Learning to Manage the Unmanageable. A Case Study on Exchange Rate Risk Management within Globally Sourcing Multinational Corporations.

Abstract

Background and problem: Existing research has shown that the various risks related to multinational corporations’ (MNCs) supply chains are inherent cost drivers, creating managerial challenges and coherently affecting the bottom line of the companies ( Clark & Marois, 1996; Stanczyk et al., 2017 ). Accentuated in existing theory as especially burdensome to manage is the risk of fluctuating exchange rates, e.g. exchange rate risks (ERR), due to their almost constant state of unpredictability (Holweg et al., 2011). Consequently, MNCs need to find strength and reassurance in operational competence and well-developed exchange rate risk management (ERM) strategies from this marked up vulnerability, however this is easier said than done. Multiple financial risk mitigating measures are set forth in theory (Butler, 2004; Papaioannou, 2006;Eiteman et al., 2007 ) for MNCs to enforce. However, the theoretical discussion in general lack of the viewing point of ERM as a pure firm capability from an international and financial interactive perspective. With this inadvertence, potentially important managerial implications might not have been given their justified attention, implying that the ERM capability of MNCs possess great potential of being further developed. Aim of study: The set out purpose of this research was to explore how the ERM capability is handled and can be developed within a globally sourcing MNC. Methodology: A case study was undertaken as the research strategy for this research, using qualitative interviews to collect the empirical data. Following the data collection, the authors conducted an analysis and comparison of the five case subjects, in order to achieve the aim of the case study. Conclusions: Conclusions drawn tell us that MNCs identify ERR differently, and the risk reducing actions will depend on the characteristics of the MNC, the individuals within it and its ERM procedures. Further, the critical components in ERM are put forward as being: knowledge, information, communication, collaboration, prioritization and analytical capabilities, as well as negotiation skills and flexibility. By developing these, the ERM capability will be enhanced. Conclusions also imply that not only possessing the knowledge is enough in order to enhance the MNCs ERR reducing efforts. Knowledge needs to be coordinated and transferred in a suitable manner as well between different individuals throughout the network of the MNC.