Utilization of multi-branding in business to business markets

Case company utilizes multi-branding strategy (or house of brands strategy) in its product portfolio. In practice the company has multiple brands – one main brand and four acquired brands – which all utilize one single product platform. The objective of this research is to analyze case company’s multi-branding strategy and its benefits and challenges. Moreover, the purpose is to clarify that how could a company in B2B markets utilize multi-branding strategy more efficiently and profitably. The theoretical part of this thesis consists of aspects of branding strategies; different brand name architectures, benefits and challenges of different strategies and different ways of utilize branding strategies in mergers and acquisitions. The empirical part, on the other hand, includes the description of the case company’s branding strategy and the employees’ perspective on the benefits and challenges of multi-branding strategy, and how to utilize it more efficiently and profitably. This study shows, that the major benefits of utilizing multi-branding are lower production costs, ability to reach wider market coverage, possibility to utilize common sales tools, synergies in R&D and shared resources. On the other hand, the major challenges are lack of product differentiation, internal competition, branding issues in production and deliveries, pricing issues and conflicts, and compromises in product compatibility and suitability. Based on the results, several ways to utilize multi-branding strategy more efficiently and profitably were found; by putting more effort on brand image and product differentiation, by having more co-operation among the brands and by focusing on more precise customer and market segmentation.

Foreign exchange exposure management in a fuel procurement company operating in the commodity markets

Fluctuating commodity prices, foreign exchange rates and interest rates are causing changes in cash flows, market value and the companies’ profit. Most of the commodities are quoted in US dollar. Companies with non-dollar accounting face a double risk in the form of the commodity price risk and foreign exchange risk. The objective of this Master’s thesis is to find out how companies under commodity should manage foreign exchange exposure. The theoretical literature is based on foreign exchange risk, commodity risk and foreign exchange exposure management. The empirical research is done by using constructive modelling of a case company in the oil industry. The exposure is model with foreign exchange net cash flow and net working capital. First, the factors affecting foreign exchange exposure in case company are analyzed, then a model of foreign exchange exposure is created. Finally, the models are compared and the most suitable method is defined. According to the literature, foreign exchange exposure is the foreign exchange net cash flow. However, the results of the study show that foreign exchange risk can be managed also with net working capital. When the purchases, sales and storage are under foreign exchange risk, the best way to manage foreign exchange exposure is with combined net cash flow and net working capital method. The foreign exchange risk policy of the company defines the appropriate way to manage foreign exchange risk.

Distributed energy resources in an electricity retailer’s short-term profit optimization

Liberalization of electricity markets has resulted in a competed Nordic electricity market, in which electricity retailers play a key role as electricity suppliers, market intermediaries, and service providers. Although these roles may remain unchanged in the near future, the retailers’ operation may change fundamentally as a result of the emerging smart grid environment. Especially the increasing amount of distributed energy resources (DER), and improving opportunities for their control, are reshaping the operating environment of the retailers. This requires that the retailers’ operation models are developed to match the operating environment, in which the active use of DER plays a major role. Electricity retailers have a clientele, and they operate actively in the electricity markets, which makes them a natural market party to offer new services for end-users aiming at an efficient and market-based use of DER. From the retailer’s point of view, the active use of DER can provide means to adapt the operation to meet the challenges posed by the smart grid environment, and to pursue the ultimate objective of the retailer, which is to maximize the profit of operation. This doctoral dissertation introduces a methodology for the comprehensive use of DER in an electricity retailer’s short-term profit optimization that covers operation in a variety of marketplaces including day-ahead, intra-day, and reserve markets. The analysis results provide data of the key profit-making opportunities and the risks associated with different types of DER use. Therefore, the methodology may serve as an efficient tool for an experienced operator in the planning of the optimal market-based DER use. The key contributions of this doctoral dissertation lie in the analysis and development of the model that allows the retailer to benefit from profit-making opportunities brought by the use of DER in different marketplaces, but also to manage the major risks involved in the active use of DER. In addition, the dissertation introduces an analysis of the economic potential of DER control actions in different marketplaces including the day-ahead Elspot market, balancing power market, and the hourly market of Frequency Containment Reserve for Disturbances (FCR-D).

Bank Income Diversification and its Impact on Profitability and Risk: Evidence from Nordic Markets

Financial industry has recently encountered many changes in the business environment. Increased regulation together with growing competition is forcing commercial banks to rethink their business models. In order to maintain profitability in the new environment, banks are focusing more into activities that yield noninterest income. This is a shift away from the traditional intermediation function of banks. This study aims to answer the question if the shift from traditional income yielding activities to more innovative noninterest activities is logical in terms of profitability and risk in Nordics. This study also aims to answer the question if diversification within the noninterest income categories has impact on profitability and risk and if there are certain categories of noninterest income that are better than others in terms of profitability and risk in Nordics. Results show that diversification between interest and noninterest activities and increase in the share of noninterest income have a negative impact on the risk adjusted returns and risk profile. Results also show that further diversification within the noninterest income categories has negative impact on risk adjusted profitability and risk while an increase of the share of commission and fee income category of total noninterest income has a positive impact on risk adjusted profitability and risk. Results are logical and in line with previous research (De Young & Roland, 2001; Stiroh, 2004). Results provide useful information to banks and help them better evaluate outcomes of different income diversification strategies.

Internationalization of a Finnish accounting firm to Russian markets

Despite the unstable situation at the moment in Russia, the Russian market and St. Petersburg have been a very attractive from the point of view of Finnish companies. The objective of this research was to define how a Finnish accounting firm should perform its market entry to Russian markets as a part of its internationalization process. In addition, the special characteristics that support the internationalization to Russia were examined together with the implications from the behavior of potential customers at the market. The actual market entry mode was developed based on the theories of Uppsala model, transaction cost economics and the network approach. Additional emphasis was given for the service point of view. The primary data in this research was collected through semi-structured interviews with professionals from the Russian market. The results of this research show that there exists potential especially at the accounting markets in Russia. However, the current unstable situation and sanctions in Russia have led to situation where the price-sensitivity among customers is high, and costs savings are searched from multiple processes in organizations. Therefore, the accounting company should perform its market entry in small incremental steps to decrease the risks involved, and to gain specific market knowledge before committing more resources into Russian markets. A simplified process was developed to evaluate the suitable market entry mode. As a result, the level of commitment and market knowledge affect the final entry model of the firm, as well as defined goals for the particular market.

A service perspective to digital innovation: exploring the emergence of autonomous shipping

Current research describes digital innovation largely similar to product innovation. Digital innovation is seen as an object of coherent activities, however in reality digital innovation results from convergence of variant technologies and those related actors with versatile business goals. To account for the dynamic nature of digital innovation, this study applies a service perspective to digital innovation. The purpose of the study is to understand how digital innovation emerges within a service ecosystem for autonomous shipping. The sub-objectives of this study are to 1) identify what factors motivate and demotivate actors to integrate resources for autonomous shipping, 2) explore the key technology areas to be integrated to realise the autonomous shipping concept, and 3) suggest how the technology areas are combined for mutual value creation within a service eco-system for autonomous shipping. Insights from autonomous driving were also included. This study draws on literatures on service innovation and service-dominant logic. The research was conducted as a qualitative exploratory case study. The data comprise interviews of 18 marine and automotive industry experts, 4 workshops, 4 seminars, and observations as well as various secondary data sources. The findings revealed that the key actors have versatile motivations regarding autonomous shipping. These varied from opportunities for single applications to occupying a central role in an autonomous technology platform. Thus, autonomous shipping can be seen as an umbrella concept comprising multiple levels. In technical terms, the development of the concept of autonomous shipping is largely based on combining existing technology solutions, which are gradually integrated towards more systemic entities comprising areas of the autonomous shipping concept. This study argues that a service perspective embraces the inherently complex and dynamic nature of digital innovation. This is captured in the developed research framework that describes digital innovation emerging on different levels of interaction: 1. strategic relationships for new solutions, 2. new local networks for technology platforms, and 3. global networks for new markets. The framework shows how the business models and motivations of digital innovation actors feed the emergence of digital innovation in overlapping service ecosystems that together comprise an innovation ecosystem for autonomous technologies. Digital innovation managers will benefit from seeing their businesses as part of a larger ecosystem of value co-creating actors. In orchestrating digital innovation within a service ecosystem, it is suggested that managers consider the resources, roles and institutions within the ecosystem. Finally, as autonomous shipping is at its infancy, the topic provides a number of interesting avenues for future research.

Public-private partnership investments in dry ports – Russian logistics markets and risks

The investments have always been considered as an essential backbone and so-called ‘locomotive’ for the competitive economies. However, in various countries, the state has been put under tight budget constraints for the investments in capital intensive projects. In response to this situation, the cooperation between public and private sector has grown based on public-private mechanism. The promotion of favorable arrangement for collaboration between public and private sectors for the provision of policies, services, and infrastructure in Russia can help to address the problems of dry ports development that neither municipalities nor the private sector can solve alone. Especially, the stimulation of public-private collaboration is significant under the exposure to externalities that affect the magnitude of the risks during all phases of project realization. In these circumstances, the risk in the projects also is becoming increasingly a part of joint research and risk management practice, which is viewed as a key approach, aiming to take active actions on existing global and specific factors of uncertainties. Meanwhile, a relatively little progress has been made on the inclusion of the resilience aspects into the planning process of a dry ports construction that would instruct the capacity planner, on how to mitigate the occurrence of disruptions that may lead to million dollars of losses due to the deviation of the future cash flows from the expected financial flows on the project. The current experience shows that the existing methodological base is developed fragmentary within separate steps of supply chain risk management (SCRM) processes: risk identification, risk evaluation, risk mitigation, risk monitoring and control phases. The lack of the systematic approach hinders the solution of the problem of risk management processes of dry port implementation. Therefore, management of various risks during the investments phases of dry port projects still presents a considerable challenge from the practical and theoretical points of view. In this regard, the given research became a logical continuation of fundamental research, existing in the financial models and theories (e.g., capital asset pricing model and real option theory), as well as provided a complementation for the portfolio theory. The goal of the current study is in the design of methods and models for the facilitation of dry port implementation through the mechanism of public-private partnership on the national market that implies the necessity to mitigate, first and foremost, the shortage of the investments and consequences of risks. The problem of the research was formulated on the ground of the identified contradictions. They rose as a continuation of the trade-off between the opportunities that the investors can gain from the development of terminal business in Russia (i.e. dry port implementation) and risks. As a rule, the higher the investment risk, the greater should be their expected return. However, investors have a different tolerance for the risks. That is why it would be advisable to find an optimum investment. In the given study, the optimum relates to the search for the efficient portfolio, which can provide satisfaction to the investor, depending on its degree of risk aversion. There are many theories and methods in finance, concerning investment choices. Nevertheless, the appropriateness and effectiveness of particular methods should be considered with the allowance of the specifics of the investment projects. For example, the investments in dry ports imply not only the lump sum of financial inflows, but also the long-term payback periods. As a result, capital intensity and longevity of their construction determine the necessity from investors to ensure the return on investment (profitability), along with the rapid return on investment (liquidity), without precluding the fact that the stochastic nature of the project environment is hardly described by the formula-based approach. The current theoretical base for the economic appraisals of the dry port projects more often perceives net present value (NPV) as a technique superior to other decision-making criteria. For example, the portfolio theory, which considers different risk preference of an investor and structures of utility, defines net present value as a better criterion of project appraisal than discounted payback period (DPP). Meanwhile, in business practice, the DPP is more popular. Knowing that the NPV is based on the assumptions of certainty of project life, it cannot be an accurate appraisal approach alone to determine whether or not the project should be accepted for the approval in the environment that is not without of uncertainties. In order to reflect the period or the project’s useful life that is exposed to risks due to changes in political, operational, and financial factors, the second capital budgeting criterion – discounted payback period is profoundly important, particularly for the Russian environment. Those statements represent contradictions that exist in the theory and practice of the applied science. Therefore, it would be desirable to relax the assumptions of portfolio theory and regard DPP as not fewer relevant appraisal approach for the assessment of the investment and risk measure. At the same time, the rationality of the use of both project performance criteria depends on the methods and models, with the help of which these appraisal approaches are calculated in feasibility studies. The deterministic methods cannot ensure the required precision of the results, while the stochastic models guarantee the sufficient level of the accuracy and reliability of the obtained results, providing that the risks are properly identified, evaluated, and mitigated. Otherwise, the project performance indicators may not be confirmed during the phase of project realization. For instance, the economic and political instability can result in the undoing of hard-earned gains, leading to the need for the attraction of the additional finances for the project. The sources of the alternative investments, as well as supportive mitigation strategies, can be studied during the initial phases of project development. During this period, the effectiveness of the investments undertakings can also be improved by the inclusion of the various investors, e.g. Russian Railways’ enterprises and other private companies in the dry port projects. However, the evaluation of the effectiveness of the participation of different investors in the project lack the methods and models that would permit doing the particular feasibility study, foreseeing the quantitative characteristics of risks and their mitigation strategies, which can meet the tolerance of the investors to the risks. For this reason, the research proposes a combination of Monte Carlo method, discounted cash flow technique, the theory of real options, and portfolio theory via a system dynamics simulation approach. The use of this methodology allows for comprehensive risk management process of dry port development to cover all aspects of risk identification, risk evaluation, risk mitigation, risk monitoring, and control phases. A designed system dynamics model can be recommended for the decision-makers on the dry port projects that are financed via a public-private partnership. It permits investors to make a decision appraisal based on random variables of net present value and discounted payback period, depending on different risks factors, e.g. revenue risks, land acquisition risks, traffic volume risks, construction hazards, and political risks. In this case, the statistical mean is used for the explication of the expected value of the DPP and NPV; the standard deviation is proposed as a characteristic of risks, while the elasticity coefficient is applied for rating of risks. Additionally, the risk of failure of project investments and guaranteed recoupment of capital investment can be considered with the help of the model. On the whole, the application of these modern methods of simulation creates preconditions for the controlling of the process of dry port development, i.e. making managerial changes and identifying the most stable parameters that contribute to the optimal alternative scenarios of the project realization in the uncertain environment. System dynamics model allows analyzing the interactions in the most complex mechanism of risk management process of the dry ports development and making proposals for the improvement of the effectiveness of the investments via an estimation of different risk management strategies. For the comparison and ranking of these alternatives in their order of preference to the investor, the proposed indicators of the efficiency of the investments, concerning the NPV, DPP, and coefficient of variation, can be used. Thus, rational investors, who averse to taking increased risks unless they are compensated by the commensurate increase in the expected utility of a risky prospect of dry port development, can be guided by the deduced marginal utility of investments. It is computed on the ground of the results from the system dynamics model. In conclusion, the outlined theoretical and practical implications for the management of risks, which are the key characteristics of public-private partnerships, can help analysts and planning managers in budget decision-making, substantially alleviating the effect from various risks and avoiding unnecessary cost overruns in dry port projects.

Stochastic particle models: mean reversion and burgers dynamics. An application to commodity markets

The aim of this study is to propose a stochastic model for commodity markets linked with the Burgers equation from fluid dynamics. We construct a stochastic particles method for commodity markets, in which particles represent market participants. A discontinuity in the model is included through an interacting kernel equal to the Heaviside function and its link with the Burgers equation is given. The Burgers equation and the connection of this model with stochastic differential equations are also studied. Further, based on the law of large numbers, we prove the convergence, for large N, of a system of stochastic differential equations describing the evolution of the prices of N traders to a deterministic partial differential equation of Burgers type. Numerical experiments highlight the success of the new proposal in modeling some commodity markets, and this is confirmed by the ability of the model to reproduce price spikes when their effects occur in a sufficiently long period of time.