Economics

This project will discuss the different hedging needs of Mercedes-Benz in Japan. The company sells its cars in Japan, but does not produce them in that market. One of the key demand hedging strategies for the company is vertical integration.

The demand in the Japanese market is relatively stable, but Mercedes wants to ensure a relatively low level of inventory, because inventory sitting on lots is an inefficient use of working capital. In addition, cars depreciate over time and a year-old car on a new car lot will need to be discounted in order to be sold. To avoid this, the company must carefully manage its inventory levels. Vertical integration in this sense reflects control over the company's distribution channels (Investopedia, 2012).

The vertical integration strategy involves owning the dealerships that sell the cars. This makes it easier to estimate demand. In addition, there is no incentive for the...
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