Discussion on Investment Risks in Mainland China from the Perspective of Enterprise Risk Management Model — with Example of Case Study

• Main Authors: Liu,Wen-Ting, 劉文婷
• Other Authors: Su,Yu-Hui
• Format: Others
• Language: zh-TW
• Published: 2004
• Online Access: http://ndltd.ncl.edu.tw/handle/87704462501816825180

碩士 === 東吳大學 === 會計學系 === 92 === Abstract Since the economic reform was initiated in Mainland China in 1978, Taiwanese businessmen have been making investment in Mainland China endlessly. In the recent years, the investment of traditional manufacturing industries in Mainland China is no longer limited to the incentive of low labor cost. The main motive for the electronics industry to invest in Mainland China is global logistics. However, due to the unique cross-strait relationship, and disparity in the laws and environments, investment in Mainland China is lack of proper protection from the laws and is faced with serious risk. Therefore, this study aims to investigate the major operating risks faced by enterprises that invest in Mainland China for the purpose of establishing global logistics center, and their risk control mechanisms. This study adopted research methods of in-dept interview and questionnaire survey, and discussed Enterprise Risk Management (ERM) on case study to help the case identifying and controlling the risks of investing in Mainland China. The results are as follow: 1.ERM model extends the concept of internal control, and incorporates risk, risk-taking, risk return, and cost effectiveness so as to identify the risk control mechanism necessary to the enterprise. However, since the case is still at the stage of strategic investment for manufacturing and production mode and the investment is driven by the motive of establishing global logistics model, it has not determined the risk-taking level concerning the manufacturing and production mode to be invested in Mainland China. Thus, the study focused on its concept of internal control. As the scale of production increases in the future, the operating risk is likely to increase as well. The case agrees that the risk-taking level should be determined and the operation in Mainland China should be monitored in real-time in order to prevent the operating from going out of control and thus interfere with the overall operating objectives of the company. 2.ERM model provides the management a consistent structure of goal-setting, goal verification, and strategy-taking and risk-taking level. In other words, ERM model facilitates the congruence between the individual goals of the management and the company goal through Goal Congruence, so as to achieve the overall operating goal. Through the ERM model, this study learned that as the case is expanding its business and moving toward the operating model of worldwide division of labor, discrepancy between the goals of the departments and the mother company has emerged, thus, has counteracted the growth of the company. Moreover, the company should pay attention to the balanced development of “strategic goal”, “operating goal”, “following the goal”, and “reporting goal” as mentioned in the ERM model, in order to prevent excessive development on specific goals and minimize the difficulty in promoting other goals afterwards. This study found that the senior management of the case company has recognized the importance of “reporting goal” among the four goals, ye the management in the affiliate company in Mainland China gave less emphasis on “reporting goal” as oppose to the three other goals. The incongruence of goals should be concerned by the management and communicated to minimize the recognition discrepancy and reach consensus on the goals. Only by doing so could the overall operating goal, performance indicators, and compensation system could be linked to achieve the overall goal. 3.This study also found that the recognition discrepancy is existed in aspects of “how to reach the expected goal recognition specifically”, “identifying major influences on goal-reaching”, “existing control mechanism”, and “suggested future coping methods” between the mother company and the affiliate company in Mainland China. It is suggested to the two to communicate the aspects of recognition discrepancy and emphasize the priority integration points to minimize the waste or uneven allocation of resources. 4.During the case study, this study found that the integration of ERM and operating goal is more likely to be accepted by the management of different background, compared with the concept of internal control in the past. Since ERM helps to identify matters that are possible to affect the strategies and goals of the company through a comprehensive and systematic method, and measures, evaluates, and gives feedback to the risks that may affect the strategies or goals. As a result, ERM is not only suitable for the electronics industry but also a variety of industries and enterprises that are at different stages or in operating modes that can use ERM model to understand the risks faced by their enterprises and the necessary control mechanisms. Keywords: ERM, investment risks in Mainland China