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1 – 10 of 473Vitor da Mata Quintella, Antônio Francisco de Almeida da Silva Jr, Jose Ricardo Uchoa Cavalcanti Almeida and Marcelo Embiruçu
The purpose of this paper is to identify, measure and optimise financial risk and its effect on returns from innovation projects on an accrual basis and on a cash basis in a…
Abstract
Purpose
The purpose of this paper is to identify, measure and optimise financial risk and its effect on returns from innovation projects on an accrual basis and on a cash basis in a commodity industry.
Design/methodology/approach
A hypothetical case study, based on a real case, of a petrochemical commodity industry in Brazil was analysed with commodities pricing rules based on actual contracts. Earnings at risk (EaR) and cash flow at risk (CFaR) measures were applied, as well as a metric proposed in this paper called cash balance at risk (CBaR).
Findings
The paper demonstrates that financial risk measurement and optimisation are important issues in the decision-making process in the petrochemical industry. EaR, CFaR and CBaR measures are helpful when used alongside standard procedures of project evaluation. The findings also show that innovative technologies, in certain conditions, may act as “natural hedging”. It was found that the time delay between revenues and expenses leads to financial risk exposure to changes in prices and foreign exchange rates. Projects can use financing and hedging to boost their results.
Originality/value
An innovative project was compared with an expansion project in a petrochemical industry. A model for petrochemical commodities contract pricing was added in an analysis that included financing and hedging. The findings in this paper suggest that it is important to consider financial risk measures in project evaluation.
Objetivo
O objetivo deste trabalho é identificar, medir e otimizar o risco financeiro e seus efeitos sobre os resultados de projetos com inovação, tanto na perspectiva do regime contábil quanto do regime de caixa, em uma indústria de commodities.
Abordagem
Um estudo de caso hipotético, baseado em um caso real de uma indústria petroquímica brasileira, foi analisado com regras de precificação de commodities baseados em contratos reais. As métricas Earnings at Risk (EaR) e Cash Flow at Risk (CFaR) foram utilizadas, assim como uma métrica proposta neste trabalho, denominada Cash Balance at Risk (CBaR).
Resultados
Este artigo demonstrou que a mensuração e otimização do risco financeiro são questões importantes no processo de tomada de decisão em uma indústria petroquímica. As medidas EaR, CFaR e CBaR se apresentaram como contribuições ao processo padrão de avaliação de projetos. Os resultados também demonstraram que inovações tecnológicas, em certas condições, podem funcionar como um “hedge natural”. Foi verificado que descasamentos temporais entre recebimentos e despesas geram uma exposição financeira a oscilações em preços e em valores de moedas estrangeiras. Financiamento e hedge podem ser utilizados em conjunto para aprimorar resultados de projetos.
Originalidade/valor
Um projeto com inovação foi comparado com um projeto de expansão em uma indústria petroquímica. Foi realizada uma analise de risco que agrega ao financiamento e ao hedge o uso de contratos de precificação de commodities. Os resultados desse projeto demonstram que é importante considerar medidas de risco financeiro nas avaliações de projetos.
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Endang Sylvia and Yos Sunitiyoso
This paper aims to identify all variables and parameters related to business and emission within the petrochemical industry. The variables and parameters specified will be modeled…
Abstract
Purpose
This paper aims to identify all variables and parameters related to business and emission within the petrochemical industry. The variables and parameters specified will be modeled into a system dynamic model that will be a baseline for the proposed best scenario(s) to address the business issue related to emission reduction in the petrochemical industry.
Design/methodology/approach
Literature review and stakeholder interviews were conducted to define the key factors contributing to the emission reduction of the petrochemical industry. The key factors are then developed into a system dynamic model to measure the quantitative impact of changes in those variables on emission and industry profitability.
Findings
This paper provides an analysis of system dynamic model. It suggests that process optimization can lead to a slight amount reduction in emissions. In contrast, a significant reduction shows in the simulation result of bio-based feedstock utilization and implementation of advanced technology. To sustain the emission reduction, strong commitment from stakeholders and support from the government will play an important role.
Research limitations/implications
This research is limited to problem analysis of the primary product (high-value chemical) of the petrochemical industry by only considering the changes in the key factors of emission reduction.
Practical implications
This paper includes implications for interventions that can be imposed to reduce emission while retaining the business profitability.
Originality/value
The contribution of this study is to find the best scenario that can boost emission reduction within Indonesia’s petrochemical industry.
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Jeffrey T. Macher and David C. Mowery
We examine the evolution of vertical specialization in three industries: chemicals, computers, and semiconductors. Vertical specialization is the restructuring of industry-wide…
Abstract
We examine the evolution of vertical specialization in three industries: chemicals, computers, and semiconductors. Vertical specialization is the restructuring of industry-wide value chains, such that different stages are controlled by different firms, rather than being vertically integrated within the boundaries of individual firms. In some cases, vertical specialization may span international boundaries and is associated with complex international production networks. After decades of vertical specialization, firms in the chemical industry are re-integrating stages of the value chain. By contrast, the semiconductor and computer industries have experienced significant vertical specialization during the past ten years. We examine how and why these contrasting trends in vertical specialization have co-evolved with industry maturation and decline, and underscore the importance and role of both industry factors and business strategies necessary for industries to become more specialized. We also consider the effects of vertical specialization on the sources of innovation and the geographic redistribution of production and other activities. We conclude that the evolution of vertical specialization in these three industries has both reflected and influenced the strategies of leading firms, while also displays industry-specific characteristics that are rooted in different technological and market characteristics.
Florina Livia Covaci and Pascale Zaraté
This paper aims to overcome some of the limitations of previous works regarding automated supply chain formation (SCF). Hence, it proposes an algorithm for automated SCF using…
Abstract
Purpose
This paper aims to overcome some of the limitations of previous works regarding automated supply chain formation (SCF). Hence, it proposes an algorithm for automated SCF using multiple contract parameters. Moreover, it proposes a decision-making mechanism that provides means for incorporating risk in the decision-making process. To better emphasize the features of the proposed decision-making mechanism, the paper provides some insights from the petroleum industry. This industry has a strategic position, as it is the base for other essential activities of the economy of any country. The petroleum industry is faced with volatile feed-stock costs, cyclical product prices and seasonal final products demand.
Design/methodology/approach
The authors have modeled the supply chain in terms of a cluster graph where the nodes are represented by clusters over the contract parameters that suppliers/consumers are interested in. The suppliers/consumers own utility functions and agree on multiple contract parameters by message exchange, directly with other participant agents, representing their potential buyer or seller. The agreed values of the negotiated issues are reflected in a contract which has a certain utility value for every agent. They consider uncertainties in crude oil prices and demand in petrochemical products and model the decision mechanism for a refinery by using an influence diagram.
Findings
By integrating the automated SCF algorithm and a mechanism for decision support under uncertainty, the authors propose a reliable and practical decision-making model with a practical application not only in the petroleum industry but also in any other complex industry involving a multi-tier supply chain.
Research limitations/implications
The limitation of this approach reveals in situations where the parameters can take values over continuous domains. In these cases, storing the preferences for every agent might need a considerable amount of memory depending on the size of the continuous domain; hence, the proposed approach might encounter efficiency issues.
Practical implications
The current paper makes a step forward to the implementation of digital supply chains in the context of Industry 4.0. The proposed algorithm and decision-making mechanism become powerful tools that will enable machines to make autonomous decisions in the digital supply chain of the future.
Originality/value
The current work proposes a decentralized mechanism for automated SCF. As opposed to the previous decentralized approaches, this approach translates the SCF optimization problem not as a profit maximization problem but as a utility maximization. Hence, it incorporates multiple parameters and uses utility functions to find the optimal supply chain. The current approach is closer to real life scenarios than the previous approaches that were using only cost as a mean for pairwise agents because it uses utility functions for entities in the supply chain to make decision. Moreover, this approach overcomes the limitations of previous approaches by providing means to incorporate risk in the decision-making mechanism.
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Sayyed Mohsen Azad, Pouria Khodabakhsh, Fatemeh Roshannafas and Seyed Hassan Ghodsypour
This study aims to scrutiny the performance of the petrochemical sector and the technological innovation life cycle. Also, the stage of the innovation life cycle for the sector is…
Abstract
Purpose
This study aims to scrutiny the performance of the petrochemical sector and the technological innovation life cycle. Also, the stage of the innovation life cycle for the sector is specified. Then, scenarios are designed to improve the speed of the sector development. For this reason, for synchronizing the petrochemical sector, this study tries to combine two innovation systems (technological and sectoral systems) called “techno-sectoral innovation system” under an integrated model. Furthermore, the “functions and driving motors” are expanded in the proposed model.
Design/methodology/approach
By combining two concepts of the innovation systems, the complexity of the system rises to some extent. Also, to model causal relationships in the sector and non-linear connections between variables, system dynamics approach is applied. During this phase, the flow diagram of the model is translated to a simulation programme using Vensim software. Model validation is investigated using a comparison of the actual with simulated values.
Findings
The results predict the functions state of the innovation system and detect activation of innovation motors in each stage of the innovation life cycle. Validation shows the acceptable error of the indices. It can be concluded that the sector is relatively in the development state. Four scenarios have been proposed for representing policies that sector uses to motivate its companies. The best scenario is the fourth one that divides resources with different weightings among companies to accelerate switching time between sector’s motors. Finally, the fourth scenario can improve the performance of the petrochemical.
Originality/value
The hybrid approach shows researchers that performance of an industry can be improved based on sectoral and technological at the same time. Thus, this case-based model can contribute to other researchers, as a base model. Also, it could be customized with parameters and the relationship between players and functions. Furthermore, a dynamic switch among the motors has been presented in the model.
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This study examined responses from 58 food and chemical exporters in Saudi Arabia. Managerial perceptions on 24 export obstacles that were derived from the literature are analyzed…
Abstract
This study examined responses from 58 food and chemical exporters in Saudi Arabia. Managerial perceptions on 24 export obstacles that were derived from the literature are analyzed and reported. The single most important obstacle perceived by the sample exporters is fierce competition in foreign markets. Competition is followed by high cost of imported raw materials, absence of information about foreign markets, wide fluctuations in the foreign exchange rate, and high overseas transportation costs. The eight categories of the obstacles are: market information, competition, shipping, government policy, foreign market risks, export procedures, production/marketing cost, and internal/technical problems. MANOVA analysis showed that chemical and food exporters are statistically different in their mean response to these obstacles. ANOVA pinpointed those variables that are different at the .05 level. They are: risks involved in selling abroad, language and cultural differences, complex export procedures, lack of adequate export revenue insurance program, and absence of an export management and consulting company. Managerial and policy implications are discussed. Further, recommendations for tackling the top export obstacles are presented.
Andrew Inkpen and Kannan Ramaswamy
This chapter examines the oil and gas industry and the efficacy of vertical integration strategies. Using multiple theoretical lenses ranging from the resource-based view…
Abstract
This chapter examines the oil and gas industry and the efficacy of vertical integration strategies. Using multiple theoretical lenses ranging from the resource-based view, transactions costs, and parenting perspective, the chapter considers different arguments associated with vertical integration. The 2011 breakup of ConocoPhillips and its global value chain helps address the question of which strategy is best – integrated or nonintegrated. We provide several conclusions about the structure of integration and value chains within the oil and gas industry. First, vertical integration based on the physical transfer of products between value chain activities will generate little firm advantage in the form of classical integration benefits, such as control over input quality or speed to market. Second, competing across the industry value chain as a hedge or strategy against industry cyclicality is not theoretically defensible. Third, pure play industry specialists can create value through management focus, agility, and, transparency for investors. Fourth, firms that compete across a wide range of industry value chain activities can create value-adding corporate strategies if they are able to leverage knowledge and assets across different industry sectors.
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Aldi M. Hutagalung, Djoni Hartono, Maarten J. Arentsen and Jon C. Lovett
The purpose of the paper is to provide to a better scientific understanding of Indonesia’s domestic gas allocation policy and its effects on the national economy and to answer the…
Abstract
Purpose
The purpose of the paper is to provide to a better scientific understanding of Indonesia’s domestic gas allocation policy and its effects on the national economy and to answer the question of what best priorities can be set in allocating the natural gas for the domestic market to maximize the benefits for the national economy.
Design/methodology/approach
The authors apply a Computabled General Equilibrium (CGE). The Social Accounting Matrix 2008 is used to calibrate the CGE Model. There are two scenarios proposed, each is simulated with certain percentage of gas supply curtailment (50 MMSCFD, Scenario A), (100 MMSCFD, Scenario B).
Findings
It is confirmed that government’s current policy to give priority to oil production is not the optimum way to maximize added value of natural gas to Indonesian economy. While oil production generates state revenue, it is industry and petrochemical sector that induces high economic impacts because of strong backward and forward linkages.
Research limitations/implications
Due to the limited data availability, it is assumed that the data on the SAM 2008 are valid for describing the structure of Indonesian economy.
Practical implications
The paper provides recommendation to the government to revise gas allocation policy by changing the rank of consumers’ priority.
Originality/value
This paper provides instruments to measure the impact of Indonesia’s domestic gas allocation policy. Finding the best hierarchy of consumer priorities is essential for maximizing added value of natural gas for the national economy.
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Pedro Esteban Moncarz and Sergio Victor Barone
Brazil, a large developing economy whose main exports consist of primary commodities, benefited greatly from the boom in commodity prices during the first decade of the current…
Abstract
Purpose
Brazil, a large developing economy whose main exports consist of primary commodities, benefited greatly from the boom in commodity prices during the first decade of the current century. However, with a large share of its population with low and very low incomes, there is a potential for some adverse redistributive effects. The purpose of this paper is to address this issue by simulating the ex ante effects using a mixed endogenous–exogenous social accounting matrix (SAM) price model.
Design/methodology/approach
The methodology consists of two parts. First, using a mixed endogenous–exogenous SAM price model, the authors obtain the elasticities of domestic prices (goods, services and factors) in response to the increase in international prices of three types of commodities: agricultural, oil/gas and minerals. Second, the authors run micro-simulations at the household level on welfare effects, as well as on some distributive indices. Analysis at the regional level is also carried out.
Findings
Following increases in the international prices of primary commodities, the responses of internal prices (goods, services and factors) mean a welfare loss all over the entire distribution of household per capita expenditure; the least affected are those households at the low end and around the median of the distribution. However, the differences among households are not very important. Moreover, once we take into account government transfers and payments from social security, the magnitude of the effects reduces even further. Also, inequality indices and poverty rates show little responsiveness to the simulated shocks. Finally, poorer regions are the most likely to be affected, but also the distribution of effects across households shows differences between regions.
Originality/value
Economies with comparative advantages in the production of primary commodities can benefit at a macro-level from the increase in the international prices of such commodities. However, when a large part of the population spends a high proportion of its income on goods whose prices may be affected by the increase in commodity prices, there is a room for some undesirable effects from a redistributive standpoint. This study provides valuable results about such potential effects for Brazil, a large developing economy.
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