BMW'S GLOBAL FINANCIAL RISK

BMW'S GLOBAL FINANCIAL RISK

BMW, or Bayerische Motoren Werke, is an independent German company and manufacturer of automobiles and motorcycles. BMW is the parent company of the MINI and Rolls-Royce car brands. It is also one of the leading German car manufacturers.

The global financial system (GFS) refers to those financial institutions and regulations that act on the international level, as opposed to those that act on a national or regional level. The main players are the global institutions, such as International Monetary Fund and Bank for International Settlements, national agencies and government departments, e.g. central banks and finance ministries, and private institutions acting on the global scale, e.g. banks and hedge funds.

The history of financial institutions must be differentiated from economic history and history of money. In Europe, it may have started with the first commodity exchange, the Bruges Bourse in 1309 and the first financiers and banks in the 1400–1600s in central and Western Europe. The first global financiers the Fuggers (1487) in Germany; the first stock company in England (Russia Company 1553); the first foreign exchange market (The Royal Exchange 1566, England); the first stock exchange {the Amsterdam Stock Exchange 1602). Milestones in the history of financial institutions are the Gold Standard (1871–1932), the founding of IMF, World Bank at Bretton Woods, and the abolishment of fixed exchange rates in 1973.

In assessing the Financial and business risks there are wide range of reasons, concerns and objectives to be dealt with prior to make that certain move, settling on foreign shores and setting up business. In order to understand what we are dealing with, we need to define multinational: "Companies operating in multiple countries like BMW which want to expand there business in the diverse markets, but responding to local product-markets through more customized approaches" In order to deal and operate in that environment, that company is expected to have highly qualified resources and access to a wide range of information’s; such as pricing, local laws and regulations, knowledge and understanding of the customer’s need and preference’s to name of few. The road that the company is about to embark upon, prior to going multinational, is full of risks in all sorts of different areas; such as political risks, financial risks, regulatory risks and risks dealing with competition.

BMW, one of the world’s leading automobile manufacturers but currently facing many financial risks like cost management, Credit management, Supply chain management, etc, wanted to capitalize on the benefits of producing and selling its vehicles in the China market. To realize this strategic goal, BMW turned to BearingPoint for assistance in building its China operations via a large-scale SAP implementation and trying to eliminate the credit and market risks. After successful completion of this project, BMW will able to quickly launch its new China operations and bring these regionally produced vehicles to market. The company expects to increase the number of vehicles produces at these facilities from 30,000 to 100,000 over a 5 year period. Of course, companies differ in their approaches to hedging such risks. Some companies prefer to rely on the flexibility and agility of their supply chains when responding to the economic shocks in their global operations, thus following the so called operational hedging approach. Others prefer to rely heavily on exotic financial products that attempt to hedge such shocks via appropriate investments in correlated market traded instruments, the so-called financial hedging approach. BMW is a company that has frequently favored the financial hedging approach of exchange rate shocks, while 3M has been a strong proponent of hedging via operational flexibility. Kouvelis advocates an integrated risk management approach that combines the use of operational and financial hedging. This combination is exactly what BMW is doing after recently suffering from strong appreciation of the Euro in its heavily European based production operations. BMW has announced expansions of production and sourcing facilities in the North American and Asian continents in an effort to create a more globally diversified supply chain, thus adopting more of an integrated risk management approach in its handling of global risks.

BMW requires the right information in the right place at the right time. Fast pace and high levels of service are critical to meeting the needs of BMW Steyr's customers (BMW car assembly plants) in China, so they must be designed into the production plant processes. The BMW Group also plans to cut product development times in half. BMW's Steyr plant is relying on its proven SAP platform to make these ambitious goals come true. From 2002 to 2005, it built an SAP-based system infrastructure that now handles sales order processing, production planning and control, financial accounting, machine management, personnel administration, and parts of quality management.