Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
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Case Study SWOT Analysis Solution
Case Study Description of Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures
How should a multinational firm manage foreign exchange exposures? Examines transactional and translational exposures and alternative responses to these exposures by analyzing two specific hedging decisions by General Motors. Describes General Motors' corporate hedging policies, its risk management structure, and how accounting rules impact hedging decisions. Although the overall corporate hedging policy provides a consistent approach to the foreign exchange risks that General Motors must manage, the company also has to consider deviations from prescribed policies. Describes two such situations: a significant exposure to the Canadian dollar with adverse accounting consequences and GM's exposure to the Argentinean currency when devaluation is widely anticipated. Students must evaluate the risks General Motors faces in each situation and consider which hedging strategy--if any--might be appropriate. Additionally, asks students to analyze the financial costs and accounting treatment of alternative derivative transactions for hedging purposes. A rewritten version of an earlier case.
Swot Analysis of "Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures" written by Mihir A. Desai, Mark F. Veblen includes – strengths weakness that are internal strategic factors of the organization, and opportunities and threats that Hedging Exposures facing as an external strategic factors. Some of the topics covered in Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures case study are - Strategic Management Strategies, Financial management, Financial markets, International business, Risk management and Finance & Accounting.
Some of the macro environment factors that can be used to understand the Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures casestudy better are - – wage bills are increasing, increasing transportation and logistics costs, banking and financial system is disrupted by Bitcoin and other crypto currencies, competitive advantages are harder to sustain because of technology dispersion, increasing inequality as vast percentage of new income is going to the top 1%, talent flight as more people leaving formal jobs, there is backlash against globalization,
digital marketing is dominated by two big players Facebook and Google, there is increasing trade war between United States & China, etc
Introduction to SWOT Analysis of Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures
SWOT stands for an organization’s Strengths, Weaknesses, Opportunities and Threats . At Oak Spring University , we believe that protagonist in Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures case study can use SWOT analysis as a strategic management tool to assess the current internal strengths and weaknesses of the Hedging Exposures, and to figure out the opportunities and threats in the macro environment – technological, environmental, political, economic, social, demographic, etc in which Hedging Exposures operates in.
According to Harvard Business Review, 75% of the managers use SWOT analysis for various purposes such as – evaluating current scenario, strategic planning, new venture feasibility, personal growth goals, new market entry, Go To market strategies, portfolio management and strategic trade-off assessment, organizational restructuring, etc.
SWOT Objectives / Importance of SWOT Analysis and SWOT Matrix
SWOT analysis of Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures can be done for the following purposes –
1. Strategic planning using facts provided in Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures case study
2. Improving business portfolio management of Hedging Exposures
3. Assessing feasibility of the new initiative in Finance & Accounting field.
4. Making a Finance & Accounting topic specific business decision
5. Set goals for the organization
6. Organizational restructuring of Hedging Exposures
Strengths Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures | Internal Strategic Factors
What are Strengths in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The strengths of Hedging Exposures in Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures Harvard Business Review case study are -
Operational resilience
– The operational resilience strategy in the Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures Harvard Business Review case study comprises – understanding the underlying the factors in the industry, building diversified operations across different geographies so that disruption in one part of the world doesn’t impact the overall performance of the firm, and integrating the various business operations and processes through its digital transformation drive.
Sustainable margins compare to other players in Finance & Accounting industry
– Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures firm has clearly differentiated products in the market place. This has enabled Hedging Exposures to fetch slight price premium compare to the competitors in the Finance & Accounting industry. The sustainable margins have also helped Hedging Exposures to invest into research and development (R&D) and innovation.
Innovation driven organization
– Hedging Exposures is one of the most innovative firm in sector. Manager in Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures Harvard Business Review case study can use Clayton Christensen Disruptive Innovation strategies to further increase the scale of innovtions in the organization.
Low bargaining power of suppliers
– Suppliers of Hedging Exposures in the sector have low bargaining power. Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures has further diversified its suppliers portfolio by building a robust supply chain across various countries. This helps Hedging Exposures to manage not only supply disruptions but also source products at highly competitive prices.
Organizational Resilience of Hedging Exposures
– The covid-19 pandemic has put organizational resilience at the centre of everthing that Hedging Exposures does. Organizational resilience comprises - Financial Resilience, Operational Resilience, Technological Resilience, Organizational Resilience, Business Model Resilience, and Reputation Resilience.
Superior customer experience
– The customer experience strategy of Hedging Exposures in the segment is based on four key concepts – personalization, simplification of complex needs, prompt response, and continuous engagement.
Training and development
– Hedging Exposures has one of the best training and development program in the industry. The effectiveness of the training programs can be measured in Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures Harvard Business Review case study by analyzing – employees retention, in-house promotion, loyalty, new venture initiation, lack of conflict, and high level of both employees and customer engagement.
Ability to recruit top talent
– Hedging Exposures is one of the leading recruiters in the industry. Managers in the Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures are in a position to attract the best talent available. The firm has a robust talent identification program that helps in identifying the brightest.
Cross disciplinary teams
– Horizontal connected teams at the Hedging Exposures are driving operational speed, building greater agility, and keeping the organization nimble to compete with new competitors. It helps are organization to ideate new ideas, and execute them swiftly in the marketplace.
High brand equity
– Hedging Exposures has strong brand awareness and brand recognition among both - the exiting customers and potential new customers. Strong brand equity has enabled Hedging Exposures to keep acquiring new customers and building profitable relationship with both the new and loyal customers.
Highly skilled collaborators
– Hedging Exposures has highly efficient outsourcing and offshoring strategy. It has resulted in greater operational flexibility and bringing down the costs in highly price sensitive segment. Secondly the value chain collaborators of the firm in Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures HBR case study have helped the firm to develop new products and bring them quickly to the marketplace.
Effective Research and Development (R&D)
– Hedging Exposures has innovation driven culture where significant part of the revenues are spent on the research and development activities. This has resulted in, as mentioned in case study Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures - staying ahead in the industry in terms of – new product launches, superior customer experience, highly competitive pricing strategies, and great returns to the shareholders.
Weaknesses Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures | Internal Strategic Factors
What are Weaknesses in SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The weaknesses of Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures are -
Aligning sales with marketing
– It come across in the case study Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures that the firm needs to have more collaboration between its sales team and marketing team. Sales professionals in the industry have deep experience in developing customer relationships. Marketing department in the case Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures can leverage the sales team experience to cultivate customer relationships as Hedging Exposures is planning to shift buying processes online.
Compensation and incentives
– The revenue per employee as mentioned in the HBR case study Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures, is just above the industry average. Hedging Exposures needs to redesign the compensation structure and incentives to increase the revenue per employees. Some of the steps that it can take are – hiring more specialists on project basis, etc.
High dependence on existing supply chain
– The disruption in the global supply chains because of the Covid-19 pandemic and blockage of the Suez Canal illustrated the fragile nature of Hedging Exposures supply chain. Even after few cautionary changes mentioned in the HBR case study - Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures, it is still heavily dependent upon the existing supply chain. The existing supply chain though brings in cost efficiencies but it has left Hedging Exposures vulnerable to further global disruptions in South East Asia.
Employees’ incomplete understanding of strategy
– From the instances in the HBR case study Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures, it seems that the employees of Hedging Exposures don’t have comprehensive understanding of the firm’s strategy. This is reflected in number of promotional campaigns over the last few years that had mixed messaging and competing priorities. Some of the strategic activities and services promoted in the promotional campaigns were not consistent with the organization’s strategy.
Low market penetration in new markets
– Outside its home market of Hedging Exposures, firm in the HBR case study Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures needs to spend more promotional, marketing, and advertising efforts to penetrate international markets.
Capital Spending Reduction
– Even during the low interest decade, Hedging Exposures has not been able to do capital spending to the tune of the competition. This has resulted into fewer innovations and company facing stiff competition from both existing competitors and new entrants who are disrupting the industry using digital technology.
Lack of clear differentiation of Hedging Exposures products
– To increase the profitability and margins on the products, Hedging Exposures needs to provide more differentiated products than what it is currently offering in the marketplace.
Interest costs
– Compare to the competition, Hedging Exposures has borrowed money from the capital market at higher rates. It needs to restructure the interest payment and costs so that it can compete better and improve profitability.
Skills based hiring
– The stress on hiring functional specialists at Hedging Exposures has created an environment where the organization is dominated by functional specialists rather than management generalist. This has resulted into product oriented approach rather than marketing oriented approach or consumers oriented approach.
Need for greater diversity
– Hedging Exposures has taken concrete steps on diversity, equity, and inclusion. But the efforts so far has resulted in limited success. It needs to expand the recruitment and selection process to hire more people from the minorities and underprivileged background.
High dependence on star products
– The top 2 products and services of the firm as mentioned in the Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures HBR case study still accounts for major business revenue. This dependence on star products in has resulted into insufficient focus on developing new products, even though Hedging Exposures has relatively successful track record of launching new products.
Opportunities Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures | External Strategic Factors
What are Opportunities in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The opportunities highlighted in the Harvard Business Review case study Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures are -
Using analytics as competitive advantage
– Hedging Exposures has spent a significant amount of money and effort to integrate analytics and machine learning into its operations in the sector. This continuous investment in analytics has enabled, as illustrated in the Harvard case study Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures - to build a competitive advantage using analytics. The analytics driven competitive advantage can help Hedging Exposures to build faster Go To Market strategies, better consumer insights, developing relevant product features, and building a highly efficient supply chain.
Manufacturing automation
– Hedging Exposures can use the latest technology developments to improve its manufacturing and designing process in Finance & Accounting segment. It can use CAD and 3D printing to build a quick prototype and pilot testing products. It can leverage automation using machine learning and artificial intelligence to do faster production at lowers costs, and it can leverage the growth in satellite and tracking technologies to improve inventory management, transportation, and shipping.
Low interest rates
– Even though inflation is raising its head in most developed economies, Hedging Exposures can still utilize the low interest rates to borrow money for capital investment. Secondly it can also use the increase of government spending in infrastructure projects to get new business.
Reforming the budgeting process
- By establishing new metrics that will be used to evaluate both existing and potential projects Hedging Exposures can not only reduce the costs of the project but also help it in integrating the projects with other processes within the organization.
Leveraging digital technologies
– Hedging Exposures can leverage digital technologies such as artificial intelligence and machine learning to automate the production process, customer analytics to get better insights into consumer behavior, realtime digital dashboards to get better sales tracking, logistics and transportation, product tracking, etc.
Identify volunteer opportunities
– Covid-19 has impacted working population in two ways – it has led to people soul searching about their professional choices, resulting in mass resignation. Secondly it has encouraged people to do things that they are passionate about. This has opened opportunities for businesses to build volunteer oriented socially driven projects. Hedging Exposures can explore opportunities that can attract volunteers and are consistent with its mission and vision.
Increase in government spending
– As the United States and other governments are increasing social spending and infrastructure spending to build economies post Covid-19, Hedging Exposures can use these opportunities to build new business models that can help the communities that Hedging Exposures operates in. Secondly it can use opportunities from government spending in Finance & Accounting sector.
Changes in consumer behavior post Covid-19
– Consumer behavior has changed in the Finance & Accounting industry because of Covid-19 restrictions. Some of this behavior will stay once things get back to normal. Hedging Exposures can take advantage of these changes in consumer behavior to build a far more efficient business model. For example consumer regular ordering of products can reduce both last mile delivery costs and market penetration costs. Hedging Exposures can further use this consumer data to build better customer loyalty, provide better products and service collection, and improve the value proposition in inflationary times.
Finding new ways to collaborate
– Covid-19 has not only transformed business models of companies in Finance & Accounting industry, but it has also influenced the consumer preferences. Hedging Exposures can tie-up with other value chain partners to explore new opportunities regarding meeting customer demands and building a rewarding and engaging relationship.
Use of Bitcoin and other crypto currencies for transactions
– The popularity of Bitcoin and other crypto currencies as asset class and medium of transaction has opened new opportunities for Hedging Exposures in the consumer business. Now Hedging Exposures can target international markets with far fewer capital restrictions requirements than the existing system.
Loyalty marketing
– Hedging Exposures has focused on building a highly responsive customer relationship management platform. This platform is built on in-house data and driven by analytics and artificial intelligence. The customer analytics can help the organization to fine tune its loyalty marketing efforts, increase the wallet share of the organization, reduce wastage on mainstream advertising spending, build better pricing strategies using personalization, etc.
Better consumer reach
– The expansion of the 5G network will help Hedging Exposures to increase its market reach. Hedging Exposures will be able to reach out to new customers. Secondly 5G will also provide technology framework to build new tools and products that can help more immersive consumer experience and faster consumer journey.
Harnessing reconfiguration of the global supply chains
– As the trade war between US and China heats up in the coming years, Hedging Exposures can build a diversified supply chain model across various countries in - South East Asia, India, and other parts of the world. This reconfiguration of global supply chain can help, as suggested in case study, Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures, to buy more products closer to the markets, and it can leverage its size and influence to get better deal from the local markets.
Threats Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures External Strategic Factors
What are Threats in the SWOT Analysis / TOWS Matrix / Weighted SWOT Analysis
The threats mentioned in the HBR case study Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures are -
Regulatory challenges
– Hedging Exposures needs to prepare for regulatory challenges as consumer protection groups and other pressure groups are vigorously advocating for more regulations on big business - to reduce inequality, to create a level playing field, to product data privacy and consumer privacy, to reduce the influence of big money on democratic institutions, etc. This can lead to significant changes in the Finance & Accounting industry regulations.
Aging population
– As the populations of most advanced economies are aging, it will lead to high social security costs, higher savings among population, and lower demand for goods and services in the economy. The household savings in US, France, UK, Germany, and Japan are growing faster than predicted because of uncertainty caused by pandemic.
Environmental challenges
– Hedging Exposures needs to have a robust strategy against the disruptions arising from climate change and energy requirements. EU has identified it as key priority area and spending 30% of its 880 billion Euros European post Covid-19 recovery funds on green technology. Hedging Exposures can take advantage of this fund but it will also bring new competitors in the Finance & Accounting industry.
High level of anxiety and lack of motivation
– the Great Resignation in United States is the sign of broader dissatisfaction among the workforce in United States. Hedging Exposures needs to understand the core reasons impacting the Finance & Accounting industry. This will help it in building a better workplace.
Consumer confidence and its impact on Hedging Exposures demand
– There is a high probability of declining consumer confidence, given – high inflammation rate, rise of gig economy, lower job stability, increasing cost of living, higher interest rates, and aging demography. All the factors contribute to people saving higher rate of their income, resulting in lower consumer demand in the industry and other sectors.
Stagnating economy with rate increase
– Hedging Exposures can face lack of demand in the market place because of Fed actions to reduce inflation. This can lead to sluggish growth in the economy, lower demands, lower investments, higher borrowing costs, and consolidation in the field.
High dependence on third party suppliers
– Hedging Exposures high dependence on third party suppliers can disrupt its processes and delivery mechanism. For example -the current troubles of car makers because of chip shortage is because the chip companies started producing chips for electronic companies rather than car manufacturers.
New competition
– After the dotcom bust of 2001, financial crisis of 2008-09, the business formation in US economy had declined. But in 2020 alone, there are more than 1.5 million new business applications in United States. This can lead to greater competition for Hedging Exposures in the Finance & Accounting sector and impact the bottomline of the organization.
Increasing international competition and downward pressure on margins
– Apart from technology driven competitive advantage dilution, Hedging Exposures can face downward pressure on margins from increasing competition from international players. The international players have stable revenue in their home market and can use those resources to penetrate prominent markets illustrated in HBR case study Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures .
Backlash against dominant players
– US Congress and other legislative arms of the government are getting tough on big business especially technology companies. The digital arm of Hedging Exposures business can come under increasing regulations regarding data privacy, data security, etc.
Easy access to finance
– Easy access to finance in Finance & Accounting field will also reduce the barriers to entry in the industry, thus putting downward pressure on the prices because of increasing competition. Hedging Exposures can utilize it by borrowing at lower rates and invest it into research and development, capital expenditure to fortify its core competitive advantage.
Learning curve for new practices
– As the technology based on artificial intelligence and machine learning platform is getting complex, as highlighted in case study Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures, Hedging Exposures may face longer learning curve for training and development of existing employees. This can open space for more nimble competitors in the field of Finance & Accounting .
Shortening product life cycle
– it is one of the major threat that Hedging Exposures is facing in Finance & Accounting sector. It can lead to higher research and development costs, higher marketing expenses, lower customer loyalty, etc.
Weighted SWOT Analysis of Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures Template, Example
Not all factors mentioned under the Strengths, Weakness, Opportunities, and Threats quadrants in the SWOT Analysis are equal. Managers in the HBR case study Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures needs to zero down on the relative importance of each factor mentioned in the Strengths, Weakness, Opportunities, and Threats quadrants.
We can provide the relative importance to each factor by assigning relative weights. Weighted SWOT analysis process is a three stage process –
First stage for doing weighted SWOT analysis of the case study Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures is to rank the strengths and weaknesses of the organization. This will help you to assess the most important strengths and weaknesses of the firm and which one of the strengths and weaknesses mentioned in the initial lists are marginal and can be left out.
Second stage for conducting weighted SWOT analysis of the Harvard case study Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures is to give probabilities to the external strategic factors thus better understanding the opportunities and threats arising out of macro environment changes and developments.
Third stage of constructing weighted SWOT analysis of Foreign Exchange Hedging Strategies at General Motors: Transactional and Translational Exposures is to provide strategic recommendations includes – joining likelihood of external strategic factors such as opportunities and threats to the internal strategic factors – strengths and weaknesses. You should start with external factors as they will provide the direction of the overall industry. Secondly by joining probabilities with internal strategic factors can help the company not only strategic fit but also the most probably strategic trade-off that Hedging Exposures needs to make to build a sustainable competitive advantage.
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