Massey-Ferguson, 1980

Massey-Ferguson, 1980
Business risk:
Massey-Ferguson is the company called “the one true multinational”. Its products were sold to all over of the world. Massey has two categories of products, farm and industrial machinery and diesel engines. For the farm and industrial machinery, North American and the United Kingdom were account for 81.3% supplies for the whole world market. And for the diesel engines, the United Kingdom is account for 77.7% supplies for the world. Because of the high price of pound, this lack of product-market alignment made Massey sensitive to the currency fluctuation, which can be evidenced by the two large amount of exchange adjustment in 1979 and 1980. In contrary, Deere & Co. and International Harvester, the main competitors of Massey, concentrated on the North American market. So Deere and International Harvester did not highly influenced by the currency fluctuation. Therefore, compared with its main competitor, Massy has the higher business risk.
The Massey’s business risk also comes from its strength in negotiating deal directly with government. This strength helped Massey enter into the agreement with Third World and Eastern bloc governments, but it also made Massey expose to the risk of the unstable political climate in some of these counties. For example, some governments who had dealing with the Massey were overthrown. Compared with Massey, Deere and International Harvester did not face such risk because they concentrated on the North American Market.
And the whole industry was faced with the business risk from market demand. The market demand will change because of a lot of factors, such interest and economic condition. As the recession in 1980, the market demand was severely depressed. Massey, Deere and Harvester were all experience the decreased profit and NI.
The interest rate is another risk faced by the industry. Interest rate affects the industry in two ways. First, high interest rate will increase the cost of short...