Sunday 23 February 2014

BP2 essay: Sam's intro/conclusion

pic: BBC

Thanks to Sam Watson for a model introduction and conclusion to the recent 40 mark essay on BP2 (Is the possibility of making financial losses in China due to the increasingly competitive market the main risk companies need to consider when weighing up the risks v the rewards of operating in China?). Sam’s introduction and conclusion are reproduced below.


Risk is the potential for loss (financial and other) resulting from a business decision. A reward is the potential for gain (financial and other) resulting from a business decision.
I think that the main risk to companies operating in china is making financial losses there. I think this because if a company is making consecutive losses, i.e. year on year they are losing money, this means that for a foreign company, the business venture has not been successful. I think this because foreign companies, when setting up in China, invest heavily, for example Tesco invested $1.5billion into China. If the venture into China is not profitable, this can have major implications on not just the Chinese branch of the company, but also for the foreign company’s core business. I think that making a financial loss in China is the main risk because it means the investment could be wasted, which could have been invested in a much more secure market, like the UK, which isn’t as heavily exposed to factors like competition from cheaper products, unlike in China (although Chinese made products don’t quite have the low-cost advantages that they used to following wage inflation in recent years). B&Q backs up this point, as they had to close 22 Chinese stores between 2009 and 2010 after suffering from huge losses; in 2012 B&Q experienced a loss of £3m. I think that this is a prime example of financial losses being the key threat, but I think it is also important to consider other ways of experiencing financial losses, like damaging a company’s reputation, which can lead to a decrease in sales, and so a possible decrease in profit. Overall, after considering this final point, I think that the main risk depends on what type of company is operating in China, because a company like Rolls Royce will not experience as much competition from cheaper products made in China, because the product is seen as a foreign luxury and so has a strong unique selling point. A company like that would therefore have a different main risk, possibly something like changes in the external environment e.g. if problems in the Chinese economy meant people had less disposable income to spend on luxury items. However B&Q are in my opinion, most at risk from an increasingly competitive market, as they could be undercut by a Chinese company who can make the product for cheaper, and I do not think that B&Q’ customers will have much attachment to the brand and so will not mind choosing a cheaper Chinese product.


In conclusion, I think that there are a number of risks that contend for the ‘main risk’ category, as China can obviously be a risky market to enter. I therefore think that it can be difficult to highlight a main risk, without first considering other risks and how they contribute to this main risk. In actual terms, I mean that financial losses being the main risk of China can also be influenced by brand damage and corruption, along with other threats. I therefore do not think that one risk alone can be identified as the main one, as they are all linked, for example, brand damage can lead to a decrease in sales, which can lead to financial losses in China due to increasing competition as competitors take advantage of the damaged company. I also think that it depends on what type of company is operating in China, as luxury items being sold in China may be at less risk of competition, but at higher risk from corruption. I think that this nicely summarises the fact that companies can have different main risks, depending on their product, and also possibly their location. The Bo Xilai case is an example of this, as businesses operating in Chongqing would have been exposed to a higher risk of being embroiled in corruption than businesses in other areas because of the nature of the politician in charge of that region.

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