Hello everyone. Thank you for the opportunity to take part in the Zurich Enterprise Challenge. Our Team has selected Topic No. 2: RoboCanada for this challenge.
For our presentation we will first give an overview of the company, the methodology used for the risk assessment, our assumptions and the globalization strategy. In the second part we will answer the 3 questions that Zurich Insurance have provided us.
As a brief introduction to the challenge, RoboCanada is a multinational engineering company with operations across in more than 25 countries. Due to slowing growth in the core market, they are now shifting focus to Asis for which our team will carry out a Strategic Risk Management Analysis, with specific focus on shortening the supply chain.
To begin our risk assessment, we looked at the distribution of the various risk factors of the potential hub locations, as provided by the Risk Room. If a particular risk factor is found to be in the 4th Quartile, it is red flagged for deeper analysis. A risk factor in the first Quartile is deemed safe. Risk factor falling in the second and third quartile are ranked Low to Medium and Medium to High respectively.
Thereafter, we created a Risk Grid, which considers the risk score and grading as seen in the Risk Room. Further, we also have an additional parameter called ‘Relevance’ to filter our risk factors that do not have substantial impact in our analysis. For example, ‘credit availability’ is considered irrelevant for our analysis, the explanation for which follows in slide 7.
In addition, to the Risk Room, we have also considered the volatility represented by the movement of risk. We tried to consider yearly movements to measure the standard deviation of each risk measure; however, we were unable to find the data. We also believe the movement from 2007 to 2014 is sufficient for volatility measure as short term movements/ impacts may be smoothened.
Finally, in the Risk Assessment methodology, we have considered the qualitative aspects as well which is represented here. This also sufficiently explains why parameters such as Credit availability, Quality of labor and Epidemics is not considered relevant for the overall risk assessment.
Now let’s, look at the assumptions, the nature of goods are considered low volume and high value. Top priority is given to speed and delivery reliability along with post-sale servicing. Local procurement is assumed minimal with key control remaining with the Head-Quarters. Decision parameters will be based on optimal proximity to end market and also the optimization of the supply chain.
We have also reviewed the proposed strategy in-light with the Ghoshal-Barret Global Strategy of Local responsiveness Vs. Global Integration. We believe that RoboCanada is more close to Global Strategy where standardization will be a key element and off-shoring will also have cost saving.
Clubbed with the Pankaj Ghemawat model of AAA Triangle, we conclude that RoboCanada is positioned in AA strategy of Aggregation and Arbitrage. Herein, the dominant factor is aggregation and some elements of arbitrage is seen in terms of benefit from unskilled labor, some advantages because of distance, hedging of political disruption against North African suppliers represented in corporate diplomacy and some cultural adaptation.
This now brings us to the three challenge questions.
Following the risk methodology described we have mapped each of the countries in a Spider web chart. For Business Risk, we can clearly identify China, Malaysia and Thailand.
For political and physical risk, though we note some overlap, which we will explain in question 2, we also identify China, Malaysia and Thailand as the ones with lower comparative risk.
Finally, following the Risk Grid score we again identify China, Malaysia and Thailand as the ones with the three countries with lowest risk.
Comparing risks of UK and Canada we note that Political and Physical Risks are higher for the selected 3 countries. However, there are significant improvements expected in terms of supply chain improvement and there are also proposed Mitigants to these higher perceived risks which are described next
For qualitative analysis we first look at the Business Risk in the Spider Web and identify 3 risks. For contracts, this is mitigated with no sales or purchase in the new country. Thus, the quantum of risk identified by Risk Room will be lower. For Trading risk, though China and Thailand have higher risk this is still lower comparatively. Finally, the burden of govt. regulation can also be minimized as low trade barriers can work as a natural hedge in principle.
The human rights risk can be minimized through expats for knowledge capital. For Information infrastructure the risk ranges are low. For transport, the Air-Lift of goods mitigates the risk. China remains significantly exposed to the two natural disaster risks. This needs to be further analyzed as the actual location of the plant within the country can mitigate this. Finally, the political violence in Thailand will also need additional due diligence.
We now Red Flag the high volatile risks affecting the selected three countries but only the ones which has upside movement.
The impact and measure of the risk Mitigants will be in terms of supply chain efficiency, operational capabilities and scalability. However, there may be some cost elements attached to finding the appropriate risk mitigant. Further, cost-benefit analysis will be required to optimize the same.
The positive impacts in operations are seen in terms of Cost, Speed, Volume and Delivery reliability. Whereas, impact on product variability, and quality needs more analysis. All the measures will be asymptotical to time.
As a next step, additional due diligence and strategic fit must be reviewed. With regard to supply chain - site identification, cost analysis, local skills and time based learning curve remains relevant. The analysis will also require due diligence in CPI and Graft. The strategic fit in terms of scalability of global integration model should also be pursued.
As concluding remarks, we have identified key recommendations to follow for further analysis as described in this slide. Quality and measurement of transaction cost remains of particular importance.
Hope you enjoyed our presentation, as much as we enjoyed working on the project. Thank you.
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