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Posted on May 6th, 2014, by

According to mentioned report, the following immediate defensive actions are required in order to react to the challenges posed by crisis:

  • Minimization of risk and increase balance sheet resilience in the event of a large scale default and Euro exit scenarios. (KPMG report, 2011) A range of treasury actions is required in this case and it includes checking financing and funding positions and assessing of the risk from the counterparts. In addition, contractual terms have to be reviewed and amended if needed, and the tax impact should be analyzed and its changes should be monitored. (KPMG report, 2011)

In accordance to Neill Thomas, KPMG Head of Debt Advisory: ”˜With the potential impact on bank liquidity, we could see a second credit crunch. Companies should diversify their funding sources and ensure they are not over-dependent on a narrow base of lending institutions’. (KPMG report, 2011)

  • ”˜Changes of the policy and process for the visibility improvement and also for better control of credit exposures by country and customer. Besides, this report by KPMG suggests that the same methods have to be applied towards distributors and other partners.  Additionally, the review of policies and contractual terms for customers and suppliers is recommended too. (KPMG report, 2011)
  • Reassessment of the important suppliers for failure risk and development of the needed mitigation plans. (KPMG report, 2011)
  • Amendment of controls and authority levels. Increased uncertainty, changes in regulation and periods of austerity are all prime conditions for fraud.’ (KPMG report, 2011) Time of crisis is dangerous in terms of risks of fraud, misdemeanour and error and therefore corporate and financial institutions need to focus on anti-fraud controls. Any institution has to realize there is a substantial risk of criminals who will be surely seeking to take advantage of such circumstances. Thus, specialists recommend organizations to monitor the development of the situation and taking decisions quickly and communicating effectively too. (KPMG report, 2011)
  • Additionally, any organization that aims to respond to the challenges posed by crisis needs to prepare contingency and continuity plans. (KPMG report, 2011)

Also, in accordance to KPMG report, the following immediate trading response are required in order to react to the crisis:

  • The protection of the cash flow and profitability in affected countries and the responses to the changing market (it includes the need to analyze the routes to market, terms of business with customers and suppliers and changes in pricing and product mix. For instance, the change of the route to market may lead to the reduction of the company’s credit exposure and thus the supply and the customer contracts may be maintained. (KPMG report, 2011)
  •  Analysis of budgets and business plans. Specialists indicate that the chances are that the business plan and budgets no longer reflect the trading reality are quite high.  Therefore, there is a need to control the performance against these budgets. It will provide little insight and changes in key performance indicators. (KPMG report, 2011)
  • Response plans preparation is another important step that should be undertaken by any organization in the complex environment.

 

In terms of planning there are two kinds of planning required – continuity and contingency planning. Professional researchers from KPMG recommend to prepare the company recommend to plan for the worst situation possible. Besides there is another recommendation that states that triggered response plans should be produced, it means ”˜creating a single contingency plan that thinks through and sets out the response to a range of agreed trigger events’ (KPMG report, 2011)

Other crucial points that have to be considered are the communication plans and operations that are implemented in a fundamentally different environt. Communication plans may be used to keep close to customers, suppliers and other stakeholders who need to be aware of the plans of the company. Regarding the operations that are implemented in a fundamentally different environ, authors of the  report claim that under influence of the negative post Euro crisis situation, it is likely that organizations ”˜will be operating in a very different external environment, as such, current strategies and operating models may not still hold’. (KPMG report, 2011) Therefore some organizations could make a decision of limiting operations in a country or exiting the country. But there is another chance ”“ the organization may choose to get ”˜an advantage of the situation by acquiring a local rival and thus increasing their market share.’ (KPMG report, 2011) Besides, the tax environment is influenced by the significant changes, for instance, austerity measures that may involve new taxes, increased rates and widened tax base, and also the implementation of the initiatives to stimulate growth, and even European further tax harmonization. Thus taking all of these circumstances into account, considering various scenarios, organization should make the right investment decisions.

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