Corporate Restructuring in Firms - Essay Example

Corporate Restructuring in Firms: Apple Inc Introduction Corporate restructuring is the process of making drastic changes to a business. The process may involve merging with other organizations for survival, cutting out or cutting down on staff. The terms may mean the act of organizations re-organizing its ownership, legal and operational structure. The reasons for such strategies are for organizations to remain profitable and be able to withstand present needs (Riany, Musa, Odera, Okaka, 2012). There are other alternative reasons for such restructuring. The following are some of the reasons that might make an organization restructure its operation and other processes. An organization may face challenges such as funds and shrinking market share. These influences may force its management team to institute a change of ownership, in order to overcome issues like bankruptcy or buyouts (Gilson, 2010). Restructuring in organizations make organizations efficient and better organised. Such organizations have a better financial plan and revised strategic plans (Riany et. al., 2012). Industrial players to enhance better shareholder wealth, and improve the performance and welfare of employees have adapted such initiatives. Apple Inc is a multinational corporation, which develops designs and sells personal computers, software and other electronic devices. The company famous for its Mac chain of computers, which includes iphone Smart phones and ipad tablets. The company under the leadership of Steve Jobs has undergone several transformations. Some of these transformations involve a change in products to marketing campaigns. Reasons for Corporate Restructuring There are several reasons for companies to institute restructuring strategies. Organizations have to change regularly their contractual relationship with shareholders, employees and other stakeholders. These factors make it necessary for such organization to have a constant change in their restructuring strategy (Gareth and Charles, 2010). These industrial players have a stake in organizations legal, financial, operational and ownership. Therefore, organizations have to restructure their strategies to meet their demands. Such strategies of restructuring include organizational, portfolio and financial restructuring (Samaras, 2004). However, one needs to understand that restructuring is an ongoing process for organizations. Corporate restructuring assists organizations improve on their performance, operation or profitability. For Apple Inc, restructuring became evident with competition and growing cost of production. In the year 1990s, the company’s market share was falling. In order to meet this fall, the company instituted several strategies. One of such strategies for the company was an investment on failed consumer products; such as audio players and digital cameras. However, this strategy did not help the company meet its need; since its stock prices were on a downward trend. The company saw that producing Apple II was too expensive. The company relied on high profit margins. This, therefore, meant that its competitors had a bigger market share. Its restructuring strategy came with collaborating with other players. The management team of the company saw it necessary to merge with Motorola and IBM (Rothaermel, 2013). The main reasons for restructuring organizations include addressing poor performance. It is during losses; fall in stock prices and at times of stagnating losses that the organization needs to carry out a restructuring strategy. The other reason for such action includes restructuring to take a business advantage (Rothaermel, 2013). Apple Inc’s development of a restructuring strategy was in response to losses, and their loss in market share. The company went into mergers with IBM and Motorola in order to meet their diminishing market demands. It was also necessary for the company to restructure its performance since it was undergoing a financial difficulty. This meant that the cost of production was high in comparison to returns. Restructuring Strategies There are several restructuring strategies available for organizations. These strategies include organization and financial restructuring. In relation to organizational restructuring, Apple Inc had to change its management team. During that period, the company had to lay off its employees to cut on cost of production. This change in the level of management meant that the organization could meet it demands and develop new products. This assisted the organization in shifting its production, and Advertising boundaries. Organizational restructuring assist organizations change their compensation as well as production strategies. For such organizations, a reduction in the workforce provides a reprieve to struggling firms while it has minimal impact on the organizations performance (Vance, 2009). Restructuring strategy in relation to financial capabilities of organizations refers to its changes in capital structure. With reference to Apple Inc, the company has had several capital restructuring initiatives. The latest initiative for the company came into effect in the year 2010. The company took this initiative in order to position itself in the market for a year. The strategy involved consolidation of common stock. This strategy is a step towards attracting investors for acquisition and mergers in the near future (Bengt and Kaplan, 2001). The company wishes to expand its geographical reach, and in venturing into other businesses. The company may also change its capital structure using leverage buyouts, equity swaps and recapitalization (Samaras, 2004). For an effective strategy formulation, organizations need to concentrate on their strategic management processes, understand company’s performance, analyse industry structure and competitors. This means, therefore, that the company has to undertake an external industry analysis. Internal industry analysis is another important component for such organizations. Internal analysis of the organization, assist in the analysis of strength and weaknesses (Rothaermel, 2013). A clear understanding of these features for organizations enables the management teams develop future goals. These features also assist organizations have a competitive advantage in the market. Apple Inc, competitors include Microsoft and their performance has been on the rise since the invention of Apple iphones. Market Transformation Corporate restructuring for organizations have an influence in transforming markets. Corporate Restructuring plays a role in the labour and goods markets. In the wage market, it increases wage compensation. It is also evident that corporate restructuring assist in the economic performance of firms. However, large returns come from management buyouts and leverage. At times, firms have to take debt to finance its operations. In cases where a firm takes such debts, it remains publicly held but has the ability to gain returns (Megginson and Scott, 2008). For most organizations, portfolio restructuring works well. For Apple Inc, it had to take a debt restructuring in order to pay its operations. In such cases, the company had to hire legal and financial advisors to formalize transactions. In such cases, strategic restructuring is necessary. In the market, corporate restructuring has had an impact on organizations. For most organizations, turn around manager’s play a critical role in ensuring that organizations transform. This type of transformation ensures that organizations get out of solvency and renew them from solvency. Turnaround managers, therefore, assist in finding out the root causes of financial problems. They do this task by use of SWOT analysis. During this period, the company can institute a restructuring plan. Such managers institute changes on the plans and offer necessary corrections. In cases of transformation of the market in terms of reposition, some steps are essential. Restructuring involves the evaluation stage, acute need stage, restructuring stage, the stabilization stage and the revitalization stage. During such market transformation stage, organizations employ the following strategies. It was during the critical point of Apple Inc that it retrenched its employees, repositioned itself, replaced some of its products and renewed some of its products. Organizations employ the retrenchment strategy in order to limit financial losses. This strategy also assists in the stabilization of companies, solving of poor performance, and in the development of action plans. This is possible through selling off assets, avoiding certain difficult markets, downsizing and outsourcing (Rothaermel, 2013). Apple Inc did this by avoiding certain products, whose production was expensive in comparison to those of competitors. The organization also cut on its expense through downsizing staff numbers and closing production lines. The firm repositioned itself through production of cheaper electronic products. It also diversified into production of other products for the growing market. The reposition strategy of the firm also involved marketing and research campaigns to develop products for the growing needs of consumers. The firm also renewed its products through the introduction of new technology. Such technology was at par with that of rivals. It also underwent many challenges in developing new products. Some of these challenges relates to the designing of electronic gadgets, implementation, and in marketing. The activities by Apple transformed the market; since the company was able to attract professionals. It also meant that its competitors had to develop new products. Financial Performance In recent years, finance has had a role to play in the industry. The initiatives involve internal sources of finance as well as the global influence. Financing organizations takes both global and regional spectrum. For corporate restructuring, finance is one of the most important aspects. Finance in the current market environment dominates real activities of organizations. These effects have had a tremendous influence on households as well as businesses. The debt levels of businesses have risen. This influence attributes to the variation of asset prices in the global market. These, therefore, interfere with the saving ratio of individual households and businesses (Tobias and Hyun, 2010). There is a large margin of propensity to consume out of wealth in terms of property than from assets of a financial nature. The increase in household debt is part of a rational decision of people in the society. With regard to USA, most of the household debts relates to mortgages. There is a slight difference in household consumption related to several market dynamics. This trend is the same in the UK and other countries. This influence has increased the debt ratio concurrent to property price increase. Financing has an important influence on these countries and the society. There is an emergence of the banking system different from the traditional insurance and banking systems (Froud et. al., 2006). This emergence relates to several innovations in the banking sector. This, therefore, means that current banking systems substitute traditional systems largely. This shadow banking system in the USA is believed to be larger than the traditional system in terms of assets. The development has led to a paradigm shift from the traditional systems, which generate income with respect to interest gains to elaborate systems (Stijn, Daniela and Laeven, 2001). Apple Inc reported a total of $ 108 billion in revenue in the year 2011. This was a significant increase in revenue as compared to 65$ billion the previous year. This, however, does not mean that the organization increased its market share. It is necessary to quote that this data on the contrary meant a drop in market share. The company wishes to improve on its performance, by instituting a $2.65 per share dividend. In terms of market capitalization, the firm had a range of $660 billion by the year 2012. This meant that the firm had the highest market capitalization in the market. The positive influence on the company implies positive portfolio values. Globalization Influence Not all forms of organizational restructuring offer improvement for organizations and households. It is evident that layoffs and other strategies have a negative influence on performance. Downsizing and other measures on organizations would have a positive influence to some degree. However, there is the influence of externalities that might largely influence performance of industry. Such externalities relate to customers, shareholder and other global influences. Global financial condition has an international dimension on firms. Current influence on the global market has led to an increase in the volatility of rates (Ahmadjian and Robbins, 2005). The phenomenon has a resultant negative influence on the exchange rates. It is argued that linearization of the global financial system would allow efficient use of capital. However, such development has not led to an improvement in the global financial condition. In retrospect, it has led to constant exchange rate crisis. The volatile exchange rate has an influence on the capital structure of firms and households (Reddy, 2002). These developments have a negative influence on the labour market. Current market situation for capital in such volatile markets is characterised by massive inflow and sudden outflow of capital (Brickly and Van 1990). These market activities greatly influence products and organizations in emerging economies. With such sifts in the global economy countries have to contend with several recession episodes. This means that there is global disparity in capital within countries. In relation to the global labour markets, there have been several transformations in almost every trade. Corporate restructuring in the global markets have led to several inequalities locally and on the global scene. Corporate restructuring processes in organizations have influenced wages in the following ways: there has been an increase on the influence of tenure on organizations; the global market for labour is saturated in some places influencing values of starting salaries. These influences have made the level of inequality in the market to increase prominently. In conclusion, it is evident that corporate restructuring has had an influence of employment relationships (Crane and Dirk, 2007). This phenomenon has had an influence on wage patterns. It has propagated wage disparity in organizations. The hierarchy of individuals in firms is also another factor that determines wage rates. This phenomenon has an influence on the global economy as well as on internal nation’s economies. References Ahmadjian, C., L, and Robbins E 2005. A clash of capitalisms: Foreign shareholders and corporate restructuring in 1990s Japan." American Sociological Review, 70(3) Pp: 451-471. Bengt,H., and Kaplan, N. 2001. Corporate Governance and Merger Activity in the US: Making Sense of the 1980s and 1990s. Journal of economic perspective. 15 (2), 121-144 Brickly. J.,A and Van, D. 1990. Internal corporate restructuring: An Emphirical Analysis. Journal of Accounting and Economics, 12(1-3). Pp 251-280. Crane, A., and Dirk M. 2007. Business ethics: Managing corporate citizenship and sustainability in the age of globalization. New York: Oxford University Press. Froud, J., Johal, L., Leaver, A., & Williams, K. 2006. Strategy and Financialisation: Narrative and Numbers. London: Routledge Gareth, R., and Charles, H. 2010. Theory of Strategic Management. South-Western, Cengage Learning. Gilson, S., C. 2010. Creating value through corporate restructuring: Case studies in bankruptcies, buyouts, and breakups. Vol. 544. John Wiley & Sons. Megginson, L., and Scott, B. 2008. Introduction to corporate finance. New York: Cengage Learning. Reddy, P. 2002. Globalization of Corporate R and D. New York: Routledge. Riany, O., R., Musa, G., Odera, O.,and Okaka, O. 2012. Effects of Restructuring on Organization Performance of Mobile Phone Service Providers. International Review of Social and Humanities. 4(1) Pp: 198-204 Rothaermel, F., T. 2013. Strategic Management. New York: McGraw-Hill Samaras, H., A. 2004. Corporate Restructuring: an Overview. Retrieved from www.pytheas.net. Stijn,C., Daniela K, and Laeven, L. 2001. Financial restructuring in banking and corporate sector crises: What policies to pursue? National bureau of economic research. Tobias, A., and Hyun, S. 2010. The changing nature of financial intermediation and the financial crisis of 2007-2009. Federal reserve bank of New York Staff Report. Vance, D. 2009. Corporate Restructuring: From Cause Analysis to Execution. Springer Dordrecht London: New York. Read More