Risk management in a buying group setting - A case study of an administraiting company in a buying group

Abstract

Background and problem: The consumer electronics industry is changing and so is the role of the distributor. During the last couple of years actors within the industry have seen a change in market conditions. With increasing globalization resulting in borderless markets, consumers wield greater power in their negotiation with the producers. As manufacturers seek out opportunities of rationalizing the supply chain in order to meet consumer demands, the distributor’s role is threatened. In this regard, Company A has shown great attentiveness and in order to survive has formed a buying group on a distributor level. This constellation presents many opportunities for the members but also numerous organization oriented risks. More specifically, Company A has experienced problems related to the method of payment that is used when doing international trade. As Company A and the buying group have experienced a surge in growth they are also faced with the probability of further future development. It has therefore become apparent to Company A that they are in need of an evaluation, addressing the current situation and entailing possible suggestions of alternative methods of payment. In order to manage the risks related to the international order placing process, the company has taken an interest in the implementation of Letter of Credit as a method of payment. Method of research: The thesis is based on a case study of the administrating company in the buying group. The research is based on qualitative interviews with staff at the company, bank associates and trade finance experts. Purpose: The thesis main purpose is to identify and evaluate risks related to the business concept with focus on payment methods. The secondary purpose is to evaluate the use of Transferable Letter of Credit as alternative payment method. In this thesis we started out by identifying three risk areas relevant to the business concept of the company. These areas were organizational risk, supply chain risk and competitive cost risk. In the context of these risk issues we have evaluated the possibility of implementing the use of Transferable Letter of Credit as a risk minimizing payment method. We have concluded that the company is exposed to various risks and for the company to be able to expand one needs to more efficiently manage these risks. Furthermore our evaluation of the possibility to implement Transferable Letter of Credit as payment method indicates that the organization with its complex structure is not applicable to this solution. Subjects for further study: As mentioned before the company needs to manage their risks related to the international payment method more efficiently. We suggest that one evaluates the organization and the members of the group in order to reach a higher degree of homogeneity. Furthermore one needs to evaluate other possible solutions for the international payment process.