Sunday, August 30, 2015

COST ACCOUNTANTS ADVISORY PART 1

Whether you are a practising cost accountants or service, we need to give advice to our top management about the recent plan of action to be adopted keeping the global economic conditions in mind. This article is just the beginning of the new segment of advisory.  As you will keep reading the article you will get to know the meaning of this segment. Those who are thinking that headline inflation would come down and RBI will move ahead for a rate cut well I will request them not to inject false hope within the clients. Inflation is already started going up as food inflation is one the higher side. Prices of food items, pulses and vegetables are already on the rising front. International Commodity prices are low but corporate are not having much benefit of the same as production or manufacturing is very slow since export market demand is still very low.
Government of India have taken aggressive steps in clearance of orders and pending works etc but it has been very slow and also the returns from the same would take time to come ahead. 

Further you can expect RBI to keep on lowering rates to bring growth. One needs to understand the macro factors and the growth opportunities hidden within them. Cheap debt will lead to overstretched business expansion plans which would create further problems when another recession hits. Don’t forget that many companies NPA have been due to overstressed expansion plans taken during the 2008 recession thinking it’s an opportunity to expand footprints.  Hence advise your clients to get into new markets and new opportunities. Don’t forget that ROI is going to be key metric which will decide the fate of capital structure required for the expansion. A wrong choice of market would create more problems. Further new markets exploration should be taken in a cautious note as too much capital might increase the long term burden which means efficient resource management is required. Being a cost accountant you need to keep this process in mind.
The most strangest thing in economic history which we are all witnessing is that despite six years of quantitative easing (QE) in most of the world’s major economies, global GDP growth (and oil demand growth) is weak (or ‘below-trend’ as the experts say). Hence companies taking expansion plans in overseas market should keep in mind that we need to explore new markets and not to flock around the traditional overseas markets.
This is one of the key areas which we need to keep in mind while advising as consultants to our clients/corporate. China slow down is boon for those who are importers of the same but bad for those who are exporters over there since one will not get a similar traditional growth opportunity as one used to get previously.  Over here I find cost accountants can easily re-work on the product mix and sales mix and derive new target costing based pricing of products which would become more competitive in Chinese markets and would also save the company form losing market share. Target costing would be of great help since it reduce the error of landing into unchartered territory.

Now let’s get back to some analysis of the affect of Chinese slow down on other economies and if any opportunity for your clients to grow. German economy is very dependent on Chinese markets hence slowdown in china pulls brake on the German economy. Total German exports to China now amount to £100bn, or 6.6% of everything the nation sells abroad. In between Indian corporate can bargain well to get advantage of the slow down for the Germans and can make Total Quality Management to leap in to new heights. This also clears that UK economy will be in more pains hence export market for India would be in problem. This clearly justifies that one needs to explore new markets. I hope my 1st part of Cost Accountants Advisory was up to the mark for your betterment at your work place.

1 comments:

Purushothaman Mudaliar

A very good article for the professional cost accountant who can give fair advice to corporate clients.

Since one year I am reading the articles of Sri Gupta which are thought provoking and best for analysis for the day to day economy.

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