The Asia Crisis
Essay Preview: The Asia Crisis
Report this essay
The Asia crisis has some negative effects on FETCs. One of the major effects on Asia units is the loss of exchange rates, especially in the U.S. dollars. In addition, the parent company (FETC Group) also suffered a loss of transaction in Asia’s profits and asset valuations. As a result of the decline in the value of the Koruna, the share of the Asian business has plunged, which has an impact on the combined equity of FETC. It should be noted that while the share price of Asian equities has fallen, the dollar value of the debt remains the same, which means that the company face the significant financial problem (Moffett, 2000).
The Asia crisis has seriously affected the companys global competitiveness. Due to the currency fluctuations, the cost of sales of foreign goods in the Asian market has been very high, so the FETC graphics department in a challenging situation (Moffett, 2000). Local competition is using this situation to sell at a lower price and to take up the market share lost by the company.
FETC tried several strategies to grasp the situation. The first is to stabilize working capital with different financial institutions. In view of the crisis, most banks refused to provide the company with additional working-capital loans. As a result, the management of the company prepared for shareholder losses in the financial year of 1997 by issuing a profit warning (Moffett, 2000).
The second consideration is to clean up all non-core businesses in order to obtain funding to fulfill and eliminate existing financial obligations. This is a contentious issue, because some policymakers think that is more prudent to wait a little longer and sell the units for more, before which the company would use the cash flows generated by these units to pay off their debts and meet their financial obligations (Moffett, 2000).
New Strategic Approaches
Given the challenges companies face, there are several ways to ensure that the impact of the crisis is eliminated or reduced. In terms of investment, companies should diversify globally (Moffett, 2000). This will lead to an even distribution of risk, and if one financial crisis attacks one area, the other can absorb the effects of the risk. The African continent is an alternative that companies can consider. The countries in the region are open to foreign investors and can use the labor force at low cost, thus reducing the total unit cost of production.
For the debt management, the company should first reduce the debt to financial institutions in Asia and the United States. This will allow companies to reduce the impact of a sustained recession. Second, FETC should advise its subsidiaries to seek other sources of funding, such as issuing bonds and preferred stock. Such a company can avoid the volatility of bank’s lending rates.
For the management of foreign exchange