Strategies Undertaken By Coca Cola Marketing Essay

Strategies Undertaken By Coca Cola Marketing Essay This report involves a brief description of strategic and comparative advantage. It also involves different kinds of strategies under taken by Coca Cola Company that have led it to be one of worlds market leaders compared to other multi-national companies. The strategic and comparative bases of advantage discussed based. The item that shall be looked is coca cola marketing strategy that has been developed for years and based on situations. The marketing strategy shall involve advertising, market segmentation, Equity investment and Branding. Though these strategies seem to be common in other companies either local or international, Coca-Cola Company implements them in a special way. Consumer market fit: There is a third fit relationship that occurs, fit between consumer and market. This involves the needs and behaviors of consumers under certain market conditions such as specific price points. This relationship between consumer drives and market forces often has direct effect on brand choice. For example a brand might be considered as a good choice to fulfill a particular need or behavior at a particular price that the consumer is prepared to pay, while another brand might not be considered as a good choice for specific combination of need, behavior and price point. The company sets strategies so that it can outperform rivals and it can only do that by establishing a difference in delivering great value to customers or by creating comparable values at a lower cost or do both. Delivering greater value allows a company to charge a high average unit prices and efficiency results into lower average unit costs. All differences between companies in cost or price is derived from hundreds sets of activities required to create, produce, sell and deliver their products or services such as calling on customers, assembling final products and training employees (Porter, 1996) Comparative basis of advantage Deardorff, A. (2003, p. 6) defined Comparative Advantage as the relative cheapness of a good or service in a country that enables that country to export it. More precisely, a country has a comparative advantage in the good whose price in the absence of trade (autarky), relative to other goods in the same country, is lower than the relative price of that same good on world markets. Ricardian Model states that countries have comparative advantage in goods whose labor cost, relative to other goods in the same country, is lower than the relative labor cost of that good abroad. Therefore countries are said to have comparative advantage in a good if its labor requirements are relative to the labor requirement abroad. Ricardian model outlines two theoretical implications of Comparative Advantage and these are: firstly if countries are permitted to trade freely then they are undistorted markets and competitive, they will export the good or goods in which they have comparative advantage and import those in which they have comparative disadvantage, secondly under the same conditions, all countries will gain from trade, in the sense that those individuals who gain from trade within each country will gain enough that they could potentially fully compensate those individuals who lose, within the same country, and still remain better off than in autarky(Deardolff,2003). Business overview Coca-Cola is the largest manufacturer, distributor and marketer of concentrated syrup which is used for the production of non-alcoholic beverages. The company has a span of operations covering over 200 countries since its inception in 1886. It has an annual net income of 6.8 billion and employs the services of around 92,400 associates throughout its operations worldwide (Coca-Cola annual report, 2009). Advertising Advertising can be defined as as any paid form of non-personal presentation and promotion of ideas, goods or services through mass media such as newspapers, magazines, television or radio by an identified sponsor (Kotler et al, 2008 p.737). Advertising is a practical way of informing and persuasion as well as a means of stimulating response from a target audience. The response could be perceptual where the consumer develops, believes or views about the product or it could be behavioural where the consumer purchases the product or increases his purchases of the product in question (Kotler et al, 2008). Advertising is a process which gives information to the public about the product. It is persuasive, controlled, and identifiable as well as influences the target audience. The basic objective of advertising is to increase sales volume and profit. We shall look at several types of advertising which runs hand in hand with the advertising objectives. Informative advertising appears at the early stages of a particular product and is meant to develop the primary demand of the customers. Persuasive advertising is applicable at the competitive stage where a selective demand is built for a particular category of product (Kummer and Mittar, 2008). Comparison advertising is used to establish the superiority of a particular brand through the use of evaluation with one or more other brands in the product line. Reminder advertising is used to refresh the memory of the consumer regarding messages, ideas etc of a particular product. Reinforcement advertising is used to assure the current buyers that they made the right choice regarding their decision to buy the product. The advertising objective should not be arbitrary but should be developed after a thorough evaluation of the current market situation (Kummer and Mittar, 2008). Coca Cola advertising Advertising is a major element of the promotion mix. Personal selling, sales promotion, publicity and advertising are the four elements of the promotion mix. Advertising has been thought of as the best method of promotion because it stimulates sales, creates demand and reaches customer quickly and effectively (Kummer and Mittar, 2008). Coca-Cola has over the years consolidated its leadership position as the worlds most famous and largest beverage company with huge investments in advertising targeted at its existing and potential consumers worldwide. Coca-Cola works in partnership with leading advertising agencies and market research institutes the world over to develop effective advertising campaigns that conforms to current trends in information technology like the use of internet based mediums like face book and twitter to connect with technology loving target audience (Coca-Cola annual report, 2009). The successful advertising strategies used by Coca-Cola over the years in their operations shall be analysed.( Wieden and Kennedy,1996 ) an advertising agency that worked in partnership with Coca-Cola for the 1996 summer Olympics in Atlanta Georgia came up with four main advertising strategies designed for Coca-Cola for the summer games namely: a home based strategy, a fan based strategy, a global growth strategy and the Olympic torch relay. The home based strategy used by coke was primarily as a result of the fact that Atlanta is the main headquarters of Coca-Cola and so people in Atlanta would readily identify with the brand since they are well familiar with it. Coca-Cola launched several advertisements for the games which include installing 70 new billboards, several street-pole banners and signs in 9 Marta stations (the citys public transportation system). Coca-Cola created a theme park known as the Coca-Cola Olympic city with countless different coke advertisements including a 165 feet coke bottle in the canter of the park (Wieden and Kennedy, 1996). The companys signature colour red was the main colour seen throughout the Coca-Cola Olympic city. Coca-Cola deviated from the traditional practice of using athletes for advertising for the games to focus instead on a fan-based strategy where commercials, print advertisements and posters where used to demonstrate the difference made to the outcome of the games by the enthusiasm of the fans. Coca-Cola used the games as a global growth strategy used to target the worldwide audience tuned in for the games. Coca-Cola also used one of the most efficient strategies for gaining exposure in advertising history which is the sponsoring of the 1996 Atlanta Olympic torch relay (Wieden and Kennedy, 1996). The impact of Coca-colas advertisements during the Olympics was so immense that people dubbed the event the Coca-Cola Olympics. The event served as a means for the company to effectively advertise its brand to a worldwide audience. In 2003, Coca-Cola used the marketing platform tagged real to enhance the image of the brand through the use of television advertisements. This particular advertising strategy was specifically targeted for the teenagers and young adults with resounding success. In the same year, the tropical sprite remix television advertisements which was intended to increase and reconnect the sprite trademark was also targeted at the young, urban consumer base (Coca-Cola annual report, 2003). In 2006, the make every drop count advertising in the United States was purposely designed to create awareness among consumers on the health benefits of Coca-colas beverage portfolio in a response to growing concerns by consumers regardless of age on health concerns like calorie intake and obesity. The coke side of life campaign which was the first ever integrated marketing campaign for trademark Coca-Cola was intended to signify the unifying role of Coca-Cola in daily life and has performed better than previous Coca-Cola advertisements and was launched in almost 100 markets in 2006 with great success. The happiness factory television commercial is part of this global campaign (Coca-Cola annual report, 2006). In 2009, Coca-Cola commenced the design for advertisement strategies to be used for the 2010 Fifa world cup campaign which included colourful television advertisements for the soccer fiesta in South Africa in 2010 as a means of uniting Coca-colas exuberance with the worldwide love of soccer thereby utilizing the soccer fiesta as a veritable means of connecting with consumers worldwide who have immense passion for the love of football (Coca-Cola annual report, 2009). Coca-Cola develops its advertising campaigns based on a communications strategy that uses means to end research to gain greater insight of current and potential customers and other factors like product attributes, keeping specific marketing goals in mind, taking into account competitive advertising and positioning as well gaining attention and interest by connecting with real needs(Reynolds and Olsen,2008) Market segmentation Market segmentation has been described as essential to marketing(Sheth 1967).Market segmentation implies the division of large heterogeneous markets into smaller segments that can be reached more efficiently and effectively with products and services that match their unique needs(Kotler et al, 2008 .p.410) There is no single way to segment a market. A marketer apparently has to try different segmentation variables alone or in combination in order to come up with how best to view the market. Markets could be segmented into either business markets or consumer markets. Consumer markets entail those markets that deal on products and services that are used directly by the consumers whereas business markets have to do with transfer of products and services from one point to the other. Market segmentation could be based on the following major variables: demographic, psychographic, behavioural, geographic etc. Demographic segmentation entails segmenting the market based on age, gender, income and education. Psychographic segmentation is based on personality, lifestyle and motives of the population involved. Geographic entails segmenting the market on the basis of regions, city or country. Behavioural involves segmenting the market on benefits sought, product usage, price sensibility or situations (Kotler et al, 2008). Coca cola market segmentation Coca Cola Company has been conquering markets worldwide overtime, through its network of Bottlers, distributers and whole sellers, and later joint ventures. The market network has grown to include most of the world territories and this market has been divided into market segments. Coca-Cola the worlds most famous and leading beverage company has been shown in their operations to vary the sweetness level of their product, its size as well as effervescence on local conditions and preferences which implies that the company employs the use of behavioural and geographical variables in their market segmentation strategies the world over (Hart et al,2008). Coca-Cola Company has operating segments on continental basis involving Eurasia and Africa, Europe, Latin America, North America and the pacific areas. This strategy is clearly a geographical approach in terms of market segmentation by Coca-Cola which is influenced by the fact that these different geographical areas will have diverse preferences and wants (Coca-Cola annual report 2009). Coca-Cola market segmentation strategies regarding diverse consumers base starts with a process of understanding consumer trends within the multicultural marketplace and then developing depth and breath communications which is based on that knowledge. The Coca-Cola Company has a diversity business development team which serves the purpose of providing diverse consumers with the right beverage portfolio. In 2009, the diversity business development team worked closely with the multicultural marketing team to develop marketing strategies as well as integrating multicultural elements into general market programmes for greater reach (Coca-Cola annual report 2009). The diversity business development team during this period also identified significant opportunities in emerging markets including Asian and disabled consumers. The Asian consumers were subsequently integrated into the existing framework of communications. Coca- colas multicultural consumer marketing team develops and carries out relevant marketing plans targeted at multicultural consumers while working closely with brand and customer teams as well as the bottling system. Coca-Cola North America had their multicultural consumer marketing team refocused on African-American marketing as well as expanded its reach to Hispanic consumers (Coca-Cola annual report 2009). The company is now in the process of implementing a long term strategy targeted at consumer markets on the basis of ethnicity in the United States. Coca-Cola in North Americas operating segment reported in 2009 positive results in its works with its bottling partners to create price and package strategies that will ultimately strengthen their financial results, provide value for customers and provide consumers with choices that meet their needs. This strategy is apparently based on behavioural variables which puts price and preferences of the consumers into consideration Coca-Cola Company introduced the coke zero brand in response to consumer health concerns regarding excess calorie intake (Coca-Cola annual report 2009). The product did well in the market and in 2009, the company made sales on the product on an excess of 600 million cases globally. Currently there are over 800 low and no- calorie beverages in the Coca-Cola portfolio (Coca-Cola annual report 2009). In 2008, the company and foundation spent around 9million dollars to support active, healthy lifestyle programmes. These strategies by Coca-Cola are geared towards effective market segmentation of the target population on behavioural and psychographic basis putting into account the health choices and lifestyle of the consumers. In order for Coca-Cola to meet the diverse and ever changing beverage needs of its consumers worldwide, the company has intensified efforts to add more value for customers in its portfolio of beverages ranging from added benefits of vitamins and minerals to calorie reductions, new ingredients, sweeteners and taste depending on the preferences and wants of the consumers concerned (Coca-Cola annual report 2009). Coca-Cola also has another segmentation strategy which entails different strategies for developing and developed markets. The companys main strategy for the developed markets like the United States is to maximize value and profit which can be achieved by delivering more value to consumers so that they will continue their patronage of the companys products at a premium price. In this regard, Coca-Cola are growing the core beverages-trademark namely: coke, sprite, fanta, powerade and improving their benefits and value to the customers through adding vitamins and nutrients to reduced or no calorie options(Coca-Cola annual report 2009). In developing markets Coca-Cola devised a strategy of making the products affordable to the consumers; in Brazil the company offers consumers 26 package options for brand Coca-Cola at different brand points to meet the needs of an economically diverse consumer base (Coca-Cola annual report 2009). In 1963, the product tab was launched and was specifically targeted at the female consumers but subsequently the company in order to broaden its customer base by appealing to the men folk as well as the entire family had to introduce diet coke to achieve the above mentioned objectives. In 1983, Coca-Cola introduced the caffeine- free versions of Coca-Cola, diet coke and tab which were specifically targeted at health conscious consumers. Coca-Cola also introduced the minute maid soda which was positioned to attract a market segment that prefers fruit juice as well as health and nutrition conscious consumers (Mochmen and Maze,1998). The Coca-Cola Company today through its market segmentation strategies offers a diverse portfolio of products to identified market segments based on different consumer preferences for flavours, calories and caffeine content effectively which continues to add to their success story globally (Lamb et al, 2008). Equity investment Coca Cola Company has over time been making equity investment in selected bottling companies with the intention of maximising companys strength and efficiency in its systems, production, distribution, and marketing capabilities around the world. The level of investment generally depends on the bottlers capital structure and its available resources at the time of investment. Coca cola Company in some instances finds it necessary to acquire a controlling interest. Such controlling interest allows coca cola Company to compensate for limited local resources and enables it to focus on bottlers sales and marketing programs. Equity investment also assists in the development of bottlers business and information systems and the establishment of appropriate capital structures. One of examples of coca cola equity investment is that of Coca Cola Enterprise Inc. (C.C.E) In 2009, Coca Cola Companys ownership in Coca Cola Enterprise Inc.-bottling company, was 34%. Coca cola Enterprise Inc. is the worlds bottler company of trade mark beverages. The sales of concentrates, syrups, mineral waters, juices, sweeteners and finished products by coca cola Company to C.C.E were approximately 6.6 billion by the year end 2009. The Coca Cola Enterprise Inc. estimates its market beverage products to retailers which include a portion of 46 states of USA, Columbia district of USA, Virgin Islands, Caribbean islands, Canada, Great Britain, Continental France, Netherlands, Luxembourg, Belgium and Monaco. Therefore Coca Companys investment strategy in CCE was to take advantage of this vast market for it to sell concentrates, syrups and different coca cola product brands through C.C.E (Coca cola annual report,2009). Branding Coca cola has many kinds brands sold worldwide. In developing a company brand, coca cola conducts product and packaging research to establish brand positioning, develop precise consumer communication and solicit consumer feedback. The Coca-Cola brand development strategy emphasizes on price, preference, and persuasive penetration (Annual report, 2009) The Coca Cola Company main brand products are Coca cola classic, diet coke and coca cola zero whereas the main branding strategies at Coca Cola Company include but not limited to Joint brand strategy, brand diversification strategy, personal branding strategy, and packaging/redesigning strategy (Annual report, 2009) Joint brand strategy involves a situation in which two different brands are linked to form joint promotion, as a consequence one product may sell the other examples in early 1990s Bacardirum and Coke cola brand were jointly marketed together. Coca cola, the common known brand was used to market Barcadirum, the new product on the market. The benefits of this strategy is that if the first brand name gives a certain quality signal, then the second brand quality signal is believed to be as powerful as the first one, hence attracting more buyers. (Akshadf and Ruekert, 1994) Brand portfolio/diversification strategy: Coca Cola Company continues to diversify its portfolio and growing sales with new and acquired brands. The some of the diversified brands are vitamin-enhanced water energy brand, and its star water brand Glaceau. The powerade and Nestiea iced tea brand products, a joint venture of Coca Cola Company with Nestle. The importance of this strategy is that multiple brands allow the company to offset cokes gradual decline with newer, more appropriate brands while removing future potential rivals through acquisition. The strategy also allows coca cola to maintain relatively large market share irrespective of how market changes (VanAnken and Derick Daye, 2007) Personal branding strategy refers to a set of human characteristics as associated with a brand. Users view it as a key way to differentiate a brand in a product category as a central driver of consumer preference and usage that can be used to market a brand across cultures. In coca cola company personal traits associated with coca cola are Cooling, all-American, and real. These three personal traits differentiate coca cola from its competitors. Besides these traits, Coca Cola Company uses slogans, graphic designs, color schemes and trademarks. As a result of personal branding, different categories of people from different denomination find themselves attracted to the brand hence increasing its demand (Aaker, 1997). Packaging/redesigning strategy: Coca Cola Company keeps on redesigning its packaging and visual identity systems. One of examples is its newly identity visual system for its flagship brand introduced in 2008 and contour aluminum bottle initially commercialized in 2005. The nonalcoholic beverage in this new aluminum bottle attracted many buyers especially in 2005 Olympic Games in Beijing-China. (Butler, 2009) Packaging redesigning also continues making coca cola brand a new product in the face of consumers. The most crucial comparative advantage is that the company has over time built a network bottling partners, wholesalers and distributers spread over in many parts of world. These act as marketing agents of coca cola company products worldwide. Bottling partners pray two major roles, Firstly they act as consumers of the concentrates and syrup which they use in manufacture of coca cola products and later sell these products locally or in foreign market, secondary they act as marketer of company brands. (Annual report,2009) The Coca Cola Company has a unique network of bottling partners, distributers, wholesalers and joint ventures spread all over the world which act as channels through which the company promotes and markets its brands. Coca Cola as a result of operating in partnership or in cooperation with foreign companies, it enjoys economies of scale such as cheap labor, land and transport costs. Transport costs are reduced due to the fact its brands are brought closer to customers through a network of bottling partners, wholesalers and distributers. The coca cola companys leading brands with high level of acceptance, a worldwide network of bottlers and distributers of companys products, sophisticated marketing capabilities and talented group of dedicated associates are unique companys achievements overtime compared to other multi-national organizations. (3970 Words)

Case Study on Sumitomo Corporation Essay

1.Case Study on Sumitomo Corporation on Derivative Losses and Lesson Learned 1.1Introduction Sumitomo Corporation was top in market in copper business in the world prior to 1996 in term of trading size and it operations. Copper business is part of their portfolio and it was delegated to Yasuo Hamanaka who was the Head of Copper Trading and he was engaged in illegal copper trading and faced extensive losses and massive cover-up. As the result of this loses, he attempted to avoid losses many times. This was against the rules and regulation of the London Metal Exchange (LME). LME created new regulation to prevent the market domination, as the result of this; he faced losses on his operations. There were two malfunctions recorded; he maintained two types of books, one is to showing big profit, and the second one is to keep secrete account, unauthorized trades over 10 years. No one except Hamanaka was not aware of accumulated loss of $ 1800 million. 1.2Background of the Company Sumitomo Corporation is one of the subsidiaries of Sumitomo Group which is one of top 5 â€Å"Sogo Shosha† general trading in Japan. It has 120 overseas branches in 65 countries, and having diversified business of Metal, Mineral Resources, Energy, Chemical & Electronic and Infrastructure. Copper Department is one of the departments in Copper Corporation which is owned Mineral Resources, Energy, Chemical & Electronic Business unit. In 1800s, Sumitomo Corporation was diversified the business into Sumitomo Bank, Sumitomo Metals, and Sumitomo Corporation. In 1980, they obtained strong position & positive reputation in the Copper market. Competition in Copper industry was very high; Copper was traded on LME listed in London and COMEX in USA. Copper was placed 3rd used Metal after Iron & Aluminum. There were two types of market participants i.e. one is supplier who does physical supply, and the second is speculators who arbitrage deal without delivery. Sumitomo was acted as speculator and after acquiring mines in Philippines in 1984, Sumitomo changed from speculator to supplier. After 1988, they made of $3 to 4 million profit and they followed cost leadership strategy which caused huge loss because of having high inventory while declining demand. LME is popular for providing spot and future markets where clearing systems reduce counter party risks. The delivery would be taken place for the authorized warehouses and storage facility. The specification of copper would be included i.e. quality, trading unit, price quotation, trading month, minimum fluctuation, and tick value. The copper contract would meet the following conditions i.e. counter party information is open, and delivery condition is by the party, not LME. Yasuo Hamanaka was the Chief/Head of Copper Corporation. He was committed wrongful Act during the 1985-1996. He was referred as by many Mr. Five percent/Mr. Copper. He traded 0.5 million metric tons per year which was the 5 % of total world demand and having experience of 23 years in copper trading. 1.3Sumitomo Copper Scandals From 1985, Hamanaka lost a total of $1800 million. He executed as many as $20 billion worth of unauthorized trades a year. His main strategy was the â€Å"short squeeze†. The future market was particularly vulnerable to manipulation since the market volume was relatively small. By buying up futures and choosing physical delivery, future seller ended up buying copper in a spot market, which resulted in backwardation: the spot price is higher than the forward price. As far as LME concern, it considers only the inventory in their authorized warehouses. If someone moves away from copper inventory outside of an authorized warehouse, LME inventory appear to decrease and therefore, copper price rise due to a perceived tight supply in the market. Hamanaka implemented such strategy because of all his illegal trades was not booked, but is clear that this was a possible way to induce backwardation. In December of 1991, the LME decidbed to set new regulations that would limit the range of backwardation within 25 pounds to prevent market manipulation. Backwardation shrunk to almost $0 or even negative, thus causing a huge loss in Sumitomo’s portfolio. To recoup the loss, he conducted a Radr transaction in June 1993, but at the end he ended up closing their Radr position and incurred a $1.1 billion loss. Hamanaka tried to recoup the loss by increasing the trade volume and made a contract with Winchester for1 million metric tons over two years at the price of $2,800, however, due to price declines, the loss kept expanding. Hamanaka’s next step was to create an option portfolio named â€Å"Radr† transactions. He made six different transactions in Radr. The counterparty of these transactions was Credit Lyonnais Rouse (â€Å"CLR†, currently Calyon Group). Since the position held by CLR was large and caused backwardation, LME tightened the backwardation limit to $5 in September 8 1993. In addition, LME informed Credit Lyonnais that they were to cancel part of their transactions with Sumitomo on September 17th,, Thus resulting in a $1.16 billion loss for Sumitomo. ïÆ'Ëœ1st: In June 25, 1993, Hamanaka buys call option with an average price of $2,400 and which expires after 2 years. The transaction is totally irregular because the total volume was 1 million metric tons as compared to all LME inventory of 0.5 million. The portfolio could make a profit if the price went up to $2,480. To pay a premium of $69 million, Hamanaka made a 2nd trade. ïÆ'Ëœ2nd: Hamanaka made a short strangle, combination by selling a 0.5 million $2,100 call and $1,900 put option. The portfolio could make a profit if the price remained between $1,900 and $2,140. From this transaction, he got $94 million of premium and paid for the 1st option. With 1st and 2nd strategy, total breakeven was $2,700. ïÆ'Ëœ3rd: Selling future at a price of $2,000 which increased payoff to around $1,900. ïÆ'Ëœ4th: Buying 1.35 million metric tons of $1,750 put, breakeven was $1,580. He predicted that the copper price would go down below $1,600 level. ïÆ'Ëœ5th: Buying 1.35 million metric tons of $1,800 put again, breakeven was changed to $1,680. This portfolio could make a profit slightly if the price went down below $1,700 level. ïÆ'Ëœ6th: Selling 1.2 million metric tons of $1,950 call to get $29 millions of premium. With this transaction, breakeven was changed to $1,680. However, if the copper price exceeded $1,950, Sumitomo suffered a huge loss. 1.4Lesson Learned from Sumitomo Case The Sumitomo Case explains following lessons base on internal control and risk management prospective, and it believed that if controls were in place, losses would have been detected much earlier. (a)Management Level Control: Sumitomo Corporation failed to execute a risk management practices and they believed the expertise and specialized knowledge of Hamanaka. The essence of the problem was unauthorized trading that the culprit undertook to enhance his firm’s profitability and then his own career and pay. Hamanaka tries to cover up the losses through taking more risk that end up with further losses. Setting up corporate discipline and sound Management structure is important to manage the risks. (b)Independent Transaction Monitoring: Sumitomo should create a separate and independent supervisor system within the company hierarchy to avoid these agency issues; specifically the issues between recording and checking procedures. Segregation of duties is important to prevent the malpractices. Middle and bank office should be totally separated from the front office.   (c)Corporate Responsibility: We should also consider corporate responsibility with regard to timely reporting. In the Sumitomo case, the management waited ten days until issuing a press release. Sumitomo needed some time to calculate their losses; they could have avoided additional declines in copper prices that were caused because of the rumors and uncertainty in the market. (d)Government Regulations: The regulatory agency should execute more stringent rules on the derivatives market to avoid price manipulation and impose new regulations on corporate reporting obligations so as to provide investors and other market participants with greater information regarding the organization’s willingness to take risks and capability to manipulate market prices. The official and market pressures of stringent regulation will strengthen the internal auditing and information systems of many firms and provide a check against possible management discretions. 2.Case study on the Orange Country on Derivatives Losses & Lessons Learned The purpose of this case is to explain how a municipal lost $1.6 billion in the financial market. In December 1994 Orange County stunned the market by announcing that its investment pool had suffered a loss of $ 1.6 billion this was the largest loss ever recorded by local government investment pool and led to the bankruptcy of the county shortly thereafter. The loss was the result of unsupervised investment activity of the Bob Citron, the county treasure who was dealing with the $ 7.5 billion portfolio belonging to the county schools, cities, special districts, and county itself. In the tome of fiscal restrains Citron was viewed as a wizard who could painlessly generate greater results to the investors. Citron generate 2% higher than the comparable state pool Figure 01 citron’s track record Citron was able to increase returns on the pool by investing in derivatives securities and leveraging the port folio to the hit. The pool was such demand due to its track record that citron had turn down investments by agencies outside Orange County. Some local schools districts and cities even issued short term taxable notes to the investment in the pool by increasing the leverage even further. For that there was a repeated public warning, which was by notably by John Moorlach, who ran for treasurer in 1994, that the pool was too risky. Unfortunately, he was widely ignored by Citron when he was re elected. The investment strategy worked excellently until 1994, when fed started a series of interest rate hikes that caused severe losses to the pool. Initially it was announced as a paper loss. Shortly thereafter, the county declared bankrupts and decided to liquidate the portfolio. This occurred because citron expect that interest rates would fall or stay the same, the citrons main purpose was to increase income by exploitation that the fact that medium term maturities had higher yield than short term investments. On Dec 1993, for instance short term yields were less than 3%, while 5year yield were around 5.2% .which such positive sloped term structure of interest tares , the tendency maybe to increase the duration of the investment to pick up extra yield . The boost, of cause comes at the expense of great risk .the strategy went as long as interest rates went down. In February’94 however the Federal Reserve Bank starred a series of six consecutive interest rate increases, which led to a bloodbath in the bond market. The larger duration led to a $1.6 billion loss 2.1. Lessons Learned from Orange Country Case Due to the activities of Bob Citron the municipality lost $1.6 billion in financial markets. Therefore, it is essential to understand the lessons to be learnt from the Orange Country case. (a). No autocratic decisions should make in investment activities Bob Citron was investing the funds owned by the taxpayers in risky securities in Wall Street as per his own interest. Since he managed to generate higher returns for the funds invested in the early stages Citron was viewed as a wizard. This made him over confident on his actions which resulted in huge losses at the end. When the leverage increase due to these activities Bob Citron, the treasurer was warned by John Moorlach thath the pool was too risky. However, counter arguments were widely ignored and Citron was re-appointed as the treasurer. (b). Local governments need to maintain high standards for fiscal oversight and accountability. As noted in the state auditor’s report following the bankruptcy, a number of steps should be taken to ensure that local funds are kept safe and liquid. These include having the Board of Supervisors approve the county’s investment fund policies, appointing an independent advisory committee to oversee investment decisions, requiring more frequent and detailed investment reports from the county treasurer, and establishing stricter rules for selecting brokers and investment advisors. Local officials should adjust government structures to make sure they have the proper financial controls in place at all times. (c). State government should closely monitor the fiscal conditions of its local governments, rather than wait for serious problems to surface The state controller collects budget data from county governments and presents them in an annual report. These data should be systematically analyzed to determine which counties show abnormal patterns of revenues or expenditures or signs of fiscal distress. State leaders should discuss fiscal problems and solutions with local officials before the situation reaches crisis stage. (d). Always aware of the negative side on risky investments The treasurer was assuming that interest rates would fall or stay low when he goes for huge investment activities. However, when the things moved the opposite direction and the interest rates went up the pool suffered severe losses. Therefore, always be cautious when making predictions on market phenomena. (e). Use proper statistical risk assessing methods before invest in securities An investor could use a proper risk assessment method such as Value At Risk (VAR) method to assess the market risk of the portfolio. VAR is the maximum loss over a target horizon such that there is a low, pre specified probability that the actual loss will be larger. Therefore, shareholder and managers can decide whether they feel comfortable with the given level of risk. 3.Case study on the Procter & Gamble on Derivatives Losses & Lessons Learned Procter & Gamble Co. is a Fortune 500, American global corporation based in Cincinnati, Ohio, that manufactures a wide range of consumer goods. In late 1993, Proctor & Gamble financial managers, well known for actively managing their interest costs, expected interest rates to drop and went to Bankers Trust searching for aggressive interest rate swaps that would allow them to profit on these expectations. P&G told to Bankers Trust about ways of replacing a fixed-to floating swap that was maturing. P&G’s specific objective was to negotiate a new $100 million swap that would †¢Again put it in the position of paying floating rates and †¢Squeeze these to a minimum. Specifically, the company wanted to pay 40 basis points (0.4 of 1%) less than its standard, upper-crust commercial paper rate (then about 3.25% for six-month paper). Bankers Trust responded with a highly levered, extremely risky, and extremely complex five-year interest-rate swap agreement. In this the P&G had to pay 75 basis points less than rate of Commercial Paper, if the interest rates of 30 years and 5 years treasury bills will remain constant or go down. Five-year Treasury rates rose from 5% in early November 1993 to 6.7% on May 4, 1994. P&G’s other benchmark, 30-year Treasury rates, went from about 6% to 7.3%. Because of large duration the effect of rise in interest rate on long term bonds was very high. When interest rates headed up, Proctor & Gamble’s treasurer realized the magnitude of the company’s potential derivatives losses and decided to get out of the swap. Because of the intricate complexities and linked derivatives of the agreement, however, P&G lost $157 million to lock-in interest rates (which were 1,412 basis points (14.12%) above the commercial paper rate) in only six months of a five year contract. When interest rates headed up, Bankers’ trust entered into another contract with P& G- a wedding band. When this strategy also failed, it led P& G to pay even higher rate of interest from 14.12% above Commercial Paper (CP) to 16.40% above CP. CEO Edwin Artzt, called the swaps â€Å"a violation of the company’s policy against speculative financial transactions† and banned all leveraged swaps. As the Bankers Trust had suggested the contracts, P& G blamed them for the losses. 3.1Lesson Learned from Procter & Gamble Case The Procter and Gamble Case explains following, (a)Legal dispute between P&G and Bankers: Therein lies the crux of the legal dispute between P&G and Bankers. P&G claims that before the swaps were signed, Bankers repeatedly assured it that in the early stages of the swaps, the company would be able to do lock-ins at acceptable prices. Court papers, in fact, include letters from Bankers that make such assurances, though these consistently cite assumptions of stable or only slightly rising rates. P&G says, however, that on one occasion it â€Å"pointedly† asked the Bankers Trust person with whom it was dealing what the lock-in situation on the first swap would be if rates and volatility were not â€Å"stable.† The answer, P&G says, was that â€Å"possible changes in rates or volatilities would not have a material or significant effect† on the company’s lock-in position. (b) Purpose of Deliveries: A P&G spokeswoman stressed that the transaction was â€Å"speculative and goes outside the P&G policy of conservatively managing our debt portfolio.† Asked whether the company’s treasury was expected to be a profit center. In a speech, William J. McDonough, president of the Federal Reserve Bank of New York, warned that top managements of financial and nonfinancial companies have a responsibility to understand and constantly monitor derivative markets when their companies are involved in them. Also Mr. McDonough said. â€Å"To put it simply and directly, if the bosses do not or cannot understand both the risks and the rewards in their products, their firm should not be in the business.† 4.Case study on the Showa Shell Sekiyu on Derivatives Lossess & Lessons Learned Showa Shell Sekiyu is one of Japan’s leading oil refining companies and is engaged in producing gasoline, diesel fuel, fuel oil, kerosene, lubricants etc. It was established in 1876 under Samuel Samuel & Co, and was later became a subsidiary of Royal Dutch Shell group, in 1985. And presently, 50% of shares are owned by Royal Dutch Shell Group. In the year 1993, the Company made history by making approximately USD 1.4 Bn with unauthorized forward currency transactions. As an oil importer, company imported crude oil in US Dollars and sold the end products in Yen. Showa Shell had been used to hedge a proportion of its currency exposure using foreign exchange forward contracts. In 1989, company entered into a series of forward options where it agreed to buy dollars forward at an average rate of USD 145. Over the next few years Yen strengthened ageist the dollar. However, at the time of maturing of these contracts, the foreign exchange rate was at USD 125, indicating a difference of USD 20 or a drop of approximately 14%. But, treasury department of the company decided not to recognize the losses and chose to roll over the forwards using historical rates, without appropriate internal authority. And consequently, the actual losses made were concealed within the new forward contracts, and this actually meant that the company was borrowing money under the guise of forward contracts. This practice or rather malpractice was continued until the end of 1992, and at that time the company had in excess of USD 6.4 Bn of forward contracts on their accounts, and out of this, it was revealed by the management of the company that hidden financial losses were USD 1.4 Bn. And the losses amounted to more than five times of its annual oil import at that time. Four senior executives of the company had resigned following the discovery of unauthorized currency dealing including, Kiyoshi Takahashi chairman of Showa, Takeshi Hemmi the president, who took responsibility for the dealings that resulted in the huge losses. The resignations were made as shell, one of the biggest world oil groups , reported a 28% decline in net profits. Main reason for the losses was that treasury department of the company, entering into unauthorized forward currency transactions, with the expectation of US Dollar to rise against Yen, and attention was not given to the fact of worsening the situation in case of Yen strengthening against Yen. John Jennings, then Shell Group managing director, had stated that, an unauthorized currency speculation was like â€Å"A gross contravention of established rules and practices which was deliberately canceled†. The continued dealings that were made were the result of one treasury manager trying to recoup losses amounting to single figure millions, incurred during normal course of his job, although with failures in attempts made, continues dealings were made by exposing the company to increasingly large exchange rate risks. 4.1Lessons Learned from Showa Shell Sekiyu Case These huge losses made, forced the company to focus on more tight internal controls and focus on the importance of having internal controls. Although defining of risk limits is not necessarily provide results, if proper controlling is not there to take corrective measures, in case of deviations. And furthermore, it is never advantageous to assume that market fluctuations can be predicted accurately, at all times. And if being successful in the past, it can purely be due to luck and it does not guarantee that next time would be the same. Company incurred the losses on the assumption of currency value increasing rather than decreasing. The purpose of using derivatives is to hedge the risk and not to make profits by speculating and speculators take huge risks, rather than hedging risks. Company should have focused on the fact of maintaining their crude oil import price by mitigating exchange rate risks by using the forward contracts. If a loss is made in the process of trying to maintain price level, although losses are made in the profit and loss account, the objective of maintaining price level is still achieved. This fact is very important in dealing with derivatives and should not make harsh judgments on losses made when trying to maintain price level. It is difficult to measure the exact point, where, the hedging of risks ends and being speculative starts. And in Showa case, treasury department of the company, who were there to hedge risk, had dealt as a speculator and without adhering to the internal controls and not obtaining proper approval for its dealings. In addition, it took more than four years to recognize this malpractice by the higher authorities, which pin points the lack of transparency in accounting practices. And it was blamed by some experts on the Japanese accounting system, since the dealings were not identified earlier. And the dealings were only revealed by chance, during a conversation between a Japanese bank manager and Showa manager.

Analysis of Queen Elizabeth’s Tilbury Speech Essay

My loving people, we have been persuaded by some that are careful of our safety to take heed how we commit ourself to armed multitudes for fear of treachery; but I assure you, I do not desire to live to distrust my faithful and loving people. Let tyrants fear. I have always so behaved myself that, under God, I have placed my chiefest strength and safe guard in the loyal hearts and good will of my subjects, and therefore I am come amongst you, as you see, at this time, not for my recreation and disport, but being resolved, in the midst and heat of the battle, to live or die amongst you all, to lay down my life for my God and for my kingdom and for my people, my honour, and my blood, even in the dust. I know I have the body of a weak and feeble woman, but I have the heart and stomach of a king, and a king of England too, and think foul scorn that Parma or Spain, or any prince of Europe should dare to invade the borders of my realm; the which, rather than any dishonour shall grow by me, I myself will take up arms, I myself will be your general, judge, and rewarder of every one of your virtues in the field. I know, already for your forwardness, you have deserved rewards and crowns; and we do assure you, in the word of a prince, they shall be duly paid you. In the meantime my lieutenant-general shall be in my stead, than whom never prince commanded a more noble or worthy subject, not doubting but by your obedience to my general, by your concord in the camp, and your valour in the field, we shall shortly have a famous victory over those enemies of my God, of my kingdom, and of my people.

Learn About the French Word Tonton

Typically, children use the expression tonton, pronounced to(n) to(n), for uncle (baby talk).   Examples and Common Expressions Je taime, tonton Luc - I love you Uncle Luc.Related: un oncle - uncle