Long-Term Investment Decisions - Literature review Example

• The mark-up pricing strategy

The managers of the low-calorie, frozen microwavable food company has expected that the price of the ingredients may increase in the upcoming days. In this circumstance, the managers of the company may face two problems. Firstly, offering the products at the same price may reduce the profit margin and create problems for the firm to maintain sustainability. Secondly, the managers may consider that increased price of the products may affect the demand and reduce the sales. Therefore, the managers are required to adapt the strategies that can reduce the operational cost which in turn helps the company to nullify the effect of increased price of the ingredients. On the other hand, it can also be inferred that if the mark-up price becomes less elastic it will not affect the demand of the product (Andreyeva, Long & Brownell, 2010).

Firstly, the managers of the low-calorie, frozen microwavable food company can apply the low-cost preservatives. It may help the firm to cut down the manufacturing cost. In this case, the company can reduce the ‘best used period’ for the product and mention it in the container. For instance, earlier the product could be used within 18 months, now it can be used within 12 months. Secondly, the managers of the company can also focus on procuring the raw materials directly from the farmers. Reduction of the intermediaries can also reduce the operating cost. The managers can focus on procuring the raw materials from the alternative market that is offering the raw materials in slightly cheaper price. However, obtaining the raw material from the nearby market may help the firm to reduce the transportation cost. In addition, the low-calorie, frozen microwavable food company managers are also required to verify the storage system thoroughly. Any faults in the storage equipments can increase the electricity cost for the firm.

• Effect of government regulations on production and employment

The production and employment of a particular industry has been hugely impacted by the government policies (Shaffer, 2011). The government of the concerned country prescribes rules on the production procedures and the strategies to deal with the staff of a company. In the case of the food industry, the main intention of the government is to stipulate the norms that direct the firms to produce the products in a health conscious way. Hence, the low-calorie, frozen microwavable food company needs to maintain the production standards of the government to protect the customers from any sort of harms. In case, the companies fail to maintain these policies they may face the legal problems. For example, the regulation of the government regarding the content of slats or proper packaging can be treated as important for the firms in this sector. In USA, the low calorie, frozen microwavable food companies need to follow the strict guidelines of Food and Drug Administration (FDA). The processing of food has been strictly monitored by USDA. In addition, the low calorie, frozen microwavable food firms need to face huge penalties, in case of any discrepancies regarding storage of the food products. The food products manufactured by these companies need to go through the strict quality control method to ensure the items are free of any organic contents or cholesterol free. The specific quantities of fat, calorie etc obtained from the quality test need to mentioned in the labeling without any manipulation.

The employment of the companies can also get affected by the policies set by the government. Landau (2011) mentioned that the recruitment or selection procedures of the firms can be influenced by the government regulations. For instance, the strict policy regarding discrimination during recruitment can be imposed by the government. In addition, the minimum wage of the staff can be decided in accordance with the specific government policy. The companies also require to abide by the termination policy and compensation benefits mentioned by the government. One of the most crucial employment issues that can impact the operations of the low-calorie, frozen microwavable food company is the minimum age of the staff. Failure to abide by this rule might lead to legal problems related to the child labor laws. Moreover, the production of these companies is also immensely affected by the number of working hours set by the government. However, in this context, Shaffer (2011) viewed that the companies follow the government rules to create a good brand image to its stakeholders.

• Regulation of the government and its significance

The activities of the companies across different industries have been immensely influenced by the government interference. The low-calorie, frozen microwavable food company has also been affected by government regulations. According to Landau (2011), for the fairness of any particular industry, the interference of the government is crucial. Most importantly, the government monitors fair competition among the players of the particular industry. It has been observed that in some of the cases, the companies of a particular industry apply their position and power to take unfair advantage by implementing different market strategies. For instance, the firms may apply predatory pricing strategy to abolish market competition (Glaeser & Saks, 2006). In this case, the large firms intentionally reduce the prices of the products and services with the help of economies of scale. As a result of that, the small companies or the start-up firms cannot survive in the competition and a monopoly market has been created. The government monitors these issues to maintain a fair competition in the market.

The government also protects the firms to utilse their influences for obtaining success in a market economy. For example, in some of the cases, the large firms engage in lobbying to pressurize (through offering bribes) the government to take the decisions in favor of them. In addition, with an effective interference, the governments also concentrate on reducing the corruption in particular sectors. Supervision of the government has also intended to control the unequal distribution of the resources.

In case of the low calorie, frozen, microwavable food companies, the intervention of government is required to ensure that these companies are focusing on the health and safety of the consumers. For instance, with the Nutrition Labeling and Education Act of 1990, the US government has compelled these companies to reveal all the necessary information in the labeling of the food products. It has allowed the consumers to become aware about the ingredients of the food products and take the decisions whether to consume any particular product or not. With this regulation, the US government has intended to reduce the diseases related to high level cholesterol or obesity.

One of the most important aspects of the government interference in the market economy is the protection of the local players of the market (Landau, 2011). In order to do so, the government control internal business, export and foreign investment in a particular sector. In addition, for the safety of the human being, the government has emphasized on safe consumption. In addition, for protecting the environment, the government has limited the emissions of carbon. In some of the cases, the government has also limited the scopes of privatization to prevent the formation of monopoly in the market.

• Complexities lie in the capital project and recommendations

Capital projects indicate the long-term investment made by the firms for improving their infrastructure (Lintner, 2009). However, the managers may face a lot of challenges to implement these capital projects. Firstly, involvement of large funds can be considered as one of the most common difficulty associated with the capital projects. Secondly, in order to invest in the capital projects, the managers of the low-calorie, frozen microwavable food company are required to evaluate its return. In most of the cases, it has been found that the firms that invest funds in the capital projects without proper assessment end up with huge loss.

For dealing with the complexities of the capital projects, the project managers are required to frame a proper planning. In such meetings, the strategies to obtain the best possible results from the capital projects can be formulated by the managers of the low-calorie, frozen microwavable food company. In addition, the managers need to focus on capital budgeting for utilizing its resources in the most optimal way (Shahrokh, 2016). In this capital budgeting, the managers can identify the areas for long-term investment. For instance, the firms can either focus on horizontal integration by enhancing the scale of production or concentrate on vertical integration by setting new plants or purchasing new machineries (Shahrokh, 2016). The sources of funding (such as equity, debt or retained earnings) for the capital projects can also be decided in the capital budgeting (Shahrokh, 2016). Moreover, in this planning, the time frame for the projects can also be decided. Laufer, Denker & Shenhar (2006) mentioned that for implementing the capital projects, a highly efficient labor forces are essential. These skilled labor forces can tackle with the complexities of the project. Therefore, before implanting the capital projects, the managers of low-calorie, frozen microwavable food company need to recruit the efficient employees in the organization.

In addition, to the above mentioned strategies, the low-calorie, frozen microwavable food companies can consider outsourcing of some operational processes to strengthen the core activities and reduce the production cost (Shahrokh, 2016).However, too much dependence on the outsourcing can hamper the production of these firms. On the other hand, the firms also need to invest capital to improve the labor productivity. It may help the companies to make a good return from the capital investment. In order to make the long-term investments, the management of these companies can consider merger and acquisition activities. It can help the comes to improve the capital base.

• Creating a convergence between the interests of stockholders and managers

In majority of the cases, there is a conflict between the interests of the stockholders and the managers. It affects the firms and proves to be an obstruction towards achieving its goals and objectives. Hence, it is important for the firms to develop a convergence between the interests of the stockholders and managers.

In this case, management of the firms can provide the salaries to the managers on the basis of their performance. Langtry (2009) suggested that offering stock options can be considered as a strategy that can compel the managers to put additional efforts and protect the benefits of the stockholders. It has been found that in most of the cases, the stock options result in the enhanced share price. The primary expectation of the stockholders is to experience high values of the shares. It enables the shareholders to obtain high dividends. However, the managers may consider other aspects related to the concerned company as important ones. By offering stock options, the management can compel the managers to consider themselves as stockholders. In other words, it can be stated that it may reduce the divergence of interests among the managers and stockholders. Therefore, under this circumstance, the managers will also be motivated to improve the profit margin of the company and that in turn will increase the share price. By implanting this strategy, the concerned management can create a concord in the organization. Most importantly, this strategy will improve the competitive advantages of the firms. At the same time, the company will be able to pull up more stockholders and focus on equity financing. In addition, the companies can also appoint an independent board of directors to conduct the internal monitoring. The issues related to the remunerations of the executives can be managed by the member of this independent board. Along with the stock options, the concerned management can introduce performance based pay bonuses for the managers for improving the performance. With the stock options and pay bonuses, the firms can also offer a solution to principal agent problem that also indicates the dissimilarities between the goals of managers and stockholders. The moral hazards related with the contract between managers and stockholders are required to be addressed by the internal board of directors for improving the productivity.