. to sue the Chinese government would have more negative consequences if it takes the wrong course. It is possible that the better working environment and the relationship that the company enjoys may come to an end. Similarly, Apple may end up losing its contract with China mobile, which would mean losses, and the company may also be expelled out of China if forced to operate under strict regulations. It is thus a thoughtless act that was worth letting go and Apple enjoys the monopoly and friendliness that it is accorded for purposes of its continuity and profitability.
Oliver, Sam, “Apple Sues Chinesed Government agency over Siri Patent Dispute.” Apple Insider Feb. 2014. 5 Mar. 2014 < http://appleinsider.com/articles/14/02/24/apple-sues-chinese-government-agency-over-siri-patent-dispute >.
Finance Research Proposal Assignment Paper on Relationship Between Financial Crisis, Events and Announcements
RELATIONSHIP BETWEEN FINANCIAL CRISIS, EVENTS, AND ANNOUNCEMENTS
Financial Analysis is of utmost importance in any country be it an industrialized nation or a third world country. The aspects of financial analysis will massively affect the economic growth and development of a specific country. The various aspects of financial analysis include the financial statements prepared by certain companies, the stock market, government budgets, and rates of inflation, profitability levels, liquidity, and solvency analysis (Claessens 2001). Lack of adequate controlling systems has characterized the market, and this led to the emergence of loopholes that adversely affected the stability of world’s economy (Jarsulic 2012). The two effects of the loopholes included the rising rates of inflation and the global financial crisis/recession. Excess global savings and international macroeconomic imbalances caused the financial crisis (Horcher 2013). This has been the case since 1990 and has had adverse effects in many emerging economies such as in the Asian region, Latin American region and other developing countries. This research shall analyze the effect of the financial crisis on events and announcements in industrial countries and emerging countries and the relationship between these three aspects.
The goal of this study is to analyze the effect financial crisis has on events and announcements in developed and developing countries. Secondly, this study shall analyze the trend of downloading data from data stream broad ways to stock exchange in the developing countries. In addition, the effect of the announcements made in Europe, US or Japan on the data transmissions is analyzed. Furthermore, this research shall focus on the effect of the financial crisis on events and announcements in the Asian region. Financial crisis influences the operations and stability of economies worldwide. Economic growth and development is impossible to achieve if the menace of the financial crisis and its’ various aspects are not adequately addressed (Claessens 2001).
The announcements pertaining to macroeconomics will have a varying effect on different countries and regions. The announcements will have a direct effect on the volatility of the market (Jarsulic 2012). The announcements that concern data and regulatory policy will decrease uncertainty; this influences the trading markets in a positive way. The rating actions will tend to have an adverse effect on the current market conditions as they increase the rates of volatility (Claessens 2001). The effect these announcements have on various countries varies. Furthermore, the analysis of the financial crisis is different in every country, and the financial crisis will influence the events and announcement in these countries differently.
The effect of the financial crisis on announcements and events in developed countries is comprised of several factors. The United States engages in activities that involve printing of more notes. This practice has a negative impact on the rates of inflation (Horcher 2013). The US government does this to support the emerging economies in the world, and this money is advances the investment projects situated in these emerging countries. The announcement of the disbursement of funds to the emerging economies positively affects the share prices in those specific emerging economies (Claessens 2001). On the other hand, these announcements still promotes more discussions concerning financial crisis, the US government assists the emerging countries, and this results in more announcements pertaining to the issue of financial recession (Jarsulic 2012). This is an ascertainment that the financial crisis has an effect on the announcements and events in the developed countries.
The developing countries experience many more challenges compared to the developed countries. The aspect of the financial crisis has a massive impact on the events and announcements that occur in the developed countries. The rising rates of inflation result in many announcements and events in the third world countries (Claessens 2001). A high rate of inflation is an aspect of the financial crisis and the effects of high inflation rates on any economy are adverse. The announcements that result from high rates of inflation in developing countries include an increase in the prices of gas/fuel, increase in the interest rates on loans, decrease in the prices of various shares in the stock market and announcement of budget deficits (Jarsulic 2012). The events that occur due to high inflation rates include lack of food security, increased cost of living, lack of economic stability and diminishing value of a country’s currency.
The second aspect of the financial crisis in developing countries is the lack of adequate financial resources (Horcher 2013). The governments in third world countries become compelled to make certain announcements because of minute financial resources. These announcements include increased rates of taxation, announcements on acquisition of government bonds, supplementary budgets announcements, and announcements appealing to international donors and the International Monetary Fund (IMF). Several events that occur due to lack of adequate financial resources include international campaigns to obtain funds from donors, campaigns are conducted by the government to increase local investments and the governments borrows more money from World Bank to cater for this deficit (Claessens 2001).
Data transmissions from data stream broadways to the stock exchange affect the stocks in both positive and negative ways. Depending on the transmitted data, the price of the various companies’ shares will rise or fall (Horcher 2013). Secondly, the transmission of data from data stream broadways to the stock exchange can lead to several announcements. For example, a specific company can communicate about the launch of an initial public offering (IPO) by the use of data stream broadways. The government uses data stream broadways in communicating about changes in policy that concern the capital markets (Jarsulic 2012). In some countries, the Capital markets authority regulates the stock markets and money markets. These capital markets authorities use data stream broadways to transmit data that pertain to changes in policy and regulatory framework.
Data stream broadways have a massive impact on the financial crisis. In addition, the data stream broadways enables transmission of data on announcements and events pertaining to the financial crisis (Claessens 2001). The various companies, private individuals and the government can monitor the stock markets and money markets by the use of data stream broadways. All concerned stakeholders are able to make the appropriate decisions as they have real time uplink to the stock markets analysis (Horcher 2013). In cases whereby a financial crisis occurs, the announcements can be conveyed by the use of data stream broadways. In addition, any scheduled events that result from the financial crisis may be featured live using data stream broadways. The data stream broadways act as an appropriate means of communication in many instances. Data stream broadways play a very important role especially in announcements and events pertaining to the financial crisis (Jarsulic 2012).
The announcements and events that occur in Europe, Japan, and USA will have an effect on data transmission especially data conveyance that relates to financial analysis (Claessens 2001). This study shall analyze the effect of announcements relating to the financial crisis in Europe by using an example. The European Union made an announcement that pertains to the European Central Bank. The announcement was about ensuring that European countries acquire a share of the existing bond markets. In the past, the policy of the European Central Bank did not embrace the buying of bonds floated by different countries (Horcher 2013). In the event of a country, facing challenges or difficulties the European Central Bank could not even consider purchasing the bonds of that particular country. The financial crisis has compelled the European Central Bank to amend this policy. The effects of the financial recession have become a big challenge in the European region hence the European Central Bank cannot embrace its’ past policies (Jarsulic 2012).
The scenario of a financial crisis massively influences the announcements and events in any region worldwide (Claessens 2001). The announcement by the European Central Bank stating that there have been amendments in the rigid policies gave the European governments some hope. There is speculation in Europe that the financial crisis has ended. This might not be the case because the financial markets still show signs of danger in the stock markets and money markets (Horcher 2013). Despite the speculations that the financial crisis is over the European Central Bank has come forward and announced that if the situation arises where their intervention is needed they will take action. The European Central Bank has been reluctant in the past to solve issues pertaining to the financial crisis in Europe. The announcement delivered by the bank gave the European people a lot of hope even though that the proposal has not yet materialized.
Analyzing the aspect of financial analysis in the announcement made by the European Central Bank, the effects of this announcement will be several. The Euro would emerge stronger as a currency, and this would improve the terms of trade between Europe and the rest of the world. Secondly, the market price of various companies’ shares will drastically improve due to the stability of the Euro and prevailing market conditions (Jarsulic 2012). The European economies would also improve massively as the governments will become more stable. The budget deficits of the European countries will be extinct because they can float bonds for the European Central Bank to buy (Horcher 2013). The economic situation in Europe will be favorable, and this will increase the gross domestic product of the European nations.
The emerging countries will also benefit from the announcement made by European Central Bank. The benefit will be more to the countries that trade with European nations. Europe will increase its’ trade transactions with the rest of the world due to financial stability (Jarsulic 2012). The emerging countries will derive benefit from this; their export products will enjoy ready European market. The Europeans will provide grants and loans to the emerging countries, and this will enable the emerging countries to stabilize themselves financially (Claessens 2001). The countries that do not trade with European countries will also benefit. These countries will be able to obtain loans and grants from the European nations. This will enable these countries to be financially stable, as they will lack budget deficits. The stability of financial markets in Europe improves the stability of financial markets in the emerging countries and other countries in the world (Horcher 2013).
The announcements and events made in the US will affect the financial situations in the emerging countries and the rest of the world (Claessens 2001). The emerging countries will benefit massively if the financial situation in the United States is stable. In cases whereby the financial situation in the US becomes unstable, the emerging countries lack market for most of their export products. This in turn will result to a financial crisis in the emerging countries. The financial situation in the US will influence the financial climate in the whole of the world (Jarsulic 2012). Many investors and donors come from, the moment the US faces a financial crisis the investors and donors will not be able to support the emerging countries.
The prevailing economic condition in the US also affects the European and the Asian regions especially the Middle East. Financial crisis in the US limits the purchasing power of the world’s super power (Horcher 2013). The US is a major consumer of oil and petroleum products originating from the Middle East region. In the event of a financial crisis in the United States, the Middle East becomes adversely affected. If there is a financial crisis in the US, the situation in Europe becomes adverse too (Jarsulic 2012). The US and European countries trade heavily hence if the US is undergoing a financial crisis, Europe might undergo through the same situation. The prevailing financial climate in the US affects the emerging countries and the whole world at large.
Japan trades massively with the US and the European countries. The Japanese possess enormous skills in the fields of electronics and mechanics. They trade with the emerging countries in numerous ways. A financial crisis in Japan will affect the emerging countries in a negative way; this is because the Japanese government gives grants to the various emerging nations (Claessens 2001). In the event of a financial crisis in Japan, the emerging countries will lack the grants. This will be detrimental to the economic conditions of the emerging countries. The US is also affected to some point with a financial crisis that occurs in Japan (Jarsulic 2012). The level of trading between the two countries will decrease hence this will adversely affect the financial situation in both USA and Japan. The European countries undergo through challenges in the event of a financial crisis in Japan (Horcher 2013). All these countries are interdependent on each other if one country is facing a financial crisis, the effect on the other countries will be evident in one or more instances.
The Asian region has also experienced numerous financial crises; in 1997, the Eastern Region of Asia underwent a terrible financial crisis (Claessens 2001). The value of assets in the countries located in East Asia fell drastically. The value of the local currency in the particular countries also diminished. This crisis was unexpected, and no one was able to predict that such a crisis would occur in East Asia (Jarsulic 2012). This financial crisis resulted to the occurrence of several announcements and events in East Asia.
The prices of commodities escalated, the rate of inflation increased, and governments in these countries experienced huge budget deficits (Horcher 2013). The exchange rates in the Asian countries including Malaysia, Singapore, South Korea, Thailand, and the Philippines fell drastically. The value of a country’s currency is an indication of whether a country is undergoing a financial through a financial crisis or not. In cases whereby the value of the currency is high, the country is financially stable, and if the currencies’ value is low then a financial crisis is present in that particular country. Another indication of a financial crisis in a country is a drop in the traded equity prices (Claessens 2001).
The aspect of announcements plays a vital role in the financial stability of any particular country. An announcement was made on the second day of July in 1997 that the Thai currency, referred to as the Thai baht was going to be availed for floatation (Jarsulic 2012). This led to the devaluing of the Thai baht by about one fifths of its’ initial value. The Asian countries including Philippines, Malaysia, Indonesia, and South Korea were forced to abandon their defenses of the currency. The effects of this announcement further spread into the next financial year that was 1998.
The other countries including Taiwan and Malaysia had to devalue their currencies. Competitive devaluation was a common trend in Asia in this period as many countries began devaluing their respective currencies simultaneously (Horcher 2013). Despite this financial crisis in the Asia, Hong Kong managed to maintain the value of its currency. The exchange rates of the Hong Kong dollar with US dollar remained constant in the face of the current economic situation in Asia. The effects of this financial crisis on the Asian stock markets were evident because most of the stock markets in the Asian region plunged.
The Asian financial crisis was phenomenal, as the financial experts could not comprehend how the crisis in one country spread in the whole continent like a fire does in a dry forest (Jarsulic 2012). The events that occur before a financial crisis include the increase in the supply of money and falling of banks and financial institutions. This was evident in the Thai case because before the devaluation of the Thai baht the banks and financial institutions had begun to close their doors. The Thai banking sector underwent massive challenges, but no one would foresee that this were signs indicating the devaluation of the Thai baht (Claessens 2001).
The value of international reserves in a country’s central bank determines if the specific country will experience a financial crisis or not (Horcher 2013). The moment the value of international reserves decreases, a country’s currency diminishes in value very rapidly. This was the case in Thai; it is common practice in many countries to keep the value of international reserves in the central bank secret (Jarsulic 2012). The financial experts could not predict the financial crisis in Thai. The prevailing exchange rates also indicate the probability of a financial crisis occurring (Claessens 2001). The Thai scenario affected the whole of Eastern Asia. Furthermore, the lending activities in Thai diminished; this led to the financial crisis in the country and the whole of East Asia. The banking activities in the Asian countries also decreased massively.
In conclusion, events and announcements cause a financial crisis, the emergence of a financial crisis can be escalated by just a single announcement. On the other hand, a single announcement can promote financial stability in a given region (Horcher 2013). The European Central Bank ascertains this fact, immediately the bank made the announcement of buying bonds the value of the Euro appreciated rapidly. In addition, if a specific country experiences a financial crisis the effects spread to other countries very fast. Analysis of the relationship between a financial crisis, an announcement, and an event is critical to avoid the occurrence of a financial crisis in any country at all times.
The plan for the research is as shown below:
|Research Stages||Estimated Time Frame|
|Preliminary research paper- Formulation of the research topic and coming up with research hypothesis||26-02-2014 to 5-03-2014|
|Analysis of the research topic and appropriate methods of data collection and handing of work to supervisor for progress check||6-03-2014 to 20-03-2014|
|Collection of data that relates to financial crisis from various sources, including stock markets and government finance publications||21-03-2014 to 11-04-2014|
|Compilation of the obtained results, writing of the preliminary report and handing in the report to the supervisor||11-04-2014 to 17-04-2014|
|Research Paper-Formulation of the main thesis of the research paper||17-04-2014 to 08-05-2014|
|Analysis of the thesis and carrying out research on the thesis||09-05-2014 to 09-06-2014|
|Finalization of the research paper and handing in the of the research paper to the supervisor||10-06-2014 to 23-06-2014|
Claessens, S. (2001). International financial contagion. Boston [u.a.], Kluwer Acad. Publ.
Horcher, K. A. (2013). Essentials of financial risk management. Hoboken, N.J., Wiley. http://rbdigital.oneclickdigital.com.
Jarsulic, M. (2012). Anatomy of a financial crisis a real estate bubble, runaway credit markets, and regulatory failure. Basingstoke, Palgrave Macmillan.
Nike is one of the biggest cloth and footwear companies globally. The company used advertising slogans to maintain its relevance in the industry. Its athletic footwear and clothing have become dominant among the American clothing. After a long time in the industry, the company made a dangerous move and decided to venture into casual shoes. This exposed the company to a number of challenges that forced the company into a period of self-examination. The company then changed focus from the design and manufacture of its products such as clothing and footwear to concentrate on the interests of its consumers (Lussie, David and Robert 92). In this respect, this paper will focus on the Nike Company. To begin with, the paper will provide a detailed analysis of how the Nike organization adds value. Secondly, the paper will discuss the four key success factors including cost, quality, innovation, and time and whether the Nike Company shows evidence of success for these factors. Furthermore, this assignment will identify examples of each type of cost for the Nike Company. The types of cost that will be identified are the direct cost and indirect costs, and variable cost and fixed cost and product and period cost for the Nike Company. In addition, how the Nike Company deals with the four perspectives of the balanced scorecard will form an essential part of this paper. The final part of the assignment will talk about the Nike Company with Total quality management (TQM) with detailed analysis.
How the Nike Company adds value
The Nike Company has consistently added value to its structure and organization through managerial innovation. Managerial innovation is often required to adapt the important characteristics of successful approaches in ways that best fit a company’s own situation. The Nike Company has thus benchmarked from other organizations hence exposing its managers to new ways of doing things in order to spark creativity and addition of value to the company and not creating efficient copycats. In fact, it is safe to say that the greater the differences or disparity between the focal firm in this case the Nike Company and the firm being benchmarked, then the greater the need for learning and innovation and addition of value on the part of the benchmarking firm.
It is also important to emphasize that the Nike Company adds value by exposing its managers to new ways of doing things through stimulating new beliefs and understanding about its own management. The managers then develop new mental models that guide decision making and the formulation and implementation of strategies hence adding value to the company.
The other way that the managers of the Nike Company have employed to add value to their company is by rethinking their own company’s value chain. This reflects that such a process involves a change in manager’s mental models about the ways various value-adding activities contribute value to the company. Very much related to benchmarking, rethinking the value chain of the company involves careful analysis of each of the various links in the company’s value chains. The analysis include reconsidering which of the various links of the company add or could potentially add value and which of the links are unlikely to contribute to the development of competitive advantage of the company. In this regard, the Nike Company’s managers realized that with the widespread availability of low-cost shoe and apparel-manufacturing facilities in the Far East, the company did not need to have it own production facilities and that manufacturing actually contributed very little to the addition of value of the company’s shoe and apparel products.
Furthermore, the Nike Company’s managers realized that the best way to add value was to develop and exploit new-product development, marketing and promotion capabilities that would allow Nike to differentiate its products from those of its rivals. This has made Nike a more of a marketing and product development company than any other athletic shoe and apparel company (Weil and Michael 233).
The Four Key Success Factors
To compete in today’s competitive environment companies have had to become more customer-driven and make their customer satisfaction an overriding priority. Customers are demanding ever-improving levels of service in cost, quality, reliability, delivery, and the choice of innovative new products. In order to provide customer satisfaction organizations must concentrate on the key success factors that directly affect them. These factors are cost efficiency, quality, time, and innovation. In addition to concentrating on these factors, organizations are adopting new management approaches in their quest to achieve customer satisfaction. Since customers will buy the product with the lowest price, all other things being equal, keeping costs low and being cost efficient provides an organization with a strong competitive advantage (Friesen and James 65). Increased competition has also made decision errors due to poor cost information more probable and more costly. If the cost system results in distorted product costs being reported, then over cost will lead to higher bid prices and business lost to those competitors who are able to quote lower prices purely because their cost systems produce more accurate cost information.
Alternatively, there is a danger that under cost products will result in the acceptance of unprofitable business. These developments have made many companies, the Nike Company included aware of the need to improve their cost systems so that they can produce more accurate cost information to determine the cost of their products, pinpoint loss-making activities, and analyze profits by products, sales outlets, customers, and markets. In addition to demanding low cost products, customers are demanding high quality products and services. Most companies are responding to this by focusing on total quality management. The goal of TQM is customer satisfaction. Most European and American companies had always considered an additional cost of manufacturing, but by the end of the 1980s, they began to realize that quality saved money. The philosophy had been to emphasize production volume over quality; but this resulted in high levels of stocks at each production stage in order to protect against shortages caused by inferior quality at previous stages and excessive expenditure on inspection, rework, scrap, and warranty repairs.
Companies discovered that it was cheaper to produce the items correctly the first time rather than to waste resources making substandard items that had to be detected, reworked, scrapped, or returned by customers. In other words, the emphasis in TQM is to design and build quality in rather than trying to inspect and repair it after the event. The emphasis on TQM has created fresh demands on the management accounting function to expand its role by becoming involved in measuring and evaluating the quality of products and services and the activities that produce them. The Nike Company has showed evidences of effective cost and quality of its goods and services. This has been the sole reason behind the company’s success in the world making it one of the longest lasting and successful companies worldwide (Drury 13).
Organizations are also seeking to increase customer satisfaction by providing a speedier response to customer requests, ensuring hundred percent on-time delivery and reducing the time taken to develop and bring new products to market. For these reasons, management accounting systems now place more emphasis on time-based measures, which have become an important competitive variable. Cycle time is one measure that management accounting systems have begun to focus on. It is the length of time from start to completion of a product or service. It consists of the sum of processing time, move time, wait time, and inspection time. Move time is the amount of time it takes to transfer the product during the production process from one location to another. Wait time is the amount of time that the product sits around waiting for processing, moving, inspecting, reworking, or the amount of time it spends in finished goods stock waiting to be sold and dispatched. Inspection time is the amount of time that helps ensure that the product is defect free or the amount of time actually spent reworking the product to remedy identified defects in quality. Only processing time adds value to the product, and the remaining activities are non-value added activities in the sense that they can be reduced or eliminated without altering the product’s service potential to the customer. Organizations are therefore focusing on minimizing cycle time by reducing the time spent on such activities. The management accounting system has an important role to play in this process by identifying, reporting on the time devoted to value added, and non-value added activities. The Nike Company has showed evidence of on time delivery of services and goods on the way it responds to the demand by customers. This has helped the company keep in touch and maintain its large customer base (Drury 14).
The other key factor that is vital for organizations such as the Nike Company to succeed is innovation. To be successful companies and organizations must develop a steady stream of innovative new products and services and have the capability to adapt to changing customer requirements. It should be noted that being later to the market than competitors can have a dramatic effect on product profitability. Companies have therefore begun to incorporate performance measures that focus on flexibility and innovation into their management accounting systems. Flexibility relates to the responsiveness in meeting customer requirements. Flexibility measures include the total launch time for new products, the length of development cycles and the ability to change the production mix quickly. Innovation measures include an assessment of the key characteristics of new products relative to those of competitors, feedback on customer satisfaction with the new features and characteristics of newly introduced products, and the number of new products launched and their launch time. The Nike Company shows evidence of innovation because of the new products it produces regularly and this has helped it to maintain its large customer base (Drury 15).
Costs for the Nike Company
Direct and Indirect Costs
Direct cost is reserved for those costs that can easily that is, physically and conveniently, be traced to individual units of product. Direct cost is sometimes called touch cost, since they can directly be seen when using funds. Direct cost of the Nike Company include payment of assembly-line workers, for example, would be direct labor costs, as would the payment of labor costs of machine operators. Direct costs that cannot be physically traced to the creation of products, or that can be traced only at great cost and inconvenience, are termed indirect costs and treated as part of manufacturing overhead, along with indirect materials. Indirect cost in the Nike Company includes the payment of labor of caretakers, supervisors, materials handlers, and night security guards. Although the efforts of these workers are essential to production in the company, it would be either impractical or impossible accurately to trace their costs to specific units of product. Hence, such costs are treated as indirect costs in the company (Bhat 340).
For the purposes of accounting, product cost is the cost that plays an integral part in the acquisition and manufacture of a product. Product cost may include cost used in purchase of direct materials and direct labor. Product costs help goods remain attached as they are put in a stock while waiting sale. In the Nike Company, when the goods are sold, the costs are released from stock as expenses and matched against sales revenue. Product cost may be incurred during a period in a company but may not be considered as an expense during that period (Bhat 341).
These costs are considered on the profit and loss account in the period in which they are incurred in an organization. In the Nike Company, period costs do not form part of the costs of purchasing or manufacturing goods. For instance, for the company, sales commissions and office rent are examples of period costs (Bhat 341).
In the production of various commodities, Nike Company has often considered extensive analysis in the various aspects of the market in order to result into production of commodities that are desired by the market and those that effectively achieves satisfaction of the customers. Learning has therefore played an integral part in the development plans and in the general growth of the Company. Initially, before initiating various production and design activities, the company has often considered undertaking gap analysis of the market. Owing to the global market, different demands are in most cases portrayed by various markets.
In the gap analysis, the firm targets to determine the satisfaction gap that is manifested in the market in order to adopt products that fulfils these market needs. In doing this, the company has involved individuals from various markets with a view of determining the specific demands from the markets. In addition, learning has also been integrated in the firm with the aspect of improving the levels of expertise of the employees of the firm. (Brackman, Levi and Sam 211) Quality production is one of the vital concerns of the organization. In order to realize this object, employee-training programs have greatly played an integral part. Learning of various process of the firm by the employees of the organization has also resulted to the overall effectiveness in the performance of the organization. The training programs have in most cases been tailored to meet the demands of various departments of the firm. This is to eliminate cases of negligence that can compromise the operations of the organization. Learning therefore has from time to time been central in the success of the company in the achievement of the desired objectives. Consequently, in the determination of the progress of the firm and the levels of success achieved, growth of the company has always been considered. The company has achieved growth over the years by expanding its operations to various markets and increasing the technological know – how employed. This has been boosted by the globalization that has been witnessed in various industries and in various countries. As a result, the company has effectively achieved coverage in new markets through extensive promotional activities.
The internal business of operation has always remained very instrumental in the success of the organization. This has therefore seen the company constantly improve its internal environment in order to meet the required standards for the achievement of the desired goals of the company. Initially, technological advancement has been constantly improved to meet the demands of the industry besides ensuring better working environment for employees. Advanced technologies has allowed for favorable environment for the workers. These technologies has resulted into efficiency in operation and reducing the much labor in the operations (Skrabec 95) Besides, the management of the company has often eliminated those machineries that results into the reduction in the morale of the employees. Appropriate adoption of technologies in the internal business organization has therefore resulted into motivation of employees, hence high production levels achieved (Kennedy and Dan 201).
Customers of the organization have experienced great benefits in the adoption of the new technologies. The quality of the have often met the demands of the esteem customers resulting into achievement of satisfaction. Proper working conditions of the employees have also been among the considerations of the firm. Constant improvement of the working environment to fit the changing needs of the employees has resulted into motivation in the firm. Proper remuneration strategies are one of the measures that the organization adopts to create a conducive environment to the employees. This offers employees a sense of security to the employees as their financial needs greatly taken into consideration by the firm. Similarly, through job promotions, the internal environment of the organization has been made conducive for employees besides ensuring their job security (Brackman, Levi and Sam 87).
Concerning the customers, Nike Company has often strived to ensure the satisfaction of the customers. This has been done through various ways. Initially, involvement of customers in the operations of the firm has helped in producing the commodities that are desired by the customers. Yearly, the company carriers out market research that aims at achieving the customers’ view on various aspects of the firm’s operations. As a result of this analysis, the firm has constantly design the products to meet the demands of the customers. Through innovative activities and unique branding this has been achieved. Moreover, segmentation activities by the firm have been instrumental in attaining the specific needs of the market. This refers to dividing the market in various sections of the market according to their unique tastes and preferences. In the production shoe wares, the firm has often considered various social backgrounds of persons and the climatic regions of various markets (Skrabec and Quentin 43). The firm in the production of various commodities has considered a number of aspects. This has achieved in meeting the varied demands of various cultures and regions. Promotional activities by the firm have been designed to appeal to various class of the target market. When promoting commodities used by the youthful era, the organization has in the past adopted the use of various internet platforms that is more appealing to the middle class.
Nike Company has also designed the production activities to be cost effective in order to reduce the overall prices of the final products. Owing to globalization of the industry, the firm has indulged in outsourcing of various factors of production to limit the expenditures in the production process. In the production of rubber materials, the company has considered production in countries where the material is cheaply acquired. This has resulted into reduction in the general prices of the commodities (Greenhalgh, Leonard and James 309). This has greatly relieved the consumers from the great financial burden caused by high product prices. Pricing strategies adopted by the organization has been made to meet the financial status of the market. When supplying markets consisting persons from the low social class, penetration pricing has been effective that besides increasing the overall sales has resulted into improved public image of the organization. On the other hand, when dealing with commodities of ostentation, the firm has often adopted price skimming. This price strategy has resulted into often been viewed as an improvement in the overall quality of the products hence has been effective in most markets when necessary.
After sales services by the company has efficiently achieved in retaining customers to the organization besides causing new customers to switch to the usage of the firm’s products. Through offers like free transportation costs, the firm effectively achieved the customers’ loyalty to the products. In addition to this, discount allowances have in most instances reduced the expenditures by the customers. However, these services are undertaken by the firm skilful to eliminate cases of realization of losses (Gagliardi and Gary 90). For example, in order to offer the discount services, the firm initially reduces certain costs of operation. This can be done by reducing the costs incurred in the delivery programs or in the promotional activities. This will therefore easily allow the firm to carry out the discount programs without experiencing losses.
In the quality management of the organization, Nike Company has ensured that innovation is integrated in the development of the products. Technological advancement has been also key in ensuring improved qualities of the products of the company. In the event that a technology is outdated in the market, the firm has usually considered adoption of those machineries that ensures improvement in the overall quality. Setting of standards of operation has also ensured the achievement of the desired qualities in the realized products. These standards both relates to the levels of productions and the employees ’performance (Kennedy and Dan 309). Through employees’ performance appraisal, the desired levels of productions among workers have been efficiently achieved. I the event that certain operations of the employees are below the required standards, training programs has always been done. Actions adopted by the competing firms have been considered in the operations of the firm. This is to ensure that the levels of operations and adoptions ensured are either in line with those adopted by competing firms is above. After the delivery of the commodities, the company has designed a program that ensures the attainment of the levels of satisfaction of the customers. This has allowed the firm to constantly improve on the qualities of the commodities offered.
Bhat, Sudhindra. Financial Management: Principles and Practice. New Delhi: Excel Books, 2008, p 341. Print.
Brackman, Levi, and Sam Jaffe. Jewish Wisdom for Business Success: Lessons from the Torah and Other Ancient Texts. New York: American Management Association, 2008. Internet resource.
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Friesen, Michael E, and James A. Johnson. The Success Paradigm: Creating Organizational Effectiveness through Quality and Strategy. Westport, Conn: Quorum Books, 1995, p 65. Print.
Gagliardi, Gary. 9 Formulas for Competitive Business Success: The Science of Strategy. Seattle, WA: Clearbridge Pub, 2006. Print.
Greenhalgh, Leonard, and James Lowry. Minority Business Success: Refocusing on the American Dream. Palo Alto: Stanford University Press, 2011. Internet resource.
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Skrabec, Quentin R. St. Benedict’s Rule for Business Success. West Lafayette, Ind: Purdue University Press, 2003. Print.
Weil, Roman L, and Michael Maher. Handbook of Cost Management. Hoboken, N.J: Wiley, 2005, p 233. Internet resource.
Free Trade Agreements
Exporting is a difficult enough task for large companies but more so for SMEs. Governments around the world have recognized the importance of exports and have sought ways of encouraging their firms to enter foreign markets especially the SMEs. It is generally thought that competitively priced products with unique selling properties that are successful in their home country experience few, if any barriers in foreign markets. However, the reality is very different and success at home does not mean that firms will not experience obstacles in foreign markets. The typical obstacles that firms face in foreign markets can range from the transparent tariffs and taxes which impose a price disadvantage compared to the domestic product to the more opaque non-tariff barriers. Various attempts have been made to remove such trade impediments through the World Trade Organization (WTO). Unfortunately, the most recent series of negotiations namely the Doha Round, which began in 2001, has made little progress in removing trade barriers. As a result a number of countries have sought to establish Free Trade Agreements (FTAs) as a mechanism towards a free trade.
A FTA is an agreement between two or more countries to increase the flow of trade and services so as to bring about greater economic integration between them. FTAs seek to encourage and assist trade between the signatory countries through the requirement that their firms have preferential access to each others markets. All FTAs have three strands, namely the liberalization in the trade of goods, services and investment. As such FTAs seek a reduction or removal of tariffs and non tariff barriers including tariffs, taxes, subsidies, regulations, etc. that give domestic firms an unfair advantage. In some cases, the FTA deals with free access to markets of the signatory countries through an end to any domestic government imposed monopoly or oligopoly. In addition, FTAs may also cover protection of intellectual property rights, ensuring equality in government procurement processes and procedures as well as dispute settlement and the free movement of labour and capital. .
FTAs offer firms an excellent opportunity to not only enter the world of exporting but if they already are to boost their revenues from overseas trade. The reduction in trade impediments means that FTAs provide a faster and more effective market access to signatory countries. Various studies have shown that once a FTA has been signed, the level of trade with the signatory countries tends to increase. However, in some cases, the real benefits may take time as there may be a short term pain that companies could experience in terms of greater competition from imports from signatory countries. Nevertheless, the studies show that over a long term, the benefits outweigh the losses as the end result is low trade barriers and tariffs for both exporters and importers. This is truly a win-win outcome as exporters have improved access to the markets of the signatory countries and domestic producers become more competitive in the international arena due to a lower cost structure as a result of lower home country trade barriers for imports.
Current and Proposed FTAs
The UAE has signed bilateral FTAs such as the one with Morocco however it has been decided that all future ones will be through the GCC Secretariat. As such all new FTAs need to be discussed and approved by the GCC Secretariat before they are discussed with the counterparty. This implies that there may be differing interest among the GCC countries which may make it difficult for the UAE to sign FTAs that support its export strategy. For instance, Dubai which contributes to 94% of the UAE’s non-oil exports (2009 data) has a diverse range export partners. Unlike other GCC countries the main export partner for Dubai and the UAE is India with 40% of exports and 20% of re-exports. Interestingly, the UAE has no FTAs with any of the top export destinations except for the GCC and Iraq through GAFTA. This implies that major export destinations such as India, Pakistan and Europe could be better served through a FTA.
Chart 1: Dubai’s Key export Markets
The GCC has been discussing three FTAs which are at different stages of completion. Some such as the GCC and EU FTA has been at the discussion stage for the last 22 years with little prospect of a final decision. The current talks have stalled because of an inclusion regarding the commitment to human rights and political development. The GCC countries have stated that they essentially have not problem with regard to including this clause. However, the real problem is more to do with the EU holding the right to suspend an agreement if it feels there is a violation on the GCC side on human rights. The GCC is not very keen to allow for a unilateral ability by the EU to suspend the agreement based on vague accusations of human rights. Until a resolution to this issue is obtained it will be unlikely that this Agreement will be signed.
The other two FTAs under discussion are Australia and India. In the case of the former the latest round of negotiations tended to focus on services, investment, intellectual property, government procurement, competition policy, rules of origin as well as legal and institutional issues. In the case of investment both sides had a very different approach and it was agreed that this would be discussed in the next round of negotiations. The negotiations to date have made good progress on the areas relating to dispute settlement and institutional framework provisions. The issue of government procurement has progressed with only a few issues remaining which need to be resolved. Areas where there is still a major difference in views is in the trade of goods good, intellectual property rights and market competition. The timing of the next round is yet to be determined and will depend largely on the ability of the signatories to table a comprehensive goods market access offer so that negotiations on goods, a key element of the negotiations, can resume.
The India-GCC FTA has completed two rounds of discussions and it is expected to evolve further. The FTA is expected to remove restrictive duties, push down tariffs on goods and pave way for more intensive economic engagement between the nations. In the proposed FTA, India is likely to seek greater safeguards for its chemicals and petrochemical industry. This is being done with a view to protect domestic players who would find it difficult to handle competition as the cost of crude oil is extremely low in GCC. Negotiations have stalled several times, and there is no convergence of views, especially in a few sectors, including polypropylene products and labour related issues. The UAE as well as the Saudi government is not ready to include polypropylene in the negative list. This implies that this FTA may take some time before completion.
In terms of the major import markets we find
that the USA accounts for almost 13% followed by China at 8% and then German at
8.1%. the USA has signed bilateral FTAs with certain GCC countries such as
Bahrain. However, no FTA between the world’s largest importer and the UAE has
been signed to date. A FTA with the USA will assist the base metal sector, gold
and jewellery, chemicals, plastics and textiles. As far as high growth along
with reasonable population base is considered we find that the CIS countries
such as Turkistan and Kyrgyzstan have import growth rates of over 33% during
the period 2005 to 2009. FTAs with these countries would allow the UAE to
leverage its position and hence increase exports.
Main Aspects of the FTAs Signed by the UAE
Gulf Cooperation Council (GCC)
|Agreement name:||Gulf Cooperation Council (GCC)|
|Status:||In Force||WTO Legal Cover:||GATT Art. XXIV|
|Date of signature:||31-Dec-2001|
|Date of entry into force:||01-Jan-2003|
|Current signatories:||Bahrain; Kuwait; Oman; Qatar; Saudi Arabia; United Arab Emirates|
|Original signatories:||Bahrain; Kuwait; Oman; Qatar; Saudi Arabia; United Arab Emirates|
|All Parties WTO members?||Yes|
Main Aspects of the Agreement
The GCC Customs Union sought to build on the achievements made to date and enhance as well as strengthen the ties among member countries. As a part of this the Customs Union sought to harmonise their economic, financial and monetary policies, their commercial and industrial legislation and customs laws. The Customs union also sought to lay the steps towards building an a Common Market and an Economic and Monetary Union among Member States. From a social viewpoint the Customs Union sought to respond to the aspirations and expectations of GCC citizens towards achieving Gulf citizenship, including equality of treatment in the exercise of their rights to movement, residence, work, investment, education, health and social services.
Export Benefits of the Agreement
The FTA lays down a number of key benefits for UAE’s exporters which are as follows:
- A common external customs tariff (CET).
- Common customs regulations and procedures.
- Single entry point where customs duties are collected.
- Elimination of all tariff and non-tariff barriers, while taking into consideration laws of agricultural and veterinarian quarantine, as well as rules regarding prohibited and restricted goods.
- Goods produced in any Member State shall be accorded the same treatment as national products.
- Unify import and export rules and procedures.
- Adopt unified standards and specifications for all products, according to the Charter of the GCC Standardization and Metrology Organization.
- Eliminate all procedural obstacles encountering joint projects and according them, at a minimum, the same treatment given to similar national projects.
- No Member State may grant to a non-Member State any preferential treatment exceeding that granted herein to Member States, nor conclude any agreement that violates provisions of this agreement.
Investment Benefits of the Agreement
- Unify all investment-related laws and regulations.
- Accord national treatment to all investments owned by GCC natural and legal citizens.
- Integrate financial markets in Member States, and unify all related legislation and policies.
Greater Arab Free Trade Area (GAFTA)
|Agreement name:||Greater Arab Free Trade Area (GAFTA)|
|Coverage:||Goods||Type:||Free Trade Agreement|
|Status:||In Force||WTO Legal Cover:||GATT Art. XXIV|
|Date of signature:||19-Feb-1997|
|Date of entry into force:||01-Jan-1998|
|Remarks:||The current signatories stated below are “as notified by the parties” to the WTO. However, please note that the current membership also includes Algeria and the Palestinian Authority.|
|Current signatories:||Bahrain; Egypt; Iraq; Jordan; Kuwait; Lebanon; Libyan Arab Jamahiriya; Morocco; Oman; Qatar; Saudi Arabia; Sudan; Syrian Arab Republic; Tunisia; United Arab Emirates; Yemen|
|Original signatories:||Bahrain; Egypt; Iraq; Jordan; Kuwait; Lebanon; Libyan Arab Jamahiriya; Morocco; Oman; Qatar; Saudi Arabia; Sudan; Syrian Arab Republic; Tunisia; United Arab Emirates; Yemen|
|All Parties WTO members?||No|
Main Aspects of the Agreement
The Greater Arab Free Trade Area (GAFTA) was established so as to create an Arab economic block that could effectively compete with other countries while ensuring that each country increased trade with each other. The GAFTA’s has had a long history with formal existence on January 1, 1998. The idea of an Arab free trade agreement (FTA) was first conceived at the Arab League Summit in 1982 however very little effective action took place. Later at the Arab League Summit in 1997, the plan was revisited and formalised with 17 member countries agreeing to the plan. The agreement stated that GAFTA would be supervised and managed by the Arab Economic Council which is part of the Arab League. The most important aspect of the 1997 agreement was that over the next 10 years or so each member country would seek to carry out a 10% reduction in customs fees per annum as well as the gradual elimination of trade barriers. In March 2001, the member countries decided to reduce the period over which the reductions in tariffs could be made so as to speed up the process, and on 1 January 2005 the elimination of most tariffs among the GAFTA members was enforced.
Export Benefits of the Agreement
- Goods produced by any member country shall be treated as national goods as far as the rules of origin, specifications and measurements, health and security safeguard clauses as well as local charges and taxes are concerned. However, each member country would need to observe international rules and provisions for setting safeguard measures as well as subsidies.
- International rules and practices will be observed as far as defining and dealing with cases of dumping are concerned.
- The ability to facilitate “the funding of inter-Arab trade and settlement of payments resulting from such trade” (GAFTA, Article II – as reported on the official website of the Arab League).
- The removal of all non-tariff barriers for member country products.
- Allowing member countries to implement agricultural calendars so as to be able to suspend tariff reductions on a maximum of 10 agricultural commodities during the months of peak production.
Country of Origin Rules
The rules of origin have been established to ensure that the benefits accrue only to products from member countries. As such the benefits are not available to products which are important by a member country and then re-exported to another. Therefore, all exports to member countries need to be accompanied by a Certificate of Origin whereby they will be considered as member country products i.e. local if 40% or more of the value added of a product is generated in a member country.
Investment Benefits of the Agreement
The GAFTA does not have any explicit clause relating to investment however member countries established sub-agreements which seek to foster greater investment between them. So far two such sub-agreements have been signed which are as follows:
- Investment Promotion and Protection Agreement, signed on June 7th 2000. Members up to date are: Jordan, Sudan, Egypt, Syria, Iraq and Libya.
- Investment Dispute Settlement in Arab countries, signed on Dec 6th 2000. Members are: Jordan, Egypt, Syria, Iraq and Libya.
Gulf Co-operation Council and the European Free Trade Area FTA (GCC-EFTA FTA)
|Agreement name:||Gulf Co-operation Council and the European Free Trade Area FTA (GCC-EFTA FTA)|
|Coverage:||Goods and Services||Coverage:||Goods and Servioces|
|Status:||In Force||Status:||In Force|
|Date of signature:||June 22, 2009,|
|Date of entry into force:|
|Remarks:||The current signatories stated below are “as notified by the parties” to the WTO.|
|Current signatories:||GCC Countries which include UAER, Kuwait, Oman, Bahrain, Saudi Arabia and Qatar and the EFTA countries which are Switzerland, Norway, Iceland and Liechtenstein|
|Original signatories:||GCC Countries and Switzerland, Norway, Iceland and Liechtenstein|
|All Parties WTO members?||Yes|
Main Aspects of the Agreement
The provisions contained in this Agreement are applicable to both the trade in goods and services. In doing so the signatories to the FTA seek to liberalise their markets so as achieve conformity with Article XXIV of the General Agreement on Tariffs and Trade. And to achieve the liberalisation of trade in services, in conformity with Article V of the General Agreement on Trade in Services. In addition, to this the Agreement seeks to promote competition in the respective signatory countries. At the same time the Agreement hopes to ensure adequate and effective protection of intellectual property rights. In the area of government procurement the Agreement looks to liberalise the markets so that companies in the signatory countries are treated as national. The final aspect of the Agreement is to increase the level of investment opportunities in the respective countries. The non-trade aspects seek to enhance the economic relations between the member countries.
Export Benefits of the Agreement
The FTA lays down a number of key benefits for UAE’s exporters which are as follows:
- No new customs duties shall be introduced in trade between the EFTA States and GCC, except for those contained in the Agreement.
- Both parties that are the GCC countries and the EFTA countries shall, on entry into force of this Agreement, abolish all customs duties on imports of originating products from the other party country.
- Under the terms of the FTA a signatory country is permitted to introduce or keep an existing import duty or measure if it feel that it is important. However, the signatory country needs to inform the Joint Committee of all export duties applied. In this case a customs duty is defined as any duty or charge of any kind imposed in connection with the importation of a product, including any form of surtax or surcharge, but does not include any charge imposed in conformity with Articles III and VIII of the GATT 1994.
- The signatories to the Agreement have sought to provide adequate, effective and non-discriminatory protection of intellectual property rights, including effective means of enforcing such rights against. In this regard each signatory shall treat companies no less favourably than that it accords to its own nationals. The only exception is that provided for under Articles 3 and 5 of the TRIPS Agreement.
- The Agreement
provides that companies in the signatory countries shall:
- Be liable all laws, regulations, procedures and practices regarding government procurement as national entities.
- Countries do not treat a locally-established supplier less favourably than another locally-established supplier on the basis of the degree of foreign affiliation to, or ownership by, a person of another Party;
GCC Singapore Free Trade Area (GSFTA)
|Agreement name:||GCC Singapore Free Trade Area (GSFTA)|
|Coverage:||Goods and Services||Type:||Free Trade Agreement|
|Status:||In Force||WTO Legal Cover:||GATT Art. XXIV|
|Date of signature:||31st January 2008|
|Date of entry into force:||1st January 2009|
|Current signatories:||GCC Countries and Singapore|
|Original signatories:||GCC Countries and Singapore|
|All Parties WTO members?||Yes|
Main Aspects of the Agreement
The GCC and Singapore agreed to launch negotiations on a free trade agreement in November 2006. After four rounds of talks, the GSFTA negotiations were concluded on 31 January 2008. The GCC-Singapore FTA (GSFTA) is a comprehensive free trade agreement between Singapore and the GCC countries that includes the trade in goods and services under the articles GAT and GATS. The Agreement also includes provision to foster greater investment between the signatories. In the case of trade the rules of origin and customs procedures for goods between the countries have been simplified. Furthermore, the Agreement seeks to create a level playing field as far as government procurement is concerned.
Export Benefits of the Agreement
The FTA lays down a number of key benefits for UAE’s exporters which are as follows:
- No new customs duties shall be introduced in trade between the GCC States and Singapore, except for those contained in the Agreement.
- Singapore shall, on entry into force of this Agreement, abolish all customs duties on imports of originating products from the GCC.
- Each Party shall, in accordance with its respective domestic laws, grant temporary admission free of customs duties goods intended for display or use at exhibitions, fairs or other similar events, including commercial samples for the solicitation
- The Parties shall strengthen their co-operation in the field of technical regulations, standards and conformity assessment procedures, with a view to increasing the mutual understanding of their respective systems and facilitating access to their respective markets.
- For the purposes of the fulfilment of its standards or criteria for the authorisation, licensing or certification of services suppliers, a Party may recognise the education or experience obtained, requirements met, or licenses or certifications granted in another signatory country.
- The signatories to the Agreement have sought to provide adequate, effective and non-discriminatory protection of intellectual property rights, including effective means of enforcing such rights against. In this regard each signatory shall treat companies no less favourably than that it accords to its own nationals.
- The Agreement provides that countries do not treat companies on an equal basis as far as government procurement is concerned.
Country of Origin Rules
For the purposes of this Agreement, goods shall be deemed as originating goods from a signatory country and eligible for preferential treatment provided that they:
- are wholly obtained or produced in the territory of the exporting country
have undergone sufficient working or production that attains a qualifying value added of not less than thirty five percent (35%) based on the ex-works price using the following formula:
Ex-Works Price – N.O.M. x 100% ≥ 35%
Ex-Works Price means the price paid for the good ex-works to the manufacturer in the Parties in whose undertaking the last working or processing is carried out, provided the price includes the value of all the materials used, minus any internal taxes which are, or may be, repaid when the good obtained is exported.
N.O.M. is the value of the non-originating materials.
Investment Benefits of the Agreement
Under the GSFTA, Singapore and GCC countries that have yet to sign bilateral IGAs with Singapore have committed to complete negotiations within 2 years. Bahrain, Oman and Saudi Arabia have signed bilateral IGAs with Singapore. Kuwait, Qatar and the UAE are committed to completing negotiations for bilateral IGAs with Singapore within 2 years from the commencement of negotiations.
Update of Billing Policies and Procedures
Healthcare Revenue Cycle
Healthcare revenue cycle of management refers to the clinical and administrative functions that help in capturing, management, and collection of the patient service revenue. The aim of most administrations should be to recover payments in a fast way through the development of a good revenue cycle management. Primary stages of revenue cycle include pre-registration, claims submission and early follow up. During the pre-registration phase, the patients should create an account which indicates the insurance coverage and the medical histories. This helps in the creation of the billing claims. Moreover, insurance eligibility certification is essential at this stage to determine whether the private or government payers will support the patient or self-pay (Singh, Simon and John 333). Any mistake done at this phase can hurt the financial health of the firm and thus making it impossible to receive a fee for the services offered. Dialogue should be done with the patient to determine their responsibility. The patient should know the amount of payment that they are responsible for and when they are due. In addition, the financial policy of the organization should be discussed and estimates provided. It is at this stage that the patients are asked for their co-pay in full. Pre-registration details and the insurance coverage should be verified before the patient is allowed to leave office.
Claims submission is the second stage. Once the patient has been treated, the coder identifies the nature of treatment given and assigns a proper ICD -10 code which shows the amount payment that the organization will pay for the treatment. After the creation of the claim it is sent to the private or government payers to release the required payment (Singh, Simon and John 337).The organization will be responsible for posting the fee, processing the statement, and handling the claim denials. Once the payer receives the application they disburse the payment depending on the contracts with the patient and the health organization. Appeals are filled if the payer denies the claims. Early follow up is the last stage. In this stage, the patient is monitored to ensure they pay the remaining balances. A collection of the balances should be done within the shortest time possible to avoid long intervals which lead to increase in the cost of collection. Patients should be followed up by phone rather than by writing (Singh, Simone Rauscher, and John Wheeler 334). The balance which is not paid after a particular period ends up being written off as bad debts and are sent to the medical debt collections.
Pricing Structure. It is important for the company to decide the type of pricing methodology to use to achieve the long-term goals. There is no particular way when determining the pricing strategy and thus the following factors will be considered. The company needs to consider the positioning of the pricing strategy. By this, if the company deals with luxury products, it should not charge too low prices. On the other hand, if it is a discount store it should try to keep the costs low. Additionally, the company will determine how the pricing strategy will affect the demand for the products. A simple questionnaire will be used to determine if the customers would buy a product at a given price (Hagiu, Andrei 71). Other factors that the firm will consider when determining the pricing strategy include, costs associated with the goods or services and the environmental factors like competition.
The company should adopt a cost plus pricing strategy. It involves setting the price at the company’s production cost (fixed cost and cost of goods) and a certain profit margin. In other words, a particular percentage of the total cost is added to the cost of the product when determining the selling price. For instance, if the company incurs a total cost of 100$ to produce one unit of a product, it may consider adding 50$ to the price to earn a profit of 50$. This strategy requires minimum information and involves simple calculations. Furthermore, demand based pricing strategy can be adopted. It is one in which the price of a product or service is set depending on the level of demand. If the demand for a product or service is cheap the customers will be charged low prices whereas when demand is high the price of the products will be high to gain significant profit. For this strategy to be effective, the company’s analysts must analyze the demand of the product. This approach will help the firm earn more profits if the clients accept to buy at the high prices. Competition based pricing strategy will be adopted. This approach involves considering the prices of the competitors before setting the price of a product or service. The company may consider selling their products at higher, lower, or equal prices to that of the competitors. Furthermore, the company may take into account other pricing methods such as going rate pricing, value pricing, and target return pricing and transfer pricing.
Negotiating Insurance Contracts
Contracting with the insurance companies may be competitive and often asymmetric endeavor. This may vary depending on the location and specialty across a country and most of the insurance companies do not want to lose some of their customers. In most cases, the fee schedule is the most important aspect during contracting because every provider wants to maximize the practice revenue. The company should adopt a look back provisions in the contracts. By this, the deal should allow the company and the insurance company to amend the payments retroactively (Schouten, Pieter 41). The insurance company should let the company check for refunds rather than the insurance company deducting the amount in the future payments. Additionally, the company should set goals for the relationship with the insurance companies. It should consider whether the relationship is a short-term or long-term partnership. For instance, for short-term agreement may take into account insurance of the employees while the long-term agreement may consider risks such as fire or theft.
The company should gather enough information about an insurance company before contracting it. The information will help define whether the organization’s practice is financially and operationally compatible with that of the insurance company. The agency should ascertain the mission, mission, and values of the insurance company to determine the goals of the company. Moreover, organizations that have worked with the company should be identified to ensure that the hospital privileges provided are legit. The organization may enquire whether the company can process the claims in time and whether it supports the poor.
Private Pay and Charity Care
Healthcare organizations should conduct periodic reviews of their private care and charity care policies to ensure that they meet the needs of the uninsured and poor people in the community. Any individual should not be denied emergency health services because of money. The hospitals should communicate this to the community members to emphasize that emergency amenities are availed with no consideration of the payment ability. Furthermore, organizations should have charity and private care policies, which are consistent with the values, and mission of the organization (Nissim, Doron 340).These policies should take into account the ability of the patients to pay for their healthcare services and the infirmary’s capability to offer healthcare. The commercial aid programs should be readily available and comprehensible to the patients served. Policies set by the hospital and other agencies to collect debt should emphasize on the core values of the hospital. They should be scrutinized to circumvent unintentional results.
Physicians should first ask the patients about their financial concerns rather than wait for the patients to raise it. This information is relevant if the financial consideration is likely to affect service delivery. Physicians make decisions on whether to transfer a patient to a charity care facility or whether to retain them at the facility. They should consider that services might be better somewhere else if the patient is from a minority ethnic group. Furthermore, the physicians should have enough knowledge about the resources available to the organization and in the community for the medically needy (Piper, Ed 1799).They should ensure that the poor patients fully benefit from the private and public resources available such as pharmacological industry indigent drug programs. Physicians should also lower the cost of their services if they have full evidence that the patient has a financial hardship. If reducing the cost of the services affects the financial viability of the organization, the physician should advocate for the adoption of charity policies that ensure needy patients are provided with subsidies.
Hagiu, Andrei. “Strategic decisions for multisided platforms.” MIT Sloan Management Review 55.2 (2014): 71.
Nissim, Doron. “Relative valuation of US insurance companies.” Review of Accounting Studies 18.2 (2013): 324-359.
Piper, Ed. “Hospitals’ Charity Care.” Health Affairs 34.10 (2015): 1799-1799.
Schouten, Pieter. “Big data in health care: solving provider revenue leakage with advanced analytics.” Healthcare Financial Management 67.2 (2013): 40-43.
Singh, Simone Rauscher, and John Wheeler. “Hospital Financial Management: What Is the Link Between Revenue Cycle Management, Profitability, and Not‐for‐Profit Hospitals’ Ability to Grow Equity?.” Journal of Healthcare Management 57.5 (2012): 325-341.