BMW Management of Global Financial Risk Essay
Management of Global Financial Risk
In any business, large or small, the bottom line is finance. Poor decisions concerning the life blood of a company or corporation will quickly lead to the withered road of the destitute. Obviously, increased corporate wealth is a direct catalyst for increased concern towards solid decision making principals. Today, multinational companies are in the process of globalization. Globalization is, according to Dr. Ismail Shariff (Wikipedia, 2007), “the worldwide process of homogenizing prices, products, wages, rates of interest, and profits.” Further, the forces necessary for globalization to occur are human migration, international trade, rapid capital movement, and the integration of financial markets.
In the early 1990s, most European automakers produced their output of autos in their own countries (Yong-Cheol & McElreath, 2001). Because of the rising value of the German deutschmark, in 1992 BMW solidified plans to begin oversea operations in the United States, specifically in South Carolina. By 1991, sales of BMWs in the US were roughly sixty percent of what they were five years previously. Production costs were up and rising more in Germany. These rising production costs coupled with the low exchange rate of the dollar were the determining factors for BMW’s decision. Corporate
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This decision has now been statistically proven to have been of the utmost feasibility. Current data regarding BMW shows significant profit margins in every area. The corporation has also expanded operational bases to Mexico. The costs of operations are low and the quality produced is high. Mexico serves as a hub of feasible exportation to many Central and South American countries (Wikipedia, 2007). BMW has also annexed its operational boundaries by launching production in Beijing, China. Economic exposure for automobile manufacturers is limited by diversification into various foreign markets (Yong-Cheol & McElreath, 2001). Declining real exchange rates can be absorbed by a corporation through shifting production from one country to the next depending on pertinent economic factors.
Most other European automakers followed the lead presented by BMW in diversifying into foreign markets to alleviate the cost burdens in their home countries. In today’s international markets, decision makers have numerous new and old challenges to meet in order to ensure prosperity for their corporations. To not be in the know concerning the unlimited potential markets for the incorporation of corporate diversification is simply to commit corporate suicide.
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What’s the Function?, by Peter J. Kaye, Jeffrey Mensch, Dmitri D. Shiry. Pennsylvania CPA Journal. Philadelphia: Spring 2003. Vol. 74, Iss. 1: pg. 28-32.
“BMW.” Wikipedia, The Free Encyclopedia. 24 Jan 2007, 14:10 UTC. Wikimedia Foundation, Inc. 25 Jan 2007 <http://en.wikipedia.org/w/index.php?title=BMW&oldid=102901927>.
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