Two different means of thinking about danger and investment are in competition. One accentuates the financial risk of investing; of not investing the other concerns the competitive risk. In normal times, the bearishness of the former tends to complement the bullishness of the latter. Specifically, companies appear to overemphasize the financial risk of investing at the bottom of the business cycle, at the expense of the competitive risk of not investing. This is not safe, in the author's perspective, because it can create a permanent competitive disadvantage.
Using examples from the semiconductor, paper and diamond sectors, the writer argues that it does not make sense to stamp out either financial or competitive risk, even though financial risk could be removed by investing not at all and competitive threat could be eliminated by investing indiscriminately. Instead, supervisors need to reach a balance between the errors implicit in both of these types of danger: the error of pursuing too many unprofitable investment opportunities as opposed to the error of passing too many potentially lucrative ones up. The first version of this placement was published in the Sloan Management Review in Winter 1993. In this updated version, the author expands his perspectives in light of the 2008 economic decline.
The Risk of Not Investing in a Recession Case Study Solution
PUBLICATION DATE: April 01, 2009 PRODUCT #: SMR309-PDF-ENG
This is just an excerpt. This case is about GLOBAL BUSINESS
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