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Global Risk and its Implication Major economic downturn 2007-2008…
Global Risk and its Implication
Major economic downturn 2007-2008
Mitigating Risk and Conserving Economy (National Level)
How Did India Played Local while still being Global ?
Dr. Y.V. Reddy steps to localize the economy.
Ban on Loans for Raw Land
Banned Securities and Derivates
Increased Interest Rate (Conservative Policy)
Increased Mortgage Limits
Higher Reserve to combat uncertainity
WHY?
NO Individual thought
Group Thinking
Group thinking is a thought of exhibiting by group members who try to minimize conflict and reach consensus without
critical testing, analyzing and evaluating ideas.
HERD Behavior
Following the crowd and taking decisions
based on others
and not by individual thought.
Historical Outlook and Incidents
DOT.COM Bubble
2000
1996 NETSCAPE started the bid for e-Comm Co.
Market flourished exponentially i.e. 10 times growth in 4 years.
Small e-Comm Co. with weak or poor business models were flooded with IPOs.
Trigger split and NASDAQ crashed in a single go.
Dow Jones fell by 30% affecting the world economy.
FED Interest Rate Cut
FED reserve chair
Alan Greenspan
abruptly reduced the interest rate from 6.5% to 1.75 %.
This is was done to boost housing market.
This ultimately led to economic growth, higher demand, employment etc.
Outmatching the Reality
Interest rate kept decreasing but the real income remained constant.
Banks were debt laden at very low rates and were backed by no mortgage.
Scenario of excessive defaults started to arise
Banks were burdened with defaults.
Ultimate Reasons for Global Crisis
Outmatching the reality
**
No Understanding of the business / Talent Asymmetry
Introduction of Credit Default Swaps by JP Morgan on AIG (American International Group): 2002 -2005.
It was an insurance that covered no mortgage debt at 2% premium.
Helped banks to reduce on their cash reserve as the loan were all insured.
When bank started defaulting the loans were burdened on AIG which too defaulted.
One Domino Topples Another Creating a Perfect Storm
*
Started with Lehman Brothers and continued with almost all American and major EU banks.
Mitigating Risk at Micro Level
(Business Integration)
Scenario Planning
CASE STUDY
Royal Dutch Shell 1972
Survey of world Political and Economic Conditions 1985-2000
Six vivid tangible scenarios for economic growth, oil supply and oil supply.
The scenario foresaw a disruption in oil supply and production
IMPLICATION
October 1973, oil prices quadrupled and drivers queued for gasoline in America and Europe.
No competitor was ready with their strategy by Shell Proceeded.
Scenarios to Deal with Oil Price Fluctuations 1982
Showed steep and rapid declines in the price of oil.
The scenario turned into reality and again Shell succeeded.
METHODS to Implement
PEST (Political Economic Social Technological)
Helped in examining global trends and developing global scenarios.
GELT
(Geopolitics, Economic, Lifestyle, Technology)
Zoom In For Country and Business Level
zooming in on implications of global scenario for country or business level.
Drilling in to each Project
Further zooming in further, to the project level.
