Carlos Ghosn and Nissan, Research Paper Example

Carlos Ghosn and Nissan did follow the eight steps of Napolo.  The first step that Nissan and Ghosn had to address is defining the corporate objectives and philosophy.  These goals were communicated with the staff and explained there would be zero tolerance for noncompliance. They defined their objectives and philosophy by evaluating the necessity to cut cost as well as reduce the debt burden.  Nissan reduced its transactional expense and exposure by reducing their suppliers.  They reduced the economic exposure through revising the manufacturing process of cars like the Z-series coupe line. “The financial stagnation was an operational exposure which was economic in nature and arose from foreign competition. Although the identification and measurement was successful, the capturing of the exposure is difficult compared to the other two exposures.” (Napolo, 2005).   Other reductions in manufacturing the high profit vehicles such as Titan truck, Infiniti QX56, and the Armada SUV. (The Gaijin who Saved Nissan, 2005)  Nissan chose not use hedging techniques to reduce exposure.

The third step deals with the quantifications of the exposures. Throughout the research there have been no findings that Carlos Ghosn and Nissan did in fact quantify the exposure of the company.  “It has also been shown that the effects on firm value from foreign expansion or retraction is different by industry, by changes in exchange rates, and by the degree of foreign involvement before events.” (Kim, 21)  The next step is to identify the necessary process in order to quantify the risks.  Napolo describes his use of derivatives as a means to reduce potential risk to Nissan.  This includes implementation of forward contracts.  Again, Nissan and Carlos Ghosn did not use derivatives to reduce its exposure risk.  They continued on with their implementation of the other steps.

The sixth step is to take the hedging position out in order to execute the strategy or reducing the exposure risk.  Whereas this step is important, there is no evidence that Nissan or Carlos Ghosn took derivatives to evade exposure risk.  Napolo advises that Nissan needs to monitor the hedge and their performance.  This involves the necessary measures being taken for the risk exposure.   The last step is the Nissan and Ghosn should review the policy on an annual basis.  Research has shown that Carlos Ghosn reviews his policy periodically.  This is important because it allows him to revise or make changes to keep up with the changing.  It is essential to remember that the policy does not directly relate to hedging transactions or reducing risk through future contracts.

Napolo’s steps are intended to reduce global financial risk by reducing economic, transactional, and translational exposure risks.  Nissan and Carlos Ghosn thoroughly reduced the risk of economic exposure simply by addressing the problems associated with their competition.  By following the steps, Nissan was able to achieve a reduction of debt, reduction of cost, and implement a product mix of competition.  The steps described by Napolo have been addressed and followed by Carlos Ghosn and Nissan as it relates to international competition and economic exposure.  As a result, Nissan and Ghosn have been very successful.

References:

Napolo, D. (2005) Managing FX risk; an Eight Step Plan to Establish Corporate Foreign Exchange Policy.  Treasury & Risk Management Magazine.

Kim, Y. (2001) “Managing operating exposure, Multinational Business Review. p 21-26. Retrieved from ABI/INFORM Global. (Document ID: 69045429). from library portal via coursenet.

The Gaijin who Saved Nissan. 2005.  Bloomberg Business Week.  Retrieved from                                     http://www.businessweek.com/stories/2005-01-16/the-gaijin-who-saved-nissan