- 5 Marks
Question
Approaches to risk management in BOGML – Advice to the board of directors
The following are the risk management approaches that the board of BOGML can adopt to manage the following risks identified in the company:
Risk A
- Description: Low probability but high impact, e.g., pandemics, natural disasters.
- Approach: Risk Transfer or Risk Sharing
- Since this risk has a low likelihood of occurring but can result in severe financial losses, the company should consider transferring this risk or sharing risk. This can be done through the company taking full or partial (i.e. sharing of risk) insurance policies specifically designed for catastrophic events, such as business interruption insurance, pandemic insurance, or property insurance that covers natural disasters. Since the impact will be high when the risk occurs, the company can take insurance to pass on the high impact on the company to the insurance company which has to compensate BOGML in the event that the risk does occur.
- The risk could also be shared through BOGML forming partnerships and collaborating with other OMCs to undertake investment in their oil stations.
- The company should also develop a disaster recovery and business continuity plan to manage potential impacts effectively.
Risk B
- Description: High likelihood but low financial impact, e.g., labor turnover and software downtime due to internet instability.
Answer
The Integration/Responsiveness (IR) Matrix categorizes international business strategies based on the balance between global integration and local responsiveness.
For BOGML’s expansion into Tanzania and South Africa, given its focus on cost reduction, the following two strategies from the IR Matrix are the most suitable:
-
International Strategy
- This strategy involves leveraging core competencies from the home country while maintaining minimal local adaptation in foreign markets.
- BOGML can centralize key functions in Ghana while exporting its existing business model and expertise to the new markets.
- This reduces operational costs since there is little need for adaptation to local market conditions.
- It ensures economies of scale, as products and services can be standardized across markets.
-
Global Strategy
- This strategy emphasizes high global integration and standardization, ensuring cost efficiency through large-scale operations.
- By focusing on centralized decision-making and uniform product offerings, BOGML can maximize economies of scale and lower per-unit costs.
- This aligns well with BOGML’s cost-reduction focus, as operations will be optimized for efficiency rather than adapting to local variations.
- The company can use centralized procurement and supply chain strategies to drive down costs across all its international markets.
Conclusion:
For BOGML’s planned expansion, the International Strategy and Global Strategy are the best choices as they offer low local responsiveness while effectively supporting cost reduction objectives. The International Strategy allows leveraging of Ghana-based expertise with minimal local adaptation, while the Global Strategy ensures standardization and operational efficiencies across all markets.
- Topic: International financial management
- Series: Nov 2024
- Uploader: Salamat Hamid