Tag: University of Mumbai BMS Notes

1. Insufficiency of Domestic Demand

If the domestic demand for the product is not sufficient to consume the production, the firm may take a decision to enter the foreign market. In this way he can equalize the production and demand.

2. To Utilize Installed Capacity

If the installed capacity of the firm is much more than the level of demand of the product in the domestic market, it can enter the international market and utilize its un-utilized installed capacity. In this way it can export the surplus production.

3. Legal Restrictions

Sometimes the Government of a country imposes certain restrictions on the growth and expansion of certain firms or on the production and distribution of certain commodities in the domestic market in order to achieve certain social objectives.

4. Relative Profitability

The export business is more attractive for its higher rate of profitability. The higher profitability rate also gives extra strength to the firm.

5. Less Business Risk

A diversified export business helps the exporting firm in mitigating the risk of sharp fluctuations in the business activity of the firm.

6. Increased Productivity

Due to certain social and technological developments the industrial production has increased to a great extent. The production will be higher at cheaper rate. The surplus production can be exported.

7. Social Responsibility

In order to meet the social responsibility some business firms take the decision to contribute to the National Exchequer by exporting their products.

8. Technological Improvements

Technological improvements also attract the business firm to enter foreign markets. It introduces new products with latest technological improvements and faces the competition successfully in the international markets.

9. Product Obsolescence

If a product becomes obsolete in domestic market it may be in demand in International markets. The firm has to make a survey for introducing the product in those markets.

10. International Collaboration

Developed countries fix their import quotas for different countries and for different commodities. A county can export various commodities to these developed countries to the extent of its quota.

11. International Business Brings Various Countries Closer

Better business relations are established among the countries. Government and non-government business commissions or business representatives visit other countries from time to time. The local representatives and other related persons came into contact with foreign representatives and come to know their habits and customs.

12. Helps in Maintaining Good Political Relations

The economic relations between two countries help each other to improve their political relations. Various countries having different political ideologies import or export their products. To conclude it is now undisputable that export business contributes to the national economy, national exchequer, individual exporting firms and maintains international, economic cultural and political relations among various countries. Countries have come closer on account of international business.

Importance of International Business: On the view of National Economy

1. It is important to meet imports of industrial needs.
2. Debt Servicing: This means to grant loan for and for their industrial development.
3. For rapid economic growth.
4. For profitable use of natural resources.
5. To face competition successfully-better quality goods production having lower or moderate prices. To improve the image of the producer as well as of the country in the minds of foreign customers.
6. Increase in employment opportunities.
7. To increase national income.
8. Increase in standard of living of the people.

Trade refers to the exchange of goods and services for money, which can be undertaken within the geographical limits of the countries or beyond the boundaries. The trade which takes place within the geographical boundaries of the country is called domestic business, whereas trade which occurs between two countries internationally, is called international business.

Entities engaged in international business often face more difficulties than the entities which conduct domestic business. Although international business enjoys large customer base as they operate in multiple countries. Here is an article which compiles the important differences between domestic and international business.

Domestic Business

The business transaction that occurs within the geographical limits of the country is known as domestic business. It is a business entity whose commercial activities are performed within a nation. Alternately known as internal business or sometimes as home trade. The producer and customers of the firm both reside in the country. In a domestic trade, the buyer and seller belong to the same country and so the trade agreement is based on the practices, laws and customs that are followed in the country.

There are many privileges which a domestic business enjoys like low transaction cost, less period between production and sale of goods, low transportation cost, encourages small-scale enterprises, etc.

International Business

International Business is one whose manufacturing and trade occur beyond the borders of the home country. All the economic activities indulged in cross-border transactions comes under international or external business. It includes all the commercial activities like sales, investment, logistics, etc., in which two or more countries are involved.

The company conducting international business is known as a multinational or transnational company. These companies enjoy a large customer base from different countries, and it does not have to depend on a single country for resources. Further, the international business expands the trade and investment amongst countries.

However, there are several drawbacks which act as a barrier to entry in the international market like tariffs and quota, political, socio-cultural, economic and other factors that affect the international business.

Comparison

Differences between Domestic and International Business

The most important differences between domestic and international business are classified as under:

1. Domestic Business is defined as the business whose economic transaction is conducted within the geographical limits of the country. International Business refers to a business which is not restricted to a single country, i.e. a business which is engaged in the economic transaction with several countries in the world.
2. The area of operation of the domestic business is limited, which is the home country. On the other hand, the area of operation of an international business is vast, i.e. it serves many countries at the same time.
3. The quality standards of products and services provided by a domestic business is relatively low. Conversely, the quality standards of international business are very high which are set according to global standards.
4. Domestic business deals in the currency of the country in which it operates. On the contrary, the international business deals in the multiple currencies.
5. Domestic Business requires comparatively less capital investment as compared to international business.
6. Domestic Business has few restrictions, as it is subject to rules, law taxation of a single country. As against this, international business is subject to rules, law taxation, tariff and quotas of many countries and therefore, it has to face many restrictions which are barriers in the international business.
7. The nature of customers of a domestic business is more or less same. Unlike, international business wherein the nature of customers of every country it serves is different.
8. Business Research can be conducted easily, in domestic business. As against this, in the case of international research, it is difficult to conduct business research as it is expensive and research reliability varies from country to country.
9. In domestic business, factors of production are mobile whereas, in international business, the mobility of factors of production are restricted.

Carrying out the activities of international business and its management is far more difficult than conducting a domestic business. Due to changes in political, economic, socio-cultural environment across the nations, most business entities find it difficult to expand their business globally. To become a successful player in the international market firms need to plan their business strategies as per the requirement of the foreign market.

Business activities done across national borders is International Business. The International business is the purchasing and selling of the goods, commodities and services outside its national borders. Such trade modes might be owned by the state or privately owned organization.

In which, the organization explores trade opportunities outside its domestic national borders to extend their own particular business activities, for example, manufacturing, mining, construction, agriculture, banking, insurance, health, education, transportation, communication and so on.

Basically international business is a cross border transaction between individuals, businesses, or government entities. The transaction can be of anything that has value, examples include:

• Physical Goods
• Services such as banking, insurance, construction, etc.
• Technology such as software, arms, and ammunition, satellite technology, etc.
• Capital and
• Knowledge

For ease of understanding, in this article, the word “goods” will include all of the above-mentioned items. For regular commodities, we will be using the word “physical goods”.

Types of International Businesses

All the major international business conducted in the world can come under seven main types. These can also be termed as modes of business.

1. Imports and Exports

Simplest and most commonly used method, imports and exports can be seen as the foundation of international business. Imports are an inflow of goods into the markets of home country for consumption, in contrast, export means selling of goods to foreign countries. In short, imports means inflow whereas export means outflow of goods in any form.

2. Licensing

Licencing is one of the easiest ways to expand a business internationally. When a company has a standardized product with ownership rights, it can use licensing to distribute and sell the products in the international market. Licenses come in many forms, some of which are patent, copyright, trademark, etc. Products such as books and movies are usually distributed internationally through licensing agreements.

3. Franchising

A very effective method to expand a business nationally as well as internationally, franchising is similar to licensing. In this, a parent company gives the right to another company to conduct business using the parent company’s name/ brand and products. The parent company becomes the franchiser and the receiving company becomes the franchisee. Many of the biggest restaurant chains in the world have used the franchisee model to expand internationally. Some examples include – McDonald, Pizza Hut, Starbucks, Domino’s Pizza and many more

4. Outsourcing and Offshoring

Outsourcing means giving out contracts to international firms for certain business processes. For example, giving out accounting function to an international firm. This is usually effective when the cost of conducting these processes are comparatively much cheaper in some other country than in the home country. For example, many developed countries such as the USA, Australia, the UK, etc. outsource its functions to companies in India, China, etc. because it is cheaper.

Offshoring is similar to outsourcing in the sense that a function is moved away from the home country. However, it is different in the sense that the facility is physically moved to another country but the management stays with the company itself. For example, Apple Inc. is conducting its manufacturing function in China, however, it is completely controlled by Apple Inc.

5. Joint Ventures and Strategic Partnerships

A joint venture is a contract between two parties, one is an international company while another company is local to where the business has to be conducted. Both parties contribute to the equity and management of the company. As a result, both share the profit as well. These parties can mutually decide the percentage of equity and profit sharing.

These types of ventures and partnerships come into existence when both the party has something to offer. For example, the local company may have the brand name and network within the country while the international company may have advanced technology. A classic example of a joint venture is Tata Jaguar collaboration in India. Sometimes there are government restrictions to international companies against holding 100% equity in certain areas such as defense. In such cases, international companies can take the benefit of the new market by a joint venture.

6. Multinational Companies

Multinational companies, as the name suggests, are companies that are conducting business in multiple countries. They actually set up the whole business in multiple countries. Some such examples are Amazon, Citigroup, Coca-Cola, etc.

These companies have independent operations in each country, and each country has its own set of offices, employees, etc. In fact, even the products and marketing campaigns are customized as per local needs. For example, Nestle introduced a Matcha flavor Kit Kat in Japan as the flavor is very popular in that country, however, they don’t offer the same flavor in India. This customization is one of the many benefits of being a multinational company.

7. Foreign Direct Investment

Foreign direct investment is an investment made by an individual or a company located in one country to the business interest located in another foreign country. In this the investing company usually commits more than capital, they share management, technology, processes, etc, with the company that they have invested in. The foreign direct investments can take many forms such as a subsidiary company, associate company, joint venture, merger, etc.

These are the major types through which people, companies, and government conduct international business. However, means of business is just one minor speck of the international business environment.

One must consider many factors when setting up any business internationally. These factors include –

Factors to Consider Before Starting International Business Operations

1. Geographical Factors

Simple challenges that come with the change in geography have to be studied when considering international business. There are differences in storage requirement, supply chain requirements, connectivity issues, etc. from country to country. Colgate-Palmolive will face a thousand challenges even before its soaps and shampoos can reach rural areas of India where there is a lack of basic necessities such as water, electricity, transportation, etc.

2. Social Factors

Social factors are very important in international business. It is very difficult to set up shops in countries that are politically disturbed or are going through some tensions. For example, most companies don’t want to expand its business in Afghanistan, as there is so much disturbance.

3. Legal Policies

Every country has different laws and governing policies. A company should check all the legal requirements in the country in which it wants to conduct business. The basic laws that need attention are organization laws, securities laws, consumer protection laws, employees protection laws, and many more. The process can be lengthy but it is necessary.

4. Behavioral Factors

Every country has different cultures and beliefs, and people can be very sensitive to these beliefs. An international company, if not careful, can land a lot of issues if they don’t take care of the country’s behavioral factors. For example, McDonald cannot sell its beef burgers in India, else it will have to face the brunt of the Indian population that is majority Hindu.

5. Economic Forces

These factors include the county’s currency values, market size, cost, inflation, etc. These are important because it directly affects the profitability of operations. Every company should consider these factors before expanding internationally if they want to manage its bottom line.

All these above-mentioned factors play an important role in how successful or unsuccessful an entity will be in its international business adventures. All these factors should be considered in the research and planning stage to get maximum benefit out of it.

Organizational Development or simply O.D. is a technique of planned change. It seeks to change beliefs, attitudes, values and structures-in fact the entire culture of the organization so that the organization may better adapt to technology and live with the pace of change.

O.D. is a comprehensive strategy for organization improvement. O.D. is a long range effort to improve an organization’s problem solving and renewal processes, particularly through a more effective and collaborative management culture.

Objectives of Organizational Development

(a) Improvement in the performance of the organization.

(b) Improvement in the ability of the organization to adapt to its environment, and

(c) Improvement in inter-personal and inter-group behaviour to secure team work.

Characteristics of Organizational Development

1. Organizational development is an educational strategy for bringing a planned change.
2. It is related to real problems of the organization.
3. Laboratory training methods based on experienced behaviour are primarily used to bring change.
4. O.D. uses change agent (or consultant) to guide and affect the change. The role of change agent is to guide groups towards more effective group processes rather than telling them what to do. Change agents simply assist the group in problem solving processes and the groups solve the problems themselves.
5. There is a close working relationship between change agents and the people who are being changed.
6. O.D. seeks to build problem-solving capacity by improving group dynamics and problem confrontation.
7. O.D. reaches into all aspects of the organization culture in order to make it more humanly responsive.
8. O.D. is a long term approach (of 3 to 5 years period) and is meant to elevate the organization to a higher level of functioning by improving the performance and satisfaction of organization members.
9. O.D. is broad-based and describes a variety of change programmes. It is concerned not only with changes in organizational design but also with changes in organizational philosophies, skills of individuals and groups.
10. O.D. is a dynamic process. It recognises that the goals of the organization change and hence the methods of attaining them should also change.
11. O.D. utilizes systems thinking. It is based on open, adaptive systems concept. The organization is treated as an interrelated whole and no part of the organization can be changed without affecting other parts.
12. O.D. is research based. Change agents conduct surveys, collect data, evaluate and then decisions are taken.
13. O.D. uses group processes rather than individual process. It makes efforts to improve group performance.
14. O.D. is situational and contingency oriented.
15. Organization Development and Management Development are complementary rather then conflicting.

Steps in Organizational Development (O.D)

Lawrence and Lorsch have provided the following steps in organizational development:-

1. Problem identification—Diagnosis

O.D. program starts with the identification of the problem in the organization. Correct diagnosis of the problem will provide its causes and determine the future action needed.

2. Planning Strategy for Change

O.D. consultant attempts to transform diagnosis of the problem into a proper action plan involving the overall goals for change, determination of basic approach for attaining these goals and the sequence of detailed scheme for implementing the approach.

3. Implementing the Change

O.D. consultants play an important role in implementing change.

4. Evaluation

D. is a long-term process. So there is a great need for careful monitoring to get process feedback whether the O.D. programme is going on well after its implementation or not. This will help in making suitable modifications, if necessary. For evaluation of O.D. programme, the use of critic sessions, appraisal of change efforts and comparison of pre and post training behavioural patterns are quite effective.

Change agent is an individual or group, who carry out the task of instigating and managing change in the organization. He/She is someone, who directly or indirectly influences change, i.e. the change agents are appointed by the organizations to transform the ways, the organization is managed, or the business is conducted.

Types of Change Agent

The change agent can be internal or external to the organization who plays the role of a catalyst to implement change in the organization.

1. Internal Change Agent

When the change agent, is internal to the organization then he/she is usually the employee such as a manager, senior executive, leader, HR professional or any other person from the staff who has mastered in behavioural sciences and intervention technology of organization development. They are appointed by the organization to look after the change process.

2. External Change Agent

The external change agent is the one who is brought to the organization from outside such as consultants. The company’s rules regulations and policies are not imposed on them, and so they can deeply analyze and bring different viewpoints to a situation and challenge the existing state of affairs.

However, this can also be seen as a disadvantage, as the external change agent is not aware of the company’s history, work processes, and personnel.

Roles of a Change Agent

Change agents aim at making changes in the existing processes or culture of the organization that sticks. And to do so, they focus on the matters relating to organizational effectiveness, innovation, and advancement.

He/She is someone who always seeks an opportunity for change, determines the best approach and bring about change. They are the one who possesses skills and competencies to initiate, facilitate and coordinate organizational change.

Change Agents help the organization in understanding the requirement and relevance for change and takes all necessary steps required to manage change and also anticipates the problem; that might take place during or after the change is implemented in the organization. He/She is responsible to transform vision into a realistic plan and execute it.

Skills of a Change Agent

(i) Cognitive Skills: The skills which require some level of pro-action from the side of the change agent for the purpose of self-understanding, conceptualization, and evaluation.

(ii) Action Skills: Change Agent works as a consultant, researcher, trainer, counsellor, etc. in an organization, so, he/she should possess the required skills and competencies.

(iii) Communication Skills: He/She is responsible for spreading change information, and making the organization realize the need for change, for which he/she must possess excellent communication and pervasive skills.

Many multinational corporations have their own in-house change specialist, who works with the management team of the organization to recognize the need for change and facilitate change efforts.

Characteristics of a Change Agent

1. Clear Vision

As mentioned above, a “change agent” does not have to be the person in authority, but they do however have to have a clear vision and be able to communicate that clearly with others.  Where people can be frustrated is if they feel that someone is all over the place on what they see as important and tend to change their vision often.  This will scare away others as they are not sure when they are on a sinking ship and start to looking for ways out.  It is essential to note that a clear vision does not mean that there is one way to do things; in fact, it is essential to tap into the strengths of the people you work with and help them see that there are many ways to work toward a common purpose.

2. Patient yet persistent

Change does not happen overnight and most people know that.  To have sustainable change that is meaningful to people, it is something that they will have to embrace and see importance.  Most people need to experience something before they really understand that, and that is especially true in schools.  With that being said, many can get frustrated that change does not happen fast enough and they tend to push people further away from the vision, then closer.  The persistence comes in that you will take opportunities to help people get a step closer often when they are ready, not just giving up on them after the first try.  I have said continuously that schools have to move people from their point ‘A’ to their point ‘B’, not have everyone move at the same pace. Every step forward is a step closer to a goal; change agents just help to make sure that people are moving ahead.

3. Asks tough questions

It would be easy for someone to come in and tell you how things should be, but again that is someone else’s solution.  When that solution is someone else’s, there is no accountability to see it through.  It is when people feel an emotional connection to something is when they will truly move ahead.  Asking questions focusing on, “What is best for kids?”, and helping people come to their own conclusions based on their experience is when you will see people have ownership in what they are doing.  Keep asking questions to help people think, don’t alleviate that by telling them what to do.

4. Knowledgeable and leads by example

Stephen Covey talked about the notion that leaders have “character and credibility”; they are not just seen as good people but that they are also knowledgeable in what they are speaking about.  Too many times, educators feel like their administrators have “lost touch” with what is happening in the classroom, and many times they are right.  Someone who stays active in not necessarily teaching, but active in learning and working with learners and can show by example what learning can look like now will have much more credibility with others.  If you want to create “change”, you have to not only be able to articulate what that looks like, but show it to others. I have sat frustrated often listening to many talk about “how kids learn today” but upon closer look, the same speakers do not put themselves in the situation where they are actually immersing themselves in that type of learning.  How can you really know how “kids learn” or if something works if you have never experienced it?

5. Strong relationships built on trust

All of the above, means nothing if you do not have solid relationships with the people that you serve.  People will not want to grow if they do not trust the person that is pushing the change.  The change agents I have seen are extremely approachable and reliable.  You should never be afraid to approach that individual based on their “authority” and usually  they will go out of their way to connect with you.

Decision theory, in statistics, a set of quantitative methods for reaching optimal decisions. A solvable decision problem must be capable of being tightly formulated in terms of initial conditions and choices or courses of action, with their consequences. In general, such consequences are not known with certainty but are expressed as a set of probabilistic outcomes. Each outcome is assigned a “utility” value based on the preferences of the decision maker. An optimal decision, following the logic of the theory, is one that maximizes the expected utility. Thus, the ideal of decision theory is to make choices rational by reducing them to a kind of routine calculation.

Decision-making under Certainty

A condition of certainty exists when the decision-maker knows with reasonable certainty what the alternatives are, what conditions are associated with each alternative, and the outcome of each alternative. Under conditions of certainty, accurate, measurable, and reliable information on which to base decisions is available.

The cause and effect relationships are known and the future is highly predictable under conditions of certainty. Such conditions exist in case of routine and repetitive decisions concerning the day-to-day operations of the business.

Decision-making under Risk:

When a manager lacks perfect information or whenever an information asymmetry exists, risk arises. Under a state of risk, the decision maker has incomplete information about available alternatives but has a good idea of the probability of outcomes for each alternative.

While making decisions under a state of risk, managers must determine the probability associated with each alternative on the basis of the available information and his experience.

Decision-making under Uncertainty:

Most significant decisions made in today’s complex environment are formulated under a state of uncertainty. Conditions of uncertainty exist when the future environment is unpredictable and everything is in a state of flux. The decision-maker is not aware of all available alternatives, the risks associated with each, and the consequences of each alternative or their probabilities.

The manager does not possess complete information about the alternatives and whatever information is available, may not be completely reliable. In the face of such uncertainty, managers need to make certain assumptions about the situation in order to provide a reasonable framework for decision-making. They have to depend upon their judgment and experience for making decisions.

Modern Approaches to Decision-making under Uncertainty:

There are several modern techniques to improve the quality of decision-making under conditions of uncertainty.

The most important among these are:

(1) Risk analysis,

(2) Decision trees and

(3) Preference theory.

Risk Analysis:

Managers who follow this approach analyze the size and nature of the risk involved in choosing a particular course of action.

For instance, while launching a new product, a manager has to carefully analyze each of the following variables the cost of launching the product, its production cost, the capital investment required, the price that can be set for the product, the potential market size and what percent of the total market it will represent.

Risk analysis involves quantitative and qualitative risk assessment, risk management and risk communication and provides managers with a better understanding of the risk and the benefits associated with a proposed course of action. The decision represents a trade-off between the risks and the benefits associated with a particular course of action under conditions of uncertainty.

Decision Trees:

These are considered to be one of the best ways to analyze a decision. A decision-tree approach involves a graphic representation of alternative courses of action and the possible outcomes and risks associated with each action.

By means of a “tree” diagram depicting the decision points, chance events and probabilities involved in various courses of action, this technique of decision-making allows the decision-maker to trace the optimum path or course of action.

Preference or Utility Theory:

This is another approach to decision-making under conditions of uncertainty. This approach is based on the notion that individual attitudes towards risk vary. Some individuals are willing to take only smaller risks (“risk averters”), while others are willing to take greater risks (“gamblers”). Statistical probabilities associated with the various courses of action are based on the assumption that decision-makers will follow them.

3For instance, if there were a 60 percent chance of a decision being right, it might seem reasonable that a person would take the risk. This may not be necessarily true as the individual might not wish to take the risk, since the chances of the decision being wrong are 40 percent. The attitudes towards risk vary with events, with people and positions.

Top-level managers usually take the largest amount of risk. However, the same managers who make a decision that risks millions of rupees of the company in a given program with a 75 percent chance of success are not likely to do the same with their own money.

Moreover, a manager willing to take a 75 percent risk in one situation may not be willing to do so in another. Similarly, a top executive might launch an advertising campaign having a 70 percent chance of success but might decide against investing in plant and machinery unless it involves a higher probability of success.

Though personal attitudes towards risk vary, two things are certain.

Firstly, attitudes towards risk vary with situations, i.e. some people are risk averters in some situations and gamblers in others.

Secondly, some people have a high aversion to risk, while others have a low aversion.

Most managers prefer to be risk averters to a certain extent, and may thus also forego opportunities. When the stakes are high, most managers tend to be risk averters; when the stakes are small, they tend to be gambler.

Corporate finance is the division of finance that deals with financing, capital structuring, and investment decisions. Corporate finance is primarily concerned with maximizing shareholder value through long and short-term financial planning and the implementation of various strategies. Corporate finance activities range from capital investment decisions to investment banking.

Corporate finance is one of the most important subjects in the financial domain. It is deep rooted in our daily lives. All of us work in big or small corporations. These corporations raise capital and then deploy this capital for productive purposes.

Corporate finance departments are charged with governing and overseeing their firms’ financial activities and capital investment decisions. Such decisions include whether to pursue a proposed investment and whether to pay for the investment with equity, debt, or both.

Principles of Corporate Finance

Let’s understand the three most fundamental principles in corporate finance which are- the investment, financing, and dividend principles.

Investment Principle

This principle revolves around the simple concept that businesses have resources which need to be allocated in the most efficient way. The first and important decision that needs to be made in corporate finance is to do this wisely, i.e. decisions that not only provide revenue opportunities but also saves money for the future. This also encompasses the working capital decisions such as the credit days to be allotted to the customers etc. Corporate finance also measures the return on a planned investment decisions by comparing it to the minimum tolerable hurdle rate and deciding if the project/investment is feasible to be undertaken.

Financing Principle

Most often businesses are funded with either debt or equity or both. In the investment decision that we earlier discussed once we have finalized the mix of equity and debt and its effects for the minimum acceptable hurdle rate, the next step would be to determine if the mix is the right one in the financing principle section.

Dividend Principle

Businesses reach a stage in their life cycle where they grow and mature and the cash flow they generate exceeds the expected hurdle rate. At this stage, the company needs to determine the ways of rewarding the owners with it. So the basic discussion here is that if the excess cash should be left in the business or given away to the investors/owners. A company that is publicly held has the option of either pay off dividends or buy back stocks.

Types of Corporate Finance

1. Capital Investments

Corporate finance tasks include making capital investments and deploying a company’s long-term capital. The capital investment decision process is primarily concerned with capital budgeting. Through capital budgeting, a company identifies capital expenditures, estimates future cash flows from proposed capital projects, compares planned investments with potential proceeds, and decides which projects to include in its capital budget.

Making capital investments is perhaps the most important corporate finance task that can have serious business implications. Poor capital budgeting (e.g., excessive investing or under-funded investments) can compromise a company’s financial position, either because of increased financing costs or inadequate operating capacity.

 Corporate financing includes the activities involved with a corporation’s financing, investment, and capital budgeting decisions.

2. Capital Financing

Corporate finance is also responsible for sourcing capital in the form of debt or equity. A company may borrow from commercial banks and other financial intermediaries or may issue debt securities in the capital markets through investment banks (IB). A company may also choose to sell stocks to equity investors, especially when need large amounts of capital for business expansions.

Capital financing is a balancing act in terms of deciding on the relative amounts or weights between debt and equity. Having too much debt may increase default risk, and relying heavily on equity can dilute earnings and value for early investors. In the end, capital financing must provide the capital needed to implement capital investments.

3. Short-Term Liquidity

Corporate finance is also tasked with short-term financial management, where the goal is to ensure that there is enough liquidity to carry out continuing operations. Short-term financial management concerns current assets and current liabilities or working capital and operating cash flows. A company must be able to meet all its current liability obligations when due. This involves having enough current liquid assets to avoid disrupting a company’s operations. Short-term financial management may also involve getting additional credit lines or issuing commercial papers as liquidity back-ups.

Importance/Significance of Corporate Financing

1. Separation of Ownership and Management

The basis of corporate finance is the separation of ownership and management. Now, the firm is not restricted by capital which needs to be provided by an individual owner only. The general public needs avenues for investing their excess savings. They are not content with putting all their money in risk free bank accounts. They wish to take a risk with some of their money. It is because of this reason that capital markets have emerged. They serve the dual need of providing corporations with access to source of financing while at the same time they provide the general public with a plethora of choices for investment.

2. Liaison between Firms and Capital Markets

The corporate finance domain is like a liaison between the firm and the capital markets. The purpose of the financial manager and other professionals in the corporate finance domain is twofold. Firstly, they need to ensure that the firm has adequate finances and that they are using the right sources of funds that have the minimum costs. Secondly, they have to ensure that the firm is putting the funds so raised to good use and generating maximum return for its owners.

3. Financing Decision

As stated above the firm now has access to capital markets to fulfill its financing needs. However, the firm faces multiple choices when it comes to financing. The firm can firstly choose whether it wants to raise equity capital or debt capital. Even within the equity and debt capital the firm faces multiple choices. They can opt for a bank loan, corporate loans, public fixed deposits, debentures and amongst a wide variety of options to raise funds. With financial innovation and securitization, the range of instruments that the firm can use to raise capital has become very large. The job of a financial manager therefore is to ensure that the firm is well capitalized i.e. they have the right amount of capital and that the firm has the right capital structure i.e. they have the right mix of debt and equity and other financial instruments.

4. Investment Decision

Once the firm has gained access to capital, the financial manager faces the next big decision. This decision is to deploy the funds in a manner that it yields the maximum returns for its shareholders. For this decision, the firm must be aware of its cost of capital. Once they know their cost of capital, they can deploy their funds in a way that the returns that accrue are more than the cost of capital which the company has to pay. Finding such investments and deploying the funds successfully is the investing decision. It is also known as capital budgeting and is an integral part of corporate finance.

Capital budgeting has a theoretical assumption that the firm has access to unlimited financing as long as they have feasible projects. A variation of this decision is capital rationing. Here the assumption is that the firm has limited funds and must choose amongst competing projects even though all of them may be financially viable. The firm thus has to select only those projects that will provide the best return in the long term.

Financing and investing decisions are like two sides of the same coin. The firm must raise finances only when it has suitable avenues to deploy them. The domain of corporate finance has various tools and techniques which allow managers to evaluate financing and investing decisions. It is thus essential for the financial well being of a firm.

Capitalization is an accounting method in which a cost is included in the value of an asset and expensed over the useful life of that asset, rather than being expensed in the period the cost was originally incurred. In finance, capitalization refers to the cost of capital in the form of a corporation’s stock, long-term debt, and retained earnings. In addition, market capitalization refers to the number of outstanding shares multiplied by the share price.

Capitalization has two meanings in accounting and finance. In accounting, capitalization is an accounting rule used to recognize a cash outlay as an asset on the balance sheet, rather than an expense on the income statement. In finance, capitalization is a quantitative assessment of a firm’s capital structure.

Capitalization in Finance

Another aspect of capitalization refers to the company’s capital structure. Capitalization can refer to the book value cost of capital, which is the sum of a company’s long-term debt, stock, and retained earnings. The alternative to the book value is the market value. The market value cost of capital depends on the price of the company’s stock. It is calculated by multiplying the price of the company’s shares by the number of shares outstanding in the market.

If the total number of shares outstanding is 1 billion and the stock is currently priced at $10, the market capitalization is $10 billion. Companies with a high market capitalization are referred to as large caps (more than $10 billion); companies with medium market capitalization are referred to as mid caps ($2 – $10 billion); and companies with small capitalization are referred to as small caps ($300 million – $2 billion).

It is possible to be overcapitalized or undercapitalized. Overcapitalization occurs when earnings are not enough to cover the cost of capital, such as interest payments to bondholders or dividend payments to shareholders. Undercapitalization occurs when there’s no need for outside capital because profits are high and earnings were underestimated.

Undercapitalization

Undercapitalization occurs when a company does not have sufficient capital to conduct normal business operations and pay creditors. This can occur when the company is not generating enough cash flow or is unable to access forms of financing such as debt or equity.

Undercapitalized companies also tend to choose high-cost sources of capital, such as short-term credit, over lower-cost forms such as equity or long-term debt. Investors want to proceed with caution if a company is undercapitalized because the chance of bankruptcy increases when a company loses the ability to service its debts.

Being undercapitalized is a trait most often found in young companies that do not adequately anticipate the initial costs associated with getting a business up and running. Being undercapitalized can lead to a significant drag on growth, as the company may not have the resources required for expansion, leading to the eventual failure of the company. Undercapitalization can also occur in large companies that take on significant amounts of debt and suffer from poor operating conditions.

If undercapitalization is caught early enough, and if a company has sufficient cash flows, it can replenish its coffers by selling shares, issuing debt, or obtaining a long-term revolving credit arrangement with a lender. However, if a company is unable to produce net positive cash flow or access any forms of financing, it is likely to go bankrupt.

Undercapitalization can have a number of causes, such as:

• Poor macroeconomic conditions that can lead to difficulty in raising funds at critical times
• Failure to obtain a line of credit
• Funding growth with short-term capital rather than permanent capital
• Poor risk management, such as being uninsured or underinsured against predictable business risks

Examples of Undercapitalization in Small Business

When starting a business, entrepreneurs should conduct an assessment of their financial needs and expenses—and err on the high side. Common expenses for a new business include rent and utilities, salaries or wages, equipment and fixtures, licenses, inventory, advertising, and insurance, among others. Since startup costs can be a significant hurdle, undercapitalization is a common issue for young companies.

Because of this, small business startups should create a monthly cash flow projection for their first year of operation (at least) and balance it with projected costs. Between the equity, the entrepreneur contributes and the money they are able to raise from outside investors, the business should be able to be sufficiently capitalized.

In some cases, an undercapitalized corporation can leave an entrepreneur liable for business-related matters. This is more likely when corporate and personal assets are commingled when the corporation’s owners defraud creditors, and when adequate records are not kept.

• Undercapitalized companies do not have enough capital to pay creditors and often need to borrow more money.
• Young companies that do not fully understand initial costs are sometimes undercapitalized.
• When starting, entrepreneurs must asset their financial needs and expenses then err on the high side.
• If a company can’t generate capital over time, chances of going bankrupt increase, as it loses the ability to service its debts.

Causes of Under-Capitalization:

(1) A company which is floated during depression will find itself under-capitalized during boom period. The reason being that the assets were acquired at lower cost and the return during inflation will be high.

(2) If the company is working at a high degree of efficiency it will earn more profits which will push up the real value of the shares in the market, indicating under-capitalisation.

(3) The promoters of the company at the time of preparing financial plan may under estimate future earnings or make under-estimation of capital requirements.

If the earnings, later on, prove to be higher than the estimated figure, the company will become under-capitalized.

(4) The company may follow a conservative dividend policy (i.e., moderate rate of dividend) thereby leading to enough funds for business expansion, machinery replacement etc. This will lead to higher rates of earnings and hence under-capitalisation.

(5) The promoters of the company in a desire to keep control over the affairs of the concern may issue lesser number of shares and prefer to manage with their own capital or through cheap borrowings and retained earnings, it may lead the company to under-capitalisation after some time.

Effects of Under-Capitalization:

(1) Seeing the high rate of earning and profits of the company, the employees/workers shall start demanding high salaries.

(2) High profits of the company may encourage others to enter the same business line leading to sever competition.

(3) Customers may feel that they are being exploited by the company.

(4) Company will have to pay more taxes.

Where under-capitalization arises due to inadequacy of funds:

(5) At times, company may be compelled to raise funds at higher rates of interest.

(6) Due to inadequacy of capital, once the company runs into rough weather, it may lack working capital and hence a constant danger of failure of business.

Remedial Measures to Control Under-Capitalization:

(1) The existing shareholders may be allotted shares of higher face (par) value in exchange for the old shares. This procedure will bring down the rate of earning per rupee of share value but will not affect the amount of dividend per share.

(2) The shares may be splitted up. It has the effect of reducing the dividend per share. In other words, the par value of shares may be reduced by sub-dividing the shares.

(3) The management may issue bonus shares to equity shareholders. This measure shall capitalize the earnings/products, thus increase the capitalisation and the number of shares. Dividend per share and rate of earnings will be reduced.

(4) To remove the state of under-capitalisation, fresh (more) shares and debentures may be issued.

Overcapitalization

Overcapitalization occurs when a company has issued more debt and equity than its assets are worth. The market value of the company is less than the total capitalized value of the company. An overcapitalized company might be paying more in interest and dividend payments than it has the ability to sustain long-term. The heavy debt burden and associated interest payments might be a strain on profits and reduce the amount of retained funds the company has to invest in research and development or other projects. To escape the situation, the company may need to reduce its debt load or buy back shares to reduce the company’s dividend payments. Restructuring the company’s capital is a solution to this problem.

In the insurance market, overcapitalization takes on a different meaning. Overcapitalization occurs when the supply of policies exceeds demand for policies, creating a soft market and causing insurance premiums to decline until the market stabilizes. Policies purchased in times of low premium levels can reduce an insurance company’s profitability.

The opposite of overcapitalization is undercapitalization, which occurs when a company has neither the cash flow nor the access to credit that it needs to finance its operations. The company may not be able to issue stock on the public markets because the company doesn’t meet the requirements or the filing expenses are too high. Essentially, the company can’t raise capital to fund itself, its daily operations or expansion projects. Undercapitalization most commonly occurs in companies with high start-up costs, too much debt and insufficient cash flow. Undercapitalization can ultimately lead to bankruptcy.

Causes of Over-Capitalization:

(i) More shares and/or debentures might have been issued, resulting in availability of surplus funds that cannot be profitably employed, but dividend shall have to be paid on such excess capital also.

(ii) Rate of interest on borrowings might be higher than the rate of earnings of the company.

(iii) Wrong estimate of the earnings of the company. If future earning is over-estimated, the market value of shares will fall below the purchase price because shareholders will not get what they had been promised by the company.

(iv) Floating the company under inflationary conditions will lead to over-capitalisation because of purchase of assets at high prices.

(v) Payment of high promotional expenses, i.e., if the remuneration paid to promoters etc., is very high.

(vi) Provision of depreciation lass than justified. So company will find it difficult to replace the assets (machinery etc.) with the funds made available by depreciation provision.

(vii) Insufficient and extravagant management of the company. Liberal payment of dividend and low retention of earnings for self-financing.

(viii) Time lag between installation of machinery and starting production.

(ix) High tax rates and excessive tax payment also results in over-capitalisation.

Effects of Over-Capitalization:

(i) Less earnings of the company, leading to reduction of rate of dividend and hence decrease in market value of its shares.

(ii) Shareholders of the company get less dividends.

(iii) Employees are denied increase in salaries.

(iv) Prices of company products may go high.

(v) Company finds it difficult to raise capital, because in present situation of over-capitalisation, it finds it difficult to pay a fair rate of return to its investors.

(vi) To save their skin, directors of the company may resort to unfair practices like manipulation of the books of accounts to show artificial prosperity.

Remedial Measures to Correct Over-Capitalization:

(i) All avoidable costs should be avoided e.g., purchase of new vehicles, air-conditioners, sophisticated office furniture etc.

(ii) Wastage and extravagance should be avoided.

(iii) Earning capacity should be increased by minimizing scrap and by increasing efficiency of workers.

(iv) The par value of shares or the number of shares may be reduced (to eliminate watered stock).

(v) Debentures and cumulative preference shares carrying higher rate of interest and dividend should be redeemed or their holders may be persuaded to take new debentures at lower rate of interest.

Health marketing is an approach to public health promotion that applies traditional marketing principles and theories alongside science-based strategies to protect and promote the health of diverse populations. It involves creating, communicating, and delivering messages for the public on prevention, health promotion and health protection. Health marketing is one of the ways advancements in medicine and in health-protecting services, such as insurance, are made widely known.

The marketing strategy would follow the traditional “4Ps” of marketing, namely:

• The “product” in question in this case the surgical procedure.
• The “place” which refers to the access to this procedure.
• “Promotion” refers to creating awareness and hence demand.
• “Price” refers to the cost of the procedure e.g. money, time, reputation etc.

“Health marketing” is a term rarely used in public healthcare and related disciplines. “Social marketing” or “integrated marketing communication” are more commonly used in public health and other disciplines to refer to marketing-based planning frameworks for public health communication.

Medical marketing in the private sector

Health marketing or Medical Marketing is a specialized branch of marketing. Medical marketing was born from the necessity for private health professionals to attract new patients, the characteristics of the health market makes it a unique kind of marketing. Medical marketing is usually a business to consumer (B2C) services. The primary customers for these medical marketing companies are Generation Z. About 85% of Gen Zers said they are open to alternative healthcare options like telemedicine, dispatch services and membership-based services. Marketers and medobal healthcare provides offline/online medical services for healthcare seekers. Healthcare professionals using this type of marketing usually offer beauty related services, such as aesthetic medicine, plastic surgery, dental surgery or dermatology and much more.

Fundamentals

Professional Referral Marketing: A reliable and continuing stream of inbound patient referrals from other medical, dental or other professional sources is the lifeblood of many specialty providers. And whether it’s a primary or secondary channel, professional referral sources can’t be taken for granted. Doctor referrals do not happen by magic or simply because you are a good provider. Success requires a written plan and an unfailing system to preserve and grow the flow of professional referrals.

Internet Marketing: From websites and social media tools, to patient portals and mobile apps, online marketing is a mainstream channel for marketing, advertising and public relations. Exactly how you use the muscle of the digital freeway can be highly effective and profitable, or a huge waste of time and money.

Branding: This is all about standing out from the crowd in a positive way, and it includes virtually everything you do. A powerful, differentiating brand for your healthcare business is part of your reputation. Meaningful and effective branding does not occur without a deliberate effort to shape and express the right message at the right time.

Internal Marketing: This heading includes all the ways and means that you communicate with people who already know you, primarily present and previous patients. Depending on the nature of your practice or situation, this influential audience can be a rich resource for referrals, additional services, testimonials and/or word-of-mouth advertising.

External Marketing: These are the media that reach prospective patients that don’t know you. Advertising in newspapers, radio, television, billboards and the like target an audience that needs to know that you provide an answer for their healthcare need. There’s little margin for error in an external media budget that is expected to produce a measurable return-on-investment.

Public Relations: This heading includes, among other things, planning and generating healthcare publicity and free press exposure, such as newspaper articles or broadcast interviews. The end results look easy, and it can be a positive and powerful influence. But “free press” typically results from careful planning, good timing, a clear message and a deliberate effort.

Environmental Analysis is described as the process which examines all the components, internal or external, that has an influence on the performance of the organization. The internal components indicate the strengths and weakness of the business entity whereas the external components represent the opportunities and threats outside the organization.

To perform environmental analysis, a constant stream of relevant information is required to find out the best course of action. Strategic Planners use the information gathered from the environmental analysis for forecasting trends for future in advance. The information can also be used to assess operating environment and set up organizational goals.

It ascertains whether the goals defined by the organization are achievable or not, with the present strategies. If is not possible to reach those goals with the existing strategies, then new strategies are devised or old ones are modified accordingly.

Some of the features or characteristics of Environmental Analysis are:

• Holistic View: Environmental Analysis is a holistic exercise in the sense that it must comprise a total view of the environment rather than viewing a trend piecemeal. The corporate must scan the circumference of its environment in order to minimize the chances of surprises and to maximize its utility.
• Continuous Process: The analysis of environment must be a continuous process rather than being an intermittent scanning system. It must operate continuously in order to keep track of the rapid pace of development. So, Environmental analysis becomes essential due to the dynamic nature of the environment.
• Exploratory Process: While the Monitoring aspect of the environment is concerned with the present development, a large part of the process seeks to explore the unknown dimensions of possible future. The analysis emphasizes on “What could happen” and not necessarily “What will happen.”

The Importance of Environmental Analysis are:

• First Mover Advantage: Awareness of environment helps an enterprise to take advantage of early opportunities instead of losing them to competitors. For instance, Maruti Udyog became the leader in the small car market because it was the first to recognize the need for small cars on account of rising Middle class.
• Early Warning Signal: Environmental awareness serves as an early warning signal. It makes a firm aware of the impending threat or crisis, so that the firm can take timely action to minimize the adverse effects if any. For instance, A MNC entering in to the Indian market would act as a early warning signal for Indian Firms.
• Focus On Customer: Environmental Understanding makes the management or Business organization sensitive towards the changing needs and expectations of customer. For instance, Several FMCG companies have launched small sachets of shampoo and other products realizing the wishes of customers.
• Strategy Formulation: Environmental Monitoring provides relevant information about the business environment. such information serves as the basis for strategy formulation. For Instance, ITC realized that there is a vast scope for growth in the travel and tourism industry in India and therefore ITC planned New hotels in India.
• Change Agent: Business leaders acts as the agents of change. They create a drive for change at the grassroot level. In order to decide the direction and nature of change, the leaders need to understand the aspirations of people and other environmental forces through Environmental Scanning.
• Public Image: A business firm can improve its image by showing that it is sensitive to its environment and responsive to the aspirations of public. Environmental understanding enables the business to be responsive to their environment.
• Continuous Learning: Environmental analysis keeps the organization in touch with the changing scenario so that thet are never caught unaware. With the help of Environmental learning, managers can react in an appropriate manner and thereby increase the success of their organization.

The Process of Environmental Analysis/Scanning consists of the following steps:

• Environmental Scanning: It means the process of analyzing the environment for identifying the factors which may influence the business. Environmental Scanning alerts an organization to potentially significant forces in the external environment, so that suitable strategic initiatives may be taken before the organization reaches to a critical situation.
• Environmental Monitoring: At this stage, the information from the relevant environment is collected. Once this information is collected, adequate data is gathered so as to find out the patterns and trends of the environment. Further Monitoring is a follow up and deeper analysis of environmental forces. Several techniques such as company records, spying, publication and verbal talks with the customers, employees, dealers and suppliers are the main sources of collecting data.
• Environmental Forecasting: Environmental Forecasting is the process of estimating the events of future based on the analysis of past records and present behavior. Further it is necessary to analyze or anticipate the future events before any strategic plans are formulated. Forecasts are made for economic, social and political factors. Several techniques such as Time series, Graph method, Delphi method etc. are used for this purpose.
• Assessment Or Diagnosis: At this stage, Environmental factors are assessed in terms of their impact on the organization. Some factors in the environment may entail an opportunity while others may pose a threat yo the organization. For this purpose, SWOT analysis and ETOP analysis are used.

Advantages of Environmental Analysis

The internal insights provided by the environmental analysis are used to assess employee’s performance, customer satisfaction, maintenance cost, etc. to take corrective action wherever required. Further, the external metrics help in responding to the environment in a positive manner and also aligning the strategies according to the objectives of the organization.

Environmental analysis helps in the detection of threats at an early stage, that assist the organization in developing strategies for its survival. Add to that, it identifies opportunities, such as prospective customers, new product, segment and technology, to occupy a maximum share of the market than its competitors.

Steps Involved in Environmental Analysis

1. Identifying: First of all, the factors which influence the business entity are to be identified, to improve its position in the market. The identification is performed at various levels, i.e. company level, market level, national level and global level.
2. Scanning: Scanning implies the process of critically examining the factors that highly influence the business, as all the factors identified in the previous step effects the entity with the same intensity. Once the important factors are identified, strategies can be made for its improvement.
3. Analysing: In this step, a careful analysis of all the environmental factors is made to determine their effect on different business levels and on the business as a whole. Different tools available for the analysis include benchmarking, Delphi technique and scenario building.
4. Forecasting: After identification, examination and analysis, lastly the impact of the variables is to be forecasted.

Environmental analysis is an ongoing process and follows a holistic approach, that continuously scans the forces effecting the business environment and covers 360 degrees of the horizon, rather than a specificsegment.