CapitalInvestment in Emerging Markets
CapitalInvestment in Emerging Markets
Venturingin emerging markets is viewed as a risky ordeal. However, emergingmarkets provide new investment opportunities like heightened economicgrowth rates, diversification benefits, and higher expected returns.However, the global market is quite volatile and may poseconsiderable threats to the existence of firms. For instance, thedifference in culture might hinder the advancement of a company innewer grounds. Nevertheless, for a company to be successful, it oughtto embrace diversity. This paper will be based on Apple Corporation.The company is a global brand in a competitive technology field. Dueto the high numbers of competitors, the company has to venture intoemerging markets such as India for it to sustain its profits.
AppleCorporation is an American transnational technology company thatdesigns, creates, and sells online services, computer software, andconsumer electronics. Its industrial products are based on computerhardware, Software, digital distribution, Fabless Silicon Design,Consumer Electronics, Corporate venture capital, and energyproduction. The primary products include Mac, iPod, iPhone, iPad,Apple Watch, Apple TV, OS X, iOS, iLife, watchOS, and iWork. Theservices include Apple Pay, iCloud, iBooks Store, Apple Store, iTunesStore, Apple Music, Mac App Store, and online Apple Store [ CITATION App161 l 1033 ].
AppleCorporation is the globe’s largest IT Company by revenue and totalassets, and the second largest mobile phone manufacturer. Thefinancial accounts are quite stable with an annual income of $233.715billion in 2015. The operating income was $71.230 billion, net incomeof $53.394 billion, total assets of $305.277 billion (2Q2016), with atotal equity of $174.820 billion (2Q2016). By July 2015, thecorporation had around 115,000 employees. In this paper, thecompany’s strategic plan will be outlined. That includes originalstrategy, financial targets, underlying assumptions, and subsequentdecisions. The paper will also delve into Apple’s corporatestrategies and decision making. In combination with this, we will beexpounding on their overall company structure via SWOT, internal andexternal assessments, financial records, and business strategies [ CITATION App161 l 1033 ].
Apple’svision statement broadly covers its intention they believe in makinggreat products by consistently focusing on innovation. By controllingonly the technologies they are involved in, the company wants to makeconsiderable contributions in the markets. It also focuses on vitaland meaningful projects rather than indulging in thousands ofprojects with no significant effect. By indulging in collaborationand cross-pollination among its groups, the company can innovate in adistinctive way. It does not condone anything less than excellence,championing honesty and courage in their daily undertakings. Thebroad vision has been a driving force that has propelled the companyto greater heights [ CITATION App161 l 1033 ].
Intheir mission statement, Apple designs iWork and professionalsoftware, iLife, OS X, and Macs, which are the best PCs in the globe.It is also a leader in the digital music revolution with its iPods aswell as iTunes online store. The company’s reconstruction of theiPhone and App Store has reinvented the mobile phone thus outliningthe future of computing devices and mobile media [ CITATION App161 l 1033 ].
Theirfounders envisioned the vision and mission of this company andinstilled in their employees as well as top management. As a coreleader in technological matters, Apple Corporation channels resourcestowards security. Their research and development team is tasked withchampioning fresh ideas. The team ensures implementable ideas aredirectly related to the public.
Evaluationof Capital Investments
Thecompany employs the Net Present Value (NPV) technique to evaluate itscash flow. In this case, the corporation ascertains the amount ofrevenue that will flow in due to the investment and compares it withcash that flows out. Basing the findings on the net present value, acompany can make decisions about investments and still complementeach other appropriately [CITATION Arn08 l 1033 ].Thetechnique is better than the internal rate of return. It gives aclear picture of how much the company will gain from the investmentand what alterations can improve the same. In addition to that, thecompany must take into consideration the present and future value ofthe money. It is a vital undertaking since the cash flows occur foran extended period. Apple has investments across many countriesincluding India which is considered an emerging market. Therefore, byutilizing this criterion, the company manages to ascertain how itwill benefit.
Employingmultiple techniques, that is, sensitivity analysis, distributionalanalysis, and scenario analysis will suit the company even better.This is because the global market is quite volatile. The means ofconducting business differ across the various countries. In themultiple techniques, the company will employ a strategy depending onthe technology being rolled out and the target market. Since eachplan visualizes the investment from a different perspective, it isvital to utilize the multiple analysis methods to comprehend and takethe opportunities with the best returns. The Apple products arereceived differently across the globe. In addition to that, thesoftware platforms, that is, iOS, watchOS, tvOS, and macOS arereceived separately.
Inflationis a real fact that cannot be ignored. Finance textbooks do notprovide explicit assertions of how inflation should be merged incapital budgeting. Whereas academic literature universally agreesthat modifications and inflation ought to be taken into considerationin investment analyses. Price increase impacts on both cost ofcapital and cash flows which are the two most important facets duringcalculations. An accurate evaluation technique must be derived frominflation-adjusted cash flows and discount rates. For a firm toattain the optimal level of capital investment, it will depend on theultimate inflation rate. Therefore, the amount invested is typicallysmaller when the inflation rate is high. Inflation is not neutral. Inthat regard, cash flows tend to be affected varyingly by the expectedprice increases. Therefore, some cash flows may rise slower, othersfaster, than inflation as others remain unchanged [ CITATION Dor11 l 1033 ].
Inemerging markets such as India, the rate of inflation fluctuatesconsiderably. This is because the country is also involved in thetechnology field regarding productions. Therefore, though the marketis promising, it may subside with constant innovations within thecountry. The fuel prices also drive the market prices of variouscommodities. For instance, when the fuel prices rise, the prices alsoincrease. Technology companies are, hence, affected by the risingprices of essential commodities. Additionally, the tax rates alsovary, especially, when considering a foreign company. However, anaccurate evaluation can only be done by taking the inflation ratesinto consideration. Though they are unpredictable, it is crucial tocomprehend the fluctuations in the market (Suklev et al., 2015).Conducting a comprehensive market research before rolling out a newtechnology is one of the designs that can be utilized. The study willprovide the country’s market behavior for long a period, probably adecade. The current market behavior will also be taken intoconsideration to estimate future undertakings [ CITATION Nad12 l 1033 ].
Modificationsin Evaluating North American Projects
Applefaces a considerable challenge when accessing the North Americanmarkets. The corporation experienced a stunted growth for an extendedperiod, especially in 2014. This is mainly due to the existingcompetition. Their market share has declined due to higher pricings.In other words, the company’s products and services are highespecially new technologies. The availability of similar productsthat are cheaper is quite detrimental to Apple’s dominance.Therefore, as a means of evaluating the new projects, modificationsmust be done on the pricings. Though the products are unique andquite enticing to the consumers, the charges tend to limit its marketshare [ CITATION Nad12 l 1033 ].
InNorth America, the number of competitors is high. Additionally, thefield experiences rapid technological changes that mandate companiesto modify their products to remain competitive regularly. Annualtaxes are also constantly on the rise and with the stunted growth intechnologies such as Android OS, more has to be done to curb thedecline in market share. Apart from modifying the prices, the companycan also indulge in more partnerships. As earlier expressed, multiplestrategies ought to be utilized to ensure the company makessubstantial inroads into the emerging markets. This can be achievedthrough merges and acquisitions. If the company wants to extend intoareas that are dominated by other companies, merging with therespective companies could boost their markets. They will heightenthe internal capacity within North America and to some extent Asia.These products are quite popular, and further investments in themcould generate substantial income for the company. Merging also helpsto alleviate issues of culture. In most cases, companies are unableto dominate due to cultural barriers. However, by merging, it assiststhem to handle cultural issues [ CITATION Arn08 l 1033 ].
Thecompany has the potential to dominate the globe, especially Asia,which is dominated by Sony and Samsung. The increased demand forcloud-based services and strong development of the mobile advertisingmarkets are quite enticing to the corporation. Therefore, the aboveinformation will assist Apple Corporation to invest more in theemerging markets. Russia, India, Malaysia, Brazil, the Philippines,Indonesia, and China have a significant market potential fortechnological products. Considering Apple is one of the bestperforming American company in some of these markets, there is roomfor further investments. It can be achieved through multipleevaluations of the target market [ CITATION App161 l 1033 ].
Benefitsof Using Sensitivity Analysis
Sensitivityanalysis is an adjustment of the cost-benefit system of assessment.It challenges the strength of results obtained by altering thepresumptions like discount rate, estimated value of costs, and timehorizon. The mechanism, therefore, highlights the parameters andpresumptions that are more sensitive to the outcome. This informationcan help Apple Corporation to adjust its investment projects to theextent that it is not sensitive to variations in the surroundings andstill offers maximum benefit. Such a mechanism can give thecorporation the competitive advantage from the onset of theinvestment. For sensitivity analysis to succeed, the decision-makingmembers ought to assess the diverse variables and parameters of theNet Present Value (NPV) strategy to find a niche for investment [ CITATION Dor11 l 1033 ].
Applehas a broad range of capital investment evaluation techniques toutilize apart from the traditional ones. The multiple assessmentmethods are the most appropriate. In this procedure, the company willemploy other mechanisms such as scenario analysis, distributionalanalysis, and sensitivity analysis. The kind of technique used willbe dependent on the target market. The strategies increase theability of management to make investment decisions in thecontemporary global market. However, Apple must be aware of theeffects of inflation on the capital investments in emerging marketslike India, and contrast it to the heightening capacities in NorthAmerica.
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Suklev, B. G., Fidanoski, F. G., Simeonovski, K. G., Mateska, V. G., & Zlatanoska, A. G. (January 01, 2015). Strategic Planning in Entrepreneurial Companies.