Question

What is the business risk for "Samsung" company in these day. Answer in scope of

Question: Expected losses

1.Direct losses

2.In Direct losses

Cost of loss financing

1.Retention and self-Insurance

2.Insurance

3. Hedging

4.Other risk transfer

Cost of residual uncertainty

1.Effect on shareholders

2.Effect on other stakeholders

Answer 1

Samsung is a company involved in manufacturing of electronic goods. There are many risks which are faced by manufacturing companies. Sales risks, risks with supply chains, competition etc. are there to name a few. Samsung have been performing well in the semiconductor industry, media devices production, smartphones etc. They have become market leader in the smartphone industry with the introduction of Android as well. But there are many competing companies which pose a major threat for Samsung's smartphone business. Due to the current issue with Corona virus, supply chain is disrupted globally. This also adds to the risk factor. Moreover than that, the economic scenario is also not good for sales. All these factors are risks for the company.

Expected losses are the total losses expected by a company. Suppose there are A, B, & C risks. The risks are quantified into a currency and the probability of that risk happening is estimated. The probability of risk is multiplied with the quantified sum and all such values are added to calculate the expected losses. i.e., the above example, A x probability of A happening + B x probability of B happening + C x probability of C happening is the expected losses of that company.

Direct Losses are losses that arise from some issue. If a legal issue is happening. Like it happened when one of Samsung's smartphone models had explosion issues continuously, there were legal issues with the customer suing the company. Damages originating from such issues directly are Direct Losses. In the corona virus issue, sales losses originating from the issue is Direct Losses. Indirect losses are those losses which come along with Direct losses but are not a part of the direct loss. In the above legal issue, further sales of the model might have got affected due to people losing confidence in the model. Losses originating from such non sales are indirect losses.

Loss financing is a term that deals with financing a loss that has originated, direct or indirect. In the above example, how well are you managing the damages incurred for solving the legal issues comes under loss financing.

Retention and self-insurance is a practice adopted by some companies as a part of its risk management. If some issue is not resolvable inherently, then the company may choose to retain that risk. Like if smart phones are not updated yearly, there is a risk for it to get out of the market. So, companies, even though it may not be necessary, updates its smartphones frequently. This can be said as an example of self-insurance.

Hedging is a process in which an attempt is proactively made to manage the risk consciously. A condition can be stated in the mobile phone's user manual that if phones are used while connected to power, explosion chances are there, and the company has no responsibility in such situations. This is an example of hedging.

Other risk transfer or alternative risk transfer methods are also employed by companies to transfer the risks which may originate from their activities. A best example of this is insuring the products against all the potential risks stated above.

Cost of residual uncertainty is the risk value that remains after all risk management measures are taken.

Shareholders will have a keen interest in all these matters as after all they are the ones who will be impacted by the risks. Proper risk management is crucial for the sustenance of any business and hence the figures projected while making such calculations will be analyzed by shareholders while making their decisions.

Stakeholders also will be interested in these factors. For the customers, these factors are of concern since they are the ones spending money for buying the products of the company. They will also see how they are affected by the risk management measures a company employs. Like in the above legal issue case, customers may not buy products if they are not taken care of while dealing with such cases.