Ok, moving on, assuming that we agree to invest, our group has

did up a risk analysis and how to mitigate the risks involved. As

top&Rising is a mfg company, the main risks involved will be
categorized into demand risks, supply risks, production risks and
lastly, collection risks.
Demand Risks:
First Risk: Top & Rising will only have one customer during the
first 5 years of operations, whereas its payback period is
6.29years
Outcome: Become over dependent on this guaranteed demand
and spend no effort on understanding the market trends and risks
as well as consumer preferences. As a result, this may cause
them to not understand the market well and once the protection
period ends, they are unable to adapt to the ever-changing
market trends and lose out.
Mitigation: Diversify their customer base even while in their
protection period to fully utilize their capacity. This ensures that
the guaranteed demand gives them a steady profit to cushion on
their operations expenses, but at the same time, allow the JV to
be independent.
Second Risk: Forecast risk, where forecast demand =/= actual
demand
Outcome: A high forecast but low actual demand can mean
unnecessary cost for the firm in terms of disposing or storing their
surplus. This is critical for this JV product line as they are involved
in the manufacturing of margarine, shortening and hard butter, all
of which are perishable items with short shelf life. On the other
hand, low forecast but high actual demand can mean opportunity
cost in terms of lost sales.
Mitigation: This risk is usually due to asymmetric information
across the supply-chain. To manage this risk operationally,
Top&Rising can work with the retailers and other manufacturers to
increase the visibility of demand information across the supply-

chain to reduce forecast errors. They can also collaborate with the
retailers Top&Rising can adopt the Just-in-Time (JIT) manufacturing
methodology to reduce inventory costs & lead time.
Third Risk: Changes in consumer preferences
Outcome: Increasing concerns towards health issue has pivoted
consume trends towards healthier eating; and may cause
Top&Rising products to lose out in the competitive food industry.
Mitigation: Conduct market surveys at a regular interval to
understand consumer preferences. Should also engage in product
diversification that will allow them to enjoy economies of scale.
Supply Risks:
First risk: Political Risks in supplier countries might result in the
possibility of strikes, shutting down production & distribution of
raw materials to our JV.
Outcome: Cause delays or even halts to our production process.
Such occurrence will prevent us from delivery our goods in time to
JVs customers.
Mitigation: Currently they only get their raw materials supplies
from two countries. Can have their supplies from multiple
countries with relatively more stable political scene at a similar
cost through negotiations.
Second Risk: Delays in deliveries of raw materials as a result of
bad credibility of the suppliers, or when suppliers are unable to
adapt to changes in demand. Can also happen through acts of
gods such as natural disasters that prevent shipping of raw
materials over to the JV.
Outcome: Cause delays or even halts to our production process.
Such occurrence will prevent us from delivering our goods in time
which will have a ripple effect on our companys reputation.

Mitigation: Assess credibility of suppliers before collaborating

with them. As for acts of god such as natural disasters that
disrupt either air or sea shipping, JV needs to have alternative
temporary shipping routes to switch to in the event of natural
disasters.
Third Risk: Risk that price of raw materials will increase as rawmaterial prices are only fixed on a semi-annual basis.
Furthermore, JV only has two suppliers, hence there is high
bargaining power for the suppliers to increase raw material prices.
Outcome: Depending on the rate of increase, it will hurt the JV
profit margin and force them to comply to the rise in the cost due
to the JVs low bargaining power. Such compliance may force
them to cut expenses elsewhere and compromise on the quality
of the goods produced.
Mitigation: Negotiate for longer-term contracts such that the raw
material prices will be fixed for a longer period of time.
Meanwhile, they should also actively source for alternative
suppliers to decrease the suppliers bargaining power.
Fourth Risk: Hedge risk, assuming that the raw materials are to
be paid in the foreign currency.
Outcome: if the currency were to move in the direction that is
against the JV (since we would need to convert local currency to
foreign), the raw material prices will be higher than as per agreed.
Mitigation: Include clauses in contracts to fix the exchange rate
at the rate at which they sign their contract.
Production/Mfg Risks:
First Risk: Capacity risks as they have to invest heavily in PPE
for the mfg process.
Outcome: Hurts financial performance be it under-utilization or
lack of capacity to produce to meet demand and may cause
bottlenecks at different section of the production chain.
Mitigation: Make their production process more flexible by
pooling the resources in terms of machineries etc of the JV and
the parent company such that the same set of machineries can be

used to produce a variety of products. JV can also consider

shifting the bulk of their production cost to make it more more
variable, such that it gets incurred only when there is a
production.
Second risk: Inadequate training of employees that lead to
production delays as the production is a very complicated process
and takes about one month
Outcome: Delays in production process or result in sub quality
goods being produced
Mitigation: Do not only conduct initial training for the local
employees. Have a mix of old and new employees at both
production plants before the new local employees are very
experienced with the production process.
Third Risk: Insufficient Profits to maintain and upgrade
machineries
Outcome: Delays in production process or result in sub quality
goods being produced
Mitigation: Set aside a pool of funds for upgrade of machineries
in case theres a particular year whereby profits generated are
insufficient.
Collection risks:
Risk: Risk that customers will default their payments
Outcome: JV has to wrtie off these bad debts due to inability to
collect. Their cash conversion cycle is also consideraby long.
Mitigation: Filter credbility of customers. Give discount to
customers to encourage payments. Decrease inventory period,
increase A/P period, decrease A/R period.