Thomas Friedmans book entitled The World is Flat is a metaphor of the world in terms of its leverage in commerce and competition, just like in a playing field wherein everyone has an equal opportunity. In this book, he analyzed globalization's progress, giving emphasis on the 21st century. Friedman views globalization as a change in the economic core in the sense that it leveled in the competitive playing fields between the industrial countries and those with emerging markets.
There are a lot of globalization books available and this book by Friedman managed to entertain, inform and sometimes annoy its readers. The author was able to travel all points, however, he emphasized on two nations that will be the world's future giants, India and China. The details and the research that he used are very intriguing especially the data from the call center workers in India.
The writer made presented this book since it discusses about technology which is very important in the evolution of business history as well as its significant impact for the success of the business.
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The above example is the narration of website's impact on a business development. The website's capability and experience can help SMEs to identify the advantages, such as reduced transaction costs, lower barriers to market entry, and improved access to information, and to reduce the economically optimal size of firms. Accordingly, website's capability will encourage smaller firms to develop global markets (Moodley, 2003), and thus, we expect the extent of website's capability will facilitate the perceived benefits of adopting internet marketing.
However, many studies show that most SMEs are not making use of the Internet-based commerce model because of information security problems and/or the legislative uncertainty (Tagliavini et al., 2001). Moreover, SMEs sold very little on the Internet (Jeffcoate et al., 2002), and there is little evidence about SMEs benefiting from the Internet (Riquelme, 2002). In this circumstance, the understanding of SME internet marketing adopting behaviors and expected performances is of critical importance.
In studying the behavior of small business use of the Internet, Poon and Swatman (1997) suggest the perceived benefits formed a key reason why participants adopted and continued to use the Internet. Yet, there is little research that attempts to explain the factors that impact on SMEs' perceived benefits in adopting internet marketing. Our argument is that since SMEs constitute almost 90 percent of all business in many economies, the perceived benefits is a critical issue needed to be examined; it is the perceived benefits that may encourage or block SMEs in adopting internet marketing. Potentially, there are many factors which may impact on SMEs' perceived benefits and need to be taken into account. The company size is a factor in determining the adoption of e-commerce, with smaller firms being less likely to adopt Internet and e-commerce (Van Beveren and Thomson, 2002). The experiences of internationalization of SMEs (Nummela et al., 2004) are another factor. At least, the experiences of internationalization have diminished the barriers. Also, Madsen and Servais (1997) suggest that the progress of globalizing is mostly attributed to three interrelated factors: new market condition, technological development in various areas, and the capabilities of people.
These previous studies did not provide a holistic framework to understand SMEs' perceived benefits of internet marketing and its impact factors. Our efforts are to consider two forces in encouraging the SMEs to adopt internet marketing. The first force is the global mindset, which is one of the key parameters of international performance (Nummela et al., 2004). The second force is the website's capability, which can be considered as a key factor of using the Internet to go abroad.
Reasons for SME's Failure
International evidence on the severity of the banking crises suggested a far more cautious assessment. In the wake of big financial crises, recessions tend to last for far longer than normal downturns which can cause more damage. The assumption that if the United States follows the norm of recent crises, the output may take four years to return to its pre-crisis level. Reinhart and Rogoff suggested unemployment might continue to rise for three years possibly until the year of 2011 from eleven to twelve percent. The examination of the researcher dealt with the status of banking debt crises, currency, and number of standard financial crisis indicators.
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The importance of the banking system is difficult to be attributed to recessions in all leading countries. The sudden drop of credit availability which happened after the banking crisis in September and October, have created shocked, shattered confidence and reduced demand worldwide. Banking crisis has occurred in HSBC in 2007. The United Kingdom's largest bank has made loss after the decline in the United States housing market hitting the value of its loan.
Through strong relationships banks have the opportunity to enable themselves in order to overcome the information asymmetry which is prevailing in the relationship with SME customers (Berger and Udell, 1995), and thereby to reduce the risks which is associated with business customers. From the SME's perspective, if they can develop strong relationships with their respective banks they can and they have the ability to gain greater access to finance and assure financial support also during times where there are difficulties. It has also been suggested that firms with longer banking relationships pay considerably lower interest rates on loans and are less likely in order to pledge collateral (Berger and Udell, 1995).
So building profound relationships makes it much important not only for banks in the industry alone but also for the SME customers as well. This scenario makes it warranted in order to study the identity and the image of a bank which creates a major impact when building relationships amongst each other.
Recent changes within the worldwide economy forced customers in every market segment in order to think about relationships with the brands that they perceive. Here we could predict some changes in consumer behaviour such as customers will be more price sensitive and they also would want to be treated even in a better manner than before. So the economic downturn made it a time for service providers (as well as retail banks) to improve communication as well as service quality in order to build and to enhance loyalty through these activities. A number of studies have identified the links between customer service, loyalty, satisfaction and trust. Beerli et al. (2004) stated that within the retail banking industry the impact of satisfaction on loyalty is considerably stronger than the cost of switching, and satisfaction becomes an antecedent of perceived quality. Ball et al. (2004) explained the banking sector's customer loyalty via the European Customer Segmentation Index model. The survey data clearly shows that banking sector customer loyalty is primarily explained by quality, satisfaction, image and via communication, also it clearly conveyed that the effect of communication (both the direct and indirect effect) was unexpectedly high (Ball et al., 2004).
Steps to Minimize Bad Debt Losses
There are principles that need to be followed in order to have a sound credit risk management. First, an appropriate credit risk environment shall be established. Secondly, a sound credit-granting process should be operated. Then, an appropriate credit administration process should be properly maintained. Lastly, adequate controls over credit risk should be ensured.
The credit environment should be assessed through the degree of risk aversion in terms of loan policy or credit culture, type of growth - whether it is conservative or aggressive, and particular business segments.
Individuals should be assessed of their credit risks. Factors that need to be taken into account are the past credit history, gearing of the borrower, borrower's wealth and volatile earnings and collateral, and the borrower's employment history. These are the qualitative approach for the assessment. On the other hand, there is a quantitative approach which includes credit scoring and Altman Z-score. The latter includes working capital/total assets; retained earnings; earnings before interest; market value of equity and sales. However, these scoring methods have its limitations such as it is only as good as the specification; it relies on historical data, and requires a regular evaluation of the model.
In order to maintain an appropriate credit administration process, certain steps should be followed. First, an on-going quality of loan book should be maintained by the credit risk committee. Also, measurement technique should be required. Individual loan and portfolio levels should both be processed. All processes should be forward looking and an internal rating system should be established.
There are credit risk indicators. These are total loans/total assets; non-performing loans/total loans; loan losses/ total loans; loan loss reserves/total assets; loan concentration; loan growth; high lending rates; and loan loss reserves/non-performing loans. In order to control credit risk, adequate steps should be established. These are: system for early remedial action and regular review of credit risk processes.
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Credit derivatives are contracts in finance which involves a possible exchange in payment. The least one in the cash flow has a link in the performance of an asset that is credit sensitive. So credit derivatives are financial contracts that enable participants to trade in credit as an asset, as they isolate and transfer credit risk. There are credit events such as bankruptcy, failure to pay, acceleration of obligation, default of obligation, moratorium of debt, and restructuring/modified restructuring.
Credit default swap has its benefits. First, it transfers credit risks and reduces credit exposure. Secondly, it protects relationships such as reference credit is unaware. Also, it transfers the risk on liquid assets. Own portfolios are diversifies by means of protection seller obtains access to credit risk of reference assets.
Proper management of asset/liability risk is facilitated through board approved policy, which sets limits on asset and liability mix, as well as the level of interest rate risk and foreign currency risk to which the credit union is willing to expose itself. Policy should also set out guidelines for the pricing, term and maturity of loans and deposits. The use of derivatives, if any, should also be controlled by policy, which should state among other things that derivatives must only be used to limit interest rate risk and must never be used for speculative or investment purposes.
Credit unions which offer either fixed rate loans or deposits will mitigate interest rate risk by ensuring that management is properly measuring risk. The standard measure of this risk is balance sheet gap, and it is essential that management measure this regularly.
Asset securitization is the process wherein financial assets such as loans, receivables, and other are pooled together along with their respective cash flow and other economic values in which it is redirected in supporting the payments of related securities. The benefit of this are the removal of poorly performing assets from the balance sheet which enhances profitability; providing of capital; credit risk OBS is transferred; relationships are protected; illiquid assets are transferred; and buyer of ABS obtains access to new asset classes.
There are benefits of credit risk modeling. These are it expands the credit risk approaches to measure and model portfolio credit risk. It also calculates the appropriate capital as well as the marginal credit risk of a new asset in the portfolio. It also monitors the relationship between different assets. However, there are also concerns with credit risk modeling. These are the forecast accuracy of models; the requirement of regular evaluation of the models; it is also only good as its specification; reliance on historical data; and the implementation is costly for smaller banks.
Exposure of default is the larger of credit card balance at default and charge off amount at default. Loss given default (LGD) represents the credit loss incurred if a bank's borrower's defaults, is a key component of the expected loss on a single exposure or on a loan's portfolio. Actually, the expected loss results from the probability of default and from the loss in the event of default. A bank can only make an estimate of LGD, since it is a random variable, open to fluctuations which can lead to an unexpected loss.
The cash flows should be discounted, but it is by no means obvious which discount rate to apply. For example, the debt restructuring could result in the issuance of risky assets such as equity or warrants, or less risky ones such as notes, bonds or even cash. In principle the correct rate would be for an asset of similar risk. Importantly, once the obligor has defaulted, the bank is an investor in a defaulted asset and should value it accordingly, possibly at the bank's hurdle rate. Inappropriate candidates include the coupon rate (set ex ante of default, so too low) and the risk free (or Treasury) rate.