Business risk management – Home Appliances Division

Business risks are classified as risks associated with the ability or provision of generating short-term and long-term operating revenue, control of business processes and maintenance of asset value.

The following important kinds of business risks were defined in the Gorenje Group: external risks, sales risks, purchase risks, product risks, development risks, human resources risks, property loss risks.

• External risks are mainly associated with the changes in macroeconomic conditions of operation in individual key markets. Due to the current global financial crisis, and consequently increasing unemployment, increases in the prices of basic raw materials and intermediate goods and the versatility and complexity of business activities, the exposure to the risks mentioned is still substantially increasing. The management of the Gorenje Group has assessed that the exposure to such risks is very high in individual markets.
• Sales risks are associated with competition in the sale of products and services in individual markets and include risks of appropriate marketing strategy (brand name, price and functional competition of products, design etc.), risk of increasing negotiating power of major industrial customers and trade chains, and risk of quality of after-sales services. The Management Board of the Gorenje Group has assessed that the exposure to such risks is very high.
• Unpredictability in the raw materials markets and the movement of the US dollar exchange rates still represent the main impact on purchasing risks. In addition to extraordinary events (weather catastrophes, the Arab uprising, the catastrophic earthquake in Japan), restrictive conditions of the debt crisis in the EU countries, unstable financial markets and the fear of a new recession have significantly increased risks of unpredictable movements in the raw materials markets. By means of market analyses and trends, the purchasing department decides, in co-operation with the suppliers, on the best starting points for forward purchases of stock-exchange metals for adequate periods. In the field of sheet steel that is not traded on the Stock Exchange, we take advantage of the possibility of agreements reached with strategic partners in the long term (up to one year, by price indexing models). In conditions of increased volatility and risks, such activities reduced the exposure of Gorenje to the raw materials markets. Long-term partnerships have remained the strategic advantage of purchasing, but exclusively on competitive bases. The development of supply sources in the LCC markets has continued and these are mostly US dollar areas by which natural hedging of sales in US dollars has been provided. In spite of the expected growth in the global economy and prices of raw materials in the world stock exchanges, the Management Board of the Gorenje Group has assessed that the exposure to purchase risks has increased.   
• Product risks have been focused on the control of risks that may lead to incorrect operation of appliances in the market and, finally, to a mass failure or product liability of the producer. Risks are limited by suitable development systems and quality assurance in scope of production, sales and after-sales processes, and additionally by the insurance of product liability. A quality management system in accordance with the requirements of SIST EN ISO 9001/2000 and the system of accredited methods under ISO 17025, and the six sigma quality management system have been established. Through the use of Businesses Intelligence information tools, the time to detection of any possible complete break-downs has been shortened. Thus, costs arising from serial failures have been limited. A set of tests in the development and production process was extended also by HALT /HASS tests and new capacities in test laboratories. The Management Board of the Gorenje Group has assessed that the exposure to product risks is moderate with respect to the measures for risks protection.
• Risks associated with the achievement of the planned economics of investments, successful activation of investments in the development of new product generations, and successful introduction of new technologies are of key importance among investment and development risks. Thereby appropriate planning and control of investment effects is relevant. Risks related to the introduction of new generations and new technologies have been reduced by the exact preparation of business plans, by systematic, active project approach where the achievement of objectives set has been regularly monitored, as well as the definition of the corrective activities in case of deviations or quick changes in the market. In spite of all activities reducing the exposure to risk, the Management Board of the Gorenje Group has assessed that the exposure to investment and development risks is high due to numerous new projects and unforeseeable changes in the business environment influencing the reliability of planning.  
• The production volume stabilised and, thus, there is no need for further reduction in the number of employees. In spite of that the optimisation of labour costs must be continued in order to be able to achieve strategic objectives and, therefore, special attention has been devoted to a social dialogue. The reduction in human resources risks requires adequate and timely information of the employees, response to their questions and explanation of any lack of clarity, especially in the fields of salaries and healthy workplace. Continuation of the dialogue about the salary policy and establishment of suitable ratios among salary brackets based on the complexity of work and achievement of performance of an individual are of key importance for the reduction in human resources risks. In order to be able to provide appropriate human resources on key positions, we will continue the policy of granting scholarships, off-the-job-training and motivation for the assumption of new challenges and the possibility of variable remuneration. The management of the Gorenje Group has assessed that the exposure to human resources risks is moderate due to the activities mentioned.
• Property loss risks include property and transport risks. The companies of the Group systematically transfer key property loss risks to insurance companies or business partners and, thus, the exposure to such risks has been reduced. The Management Board of the Gorenje Group has assessed that the exposure to such property loss risks is low.