Hedging Business Risk

Every business do suffer from two types of Risks mainly. One is project specific (Company specific rather) and another is System specific. Example of project specific risks are, success and failure of the project, cash flows, natural calamities, economic growth and subsequently the demand of the product, inventories, logistics and supply chain etc. System specific risks are mainly political and economical such as inflation, foreign exchange fluctuations, government initiatives and growth once again etc. The question is how the online media companies could hedge the business risk mainly in face of downturn of the Economy?

I have tried to note some of the solutions as to how the companies could manage both of the above types of risks.

Manage the company Specific risks (instead of project specific so that question of bail out doesn’t arise):
1. Diversify the business areas – Get into some different business venture or/and work out on different model. This is quite important when the business area is confined. For Internet companies, they can work on dual model; one is to work with clients and another to work with in-house model.
2. Dont make your company a training centre – Try to Suffle the resources of the company and of course on the growth model. Minimise the attrition level. ESOP could be an option to do that. The supply chain of human resource is important in the long run for the growth of a company.
3. Rigorous analysis of a project – Before taking or get into some project, the analysts have to work on the ROI, RATIOS, NPVs and other financials as well. Cost-Benefit analysis is important as a big positive gap is what required in the Red Ocean markets.
4. Blue Ocean Strategies – INVENT, yes invent some newer business model or product say.

Managing the System risks:
1. Diversify the business across the countries: This will enable to hedge the one country risk in terms of the other. Giants are moving for M&A.
2. Hedge the currency risks: Almost every company involve with this as secured income is required. Also provision for loss is part and parcel of the strategy.
3. Cost Minimisation: Self service within the company could be a handy tool in the face of inflationary or stagflationary scenario.

Internet media companies can do both of the above process quite easily. On the one hand, they can serve the domestic market, on the other global countries are open to them. Once they have their own model, in the long run some of them could be able to list their entities in the exchanges to move for greater business areas.

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