Strategic dividend policy made by Apple

Nowadays, in order to expand the scale and assets for company, the dividend is a useful tool for attract investors to put their money in companies. The aim of all investor to move their money is to achieve more wealth and they are not charity. Therefore, dividend is the most direct approach to compensate the contribution of investors and it is also able be creating value for company.

In the case of ‘Apple profits fall for first time in a decade’, the Apple made a net profit of $9.5bn in the first quarter in this year, which has been decreased from $11.6bn last year. However, the dividend of Apple Inc. surprise rises up 15% after they dropped profit. What makes this happened?

Before analyze the reason of Apple raise their dividend up, it is necessary to know about what is the impact of dividend. The dividend is usually effect the decision from investors and it is also a basic resource to help investors make decision about what company can invest and how much can put money in. Dividend is possible to change to shares by the shares trading. However, the dividend policy is made to restraint investors and protects creditors. For investors, the high dividends are always good news and low dividends are bad news. However, in the reality, the high dividends may imply a lack of attractive investments as result of lower future investment returns, and the low dividends may indicate many attractive investments as result of better future prospects.  

The Clientele Effect suggests that the stable growth dividends are the best way to keep investors stay. This is because a very low dividend will make investors lose their confidence and a very high dividend will make investors feel that the unsustainable in long term. Therefore, the managers can maintain the dividends when profit going down and raise little scale of dividend when the profit going up.

Back to the Apple case, Apple made a lowest net profit around the recent ten year, but they raise their dividend up. For my point of view, this decision is made very correct and strategic. Relating with apple recent market situation, especially in the smartphone market, Apple is always improving their old style phone after iphone4 was launched. However, the competitor of Apple has launched many new phones which have new design and new feature such as Samsung and HTC. The phone industry of Apple is obviously losing the competitive advantage. The investors are looking for the innovation in Apple and they trust that the Innovation of Apple will bring more wealth. However, the net profit decreased is very possibly led Apple to lose many investors. Apple is impossible to create Innovation without investors’ supports. Therefore, the managers have to increase the dividend to keep their investors and shareholder, and more, the increasing of dividend is possible to attract more investors. They are the main financial supports to Apple create new innovation. ‘The most important objective for Apple will always be creating innovative products’ from The CEO of Apple, Tim Cook, to calm investors’ fears. 

The falls of JJB sports

 In the reality, it is hardly to support capital of company by self-own finance or it is hardly to earn large profit by small capital of company. Hence, the external finance is very useful to expand the scale of company and achieve larger profit. The external finance is mainly included in debt and equity. However, issuing the debt and equity will be involve interest much be paid, but the cost of debt is cheaper than equity. By comparison, more equity will bring more return for company.

Therefore, issuing the debt and equity must be involved the risk problem for organization. The high gearing level increasing the risk for company and the low gearing level is decreasing profit. In order to achieve the maximum of shareholder value, balancing the risk as low as possible and make the profit as much as possible is an essential issue for managing finance. Hence, the calculation of WACC is a best way to find the balancing point between risk and cost of capital. On the other hands, the business risk is an important for managing business such as the risk of exchange rate and the risk of environment. But some of risk is uncontrollable for management team and they can only avoid it. However, the risk from finance is obviously controllable.

In case of JJB Sports, it is a well-known brand on High Streets and the main selling is sportswear. In last year, they have achieved the combined value of JJB Sports' shares totaled £500m, but its shares being suspended on 1^st Oct it was just worth £1.2m.

The woe of debt is a main reason behind JJB Sports went wrong. In 2007, in order to expand their market, they had brought footwear firm Original Shoe Company and a minority stake in sportswear brand Umbro. JJB Sport had achieved a successful movement which becomes the third sportswear brand behind Sports Direct and JD Sports. They had issued more equity to fill the lack of assets, but it had increased their gearing level, which means that JJB has taken more risk than before. Unfortunately, the economic crisis has occurred in 2008 and they quickly found it in financial difficulties. In order to dealing with the financial difficulties, they serviced its expensive debt as profits plunged, and JJB also sold its fitness clubs.

For my point of views, JJB is unnecessary to take a vast amount of money to buy the footwear firm Original Shoe Company and a minority stake in sportswear brand Umbro. This movement is too risky for an organization. According to JJB historic finance situation, they are keeping a stable growth before 2008. Too much risk is very possibly to lead company to bankruptcy.

In order to rescue their finance, JJB has had to twice restructure its debts to persuade its shareholders, the charity set up by the founder of US software giant Microsoft to invest them more than £200m. However, JJB was still loss their mount until August.

What’s more, the lackluster management is also the main reason for JJB sports went wrong. The various bosses had led JJB after 2007. The various leadership and strategy is definitely impact JJB to loss their mind as result they made failure in the business.

Family business in Japan

The family business is playing an important role to contribute the growth of economy even in nowadays economy. It had occupied the 60% of private sector output, 54% sales and 40% GDP in 1993 of U.S. and family business is taken up approximate half of whole business company currently. In addition, it also provides more employment opportunities for society, and it is an essential factor for economy.

However, there are some difference between family business and public companies. The public companies are able to raise their capital through their equity shareholders and borrowing from banks. It is more easily to acquire the borrowing form bank because they are providing the transparent documentation for public. On the other hands, family business is hardly to raise their capital by borrowing, because they are almost closed environments in order to protect their family secrets, and the transparent documentation is not required for family businesses. Therefore, lenders are hardly to accept their borrowing, and in order to acquire the borrowing, the agency problems will be involved in family business. The family business consider their own wealth and needs rather than investor, as result the investors’ loss trusting to family business and their wealth. What’s more, family business is also involved the relationship problem and conflict during their business operating.

According to Wall Street Journal, it points out that the family firms become more popular in Japan than the other countries. In Japan, family firms are holding a strongly competitive across the generations. The family inherited problems are often occurred in the Japanese family business.

It is more considerable issue about who is able to become the next generation successor. The general consideration will be concerned the oldest, most educated and most appropriate. Actually, in the Japanese tradition, the achievement is more important than anything others, therefore, Japanese family firms are using the family structure variables as instruments to elevated the performance of sons of leaders. Base on this concept, the factor of age can be kicked out to consideration. The measure to decide which son will be inheritor is that the owner will provide a suitable job to their sons and arrange a star manger to train them. During the work, the owner and manager will judge their behaviors, capacity and talent. The judgment is not only highlight the capacity and talent for the business contribution, but also the ethic behaviors are an important factor to impact the inherited decision, because of Japanese tradition. Therefore, the family business in Japan will chose the most appropriate son to be their inheritor.

And the other interesting thing is that, due to the tradition of Japan, it is usually not accept to choose their daughters to be inherited. Assuming a business owner do not have son, but owner has many daughters. People are possible to marry the owner’s daughter to achieve the qualification to be their business inheritor. 

Credit crunch and Canada growth

For the nowadays economic environment, there are many companies and events still are impacted by the financial recession in 2008 in Europe and North America. The main reason behind to the financial recession is the credit crunch or credit crisis. At the start of the recession, it is started as the French bank BNP which sharp increasing in the cost of credit on August of 2007 and the world recognize how important for that issued would be impacted. In the next 2 years, there are many of banks or financial institutions were collapsed, it included the major bank of Lehman Brothers, and there are hundreds of Bank was influenced by the credit crunch, such as Lloyds TSB. It is like the domino effect, one bank was injured and other banks will be impacted by that.

The credit crunch can be identified as the lack of availability of credit to consumers and business from traditional financial institutions. It will be leading the banks or financial institutions to bankruptcy protection, collapsing, restructuring investment and making large amount of losses. Additionally, the root reason for credit crunch is that banks have set the low interest rate which encourages consumers spending more confidently rather than borrowing. In developed economic countries, the interest rate became the lowest rate in long term history. The other reason to cause credit crisis is opening the international saving in emerging economic such as China and Japan, and it makes the domestic capital liquid to the other countries but the return was low. Thirdly, the impact caused by the 9.11 events of American recession in 2011.   

In order to reduce the damage from the credit crunch, investors might sell their subprime mortgage such as securities. In general, predatory mortgage lending would be occurred in the subprime market. The subprime market is used for judging the capacity of repayment for organizations, and it will give the rate of level for organization to banks to make decision, such as AAA, AA+ to D level. Additionally, it shows that the AAA to BBB- rate of level of organization is possible to accept to investment and the BB+ to D of rating company is suggested to reject.  

The credit crunch is also will impact the GDP of country and the profitability of company generally negative. There are five methods for management team to survive in the financial recession:

1.      Understand and maximize the current cash position

2.      Identify and aggressively minimize operational risk

3.      Scenario planning

4.      Review and prepare for divestitures

5.      Maintain confidence of key stakeholders

According to the Wall Street Journal, there are 17% of Canada’s mid-sized companies had disappeared from 2006 to 2010, and the manufacturing industry was suffered more pain which half of mid-sized companies vanished at that time. The reasons for this disaster are not only become of the recession and global credit crunch, but also the rise of China and steep dollar. The rise of China had improved the level of competition for the Canada companies especially in the manufacturing industry. Moreover, the steep dollars impact the Canada dollar drop in the unsteadily.

BDC Chief Economist Pierre Cleroux point out Canada is possible to follow the Germany’s Mittelstand firms which have achieved the success under economic crisis. However, according their weight which 16% of all jobs, 12% of Canada’s gross domestic product and 17% of the value of exports, Canada is hardly to achieve success like Germany. Additionally, it is hardly to many find skilled workers to deal with the stronger competition. However, it is more possibly to grow their economy by invest more in productivity.   

Strategic Hotels & Resorts, A new vision for their development

Contemporary business environment requires companies who want to compete for a higher market share to have a strategic management skill. This is always related to the companies' management decision making, which must be in line with the principle of maximisation of shareholder wealth. While sometimes we must realise that companies may lack the competitive power due to the shortage of innovation and technology, good ability of resource allocation and certain degree of brand name. In this case, strategic decisions such as mergers and acquisitions can be a powerful weapon for companies to conquer such problems. Even though sometimes this kind of activity may also be accompanied by a set of risks arising from the conflict of culture, misguided strategies and improper bidding fee, companies still can acquire what they need through this decisions.

Strategic Hotels & Resorts Inc. is the one only focusing on the upper-upscale and luxury lodging market. Their acquisition of Essex House located in New York mainly stems from the corporate strategy. However, we cannot judge the purpose of such activity through the surface. First, I think the the choice of Essex is because the location of Essex can be a landmark in Manhattan. The hotel was previously owned by Dubai Investment Group and they chose to pay the bidding fee amounting to $362.30 million. As they are the real estate investment trust (RETI) who have the business over America, Mexico and the Europe, the combination of Essex will definitely enhance the competitive power of their further development. The bidding fee was contracted as several payments and the first payment would be dealt at$190.00 million financing from the bank of America. While I personally think this behaviour is improper as the loan will be signal as the poor operations of Strategic Hotels. We cannot deny that companies paying the transaction out of their current asset side can be good news for investors as they are operating under a very robust cash base, meaning their investment will not be damaged if the companies are facing severe credit issues as they have a good command of liquidity. While on the other hand, if we change another view of this issue, holding the huge amounts of cash sometimes does not mean companies are creating shareholder value because they do not realise the usage of gearing. Certain liability can be a useful tool for managers to maximise the shareholder wealth, to certain extent, it is like to mix the equity and debt in their capital structure.

Since the financing decision has been reviewed, we need to look if there is any potential risks which may become the obstacles for the future of companies. The very first thing should be the cultural issues. Due to the cultural conflict, companies may have to be faced with the problem to achieve goal congruence. This is the biggest barrier for managers to maximise the shareholder wealth. While in this case, we can see both parties are both aiming at the luxury lodging market, they will have little possibility to pursue self-interest. Furthermore, as they are in the same sector(industry), they are following the same codes and principles, which is more convenient for the parent company to control the acquired. Then, since they both in the investment trust originally, the combination will just enhance the communication between internal divisions. So the second problem of misguided strategy can also be avoided in this case.

While actually, in the real business world, we must recognise that there are more than these three forms of conflicts which may lead the companies taking mergers and acquisitions to failure. Such risks are like the exchange rate fluctuation for multinational acquisition, the change in economic of scales and regulated restrictions. These external factors sometimes also must be taken into considerations before the M&A activity is carried out.

Starbucks,why they succeed in FDI

With the rapid growth of vehement business competition, companies have to consider more strategies to create the firm value on the premise of the risks minimisation. Foreign Direct Investment could be seen as a useful tool to strengthen the companies' competitive power. They could gain more reputation through expanding their business. The benefits such as gaining certain market share and know how, more cash inflow through FDI could be brought through this activity. However, sometimes problems such as the conflicted corporate structure and limited access to local markets will be the obstacles for them to face.

I would say the FDI strategy of Starbucks is brilliant. Actually it is because their know how is hard to transfer and their products, which are mainly coffee, are hard to meet the local customer's requirements. So in this case, their core competitive power will not be lost in FDI activity. They employ the local staff being another advantage for their strategy. This is because many FDI will fail at last because they can not localise their products, which then cannot win the local markets. Hence, the high cost of such investment eventually will damage the value of their shareholders. But the hardest problem for them is to gain the license. This challenge for them is easier than other companies like McDonald's, who may conflict with local religion.

The main purpose that Starbucks decide to expand their business across the world is to win the market on the premise of ensuring quality. They are not like Sony, who focus on the diversification and lead to the strategic failure in the end. But the other challenges for them are tax management, currency fluctuation management. Such macro environment will inevitably impact on the shareholder value. Without proper management, their wealth will just fade away by the effect of currency and tax. That is also what most companies' are worried about. I think if Starbucks want to create more value for their shareholders, they can employ the total quality management, that is suitable for their company.

At last, I want to say foreign direct investment is the way to expand business and discover more opportunities. But the when deciding their strategies, managers must be fully aware if the merits are over drawbacks or disadvantages are over benefits. The only principle is to maximise the shareholder wealth. Starbucks is the typical example of success.

Strategy for hedging and multinational tax management

 Under the high competitive market nowadays, the multinational trading becomes more and more popular for the general organization. It is an effective way to expand their market and to achieve more profitability in the global size market. However, the multinational trading will involve more risk and various tax rate issues during the transaction. Therefore, the risk management and multinational tax management plays an essential role to reduce the risk and the unnecessary cost on the international trading.

Firstly, the international trading will meet the currency issue. The exchange- rate of nation is changing every day, and it reflects the situation of market for the country. On the other word, the exchange rate affects that the investor wondering to put investment in the country or not. Additionally, the changes of exchange-rate raise the risk of investment for companies. However, the Hedging policy is an effective way to reduce the risk by multinational transaction on credit for general organizations.

The hedging policy is not only adopted for reducing the managers risk, but also it is possible to reduce the cost from the financial distress and adjust capital structure, reduce the investment incentives and ensure the investment opportunities. In addition, the forms of hedging can be concluded by netting which is change the gross amount of currency to the net amount for multinational trading, leading and lagging which is the strategy to decide the best payment time. Also, the hedging policy could be used through financial instruments to choose the right time and specific exchange rate to make the currency transaction as result the risk and cost could be reduce by the changes of exchange- rate.

In the Wall Street Journal of ‘Strong Start to 2013 for Asia Hedge Funds’, the hedge funds had performed excellent in Asia on January, especially in Japan. Due to the earthquake occurred in Japan in 2011, the hedge fund is operating difficultly in the last two years. However, this January Japan had gained a good risk returns to equity markets which is returned up on average 4.15%. For the other countries in Asia, the hedge fund returns 4.02% according to data from EurekaHedge.

Due to the good performance of hedge fund in Asia, investors might take more attention on the Asia market. The high-performing hedge fund ensures not only the lower risk on the investment, but also the better long-term profit could be achieved in that market.

What’s more, the multinational trading also involves the tax issue which means that the different regions are holding the various tax rates for trading. In order achieving more profit and maximize shareholder value, trading with the lower tax rate country is an effectively way to makeup this goal.

The chancellor told BBC News: "We want a tax system that makes it competitive for businesses to set up in Britain and create jobs, but we also want a tax system where business pay their taxes and that's what we're setting up achieving here with other countries at this meeting in Moscow.” This illustrated that the high tax will be suffered by the large organizations which set up company at high tax-rate region such as Europe, UK and North America. The joint venture to the low tax rate countries is a possible way to solve this problem.

Tesco multinational venture and Indian supermarket open up

Collaborative ventures and foreign subsidiaries globally are always the effective and important strategy for raising finance for organizations. This should be considered about the performance of cost of finance, such as the cost of capital and the expected investment of return. In domestic market, the liquidity of securities market is limited and capital market is small. However, In the international market, it is not only provide a more liquidity of securities market and larger capital market, but also companies are possible to improve liquidity of shares and provides a market for new events, also the share price could be increased by handle illiquid and segmented market. Additionally, the firm visibility and political acceptance could be improved for their stakeholders as well.

In order to make a better performance of cost of capital, investment of return, the weighted average cost of capital (WACC) concept is a significant method for managing finance. In this method, the debt and equity financing is used for calculating the minimum level of return on investment.

In the BBC new of ‘India opens retail to global supermarkets’, it is illustrated advantages and changes after India open up its lucrative retail sector to global supermarket chains. However, this decision had impact their market deeply. The foreign airlines had brought 49% stakes for local carriers as result the trouble of Indian airline industry has been increased and the price of dramatic diesel had been raised 14%. On the other hands, there are some benefits had been brought by this decision. There are many business leaders backed to the Indian supermarket market and the more investment had been attracted, therefore, the economy of Indian increased by this decision. Many companies has already invested entirely $100m (£ 67m) for Indian industry, such as Tesco, Wal-Mart and Carrefour, they have already built their own outlet in town or high population cities in Indian. For the benefit of multinational retailers, Wal-Mart said that ‘lower the price of products, improve the livelihoods of farmers and ease supply-side inflation’.  

In this case, the Indian open up their supermarket market in the global wide, there are more benefits are possible to be predicated. Firstly, the more investment from foreign countries will be liquid in the Indian market. Secondly, the more new design of product will jump in the market and it is possible to improve the Indian technology level. Thirdly, the Indian manager might learn the advanced management strategies from the venture companies.

On the other hands, the benefits for the company which venture into the Indian market could be highlighted. According to the Mail news of ‘Tesco to venture into giant Indian market after their government allows foreign superstores’, Tesco had took the effort for learn the Indian consumers ahead of entry laws and the big chains have joint forces with local players, as result Indian market is became the crucial one for the Tesco, additionally, Tesco had achieved that its international business accounts for a third of group sales.

Stock Exchanges and Stock Martet Efficiency

In order to discuss the stock exchanges and stock market efficiency, it is necessary to talk about the capital market first. In the current fast moving economy situation, capital market plays a significant role for all investors. It is running between the two important components, saving and investment. Capital market is financial market for the buying and selling of long term debt or equity backed securities. It as broker exists between the investors and ultimate borrowers. If there is no capital market, business probably is running with high risk and low liquidity. The modern method to reduce risk and increase liquidity is selling shares and bonds to investors. The “broker” will assist business to transform asset through offering securities. In addition, capital market brings benefit to three fields: economy, savers and companies.

As a part of capital market, the stock market is doing the similar things. They both are serving a common purpose of providing a mechanism which to assist firm raise capital for their business operation. And capital market is including in stock market and bond market. The stock market is the only platform for trading shares. However, the business operation good or bad is linking with their share price. The share price increasing, investors could obtain more profit, and the share price fall, investors might loss. Therefore, gaining information from the company and the prospect of company operation is important. Fama (1970) has identified three forms of stock market efficiency based on efficient market hypothesis (EMH):

The weak form efficiency which claims all past prices of a stock are reflected in today’s stock price. So technical analysis cannot be used to predict and beat a market, but investors could seek profitable companies can earn profits by researching financial statements.

The semi-strong form efficiency is implies all public information and history is calculated into a stock’s current share price. Therefore, the fundamental and technical analysis can be used neither to predict market.

The strong form efficiency is states all information in a market, whether public or private, is accounted for in a stock price. This degree of market efficiency implies that profits exceeding normal returns cannot be made, regardless of the amount of research or information investors have access to.

Based on the news of Sony’s Smartphone Gambit which be found on the website of Wall Street Journal, the stock price of Sony has fell 10% to ¥1,365 after the company reported a net loss of  ¥10.8 billion for the three months through December. This could be a kind of evidence to prove Sony Company is running by semi-strong form efficiency. According to the BBC news of Sony shares slump 10% after reporting losses, this was the biggest fall from company joint Tokyo stock exchange and this drop was react quickly and rationally. In addition, the Sony’s Smartphone Gambit points out that Sony shipped 9.8million smartphones and its global market share rose to 4.5% from 3.9% a year earlier. Therefore, the Efficient Market Hypothesis of Sony is semi-strong form efficiency.

Facing the Pain of Souring Apple Shares

It has been reported this week in the Wall street Journal that "Coping With the Pain of Souring Apple Shares". The report has been analyse the Apple troubles and situations, the effect to shareholders and the strategy from shareholders. In my opinion, this case is the most suitable one relative with the last week topic of “International Value Management”.

Apple Inc. recently staying on the big trouble on the stock market in the U.S. their shares from the peaking at $705.07 on 21st of Sept has fallen to the $453.62 at 1st of Feb this year. This fall has affect about 60%of actively managed U.S. stock mutual funds that invest in big companies owned at least some Apple shares at the end of the year. However, it is not all of shareholders took losses. The solution of Apple Inc. to protect their shareholder is creating a total return, including dividends, of about 28% annually over the past five years, versus 4% for the Standard & Poor’s 500-stock index.

Facing this pain, there are four reactions occurred on professional money managers and small investors. They are Balling out, Staying the course, Seeing a cheap stock, Sitting out.

Some investors are selling their stakes in order to getting away from the pain. Some chosen staying the course and hoping the future development, this reaction still is assuming the risk for further loss. Some chosen Sitting Out. Because Apple's drop provides some vindication for the few money managers who didn't hold Apple during its bull run and saw their portfolios trail. And lastly, some investors have planned to change to the cheap stock. Mr Barr said he still believes the stock is cheap and that the company might see hot earnings growth as it introduces new products, such as a rumored cheaper iPhone or television set.

In order to finding the right reaction, it is necessary to consider about the share values and time value of money. The traditional methods to work out the time value by  calculation of EPS and ROCE. however, nowadays, managers is more accurately to using method of NPV. 

However, facing the pain of Apple Inc., it is important adopt some changes for organisation. Creating value might be the possible ways to holding the old investors and attracting news investors. additionally, there are five possible ways to creating values: 
1. Increase the return on existing capital
2. Raise investment in positive spread units
3. Divest assets from negative spread units to release capital for more productive use
4. Extend the planning horizon
5. Lower the required rate of return

Mr. Mulholland said that " It's been a headache, but not a cancer." It shows that many investors is hoping the reborn of Apple. therefore, the pain of Apple Inc. is probably not suffering for long time.