Selecting Right Partner In Forming International Joint Ventures Management Essay

Selecting Right Partner In Forming International Joint Ventures Management Essay Over the past twenty years, there has been a surge of interest of companies coming together, many of which were reflected in the popular management press and the academic journals of corporate links being formed. Many organisation now uses strategic relationship rather than competition among themselves to grow their business. These are formed for a variety of reasons, which include new technology development, expansion to new domestic market, reducing manufacturing cost, new product development, ability to increase profit margin, financial support and sharing of economics risk, overcome legal and trade barriers and many more. These are some of the reasons why collaboration sometimes called partnering, alliances or joint venture among many terms are formed. Joint venture is one of the most popular forms of strategic relationship and it utilises separate business entities like cooperation, limited liability company or partnership, this entity makes the involved parties to limit the lia bilities involved. In recent years global challenges has fostered many companies from many countries to go into international joint venture more stronger than in the past, manufacturing companies, oil and gas companies, construction companies, banking sectors, automobile companies and many more are forming the international joint ventures. Objectives As partner selection is considered to be very important to have a successful collaboration, this module will be focusing on selecting the right partner in forming an international joint ventures. The answers will be focusing on the literature on how to select a good and successful partner when forming a joint venture. Also the following factors will be considered in forming a successful collaboration: The main characteristics to look for in a good collaborative partner, selection criteria and the strategic, political and tactical implications. The factors thats determines the good partners match in collaboration. And what the two companies going into collaboration can do to create good partnership condition. Literature review introduction As it was started in the objectives in the previous chapter, this report will be discussing various factors that are needed to be highly considered in selecting a partner when forming international joint venture, but before going further below are the definitions of some common terms of collaboration. Some Basic Definitions Collaboration Different companies go into collaboration with different reasons, and the reason why many companies go into collaboration is to try and gain competitive advantage, entering new market and many more. Collaboration accomplish shared vision, achieve positive outcomes for the audience involved and it also build interdependent system to address issues and opportunities. It is a world in which almost anything, in principle, is possible since you are not limited by your own resources and expertise only but by tapping into resources and expertise of others. ( Huxham and Vangen, 2005). Members of the collaborations needs to be ready and willing to share their vision, mission, power, goals and resources to achieve success. Also Collaboration is the act of working together to create or produce something for mutual benefit. (Oxford Advanced Learner Dictionary, 2001). http://ayanthianandagoda.files.wordpress.com/2009/07/collaboration.jpg Fig 1 collaboration Source : http://ayanthianandagoda.files.wordpress.com/2009/07/collaboration.jpg Joint ventures There are many different definition for joint ventures, as experts opinions differ significantly. A joint venture is a strategic alliance formed by two or more parties usually in businesses, partner together to share markets, assets, intellectual property, knowledge and profit. (Valerie, 2006). Stephen et al.(1993) consider joint venture as a form of collaboration. He later defined it as a distinct business entirely created and jointly owned by two or more parent organisations. Robert L .Wallace ( 2004,) defined joint venture as the coming together of two or more independent businesses in which both of them have sole purpose of achieving a specific outcome that might be difficult for each of them to achieve individually. http://www.internationaltradelaw.org/images/partnership.jpg Fig 2 joint venture . Source : http://www.internationaltradelaw.org/images/partnership.jpg International joint ventures When joint ventures crosses across the border, it becomes international joint ventures. International joint venture is defined as the joint ventures that involve firms coming together from different countries cooperating across national and cultural boundaries. ( Aimin and Yadong, 2001). At times, international joint ventures are formed by two companies in the same country but located in a country other than their parent countries. (Geringer and Hebert 1989). Though majority involve two parent firms, one from foreign and the second one a local company. Also it may involve partners with complex nationality and cultural background. For example, Xerox Shenzhen company formed from Xerox (china) and fuji Xerox (US-Japanese joint venture in Japan.). International Joint Venture Fig 3. International joint venture Source : http://t3.gstatic.com/images?q=tbn:shC_GkI4UDgeCM:http://farm4.static.flickr.com/3504/3841640658_367ae3ab0d.jpg Merger and Acquisition There is a big difference between merger and acquisition, they should not be mistaken to be the same. Merger is when two companies come together to form a new company while acquisition is when one company purchase another company. Fig 4 merger and acquisition source : class module Motives of collaboration According to Ian Hewitt (2005), A company should not just go into collaboration just because other companies does, in fact different companies go into collaboration for different reasons. Below are few of the reasons why many companies does Increasing competitive pressure : competitors or rivalries in the market is one of the major reasons that force some companies into joint venture. Sharing cost and risk : one of the main reasons for joint venture is cost saving and risk sharing. It helps to achieve synergy through rationalizing of employment and other fixed cost, and it also research and development project like pharmaceutical, electronics, aero-engine, telecommunication and so on. Joint ventures are frequently used in capital intensive project like power stations or infrastructural projects Entering new markets : partnering with another company already established in a particular market also helps in entering new and emergence market effectively and it also helps in marketing an existing products and service to new customers. Total-quality-management. Do more with less : it brings about a quality management into business and help in achieving the companies objectives in less time. Access to new technology, technology know how and customers : joint venture helps to gain access to and to learn from partners technology , experience and skills as there is a rapid change in technology advancement day by day. Improve access to financial resources : coming together of the two companies improves the financial resources. Expand customer base : international joint venture also help to expand customer base in by making use of partners strength in different geographical area and both develop a wide network. Developing new products : a company can go into joint venture to provide new products or service to their current customers or new customer. Since it is joint venture, the companies can develop a new products to sell to their customers. In this new wave of technology, you cannot do it all yourself, you have to form alliances. Carlos Slim Helu. The Benefits and Risks Having considered few of the reasons why companies go into collaboration, it may sound interesting that collaboration is everything but an extreme care need to be taken when choosing the collaboration partner. Collaboration is good (when the right partner is selected) and it is bad (wrong partner). Before going into details of selection criteria in choosing a partner, below are the types, benefit and Risks associated with collaboration. Benefits Increased financial resources and stability : it allows the partners to contribute financially to the project in an appropriate ways to the joint operation and it increases the financial stability of the business. Improve buying power and economies of scale : it gives cost advantages and better purchasing power to increase the volume of business. Expansion to new market : forming joint ventures can help in capturing a new market. Share R D, engineering, production costs : joint venture helps when a company is trying to enter a new field of business, by forming joint venture with a company already established in the business, it makes it easier to enter into the market. Examples include research institute and national government level. Shorten lead time : collaboration shorten lead times and it makes it possible to achieve more in less time. Risks Loose overall control or desire for control : if it is not well managed, the stronger partner becomes a dominant and this can undermine the interest of the other partner and it may eventually leads to termination. Cultural issue : the partners must understand each others culture very well by doing an intensive research. Competent team that can negotiate in with people of different culture should be assigned to manage. Foreign exchange risk : in joint venture, high volatility in the foreign exchange market, the movements of Dollars, Yen, Pounds, Rupee, Franc and many more cannot be predicted, and even due to this in the oil transaction, it is generally accepted in the western world to trade in US dollars. Communication and translation problems : multinational project can become more complex if there is communication problem, and it is even better to have a translator or even two translators. Loose identity : individual company can lose their identity and they may end up in forming a new name and old customers loyalty may be lost, though if the partnership is well managed it will create new customer loyalty. Partners failure : if the partner failed to deliver, this mat cause a serious consequence or termination to the contract while the objectives have not been meant. Types of collaboration There are many ways in which collaboration can be formed, depending on the common objectives of the companies involved. Collaboration can be grouped into two namely : those defining the structure of the relationship and those defining the technical or commercial purpose of the relationship. Below are few types of collaboration that can be formed. Purpose Research Collaboration : which is most effective in scientific research and high technology new products. Joint Design and Development : involves two or more companies coming together to share the risk of developing a new product and this often leads to joint or parallel production. Joint Production : when two companies agree to produce separate sub-assemblies of the final product and this can leads to joint venture company. Parallel Production : when same and similar product is manufacture in two or more countries and one partner leads the development of manufacturing facilities. Licensing : formal agreement between two companies where primary company allow to use it design or know-how, or to manufacture a product and it involves payment of royalty fees. It may be of two types namely ;licensing in and licensing out, or both . Franchising : this involves third party to market proprietary products or services under the original suppliers brand name e.g. stores and supermarkets, fast food outlets, petrol stations, etc. Structure Informal and Gentlemans Agreements : this can be word of mouth agreement usually between partners of common interest and trust is essential. It can be a starting point for formal arrangement. Strategic Alliances : Michael and Srinivasa 1995) said it can be defined by simultaneously possessing the following three necessary characteristics; Two or more firm that unite to pursue a set of goals already agreed upon Partner firms share the benefits of the alliance and control over the performance of the assigned task Both contributes on a continuous basis in one or more strategic areas, e.g technology and product. It has no legal form, it is a relationship formed between two or more companies that share (proprietary), participate in joint investments, and develop link and processes to improve their performance of their companies. (http://www.apics.org/.). It can lead to creation of joint venture company. Strategic partnership : is a form of strategic alliance in which the partners are linked by a non-controlling level of shareholding, either bilateral or unilateral. (W.J.Bacchus 2005) Joint venture companies : this is an independent business entity, it involves ownership, operational responsibility and financial risk and reward. As it was started in the objectives in the previous chapter, this report will be focusing on joint venture companies. How to select a compatible Partner Companies that are more thorough and comparative in selecting international joint venture partners are more likely to be successful. When there is a need for joint venture, choosing the right partner is another important factor. Only few companies today believe they can achieve their goals and objectives on their own but by seeking partnership with another company to stay ahead in todays global economy, So due to this, there has been an high increase in the numbers of companies coming together around the globe . When a company is going into a joint venture, collaboration strategy need to be established. Furthermore in this report, it should be noted that a company in question will be represented by Company A and other companies that are available to choose from will be represented by Potential partner A,B,Cà ¢Ã¢â€š ¬Ã‚ ¦Ãƒ ¢Ã¢â€š ¬Ã‚ ¦ The company A planning and operational stages can be established as : 1st stage 2nd stage 3rd stage Fig 5. Planning stages Company strategic planning For any company going into collaboration, internal check is the first thing to consider. Internal check allows company A to analyse its performance so far in the competitive market, the knowledge and skills, financial stability and status, government policy, benefit and risks associated with joint venture, and most importantly their objectives of going into collaboration. To properly analyse these factors, S.W.O.T analysis can be used as follows : SWOT Analysis S- Strength What makes company A to remain strong in the market, backbone of its performance so far and this is part of what will attract a partner to go into joint venture with company A. W- Weaknesses Where they have been lagging behind, and affecting the company performance, it may be new technology innovation, lacks of skills or experience staff, inadequate training, breaking into new market and many more. O- Opportunities Opportunities can be to how strong company A is where it operates, reliability, wide network of customers, government connection, fast developing market, regional growth, license, market expansion and many more. T- Threats The treats can be government policy, competitors, Intellectual property right, fakes or fraud copies etc Table 1. S.W.O.T analyses of Company A After the S.W.O.T analysis of company A, having clearly analysed the needs and the objectives of the company, then a decision can then be made on types of strategy that will be best suited for them, either growing internally to combat the threats and weaknesses analysed while making best out of their opportunities and strength ,or by sourcing for a potential partner that they both have common objectives, and make sure the SWOT analyses of the two companies complement each other. The company As decision can be to grow internally or to seek a potential partner of product or project relatedness. à ¢Ã‹â€ Ã… ¡ Fig 6. (Source : Class Module) Growth of Company A At this stage, company A should be clear of the strategy best suited for them, and to assume that collaboration is the best. Then what type of collaboration and with what type of partner. How to maximise the benefit of collaborations and how to mitigate the risks should also be noted. Initial Assessments of the Potential Partners Having decided to go for collaboration (international joint venture), Initial assessment of the potential partners is very essential at this stage before going into details or make any commitment to avoid some of the risks attached to forming a joint venture, which is money and time wasting. In doing this, the following factors need to be considered : Objectives : the objectives of the two companies should be common and complement each other. Backgrounds : knowing about the companies background is important, knowing about their past, present and future intention records. Reputation : integrity of the company going into business with is important as people tend to judge you by the company you keep. Check what people say about them in terms of trust and reputation and also the success of collaboration they have had in the past if there is any. There should be a clear indication that trust can be build inside the relationship. Reliability : the company must be reliable to trade with. Experience : also it should be checked if they have had any collaboration experience in the past, then what was the outcome of it, if it was a success or failure, What type of management team do they work? Capital : they must be financially secured and they do not have credit problems and free from debt . Culture : the culture of the potential partners must be well read and understood. In international joint venture, cultural issues need to be taking care of as different cultural background sees contracts different ways. Structure ; also the structure in which they operate must be understood, also their mission, vision and values must be clearly considered and check if the joint venture can work. Performance : the way they perform in the market is also important, their level of performance in satisfying their customers and suppliers also need to be considered. Their production performance is also important. Product : the brand value should complement each other . These are the characteristics to look for in a potential partner and these factors can be known by checking the websites of the potential partners, company magazines, company reports (quarterly, mid-year, or annual), journals, trade publications, consultants, investment banks, collaboration track records, their suppliers and customers, ex- employee, newspapers and/or from the proposal sent from the potential partner. Tactical planning The next stage is the tactical planning and analysis, it is one of the most important aspect to consider when selecting a partner, having gotten SWOT analyses of your company and all the companies involved. Analyses Company A Potential partner A Potential partner B S- strengths à ¢Ã‹â€ Ã… ¡ W- weaknesses à ¢Ã‹â€ Ã… ¡ O- opportunities à ¢Ã‹â€ Ã… ¡ T- threats Table 2. S.W.O.T Analyses Comparison These allows to compare the general features of each of the potential partners with company As S.W.O.T analysis to check which ones complement each other , and to make initial consideration of the company that can be collaborated with. Key issues and objectives at this stage need to be analysed from these S.W.O.T analysis, and the type of options each company can offer in terms of working together. If collaboration is the best, then what type can be the best for each of the potential partners. Which partner share the common strategy with company A. Also what can be the benefits and risk of forming joint venture with each company need to be carefully accessed. Also at this stage, evaluation and initial assessment of most suitable partner attributes is next. Then the objectives must be clearly defined . it must be S.M.A.R.T. S- Specific M- measurable A- achievable R- realistic and T- time bound The following factors are must be carefully considered when selecting a partner : Cultural issues In international joint venture, cooperation between different partners of different cultures can be a major challenge. In America tends to be individualist and not group oriented but unlike the Japanese that practices collectivist and are group oriented. Aimin and Yadong,(2001), Said one partner may impose its cultural values and norms on the other partner without even consider what the latter attribute might be. And later said that Americans are not very good in learning from their partners as Japanese does, so many foreign companies uses joint venture as an easy way of gaining access to America market and technology. And apart from the national culture, company operational culture need to be well access and make sure that there is compatibility in organisational and management practices with potential partner. Other factors that need to be taking into consideration about cultural issues when forming an international joint ventures are : Language : the language of the contract must be well understood. Since it is international joint venture, it is most likely that the companies comes from a very different nationality, so there must be a common language agreed upon to be used in meetings. Moreover if it is difficult to communicate better in that language, then a competent interpreter that can easily understand the two languages can be used and to be more clear and perfect, two interpreters can be used. The language must be well understood with no hidden agenda. Negotiation : negotiation in international joint venture require a very good management team in order to be successful. The strength and success of o joint venture depends on the interactions of its people. The team must have the experience, skills and attribute it takes to manage joint venture or people with moderate experience but motivated and committed to gain more knowledge. The management team consider the following factors ; Possible outcome : it is essential to outline what the possible outcome of company A and even the potential partners can be. Either it will be a win-lose or win-win approach or mixed. Alternative to agreement : also Company A need to have in mind what can be the best alternative to what they have already agreed on, and also what can be the best alternative for the potential partners as well. Then Company A should find a creative ways to strengthen their own and weakens their partners alternatives. Contract termination : there must be a clear agreement on how to terminate the deal and the price at which any of the companies can breach the deal must be set and estimated for each company. Records keeping : proper record is essential in international joint venture and at the end of every meeting, they need to check what they have already agreed on and what is still open to be discussed. Build trust : the team must be very open, ask many questions for clarity, show respect and highlight complementary need and interest. Resources : a company going into collaboration might not have the full resources require available to meet the demand and may need to tap resources from the joint venture partner. Resources can be human (people), skills and training, technology, raw materials, manufacturing facilities and so on. It must be ensured that the there will be availability of full resources. Political issues The partnership should be checked if it is politically accepted in each country and political risks should be considered. It is possible for the international joint venture to be affected by the political events or political instability in a host country. Also when there is a change in political relationship between the two countries, it may also have an implication on the joint venture. The system of government of the host country, political stability, laws and regulations, existence of other governing bodies must be taken into account. In order to plan ahead of any unforeseen political risk, an insurance policy need to be done and there must be an agreement on financial and operating policies. Financial issues This is another critical aspect of joint venture, it is very important in choosing a joint venture partner. There must be negotiation and the involved parties should agreed on the financial requirements. Financial status or position of all parties involved, debt etc. should be checked Partners market credibility : the market credibility of all the potential partners should be considered Partnership records : their financial performance in the previous partnership they had in the past. Capital contribution : the percentage of capital contribution of each partner should be clearly stated Raising capital : in case there will be a need to raise capital, this can be overdraft, short or long loan, government sources etc. likely source must be outlined Working capital : the capital needed while working must be agreed upon Shareholding : the ownership right of each company should be stated and clear Financial management structure Transaction risk : to avoid transaction risk due to unstable foreign exchange market, trade in home currency or open foreign bank account in the country where the partner comes from. E.g if companies from US and Uk form a partnership, there can be a an account in US Dollars and another in Pounds Sterling to run the project. Taxation (import and export) :different countries with different tax policy, it is very important to discuss the percentage of taxation in the country, the import and export rate Board of directors : the board of directors should be decided. Chairman : the chairman of the joint venture must be decided Governance : the rule of the countries to govern the joint venture Role definition : each party role must be stated clearly Profit share : the percentage of sharing profit between the parties must also be agreed upon. Inflation : possible solution in case of inflation in any of the countries must be taken into account. Resources availability : resource availability in terms of assets, equipment, rent, intellectual property right must be well planned. Legal issue In joint venture company, legal agreement is essential and this can be by word of mouth, gentlemens agreement, memorandum of understanding (MOU), detailed specification, evergreen, full contracts and many more (class module). In international joint venture, the following issues must be considered Governing law : the law of the country to govern the contract must be agreed upon. Payment method : there must be an agreement on the type of payment method accepted. IPR : the right of each partner in terms of Intellectual Property Right must be stated. Patent right, copyright, trademarks etc must also be considered. Termination : it should be stated under which condition can any partner terminate the contract. Common events that terminates contracts are When the contract expires Change of goal of one of the partners Breach of contract by any of the parties Financial or legal issue. Responsibilities : what is expected from each party need to be understood Financial right : they must know their financial right. Veto power : there must not be a partner enforcing power on the other Communication : the way in which communication will be transferred from place to place must be addressed. Managerial right : the level in which each company will operate in terms of management must be stated. Capital : what each partner will contribute and what they will get out of it in terms of profit, product etc Transfer of share : there must be a mutual agreement on the share transfer, normally the parties entering into a joint venture is not expected to transfer its share to third party without the consent of its joint venture partner. Agreement : the management team must ensure that there is a proof of agreement between the partners. Language : the language of the contract must be plain and well understood by the joint venture companies. Criteria for selecting a partner Clear definitions and Common Objectives : select a partner that brings no hidden agenda when negotiating with them, the objectives must complements each other and there must be an evidence that the parties need each other, the language of the contract must be well understood. Strategy clarity and compatibility : the strategy of company A and the potential partner must be very clear, well understood and compatible with each other. Financial strength : it is advisable to partner with a company that has a very strong financial base as it was explain in this module. Mutual benefit : win-win attitude and approach is the ideal for the joint venture partner there must be a low risk of either of the partners becoming a competitor. Previous track records : it is not advisable to go into joint venture with a company that has a poor track record in terms of partnership, financial or customers satisfaction. Management : Culture compatibility : as different companies from different countries operates on different culture, there must be a clear understanding of the potential partner culture in compatible the your Compatibility of CEOs and Senior managers Market power : how strong the potential partner are in the market, customers satisfaction, suppliers relationship Overseas experience : the experience they have in doing business outside their parent country, how it was managed and the success stories they have had in the past. Product relatedness : the products of the joint venture companies must supplement each other, there must be product relatedness. Proper match : there must be proper match in terms of objectives, strength, weakness, opportunities, weakness, culture, financial capability, product relatedness, strategy and so on. There must not be gaps left behind or overlook. Common Objectives Strength Strength More opportunities Less threats

Presidential vs. Parliamentary Political Systems Essay -- Political Sc

Presidential vs. Parliamentary Political Systems   Ã‚  Ã‚  Ã‚  Ã‚   There are two main types of political systems, one being a presidential system and the other being a parliamentary system. Both of them have their own benefits as well as their own disadvantages. No political system can be perfect or can always have stability, but shown in history there are successful countries that use either one. Also there are countries that have failed with one of the two systems.   Ã‚  Ã‚  Ã‚  Ã‚  Firstly there is the presidential system. There are many characteristics to a presidential system. The first main part of a presidential system is how the executive is elected. The executive is a president who is elected to a fixed term. Also a president is not only head of state, but is head of government. The president is the sole executive of the government. Even though there is a cabinet in a presidential system it does not have the power it does in a parliamentary system. The cabinet is chosen by the president instead of chosen by the parliament. A president has to follow a constitution rather than following history. The president actually has a large part in the government’s decisions. A big advantage to political scientists of the presidential system is that there is a separation of powers. The legislative branch being separate from the executive branch lets one another keep checks and balances on each other. This assures that no one branch will take over or attempt to take over the government. Another advantage of a presidential system is that the population elects the chief executive and the legislative branch. By winning a popular vote shows that most of a country is backing the executive which does not seem to cause revolution. The president can not dissolve an assembly as one can in a parliamentary system. Also in a presidential system there is the judicial branch, which is the court system. The judicial branch is important because it helps uphold the constitution. One of the last advantages of a presidential system is that there is more stability because a president is elected to a fixed term, where as in a parliamentary system a prime minister can be ousted at any time. A presidential system is not perfect, but it has it’s high and low points.   Ã‚  Ã‚  Ã‚  Ã‚  The other type of political system being analyzed is a parliamentary system. A parliamentary system has its executive branch in ... ... be elected by the majority of the population of the country. Also there being a written constitution in a presidential system makes it easier to prefer because this explains the law precisely and accurately. In a presidential system there is a judicial branch which makes it fair to be tried for crimes, which is a plus too. I may be bias because I live in a country that has a presidential system, which is the United States and it is the most successful nation, but I feel that even if lived in another country I would envy our style of government and would want to live here. A presidential government is by the far the most successful and fairest way to run a country. I feel that France is most comparable to the political system I prefer. It is semi-presidential, which is more effective than a parliamentary system. Their election process is similar to a presidential system, which shows a popular vote in the population wins. The parliament can censure the premier also, which is good because it does not let one part of government make any drastic changes without the parliament agreeing. I feel that France is most like my preferred type of political system because of these reasons.

Irobot Company

g 1. 0| Executive summary| 2| 2. 0| Situational Analysis2. 1. Political factors2. 2. Economic factors2. 3. Social factors2. 4. Technological factors| 3-6| 3. 0| SWOT Analysis3. 1. Strengths3. 2. Weaknesses3. 3. Opportunities3. 4. Threats| 7-9| 4. 0| Marketing Objectives| 10| 5. 0| Targeting and Positioning5. 1. Targeting5. 2. Positioning| 11-14| 6. 0| Marketing Strategies6. 1. Product 6. 2. Price6. 3. Place6. 4. Promotion| 15-19| 7. 0| Implementation and Control| 20-21| 8. 0| Conclusion| 22| 9. 0| References| 23| 10. 0| Appendix| 24-27| TABLE OF CONTENT 1. 0. EXECUTIVE SUMMARY Robot Corporation designs, manufactures, and sells a variety of robots include floor vacuuming robots, pool and gutter cleaning robots. Our marketing objectives are to continue to strengthen our brand, which is to continue having advertisement to increase band awareness in the market, to have high market shares of 20% rather than 11. 67% by December 2012, which we believe this product Cleany will very much cont ribute to the increase in market shares, and to have market expansion in different parts of the world. Our new product is the robotic dirt eating machine. It is called Cleany.It is served as a vacuum cleaner, as well as a scrubber. When the floor, sofa or bed has dirt, Cleany will help clean them up. It is round in shape and it has no sharp ends. This product is very convenient to be used. It ensures safety and cleanliness. Moreover, this product is environmental friendly, it uses solar energy to charge its battery. Our packaging focuses on the protection of the product. We use thick polystyrene to wrap our product. We want to make sure it reaches our customers doorstep without any damages. Cleany is a good quality product. It performs well and it’s durable.Irobot plans to use price skimming as our pricing strategy. From time to time, discounts of 15-20% will be given so that customers with lesser income distributions can also purchase Cleany. The budget allocated to advertis e Cleany through television, radio, magazines, and newspaper, to give sponsorship and to create event to create brand awareness in the market is RM 662,000. 2. 0. SITUATIONAL ANALYSIS 2. 1. Political Factors Tax Tax charged by government to irobot varies from different countries. The standard corporate tax rate in Malaysia is  25% since 2009, while resident small and medium-sized companies (i. . companies capitalised at MYR 2. 5 million or less and not part of a group having a company exceeding the above capitalisation threshold) are taxed at 20% on the first MYR 500,000, with the balance taxed at the 25% corporate tax rate. (TaxRate. cc, 2009-2012) But according to our financial position, tax does not very much affect our company. Employment law The legal/political aspect is very important in global marketing. â€Å"International law† can be defined as rules and principles that states and nations consider binding upon themselves. FAO Corporate Document Repository, 2009) Th ere are employment laws that we need to abide to. For example, we are not allowed to hire child labour in our workplace, we are supposed to grant our employees leave and benefits. Our employees have the right to take sick leave when they are not feeling well, we need to pay our employees extra if they are working overtime. This law has widely opened the eyes of our company. It somehow affects our company because now we know how the employment law works and how to make decisions accurately. 2. 2. Economic Factors Economic growth MIER downgrades 2011 GDP growth rate to 4. percent year-on-year. For 2012, MIER revises the GDP growth forecast to 5. 0 percent. (Suzy, 13 October 2011) Malaysia economic grows from year to year and in 2012, It will probably grow up till 5. 0 percent. During economic growth, customer’s disposable income will increase, and therefore, they have more money to spend now. This factor will most probably increase our company’s sale and cause irobot Com pany’s profit margin to increase. Inflation From time to time, there will be inflation around the world. From our pass experiences, each time there’s inflation, it will somehow affect our company.Customers may consider to not purchase our product first until their income is stable. Below is a graph on Malaysia’s inflation rate (International Monetary Fund – 2011 World Economic Outlook) In year 2010 the inflation rate in Malaysia has increase to 1. 7% from 0. 6% in 2009. Irobot is hoping the inflation to decrease in 2011 and 2012. Increased fuel price The current increased price in fuel since 2 years causes irobot Company to have a slightly lower profit margin as now we have to increase our fuel expenses. For every litre of RON 95, the actual price is RM2. 5, and the price of RM1. 90 at the pump translates to a subsidy of 85 sen, or 31% of the actual price. (Anthony, 6 October 2011) Therefore, starting from 2012, the decrease price of fuel will allow our c ompany to spend lesser on fuel which will be an advantage to the company. 2. 3. Social Factors Attitudes to work and leisure In the 21 centuary, people are all so busy with their studies, works and daily activities. This affect out company sales, as more people now purchase our products as our products are all robotic products that will assure our customers convenience. DemographicsWith the population of 27, 467, 837 residents in Malaysia, some of them have very high income distribution and it will positively affect the irobot Company. We will be able to reach higher sales revenue because the chances of them buying our products will be higher. However, we also have customers that have low income distribution. Therefore, we provide discounts at times, so that this group of customers can purchase our product when our products are on discount. 2. 4. Technological Factors Internet The ability to access to the internet grants our company a lot of advantages.We target to increase the comp any’s sale by 4% through internet sales. Earlier a person had to go to the mall to purchase a product. This is not necessary now. The products for sale can be displayed on your website and the customer can order them from home itself. The only thing that you as a seller have to do is confirm the financial transaction and deliver the goods at the place specified by the buyer. This saves a lot of expenditure both on the part of seller as well as the buyer. 2. 5. SWOT Analysis 2. 5. 1. Strength The company receives a lot of positive images and feedbacks from the consumers.The consumers are more than satisfied to work with us. These are some of the company’s strength. Customer service We make sure all of our staffs work effectively and efficiently, and make sure they are accountable of their work. Besides, we provide customers with extremely good services. The workers are given training to be nice and friendly to all consumers. We connect with and laugh with our customers, even if just for few moments. We always believe that being nice has its own rewards. With positive customer’s service, we will be able to make our customers come back.Strong financial position Our company has a strong financial position in the market. The irobot profit margin is 11. 67% this year. Our target is to reach 20% of the market share by December 2012. To achieve that target, we will have more promotions and advertisements to create stronger brand awareness in the market to attract customers to us. Above is the graph of the profit margin of irobot Corporation from year 2007-2011 (irobot Corporation (irbt), 14 November) 2. 5. 2. Weakness Apart from just strength, every company has its own weakness. The irobot Company is weak in these few ways.Realizing our weakness, we promise to improve in the near future. Product pricing The prices of irobot products are higher as compared to its competitors. Although our products qualities are up to the standard, customers might w ant to try something cheaper when there is inflation or when they have other extra expenses to spend that moment. High operating cost The operating cost of irobot is somehow quite high. This includes salaries and wages to the employees, advertising, and cost of raw material, rent, fuel cost for transportation and also all kinds of taxes. . 5. 3. Opportunities Advanced technology With the availability of wifi, Irobot manages to attract more customers. Customers can now buy our product online. It would be very convenient for our customers as they do not have to come all the way to our retail stores to purchase the product. Growth in robotic industry Study shows that the robotics industry will grow from its present $11 Billion status to upwards of $70 Billion by 2025. Therefore, in future, the demand for robot industries will rapidly increase in demand. 2. 5. 4. ThreatLower cost competitors The company has faced tremendous competitive pressure. There will be price wars existing from ti me to time where our competitors lower down the price of their products, causing us to have a lower profit margin if we also reduce the price of our products. For example, if LG vacuum cleaner decreases their price, our competitors will go to them to try their product and this will cause us to make lesser sales. Competitors Even though irobot is a well known brand but they also have threat that they need to consider.They have many competitors in the market such as LG, iClabo, and also Vbot. So we have to be ready with all kinds of technologies updates in order to stay in front of the competitors. 3. 0. MARKETING OBJECTIVES Continue to Strengthen Our Brand. We intend to continue to enhance our brand image and corporate identity. The iRobot brand is designed to communicate innovation, reliability, safety and value. Our robots’ performance and uniqueness have enabled us to obtain strong word-of-mouth that leads to increasing brand awareness.We intend to continue to invest in our marketing programs to strengthen our brand recognition and reinforce our message of innovation, reliability, safety and value. Higher market shares The irobot Corporation currently holds 11. 67% of the profit margin in the market. Its aim is to achieve a higher market share of 20% by December 2012. Market expansion Our objective is to expand our leadership not only in Australia, but in more countries such as the US, Korea, Japan, Malaysia, Africa and many other countries in designing and building practical robots and in developing robotic technology. . 0. TARGETING AND POSITIONING 4. 1. Targeting Targeting strategies Instead of going after a small share of a large market, irobot Company chose to go after large share of few submarkets. The submarkets that we chose are the busy working people and also upper class families. We plan to focus only on two segments because we know that through concentrated marketing, firm will possibly achieve strong market position in the segment that it serve because it has greater knowledge of the segments. In this way, there will also be specialization in production, distribution and promotion.Instead of going after a small share of a large market, our company chose to go after large share of few submarkets. The submarkets that we have chosen are people who are always busy working and the upper class families. We plan to focus only two segments because we know that through concentrated marketing firm will possibly achieve strong market position in the segment that it serve because it has greater knowledge about what two three segments need and want. In this way, there will also be specialization in production, distribution and promotion. Below are few segments that we are targeting.Demographic Segmentation This product is made for both genders, female and male. It is made for all group ages, right from young working adults, to adults, to middle aged people and finally, senior citizen. Both male and female eat chocolate. And peop le with different age groups eat chocolate as well. This product is made for any religion as all religion can eat chocolate. It is also made for people with occupation that are busy working and has high income. Psychographic Segmentation Market is divided into different groups based on social class. We are targeting those upper class families.Looking into the personality characteristic, Cleany is mainly made for busy people. Geographical Segmentation This product is basically marketed to all busy states, regions, and cities in Malaysia where there are more people living in For example, Kuala Lumpur and Malacca. This product is also marketed to different western countries such as Spanish, United States, Australia and New Zealand and also to the Asian countries like Hong Kong, Taiwan, and Korea. Behavioral Segmentation When this product is launched, we would expect people to have certain significant knowledge about our product.We also want customer to have good attitude towards our pr oduct. When they use our product, they will have a good perception about our product. They will give good response to our product. Once they have tried our chocolate, they will introduce our product to their families, friends and colleague and will even think of purchasing it again in the future. This product will grant them ease when they have no time to vacuum their house. Benefits Segmentation Customers nowadays want to look for things that can lighten their burden. Cleanny can absolutely lighten their burden by just needing them to press a button.And the floor, bed and sofa will be all cleaned. 4. 2. Position We want customers to have a perception that our product is a high quality product, a product that can be trusted, and a product that is of reasonable price. We want to be above our competitors in the mind of all our consumers and we want them to be more than satisfied when they use our product and to come back to us and buy them. Besides, they will also recommend our produc t to their friends. In order to be different in the market, we make sure that we position our product in three different ways.Product differentiation, service differentiation and also channel differentiation. Product Differentiation Our product is different than our competitors. It serves as a vacuum cleaner and also a scrubber. When there are dirt on the floor, Cleany will suck up all dirt and when there are small unwanted particle that is sticked to the floor, Cleany will help scrub them off until it is clean again. Apart from that, Cleany does not require electricity. It uses solar energy as a power resource. Service Differentiation Our company produces delivery service.We always believe that the more services we offer, the more satisfied the consumers, the more consumers we will get. After all, all we want to do is to satisfy our consumers’ needs and wants. Whenever consumers want to place an order they can just give our company a call, and we will send them the product t hrough speedy, careful and convenient delivery. Consumers can also place their order online. This will be so much easier for them. They can purchase the product anytime they want. Channel Differentiation In business point of view, we have to be different in order to win our onsumer over our competitors, we tried our very best to be different and to be outstanding, so that we will be win the hearts of our consumers and have good relationship with them. We employ expertise to advertise our product to the market to create brand awareness, to make sure most of the people in the market have heard of our product. We make sure our product will work well and consumers will be satisfied using them. Other than that, we do carry out cause-related marketing (Charity). We give food to the homeless. We sometimes send our people to visit the old folk’s home. Positioning strategiesThe irobot has chosen two positioning strategies to follow. Product attributes Cleany offers several benefits to the user. first of all, this product is so unique. It works as a machine that helps to clean. With just a button, house works are now so much easier. Customers do not need to sweep and mop the floor. When the side of this product touches any hard surfaces, it will automatically change direction. Away from competitors Our product is made away from the competitors. Normally vacuum cleaner works manually where someone has to hold it and move it to places that need to be cleaned.Normally, someone has to scrub the floor using brush. With the existence of this product, customers do not have to worry about cleaning the floor, the sofa, and the bed. 5. 0. MARKETING STRATEGIES 5. 1. Product 5. 1. 1. Product Features The robotic dirt eating machine (Cleany) looks like this. It is round and it has no sharp ends. 5. 1. 2. Product Benefits Convenience Cleany works as a vacuum cleaner as well as a scrubber. This product makes it very convenient for the customers as the customers do not have to v acuum or to mop the floor themselves. By just pressing a button, this product does it all for them.This product can be used on the floor, on the bed also also on the sofa. Customers that have busy schedule will really fall in love with this product. Cleanliness This product will ensures floor, beds and sofas to be clean, shiny and makes dirty stains to leave. When liquid are spilled on the floor, the dirt eating machine will help wipe it clean. When there are small unwanted particles that are sticked on the floor, this product will help to scrub it out. Safety When we produce this product, we make sure that it is not dangerous and it will not hurt people.That is why this product does not have any sharp ends. It is made round in shape so that it can be safely used. Therefore, customers that have children at home will be able to feel at ease to use our product. Environmental friendly This product is environmental friendly. It works on solar energy. In order to fully charge its battery , customers have to just put this machine under the sun for 30 minutes. This product helps customers to save electricity. Warranty If the dirt eating machine is spoilt within 2 years of purchase, irobot will provide a free machine to our customers.But so far, we have not come across any cases like this for other products irobot produces. 5. 1. 3. Product Labelling and Packaging Product packaging is the activities of designing and producing the container or wrapper for a product. Our product packaging will be based on: Product protection Our packaging concept is to mainly offer product protection. The product will be wrapped with polystyrene and be placed in thick brown recycled boxes to prevent any damages while product is sent to each stores and customers. We are using recycle boxes because we are focusing more on environmental concerns.Using methods Outside of the packaging, there will be instructions on how this product should be used. Customers can always read them first before starting to use this product to ensure they know exactly how this product works. 5. 1. 4. Product Quality Good performance Cleany performs very well and we often have good feedbacks from customers that have purchased some other products from our company. First of all, it works very quickly. Apart from that, it is easily used. Customers have to just press buttons and it will work on its own. Durable Cleany is an extremely durable product.It could last customers for years if taken care in proper way. This product is very hard and tough. This does not break or crack easily. Therefore, customers can feel calm using it. 5. 2. Price Price is the amount of money charged for a product or service. Price skimming We are going to use price skimming as our pricing strategies. This is to establish a quality brand image in the market. We are going to set higher price for this product to attract the least price sensitive market segments. From time to time, discounts will be given to our customers, probably about 15%-20% of the normal price.The reason why we do not use penetration pricing is because we do not want customers to have the perception that our product is a low quality product. Therefore, using price skimming, we have decided to set our product at RM539. Customers can either make their payment by cash or by credit card. Although there is a risk we are taking, as this product might not establish too much profit for the company in the beginning, but we believe as customers start using it, they will see all kinds of benefits the dirt eating machine provides and this good news will be spread by word-of-mouth.Also, by strong promotion and aggressive advertising, our products will be widely sold to the market. 5. 3. Place Distribution channel Most businesses use third parties or  intermediaries  to bring their products to market. irobot Company contains one intermediary. The suppliers will send their products to the retail store, and the retail store then sell the go ods to the final consumers. We do not have wholesale in between so that we could save cost so that the price of our products will not increase. Coverage The type of coverage that the irobot Company is using is the selective distribution characteristics.The dirt eating machine is a shopping good where it can be found in quite a number of outlets in Malaysia. Outlets that are chosen are all of the Jaya Jusco in Malaysia, 9 of the Giants in Malaysia and also 11 of the Tescos’ in Malaysia. Transport Lorries will be used in order for manufacturers to transport their products to all retail shops. And from retails stores to customers, we will post the products to their house using Post Laju. Location Irobot Companies are normally built at places where they know they are going to make profit. Stores that do not meet the requirements are closed down.Therefore, only the most profitable stores survive. 5. 4. Promotion Advertisings We have all kinds of advertising in the market such as T elevision ( Astro, TV8, NTV7 ), Magazines (CLEO, Autoworld Emzime, Chip Malaysia), Newspaper (The Star, Berita Harian, Sin Chew Daily), Radio (Hitz Fm, My FM, Mix Fm, light and easy FM) and also billboard in different places in Malaysia. The irobot company does not mind spending money on advertisement because we believe it’s an investment. We spend money to make more money. Once Cleany is able to create strong brand awareness, that’s when our money comes back.We have spent RM602, 000 through all many kinds of advertising to get our product known. Internet activities We have several internet activities. We have our own irobot website which is irobot. com. We have all the updates of our product in that website. Besides, we also have made a Facebook page that we place the price and our product updates there as well. We know that internet is a very efficient way to reach our customers. Events and sponsors Every year we will lay aside RM20, 000 for events and sponsors. Ever y year, in the month of July, we will carry out social events in colleges, children’s home, and old fox home.We also give out sponsor to companies that needed them. Exhibitions We will carry out exhibitions and our employees take down the names and the email address of people who come to the exhibition because we know that those people that come, they are interested in our product. We will email them about the updates of our products, when will we be launching new products, and also when will we have discounts for our products. To promote our company and also to make our products known to the market, we have spent a total of RM662, 000 in year 2011. 6. 0. IMPLEMENTION AND CONTROLTask| Description| Person in charge| Date to complete| 1. | Meeting on how marketing programme will be carry out. | All marketing department staffs| 20/11/2011| 2. | Advertise the new product on television during peak time on Astro, TV8 and NTV7. | Peter| 21/1012011| 3. | Advertise the dirt eating mac hine (Cleany) on The Star, Berita Harian and Sin Chew Daily newspaper for 2 days per week, which are Friday, Saturday and Sunday. | Derek| 21/10/2011| 4. | Advertise new product on Hit, My, Miz and light and easy FM Radio daily. | Isabella| 23/11/2011| 5. | Advertise on magazines. Paul| 24/11/2011| 6. | Carry out event. | Lucy & Michael| 27/11/2011| 7. | Give out sponsor. | Krystle| 12/12/2011| Irobot Company Marketing Programme irobot Company Budget Activity| Budget (RM)| 1. Advertising CampaignTelevision ( Astro, TV8, NTV7 ) Magazines Newspaper (The Star, Berita Harian, Sin Chew Daily)Radio (Hitz Fm, My FM, Mix Fm, light and easy FM) Billboard | RM 550,000RM 8,000RM 35,000RM 7,000RM 2,000| Public Relation – Events and sponsorship| RM 20,000| Sales Promotion (Discounts, vouchers, rebates, free gifts)| RM 40,000| Total| RM 662,000| 7. 0.CONCLUSION In order to successfully sell our products in the market, marketing plan has to be carried out. Company has to plan and discuss in advance about what they want to achieve, whether is it possible to achieve, how are they going to achieve it, and by when are they going to achieve it. Marketing plan is one of the most important tools that a company can use to be successful in the market. The irobot uses concentrated targeting strategy where we go after a large share of a few submarkets. We are targeting the busy working people and also the uppler class families.We believe that Cleany will make it to the market and will bring brand awareness of the company, will product profit for the company and will increase company sales. 8. 0. REFERENCES 1. irobot corporation (irbt) 7 November 2011. Irobot corperation profit margin Available at URL: http://ycharts. com/companies/IRBT/profit_margin [Accessed 5 November 2011] 2. irobot corporation 2011. Company milestone Available at URL: http://www. irobot. com. my/company-milestones. html [accesed 7 November 2011] 3. Jim Riley September 2009. Distribution – introduction Available at URL: http://tutor2u. net/business/marketing/distribution_introduction. asp [Accessed 5 November 2011] 4. Malaysia Monetory fund 2011, Malaysia inflation rate Adopted from URL : http://www. indexmundi. com/malaysia/inflation_rate_(consumer_prices). html [Accessed 15 November 2011] APPENDIX Through this report, I have learnt several things. I have learned that every single company has factors that will either positively or negatively affect the company such as political, economic, social and technological, environmental and legal factors.As a company, we have to always take notes of these factors as it can sometimes be an opportunity to the company or a threat to the company. This report helps me open my eyes to the SWOT analysis that every company has to know of. As a company, we have to know what are our strengths and weaknesses are, the opportunities around us, also the threats that might bring harm to the company. Once we get to know our strengths, we can be better in what we are good at. For example, the location of our business is good. In future, when we were to open another branch in the market, we would think and make good decisions on better locations.Once we get to know our weaknesses, we can always find ways to improve and to be better in areas that we are weak in. For example, our company is lack of marketing expertise. Then, our company should send our employees for marketing training. When we know what our opportunities are we have to grab hold of it and not let it go. For example, the availability of the internet nowadays, if we are able to make use of it, creating a company’s website or allowing customers to buy products online, then it will help generate profit for the company, at the same time, it helps create stronger brand awareness.As for threats, when we know exactly what the threats that we face are, we can avoid it. For example, the price of raw material in a country increases. We can turn the threats into opportuniti es by purchasing raw materials from countries that are selling them at a cheaper price for example, China. Besides that, i have learned so much more about target marketing and positioning as I look into details every single part of it. Target marketing involves breaking a market into segments and then concentrating your marketing efforts on one or a few key segments. Positioning is how you ifferentiate your product or service from that of your competitors. Positioning helps establish your product's or service's identity within the eyes of the customers. Without the knowledge of targeting and positioning, marketer cannot market their product in the market well. It will bring bad effects to the company. Company will not be able to understand the market. They will not know which segments are measurable, accessible, substantial, differentiable and also actionable. Moreover, they will not know which market segment to target in order to get most of the customers.Without knowing how to pos ition their product, they will lose their place in the market sooner or later. They will lose out in the market. This is because other marketers know what targeting and positioning are and have applied it to their product and company. To have an effective and efficient marketing plan, we have to make marketing strategies that are good. We have to be good and try as much as we could to be different in the 4P’s that are product, price, place and promotion. This is because, when the 4P’s are not good enough, customers will not be attracted to us.Instead, they will turn to our competitors. We have to be different and unique in our products features, we have to make our products provide benefits to our customers, the packaging and the labelling of our products should be interesting to be able to attract our customers over from our competitors, and that the quality of our product should be good so that customers will think that our product is worth the price. Apart from just the product features, the price of the product is another main thing that we should consider. Imagine wanting to buy something that you like, but it’s extremely expensive.You would think of other alternatives rather than really purchasing that particular product. The third P Is the place of the company that sells the product. It should be located at places that have potential customers. Also, the types of intermediaries used. We can choose between one, two, three or four depending of the types of products that we are selling and how many intermediaries that we want to have. As for promotion, we can have various kinds of promotion in order to attract customers to us. We can sometimes give out discount and promotions in ways of vouchers, and free gifts to our customers.This is actually for short term sales. We can also carry out events, charity works, give out sponsors. In order to finish this report, I have read through each and every page of my lecturer’s note so that I would not miss any important thing out. I realized I have learn so much more about marketing plan compared to before. Previously, I had no idea that political, economic, social and technological factor can affect a company. Now I know that all these factors are important for a company to take note of, so that they could avoid harmful factors. Previously, I did not know that being different in the market is so important.Now I know, in order to win customers away from our competitors, we have to stand out in the market. I am really grateful and thankful to my lecturer of her lecturer that she has always wrote extra notes on the whiteboard to make sure we understand what she’s teaching and that she had taught us well. When I’m studying the other marketing modules, I have noticed that what my lecturer teaches me, I have heard of it before, I have studied a bit of it before. I realized that it helped me get better understand of my other marketing modules as well because they are almost about the same.

Study To Determine Impact Of Credit Risk On Bank Stability Finance Essay - Free Essay Example

Sample details Pages: 12 Words: 3624 Downloads: 7 Date added: 2017/06/26 Category Finance Essay Type Research paper Did you like this example? Abstract Credit works as blood life of any banking institute. This research is based mainly at investigating the impact of credit risk on banking stability, in banking sector lending behavior in Pakistan using data on commercial banks and macroeconomic instability from last decade. Our results under the Co-integration of variables and Correction Modeling framework show that bank lending has a long-run relationship with macroeconomic stability. Don’t waste time! Our writers will create an original "Study To Determine Impact Of Credit Risk On Bank Stability Finance Essay" essay for you Create order The research therefore, recommends that while banks should pay enough attention to the results of their firm exact characteristics in their credit lending activities both in the short-run and long-run, their worries about macroeconomic stability should be limited to the long-run consequences on their credit lending behavior. It is also important that proper measures be taken to curtail inflation and infrequent money supply growth making banks become adversely disposed to lending given the negative consequences of loan restriction on economic growth in the long run. In Pakistan increased lending and intermediation is a regular complement to higher real economic expansion, banks and their supervisors need to ensure that this does not compromise credit quality and weaken banks balance sheets, especially since much of the credit growth is in areas where banks are comparatively inexperienced. The State Bank of Pakistan (SBP) has made substantial strides in strengthening its supervisory capacity and is well positioned to direct the associated risks. However, the changes are comparatively recent and yet to be tested through a complete credit cycle in the new environment. The researcher in this research will be having exploratory approach as to find out the impacts of credit risk on the stability of the banking sector of Pakistan. A quantitative (based on survey) analysis will be conducted by using questionnaire method. Table of contents Chapter 1ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦.ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ 4 1.1 Introduction 4 1.2 Background Information problem Statement 5 1.3 Research Questions Objective 7 1.4 Hypothesis 7 1.5 Scope Limitation 7 1.6 Significance of research 8 1.7 Test of Hypothesis 8 Chapter 2ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦.. 9 Literature Review 9 Conceptual Framework 11 Chapter 3 ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦.ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ 12 3.1 Research Methodology 12 3.2 Research Sampling 12 3.3 Research tools and techniques 12 Chapter 4 ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦.13 Data Analysis and representation 13 Chapter 5ÃÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦ÃƒÆ' ¢Ãƒ ¢Ã¢â‚¬Å¡Ã‚ ¬Ãƒâ€šÃ‚ ¦.. 14 Conclusion, Finding and recommendations References 15 Annexure Questionnaire (Anex-1) CHAPTER 1 Introduction Worldwide and in particularly in Europe the market for credit risk transfer has experienced a remarkable development in current years. This refers not only to the volume of credit risk being transferred by financial institutions but also to the total number of securitization transactions. On a micro-level, the rising popularity of credit risk securitization can be put down to the reality that banks classically use the instrument of securitization to diversify concentrated credit risk exposures and to discover an alternative source of funding by realizing regulatory arbitrage and liquidity improvements when selling securitization transactions. On a macro-level, credit risk securitization is suggested since it is expected as a reduction of the overall absorption of credit risk in the whole financial system if risks are transferred to less fragile (non-financial) institutions (BIS, 2005; ECB, 2004; IMF, 2002). In reply to the U.S. sub prime mortgage disaster from mid-2007, however, a general reassessment of risks inherent in structured finance instruments is observed diagonally the whole financial community. To date, the IMF values mark to market losses on structured finance instruments at around 1,405 billion USD (IMF, 2008). Moreover, it is assumed that about half of the amount of losses and write-downs on these instruments will explicitly shape the banking industry (IMF, 2008), perhaps constituting a serious threat of general fragility. The latter is supported by failures in valuating multifaceted securitization instruments, a weak precision in structured finance markets as well as feeble forces of market discipline, which in sum have uncovered the financial system to a serious funding and confidence crisis (BIS, 2008, 2008a; IMF, 2008, 2008a, 2007). A real-time occurrence of shocks on credit quality, exchange rate, and interest rate would have a extensive impact on the capital position of banks, mainly public sector commercial banks. A synchronous depr eciation by 25 percent, a decline in the quality of 50 percent of unhedged loans in foreign currencies (100 percent provisions), and a raise in interest rates of outlying maturities (by 100, 300, and 500 basis points) would decrease the CAR of public sector commercial banks to 4.7 percent, assuming the shocks are preservative and enduring. If in addition to the above assumptions, there is a 40 percent decline of the stock market, the capital adequacy ratio of the banking sector would fall to 2.9 percent, while the capital position of public sector commercial banks would turn negative (-4.8 percent). Government injection of capital equal to 1 percent of GDP would then be required to refurbish the capital adequacy of these banks. 1.2Problem Statement Credit to the private sector in Pakistan has been increasing very speedily. While this reflects the floating economy, if continued, it may threaten future credit quality problems. In addition, the extensively expected increase in interest rates and tighter liquidity circumstances may unfavorably impact banks balance sheets and their stability 1.3Background Information The researcher is intended to do research on the impact of credit risk on the instability because in recent decade it has been observed that credit lending has caused Global Recession , specially in world wide financial market and banks leading them to solvency. The researcher wants to know to how much extent the financial institutions of Pakistan under the credit risk impact and what should be done to control this. The Groups principal activities are to provide commercial banking and other financial services. The Group offers personal banking, cash management, retail loans and other financial services. These services comprise deposits, savings/current bank account, vehicle loans, personal loans, retail trade finance, global banking, lending to priority sector and small scale sector, foreign exchange and export finance, corporate loans and equipment loans. The Group operates throughout 1078 branches within Pakistan and 17 branches outside Pakistan. Credit Rating by JCR VIS C redit Rating Company Limited June 26, 09 Long Term Rating: AA + United Bank Limited is one of the largest Commercial Bank in Pakistan. The Banks long term rating is AA +, which denotes good credit quality. Protection factors are strong. Risk is modest but may vary vaguely from time to time because of economic conditions. Short Term Rating A-1+ The short-term rating is A-1+, which denotes the highest certainty of timely payment. Short-term liquidity, including internal operating factors and / or access to alternative sources of funds, is outstanding and safety is just below risk free Government of Pakistans short-term obligations. UBL was set up in 1959 and is today one of Pakistans major banks in terms of deposits and advances with a huge domestic and international network. Its salient features are: Company Description: UBL is a Banking Company, which is engaged in Commercial Retail Banking and related services domestically and overseas. History of the Company: UBL was established in 1959 and is one of the major commercial banks of Pakistan. The Bank is making every effort to meet the up-coming challenges through strategic planning and making the best use of the resources at its command. A professional team was appointed in mid 1997 to restructure the bank and to commence rightsizing. The management is also in the process of rationalizing the branch network and identifying and recovering its doubtful and classified portfolio. It has planned to institute major improvements in customer services and internal systems to improve efficiency. It also intends to launch innovative products. The bank is increasing resource mobilization through regular deposit campaigns and accelerating the process of recovery of outstanding advances and non-performing assets. Operational Structure: UBL operates 1375 domestic and a subsidiary viz. United Executors and Trustees Company Ltd. as on 30.06.2000. It has 20 overseas branches situated in the UK, USA, UAE, Yemen, Bahrain and Qatar. It also operates one offshore branch in the Export Processing Zone, Karachi and it has representative offices in Cairo-Egypt and Tehran-Iran. It also has a joint venture Oman United Exchange Co., Oman Muscat and a subsidiary United Bank A.G. Zurich, Switzerland set up in 1968. It has 21 ATMs with 8 in the UAE, 3 in Bahrain, 1 in Doha, 7 in Islamabad and 2 in Karachi. 1.4 Research Questions Research Objective 1.4.1 Research Questions: Q1: What are different macroeconomic factors which generate credit risk Impact? Q2: How can a bank expose to the credit risk? Q3: How a banks stability is correlated with the unsecured lending risks? 1.4.2 Research Objective To find out different macro-economic factors on which the credit risk is based. To find out the relationship of credit risk factor and bank stability. 1.5 Hypothesis H0: There is no significant relationship between bank stability and credit risk factors. H1: There is significant relationship between bank stability and credit risk factors. 1.6 Scope and Limitations of Study 1.6.1 Scope of the research: The scope of the research will be limited as the base organization for the research is United Bank Limited Pakistan. , and the researcher is the employee of the bank. A total number of 400 employee as well as customers will be based as population of the research. And out of this population 120 will be taken as sample. 1.6.2 Limitations: There will be some limitation of the study which are as follows: As the credit risk impact tends to be not much applicable in Pakistan, so the scope of research will be specific. Researcher will be unable to approach all the branches of UBL due to time and gender constraint. Being a female and social constraint, it will be difficult to approach physically each and every respondent of the research. The scale of the research is limited to 400 respondents only. Insufficient time given for the research may be a constraint to complete the research within a specific time interval and researcher in this state may pass over some useful information. Data will be collected by the researcher herself by means of questionnaire. Researcher may be biased to some extent on giving the final recommendations. Due to limited access to the confidential data of banks, researcher will be restricted to the available information. 1.7 Significance of Research This research has a great importance especially with reference to the stability of the financial institutions. As in this research, the research will be explaining different factors of credit risk which create significant impact on the stability of the banking sector. The research will figure out the relationship between the macro-economic factors of lending risk identification and its impact on financial institutions. This study will also help the financial policy makers and bank supervisors to figure out the risks currently associated with the prevailing credit system of the banking sector and they will be able to control the risk factors to some extent. 1.8Test of Hypothesis: Both hypothesis will be tested after using some statistical analysis of correlation between the variables. CHAPTER 2 Literature Review Economic theory provides countervailing forecast of the relationship between credit risk securitization and banking stability (Shin, 2009; Krahnen and Wilde, 2008; Jiangli et al., 2007). This may be due to the fact that the relationship depends on both a direct and indirect impact. The straight impact of credit risk on banking stability depends on how much credit risk is in fact transferred to outside investors. This relationship however is not different. While the credit risk stability view points out that the banks overall risk experience is likely to be reduced if the tail risk of senior trenches being transferred to external investors exceeds the sum of default risks of the first-loss position which is normally retained by the bank (Jiangli et al., 2007), the credit risk weakness view replies that the major part of default risks normally remains within the banks first loss position acting as a quality signal towards external investors (DeMarzo, 2005; Instefjord, 2005; Riddiough , 1997; Greenbaum and Thakor, 1987). In this context, it is in addition emphasized that former Basel I regulations have provided an encouragement to keep the larger part of risks within the bank. Thus, as corporate and retail loans were not risk-adjusted but internationally backed up with regulatory capital under Basel I regulations, keeping the main part of default risks within the first loss piece naturally provoked profits from regulatory arbitrage (Allen and Gale, 2006). The indirect effect of credit risk securitization on financial permanence is determined by the banks strategy to use credit risk as a basis of additional funding to finance new assets with liquid capital that has become accessible from selling credit risk transactions. Thus, the indirect effect of credit risk is not clear but rather depends on a wide range of investment policies and can more probably be defined by the way the banks overall asset portfolio risk is restructured (Krahnen and Wilde, 2008). In thi s context the credit risk-stability view points out that reinvesting liquid capital into new assets may inflame a better diversification of the banks asset portfolio if remaining total assets are less correlated after credit risk (Cebenoyan and Strahan, 2004; Demsetz, 2000). In contrast, the credit risk-fragility view suggests that the real effect on a banks financial soundness may depend on the risk-level of new assets being taken in, which again is determined by the present level of contest in the respective asset market (Instefjord, 2005). Moreover, using liquid capital to expand the amount of total assets or to repurchase shares and pay high dividends to shareholders may in addition lead to an increase in the banks leverage (Shin, 2009; Leland, 2007). Empirical evidence on the relationship between credit risk and banking strength is ambiguous as well. To start with, applying event study methodology Uhde and Michalak (2009), Hà ¤nsel and Krahnen (2007), Franke and Krahnen (2006) as well as Lockwood et al. (1996) provide empirical proof that credit risk securitization has a positive impact on the increase of a banks systematic risk. This consequence holds even when controlling for the banks pre-event level of systematic risk, the type of credit risk transaction, the regulatory framework as well as the underlying reference portfolio (Uhde and Michalak, 2009). Turning to panel data analysis, using balance sheet data from commercial banks in Canada for the period from 1988 to 1998, Dionne and Harchaoui (2003) discover that credit risk transfer is inversely correlated to a banks regulatory capital supporting the capital arbitrage theory. Moreover, they offer empirical evidence that an increase in the volume of credit risk transfer has a harmful impact on the banks asset quality and hence financial soundness. Similarly, Uzun and Webb (2007) look at the impact of credit risk securitization on banking stability using data from a sample of 112 financial in stitutions in the U.S. for the period from 2001 to 2005. They find that credit risk is negatively related to a banks capital environment. Controlling for basic assets they provide further empirical evidence that the reduction in financial soundness is predominately linked with credit risks of credit card receivables whereas securitizations of mortgage loans and home equity lines of credits have a optimistic impact on banking stability. Finally, Jiangli and Pritsker (2008) examine the impact of mortgage loan securitizations on bank stability, profitability and leverage using data from U.S. bank holding companies for the period from 2001 to 2007. In line with Uzun and Webb (2007) they discover that mortgage securitizations tend to decrease a banks financial fragility. In contrast, however, they also offer empirical evidence for a positive relationship between credit risk and a banks leverage whereas profitability tends to increase due to securitization. Talavera , Tsapin and Zholud (2006) investigated the macroeconomic insecurity and bank lending in Ukraine. They found a negative association between bank loan to capital ratio and macroeconomic uncertainty and its component (demand and time deposit) with banks increasing their lending ratios when macroeconomic uncertainty decreases. The reaction of banks to changes in uncertainty is not consistent and depends on bank-specific characteristics mainly bank size and profitability. For the bank-specific factors, changes in monetary aggregates which can be related to macroeconomic policies are relatively more significant for large banks than for small banks counterparts. This shows that small banks are less able to change their behavior over time in response to changes in monetary policy and their lending depends to a much greater extent on capital. Also, monetary policy uncertainty factor is important for bank lending behavior in the case of more profitable banks but less significant for the less profitable. Conceptual Framework of Research Banks Obligator Asset Values Banks Total Assets Bank Loan to asset ratio Ratio of bank deposits to capital Economic Indices Monitory Policy Inflation Rate Exchange rate Interest Rate Bank Stability (Dependent variable) Credit Risk Driving factors (Independent Variables) Bank Credit policies Short Term loans Long Term Loans CHAPTER 3 Methods and Procedures Methodology of Study To respond to the research questions mentioned in chapter 1, researchers will explain here the different choices of methodology that have been adopted in this research. The goal of thesis is exploratory as to find out the impacts of credit risk on the stability of the banking sector of Pakistan. A quantitative (based on survey) analysis will be conducted by using questionnaire method. Survey Instrument used Questionnaire to be used in the research which contains Likert scale to collect and evaluate the data on this instrument to evaluate the relationship between the variables. Sampling Technique The sample size out of the 400 population is 120 employees taken as respondents. Convenient sampling method will be used in this regards because of limited approach and scope of the research. Data Collection As mentioned above the data will be collected by using questionnaire method and from the previous studies available on the same topic of research. Then the data will be analysed to explain the researcher point of view on the subject of the research. The data for the research are time series figures for the quoted commercial banks operating in Pakistan from 1988 to 2010 and the corresponding variables as obtained from the publications of the Central Bank of Pakistan Statistical Bulletin. The data on bank lending activities and other bank characteristics are obtained from the annual published financial statements of the banks and the Fact book published by the Karachi Stock Exchange Research Tools The tools that will be used in the research for the data analysis is SPSS software to calculate Mean, Standard deviation, correlation. CHAPTER 4 Data Analysis and Representation In his chapter information related to data analysis with proper explanation of processed data in the SPSS, containing data tables and graphical representation. CHAPTER 5 Conclusion, Findings Recommendations In this section final conclusions of the study, researchers own findings out of the research and closing recommendations will be mentioned. 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