Risk hedging through forward supply contract and equity ownership in a spin-off decision

Takezawa, Naoya; Rajasekera, Jay; So, Kut C.

doi:10.1016/j.ijpe.2006.07.003

Cited by 6 publications

(4 citation statements)

References 9 publications

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“…On the other hand, this risk involves threats arising from allocation of production factors, mainly during the fulfillment of demands and supply risks (Ding et al, 2007;Levary, 2007). Therefore, hedging has a compensatory effect implemented through the balance between potential wins and losses (Takezawa et al, 2007). A risky activity is hedged through a counter trade with an opposed risk, though some risk still remains.…”

Section: Supply Chain Risk Managementmentioning

confidence: 99%

“…Natural hedging in supply chains aims at an intentional and target-oriented exercise of influence on risks of two or more companies in a value network, where one company takes threat-limiting actions in favor of another partner. Natural hedging in supply chains provides an enhancement of existing risk approaches by including partners of a value network (Takezawa et al, 2007). Receivables from a supplier's turnover and liabilities from a customer's purchase are aligned with the corresponding flow of goods or cash.…”

Section: Theoretical Backdropmentioning

confidence: 99%

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Natural hedging as a risk prophylaxis and supplier financing instrument in automotive supply chains

Hofmann

2011

Supply Chain Management: An International Journal

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Purpose -Supply chain risks significantly endanger small and medium-sized enterprise (SME-) suppliers in different currency areas in purchasing and sales. The purpose of this paper is twofold: to describe the concept of natural hedging in supply chains, and to highlight the potentials of natural hedging as a risk prophylaxis and a supplier financing approach. Design/methodology/approach -The paper uses a brief literature review and a conceptual research design, taking the financial and physical component of natural hedging (in this case between an OEM and its SME-suppliers in the automotive industry) into consideration. Findings -Natural hedging of currency and commodity price fluctuations can contribute to the reduction of SME-suppliers' supply chain vulnerability, also benefiting an OEM. Research limitations/implications -This research focuses exclusively on relationships between SME-suppliers and large OEMs in the automotive industry. Studies of other types of companies and industries, such as the capital goods industry, might reveal divergent practices. Practical implications -With the natural hedging approach, the paper promotes an innovative concept for better managing risks in supply chains, especially in recessionary times. The concept is a source for supplier financing. Originality/value -This research shows that a globally active focal firm -an OEM in the automotive industry, for instance -can hedge currency and commodity price risks (financial components), as well as operational supply risks (physical components), by centralizing commodity supply with its SME-suppliers. It can serve as a basis for future research.

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Section: Supply Chain Risk Managementmentioning

confidence: 99%

Section: Theoretical Backdropmentioning

confidence: 99%

Natural hedging as a risk prophylaxis and supplier financing instrument in automotive supply chains

Hofmann

2011

Supply Chain Management: An International Journal

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“…Natural hedging in international supply chains aims at an intentional and target-orient ed exercise of influence on risks of two or more companies in a cross-border value net work, whereas one company takes threat limiting actions in favour of another partner. Therefore, natural hedging in supply chains enhances existing hedging approaches by in cluding the partners of a value network (Takezawa et a!. 2007).…”

Section: The Concept Of Natural Hedging In International Supply Chainsmentioning

confidence: 99%

Risk management in international supply chains: the case of natural hedging

Hofmann¹

2011

Die Unternehmung

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Aufsätze tributes a specific risk management approach for international supply chains, naineh' nat ural hedging. Within that interdisciplinary concept, a globaTh' active focal firi;ian origi nal equipment manufacturer, for instancehedges currency and commodity price risks (fi nancial options) as well as operational supply risks (physical options) by centralizing corn modity supply with its SME suppliers. Natural hedging can contribute to the reduction of SME suppliers' supply chain vulnerability in the interests of the entire supply chain. The findings are explained within a formal analytical model and a scenario analysis.

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“…The value of this operational switching option increases with demand and exchange rate uncertainty. Moon et al (2011a) examine the dilemma between outsourcing and forming a joint venture in a real options framework,whileTakezawa et al (2007) consider the situation where a publicly traded firm spins-off a manufacturing subsidiary through an IPO; it also agrees to buy certain quantities from the span-off subsidiary at a pre-specified price via a forward supply contract. The parent decides the optimal capital structure for the spin-off (parent firm equity position) and the forward contract terms to maximize its shareholders' value.…”

mentioning

confidence: 99%