1. What are the possible causes of bankruptcy of Global Crossing? [Reflect on top two causes] 2. How can such an event be prevented? [Reflect on top two ways]
Global Crossing
The company was founded in 1997 to provide a trans-Atlantic cable to carry telephone and data traffic. Using high-bandwidth optical fiber, the company was able to sell capacity at less than half the price of existing competitors. After six months of operations, Global Crossing offered stock to the public, and the resulting price valued the firm at an astounding $19 billion. Six months later it was valued at $38 billion, more than the Ford Motor Company.
The cable technology was not proprietary and data-carrying capacity was a commodity. That meant that customers could easily switch from one supplier to another, putting them in a powerful bargaining position. Furthermore, customers were price-sensitive. Even worse, the threat of entry was high, and other companies were entering the business, fueled by easy financing. High fixed costs but near-zero marginal costs (the cost to carry one more piece of data) led to fierce price competition within the industry. As new entrants came into the market and industry competition increased, the price of fiber capacity collapsed.
Global Crossing declared bankruptcy in January 2002.
questions:
1. What are the possible causes of bankruptcy of Global Crossing? [Reflect on top two causes]
2. How can such an event be prevented? [Reflect on top two ways]
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