The Goldman Sachs Company is one of the foremost leaders in financial services and has made itself specialists in the areas of investment banking, asset management, trading and securities and other related financial and consultancy services. In fact, the company has consistently maintained its unchallenged lead and enviable position in the most profitable segments of investment banking like mergers and acquisitions, Initial Public Offerings (IPO), underwriting services and high yield debt. The company has its headquarters in New York and operates mainly in the US, Europe and Asia.
In order to understand the current position of the company a SWOT analysis of the company is a must. SWOT Analysis Strengths: Goldman Sachs has an enviable position among the banking companies and has an inherent strength in the investment banking operation segment. In fact, it was Goldman Sachs which brought the art of investment banking in the US and subsequently into the global market. Therefore, it has a clear edge over its competitors in this area. It used these strengths into expanding and seeking out a steady flow of income in areas like asset management and securities services.
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This was mainly due to its organic growth resulting from a series of acquisitions and huge takeovers. For instance, in the first half of 2008 saw one of the largest deals and Goldman Sachs proved their mettle by mediating the acquisition of Anheuser-Busch by the Belgian brewing colossal InBev. The deal was stated to be worth $52 billion. It even advised the well publicized Yahoo takeover bid in which it defended Yahoo against Microsoft’s lofty plans to acquire the former. The deal was of $44.
6 billion and in this it proved that it could adopt an equally reverse posture given its expertise as to whether a deal be good or bad and not done for opportunistic sake only. According to author Gordon for the tenth year in a row Goldman Sachs was the top financier advisor globally as on 2007 and was the first bank to reduce its holding of mortgages and mortgage related securities (2008). It again has over a period of time attained goodwill and strong brand equity in its favor a fact that has been proved by staging one of the largest events in its own history and that was its own IPO in the year 1999.
Apart from this it has advised on debt offering by large institutions and governments including the World Bank and the Government of China which irrefutably places it much ahead of all major competitors. And further Goldman Sachs has been pioneering on researches that are connected with its area of financial services and which it still continues unabatedly to this day. Weakness: Among its great weakness is its huge size itself which inevitably puts pressure on the company during turbulent economic conditions. Even a large company like Goldman Sachs is not immune to global financial meltdown brought out by the sub prime mortgage crisis.
In fact, there is significant pressure on business activity although Goldman Sachs is better insulated as it has not involved itself in mortgage lending. Large institutions like the Lehman Brothers which filed for bankruptcy has aggravated the situation even further and the banks have stopped lending to each other. Inevitably, Goldman Sachs has to cut its workforce to around 10 percent. The employment situation is likely to continue to deteriorate as companies are forced to downsize their workforce and concentrate more on bottom line for survival (DeLisle, 2009).
Besides, having concentrated itself in a rather narrow area of financial securities, investment banking, mergers and acquisitions and other debt services, it is vulnerable too as its business is not diversified enough yet very complex. Complexity can increase efficiency and depth to financial market, but can cause a series of failures for the market (Schwarcz, 2009). Opportunities: Goldman Sachs has expertise and backed by research based expertise and can easily exploit opportunities in emerging economies like India and China.
A greater part of its activities can be shifted to these regions where the economies have rather weathered the global crisis pretty well. Besides, there are enough mergers and acquisitions by both foreign business in these regions as well as emerging economy’s businesses carrying out their own mergers and acquisitions in developed nations. Here, Goldman Sachs has a potentially good role to play. Besides, these economies are opening up to private enterprises in a big way and thus there is definite shortage of such expertise of which Goldman Sachs has an edge.
Hence, there is a host of opportunities in the area of private equity deals in emerging economies. Threats: The foremost threat that Goldman Sachs faces is the increasing volatility in financial markets which would obviously lead to diminished earnings. There is likelihood for the global economy to remain in depressed condition for a longer period of time than previously thought. Firms with riskier investments are more prone to performance volatility than firms with lower degree of risks (Mauri, 2009). This could mean that there could be a significant fall in its profit margins and also possibilities of newer expansion.
Its area of expertise at M &A which has brought the stream of revenue is likely to be affected as there would be fewer mergers and acquisitions due to the credit squeeze and financial fiasco. Identification of Three Strategic Alternative available with Goldman Sachs There are three good strategies available with Goldman Sachs to ward off any financial problems arising out of the mortgage crisis. (i) Carbon Credits Goldman Sachs is quite active in the carbon emissions and renewable energy credits as well as other related products.
In fact, the company has produced several good financial products to meet the growing demands of this market. In fact in the year 2009, Goldman Sachs has transacted the largest North American carbon credit which shows the strengths the company has acquired in this relatively new field too. There is ample reason for Goldman Sachs to succeed in this area for technically the field is related to areas like securities and given its own huge manpower potentials and research base it can fine tune many of its own financial instruments in this area with ease.
Again, at the corporate level this would undoubtedly bring about a change in the overall strategic decision making level and would call for overall changes in the highest levels of corporate control. From the SBU level a new division for the purpose would have to be created and this cannot be linked with any of the existing businesses of the company as the carbon credit market is an exclusively different thing altogether. (ii) Establishing in BRIC countries
Goldman Sachs has the necessary expertise and resource base to begin operations in the BRIC countries which are incidentally Brazil, Russia, India and China. This can be a very good strategy for further growth and protecting itself from the aftermath of the financial crisis. Not only this, the BRIC countries are quite well insulated from the overall backlash of the economic fallout and have their own domestic virgin markets to tap. Therefore, for a long period of time these emerging economies are likely to sustain growth even if other developed nations fail to make it.
Hence, there is a great deal of chance for Goldman Sachs to make its best in these markets. In order to succeed in this the company would have to restructure itself and make changes both at the corporate and SBU levels. There must be changes in its corporate decision making level which would have members of other cultural communities to take charge of the responsibilities in other soils which is not consistent with that followed by the management so far.
At the SBU level there should be clear cut agenda as to the nature of its operation as in most cases there would difference in market in terms of customers, competition and difference in marketing channels and of course the rules and regulations of the country. (iii) Hedge Funds Goldman Sachs has made strategic moves in an area of great potential and that is the hedge funds. Although backed by huge resources and a unique talent pool of one of the best workforce in the finance banking area it has made some losses in some of its hedge funds.
This is primarily due to the downturn in the global economy aggravated by the sub prime mortgage crisis. Lately, it has begun to think afresh and has infused idea into its research base and has invested and taken partial ownership of other reputed funds from medium to large size to help it grow in this sector. The feasibility for hedge funds in the overall business activities of Goldman Sachs is quite noteworthy as these too are dealing with securities where the requirement of huge resource is a must.
In the corporate level there is no need for any change in strategic decision as the hedge fund business can be regarded as one of the offshoots of the already existing financial services. This tends to add more value to its existing business and hence can be less concrete than the decision at the functional level or the SBU. The SBU level is to identify the hedge funds in a distinct environment as the nature of customers, competitors and marketing channels vary greatly from the usual securities type of business.
Recommended Strategic Alternatives The best strategy that is recommended for Goldman Sachs is to keep enough flexibility at the corporate level such that during exigencies and economic reversals a lot of SBU which are not functioning well could be winded up and new segments could be introduced in its place. There is a great need for managing against such sudden reversals and hence the company should be able to pull off without losing much of its business sheen.
The best way to do so is to make its functional units or SBU flexible and anticipate changes such that in the event of their occurring it should be able to shift or close a part or full of its functional activities and also shift its employees elsewhere where they can be employed after a period of training. Besides, it can stay aloof from controversies such as it faced when SEC (Securities and Exchange Commission) charged the Company with fraud for those investments that it sold to two of its clients were actually crafted by John Paulson the billionaire hedge fund manager who was betting on them to fail (S
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