Blue Ocean Case Solution

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GROUP LIST.

Group name: ASTRA

Section: C

AIS 19th batch, DU

Group members:

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Statement of problems / limitations of existing treasury practice: Inefficiency in the current existing problems, little independence for subsidiaries, lack of close relation between subsidiaries and in house banking, loss from currency conversion cost, No exploration activity for finding new  blue ocean.

Our proposed solution: To increase efficiency we propose creating several branches of centralized “In house bank” and place them in the regions where the MNCs hold subsidiaries. These branches will be controlled directly by central In house bank & will be doing the in house banking operations closely with those subsidiaries. The main stream fund allocation decision will be taken by central in house bank whereas the territory branches of in house banks will be responsible for collecting repayment and assisting local subsidiaries to manage treasury.

Adoption of the changing treasury trends: The changing trend is to centralize the corporate treasury. This trend is highly efficient in reducing cost and net working capital. Success stories of this trend are Roche and Lenovo. Though it’s not feasible for all MNCs to go for this strategy but there proper control measures and planning facilities and existence of “value innovation” then MNCs should follow the changing treasury trend.

What makes it a perfect model: First, Now subsidiaries can work more closely with In house bank & the in house banks will now have a better understanding of subsidiaries operation & their demand and treat them accordingly. The subsidiaries will enjoy a little more freedom in decision making though their treasury is still controlled by a centralized in house bank. Surprisingly though the treasury management is still centralized, the subsidiaries are more independent & can work with In house bank more closely.  Second, now we can explore Blue oceans (new potential customers/market) more easy way. We recommend the branches of in house bank to have a R&D for finding new Blue Ocean. When the branches will operate in those regions they will have a great understanding of that environment & potential markets of that region which is not possible by central in house bank. Third, if cash flows from any business segment falls it will hamper less to other subsidiaries. Fourth, as the branches of in house banks & the subsidiaries will be situated in the same region the fund transferring cost will be less. The reason is that they both deal in same currency so there is no currency conversion cost. Fifth, through this branches of in house banking situated in different regions we can exploit profit by forming arbitrage triangle if there any arbitrage opportunity exists.