family business & regulation of global financial market

After Western financial crisis in 2007, most of the corporates are get negative influence of crisis, particularly for family business. The expectation of family business is not only growth or employees, but also stability profitability. 

However, once mention the growth of a company, raising capital would become initially important for mangers. The negative and difficult for family business to raise capital, is that the no measurement to ensure shareholder value. Family businesses are closed environment with no annual account. The other big issue is agency problem, when the founding members or managers server their own needs rather than those of the investors an agency problem. Besides that, the conflict relationship between different arm of families members would be barriers of the measurement. 

How often family business conflict will occur? According to summary from Family Business Institution, 20% of family businesses report weekly conflict, another 20% report monthly conflict, and 42% report conflict three to four times per year. You can draw your own conclusions about the 18% who report no conflict at all! It’s worth noting that not all disagreements raise to the level of conflict. Disagreement is a difference of facts, perceptions, beliefs, or expectations. Conflict is a higher level of disagreement; it’s the belief of two or more people that their positions are mutually exclusive.

The role of the regulator is in public interest who need to corrects for market failure. Meanwhile, it could be be as agency approach to seeing profit, maximizing firms exploiting information advantage. 

The financial crisis that originated in the USA last summer has had major repercussions in 

Europe. Calls for stronger regulation of financial markets and their actors have increased for about ten years ever since the Asian crisis sent shockwaves around the world. As of yet, the extent of the current credit crisis cannot be estimated and central banks continue to be faced by an opaque network of shady credit constructions. The present crisis could therefore serve as a catalyst for tightening regulations globally.  The aims of an integrated global financial market can be achieved only if an efficient global supervisory structure and adequate regulation of complex investment vehicles are developed and given the necessary support.

Considering the future challenges of regulation of financial market, I think there are two aspects, which are considering structure credit risk and tight capital requirement.

Is corporate governance of bank system important?

Bank industry in western country act not only regulator, but also an important financial institution. However, after Western financial crisis in 2007, bank industry get a huge destroy, even some famous bank get totally failure in this "war" such as Lehman Brothers.

According to the Financial Times, on January 7th 2013, the Basel Committee on Banking Supervision, a club of the world’s main bank supervisors, announced greatly softened rules on the “liquidity coverage ratio” (LCR), the amount of cash and liquid assets they want banks to hold as a buffer to ensure obligations can be met if there is another freeze in funding markets.

The Basel committee’s original 2010 proposals on liquidity were much tougher, as was the timetable. The revised rules allow banks to hold a wider range of assets in the liquidity buffer, including equities and mortgage-backed securities, as well as lower-rated sovereign and corporate bonds. This has lead to banks will have to hold enough cash, and easily sellable assets, to tide them over during an acute 30-day crisis. Some experts think that the rules are part of efforts to prevent another shock to the financial system like that prompted by Lehman Brothers' 2008 collapse.

However, only regulation restriction is not enough for rebuild bank industry. The crporate governance in bank is significant for bank industry. Initially, banks play a vital role in the economy: a bank is the medium between individuals and capital is able to bring enormous benefit to both consumers and business. In the financial systems of developing economies, banks as the engines of economic growth are extremely significant and have a predominant position, for example, the bankruptcy of Lehman Brothers is one of the main reasons for the USA subprime crisis. Similarly, The Royal Bank of Scotland (RBS) failure of October 2008 provides a counterexample of bank corporate governance.
 
The Financial Services Authority (2011) reports that the main reasons leading to RBS failure in 2008 are: poor management decisions, deficient regulation and a flawed supervisory approach. It can be seen that poor bank corporate governance caused this failure. The FSA  points out ‘‘a deficient global framework for bank capital regulation, together with an FSA supervisory approach which assigned a relatively low priority to liquidity, created conditions in which some form of systemic crisis was more likely to occur’’. Therefore, a perfect corporate governance system and strengthening regulation can prevent bank failure.

The most of CEOs may only focus on the profits of shareholders in the build-up to the crisis and take actions which they consider the market would welcome. In fact, the outcomes were not good and these actions were costly to the banks in question and their shareholders. Moreover, their findings shows that bank CEOs did not reduce their stock holdings in expectation of the crisis, and that CEOs did not hedge their holdings.

Therefore the relation between corporate governance and the performance of banks during the subprime crisis, it is significant for banks and bank regulators to recognize corporate governance problems and decide what remedial actions are required

How was the future of Volvo's Chinese market?

Sweden’s Volvo AB has struggling nearly $1 billion in order to acquire a 45% stake in a new venture with China's Dongfeng Motor Group Co. for 5.6 billion yuan ($900 million). This was claimed by 26^th January 2013, which stand for the 7-year-negotiation finally ended with success.

 

This M&A would bring both advantages for Volvo and DongFeng Motor Group Co.  Volvo has entry to Chinese market several years ago, however, no good commercial vehicle development.

Universal acknowledge that maximazine shareholders wealth and increase market price are main reason that organisation choose to merger and acquistion. After claim of this news, the share price increase from $95.5 to $100.5 per share, at the beginning of the comming Monday.

Another important reason that companies combine is to improve their competitive market position. This negotiation would not only bring acquisition but also share core technology and create new R&D Centre in order to occupy Chinese big truck market. Merging with a competitor is an excellent way to improve a company's position in the marketplace. It reduces competition, and allows the combined firm to use its resources more effectively.According to wall street journal, "Volvo's Mr. Persson said the alliance signaled a long-term commitment to China's growth that would outlast year-to-year market moves. 'We will see markets going up and going down for years to come,' he said. He also cited Volvo's know-how in reducing vehicle emissions."

 

In order to open new market and being more competitive within industry, there are a long way that Volvo need to considering. On the one hand, the incresing of market price after acquisition is commen, which donnot stand for strength confidence of shareholders. On the other hand, subsequent expenditures might influence the purpose of the organisation.

 

 

Yum's big plan in India, success? Or failure?

Foreign direct investment inflow is significant to the economic growth of developing countries. There are several advantages of invested abroad:

• econimies of scale and scope arising from enterprises' size 
• managerial and marketing expertise
• superior technology owing to company's heavy emphasis on research
• financial strength
• differentiated products
• ompetitiveness of company's home market

Multinational enterprise direct oversea market in order to get more profit also increase market share. Not only the company need to prepare a large sum of money but also strategies for open new market. The first and most important issue is decided where to invest. In my opinion, companies might need to do background search like market imperfections, ownership advantages, internalization advantages and location advanatages.

Yum Brand Inc (Yum), an America based fortune 500 coroperation, which operates or licenses of worldwide restuarant Taco Bell, KFC, Pizza Hut and WingStreet. WSJ has reported the big plan of KFC. It reported that Yum will increase to $1 billion in sales for more retail stores in India. Their target of this FDI in India is to make india be "the largest consuming class in the world, ahead of U.S and China, by 2030."

The main reson that Yum decision making is the potential maket of India. This due to conclusion of reasearch illustrate " nearly two-thirds of Indians now ear out at least once a week." Besides that, as 70% of the market is consist by "small mom-and-pop stores rather than restaurant chains". The second reason is the 25% decreasing revenue of China between January and February. Yum tends to relocated their main market which is long-term strategy.

Similarity of Chinese market, Yum realized that more earlier in opening Inidan market would be considered as competitive advantages. In order to achieved the plan, not only need large sum of money but also specific strategies.
Firstly,  this "big plan" is based on the chain include Pizza Hut and Taco Bell, not only KFC. Meanwhile, Yum has changed and create new products for occupy local market. For instance, the vegetarian chickpea patty sandwich and hot wings with chili lemon sprinkles. And changes some of the ingredients to Indian counterparts.

Although there are large potential market of fast food in India, more consideration should be put on the political risk and cultural risk. Cultural and Institutional risk is more about religious heritage and human resources norms. Considering the strategy like changed the ingredians and looks somewhat more Indian food need to trying many times. However, FDI in new market or relocated the main market is a long-term strategy associated with influence of Group. Despite of that, for managers, more risk, more gain.