Capital investment in emerging markets is a popular business venture for large manufacturing companies. In such virtual/ virgin market areas, the company is likely to enjoy monopolies of scale. Samsung is one of the world’s leading machinery producers. It began as a company in South Korea that specialized in transportation of commodities to Beijing in 1938. Lee Byung-Chulis the founder of Samsung Company. He strived to expand the company into a multinational corporation.
The word Samsung in itself means three stars. The three stars implicated in this term are electronics, development and information technology. This paper aims at underscoring the methodology used by Samsung Company to supplement the traditional methods for evaluating the capital investments in the emerging markets to the chances of business closure. Lately, mushrooming of stiff competition is a great threat to this company. History has it that companies such as Nokia and Motorola have slid back in the field of electronics due stiff competition from their counterparts.
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Methodology to supplement the traditional methods for evaluating the capital investments of your selected company in the emerging markets to reduce risk
During its initial stages, the company dealt in commodities such as sugar, wool, and fertilizers. Today, the company uses various methods to supplement their traditional methods of evaluating areas of capital investments. In this paper, the research/ reconnaissance method is considered. The company sends out researchers to different world markets. The research identifies the potentiality of the country for investments. It is found out that the demand for smartphones and electronics in such developing countries is way much high.
Research has it that tablets are on more demand in these developing countries. The company’s production of smartphones should hence suffice the demand in these developing nations. On the other hand, the production of personal computers decreased due to reduced market for personal computers in comparison to smartphones. Still on the methodology of evaluation of capital investments, the research group assesses the probability of the demand of a new product in the market. For instance, the new technologies such as the wearable tech underwent episodes of feasibility studies before releasing to the market. (Michell, 2015)
The rationale for the methodology
The rationale of this research studies is that the company does not produce a new commodity that is not on demand to the world market. Also, the company aims at improving innovations based on what is on the ground. For example, the research team identifies the loopholes in technologies and come up with an electronic that would surpass the present electronic. This methodology spreads the company’s risk so that the strengths and opportunities live up to the expected threshold.
The way in which inflation could affect planned capital investments in emerging markets
A nation experiencing inflation may prove to be a threat to the investing company. For example, inflation will reduce the economic status of a given nation. In a state where the value of their currency remains the same, the purchasing power of the nation nose dives accordingly. In such an area of investment, the Samsung Company will make meager profits, if any. The country, on the other hand, will retaliate in such a way as to increase the levels of taxation to make ends meet. This will influence negatively towards the success of the business. Such a threat will make the management shy off from investing in that nation. The Samsung Company identifies the signs of inflation in good time so that their investment is not blind. Signs of inflation include increased taxation, high prices of goods, and civil unrest. Civil unrests may cause tension that can lead to massive destruction of property. It is no doubt that destruction of property is a great threat to business closure or failure. (Michell, 2015)
In a country where the returns of the company are not more than the inflation rates, then the company will be running at a loss. For example, if the prices of all commodities go up without an increase in wages and salaries, the bargaining power of the consumer will strengthen. Also, the output will be low due to reduced demand. With inflation, individuals tend to stick to the hierarchy of wants. Preference inclines towards food and water at the expense of buying electronics. With this form of inflation, Samsung Companies has to deal in products that will out-shine the inflation rates. In this situation, electronics are wide of the target.
An approach to performing an accurate evaluation of the investments
The Samsung Company makes use of message boards to identify viable areas of investments. In some cases, individuals conduct reconnaissance of the area of interest. Individuals tend to cost more than organizations. However, individuals provide a report with minimal confirmation bias as opposed to the message boards. High levels of confirmation bias lure the company into investing aggressively in such an area. In effect, the levels of dissonance will increase linearly with the confirmation bias. Meager profits result instead. The Samsung Company curbs confirmation bias by counteracting the report from the message body with an individual investigation. This is confirmation evidence. (Michell, 2015)
How this knowledge may affect management’s decisions
The purpose of management is to realize profits in situations where threats outnumber opportunities to prove to be one of the worst areas of investments. The managers through direct their capital investments to areas that feasibility studies have been conducted in the virtual community. The results of the study must show a comparison of both individualized confirmatory evidence alongside message board report. A positive report on the area qualifies for a trial investment. Managers have the task to consider confounding bias in such virtual communities. Confounding bias means that there are other factors, which affect demand and supply in this virtual community. (Jaeyong, & Lee, 2016)
Also, the manager may opt to deal in cheaper commodities such as smart phones or tablets as opposed to computers in these developing nations. Briefly, the suitability of the area of investment affects the manager’s decision in such a way that, the management understands the demand, supply and market power of the virtual community.
How the Company would increase internal capacity in North America versus increasing market globally
Samsung Company has recorded the least profit margin of 74% since 2011. The decline in the shipped Samsung commodities provides enough evidence for this. The shipped products have also decreased by 24%. Statistics show that other companies of similar interests such as Apple and LG. More importantly, the Apple’s new iPhone and the 6plus smart phones have recorded the highest sales in North American market. On the lower end, cheap variants of the Samsung products from India and China continue to blossom at the expense of Samsung commodities (Jaeyong, & Lee, 2016)
The company’s president Mr. Hyun-Joon Kim said that they are working with might and main to ensure that the company remains atop of other electronics in the Americas. Joon said that they planned to lower the number of smart phone varieties. Statistics showed that consumers get confused on which smartphone is the best following many varieties of the same lineage of smart phones. The Galaxy S5 was the best example of this. Notably, the variants of Galaxy S5 confuse customers who end up forgoing the Samsung products in preference to apple’s new iPhone and the famous 6Plus smart phones (Michell, 2015).
It is with regret that the company experiences unexpected stiff competition. However, the company should produce commodities of higher quality than ever to recover its long last glory. To begin with, the company should manufacture electronics with metal casing and flexible displays so that they outshine the competing companies (Rowley &Yongsun2015).
In North America, the company should improve its software so that the software of Samsung smart phones and electronics can be distinct from other Samsung variants and that of the counterparts. On the other hand, for the company to gain a wider market globally, they should reduce their prices so that the developing nations do not forgo Samsung products for cheap smart phones from China and India. The company should thus use its mid and low-end phones to have its prices lowered (Michell, 2015).
Merging with small upcoming companies will help gain a wider access globally. These small companies understand the demands of the consumers in developing countries. This move will culminate into outshining of the local phone producing company for Samsung products.
Impact on decisions made about expansion
The merging of Samsung Company with upcoming smartphone producers in China and India will help cut down on the cost of confirmation tests. In other words, the confirmation evidence is availed by the upcoming companies. Thus, Samsung Company can invest in the virtual community without worries of losing the battle. Spreading the risk is better than having a whole company subjected to threats. Collaborating with small companies will promote access to a wider market.
Benefits of using sensitivity analysis in evaluating the projects for your selected company
A sensitivity analysis study predicts the success of an outcome made by the company. It is a way of crosschecking the confirmation test. It underscores the relationship between variables and highlights the probability of success of the new investment. Sensitivity analysis reduces the cost of conducting feasibility studies. Activities such as confirmation tests are not necessary if the sensitivity analysis is more than 95%.
Sensitivity analysis for a competitive advantage for the company
Sensitivity analysis helps the company to evaluate the decision at hand by assessing the variable using the ‘what if’ technique. The company can predict the outcome of the decision. For example, the company can use sensitivity analysis to scrutinize the effects of reducing the prices of smart phones and other electronics. A decision that scores low in its sensitivity analysis proves unsuitable for the company. Also, sensitivity analysis provides the company with permission to make quick moves since the risks versus benefits are displayed. (Rowley &Yongsun2015)
In summation, the Samsung Company should strive to remain competitive. If this does not change in good time, the company risks falling into the same pipeline as the long forgotten glories of Nokia and Motorola Companies. The success of the company is highly tied to its future projections of its ventures in the emerging markets. Wide investment into these prospective emerging economies may propel Samsung to the heights of market dominance. Thus despite the successes of the Company, it faces threats from the Apple Company that has established its reputation in North Americas.
References
Jaeyong, S & Lee, K. (2016). The Samsung Way: Transformational Management Strategies from the World Leader in Innovation and Design : McGraw Hill Professional
Michell. A. (2015) Samsung Electronics and the Struggle for Leadership of the Electronics Industry: John Wiley & Sons
Rowley, C &Yongsun, P. (2015. The Changing Face of Korean Management : Routledge
