352 Perceived Market Risks and Strategic Risk Management of Food Manufactures: Empirical Results from...
Risk avoidance through, e.g., such tactics as eliminating risky activities.
• Risk reduction through reducing a risk’sthe probability of occurrence it will occur or its
possible consequences.
• Risk sharing with other companies through, for instance, acquiring insurance coverages or
outsourcing business activities.
• Risk acceptance when possible damages are small or when risk management strategies are
not applicable (Schiller et al, 2005).
Strategies reflect a firm’s choices and actions “to neutralize threats and exploit opportunities
and strengths while avoiding or fixing weaknesses” (Barney, 2001, p. 193). We can distinguish
betweenThere are two levels of strategic management, corporate and competitive strategies:
• On the corporate level, each company has to define the businesses it is in. Decisions on pro-
ducts and markets, vertical integration and internationalization, marketing channels, growth
and diversification are elements of a company’s corporate strategy (Barney, 2001).
• On the competitive level FFfor each of its businesses a company has to decide how to find a
position within an industry which that allows to generatethe generation of above-average
profitability. Porter (1980) distinguishes between three generic competitive strategies: cost
leadership, differentiation and focus strategies.
Risk management and strategic planning are usually two fairly distinct theoretical strands. But,
of course, a company’s strategies have a strong influence on its exposureition to risks due to
their influence on the threats the firm faces. Therefore, strategic decisions can be considered an
integral part of risk management acitivities. Strategic risk management can take place on the
corporate as well as the business level.
On the corporate level risks can be avoided through disinvestment strategies. A business a com-
pany is not in does not contribute to its risk profile. Furthermore, diversification and internatio-
nalization contribute to risk reduction since they open up new markets. Risk sharing can be
implemented through outsourcing primary activities, such as production, to external suppliers
(strategic outsourcing).
On the business level focus strategies shelter companies from competitive pressures in the
broader market and, thus, allow them to avoid risks. Serving differing market segments,
e.g.such as premium and low-price segments, has a risk reduction effect which that is to a cer-
tain degree comparable to that of diversification strategies. Innovative products are sold in less
competitive market segments and also contribute to reducing market risks. Outsourcing secon-
dary activities, such as logistics or human resource management, can be considered a way of
becoming more flexible and cost-efficient in competitive market environments. Furthermore,
risks are shared with external suppliers or service providers.
However, Mmost strategic risk management activities do not only contribute to the avoidance,
reduction or sharing of risks but also create also new risks themselves. An outsourcing compa-
ny, for instance, is afterwards more heavily dependent on external suppliers and their decisions.
Diversification, internationalization and innovation are also risky decisions in and of itselfthem-
selves. So the overall effect of strategic risk management activities is mixed. They reduce exi-
sting risks, but they also create new ones. Nevertheless, in the end the risk situation looks
different. Table 1 summarizes the contribution of corporate and competitive strategies to risk
management.