Risk Management-Market Risk
Market risk refers to risks that come from the overall business environment itself. The circumstances causing changes in the market are not controllable by SMEs.
As an example, countries in the ASEAN region are growing more integrated. As a consequence, cheaper and more advanced products are in the market. Thus, local businesses may find their market share threatened by competitors.
Besides the emergence of new competitors, businesses will face the natural consequences of changes in the cycle. Manufacturing output may shrink as a result of political disputes. Government policy intervention in a product or service is also important factors.
SMEs will also feel the impact of economic downturns or trade disruptions or restrictions. On a macroeconomic level, companies feel the effects of economic downturns. Likewise, trade disruptions affect export-dependent businesses, such as the shipping and manufacturing sectors. For example, the Sino-US trade tensions and Brexit, have both harmed Hong Kong’s economy in 2019.
Market Risk Management Solutions
In mitigating market risk, it is crucial to monitor the market. News and stakeholder feedback can provide critical information. The slim structure of SMEs allows managers to have a higher degree of flexibility. Corporates can implement directional changes or modification to products and services when needed. When possible, managers need to get feedback from customers.
As a form of risk mitigation, businesses should always be experimenting and evolving their products and services. They can aim to diversify, and not be dependent on a single product line or single-service.
Businesses can also focus on building deeper interpersonal relationships with customers. Also, delivering superior products and fantastic user experience helps to create brand loyalty. Thus, it will help to expect the changes in the market and consumer’s preference. As a result, the customers will not buy from someone else regardless of convenience or small cost efficiencies.
Local SMEs can also take advantage of lowered trade barriers to find broader markets and diversify their business. Companies should strive to expand and move beyond their borders. It can help during economic downturns as the company is not dependent on a single market to sustain itself.
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