My Business is contemplating to expand our products and Service portfolio to transition into selling new automobiles from select makes that do not have a Market presence in Ghana. The strategy poses a huge business risk for the company and investors alike. The new product and service introduction will have to compete with established brands and survive Consumer and market perceptions. For a new venture to secure buy-in from stakeholders which include Investors, Customers, and Management. The venture must position to satisfy all stakeholders expectation on the returns of their investments. All these stakeholders prefer Returns and Dislike Risks (Brigham & Houston, 2012, p. 230). As a result, all stakeholder will engage only when their expected Rate of Returns are higher than their risk (Brigham & Houston, 2012). The Principle holds true for Managers and Customers who will not advance a business model or purchase products unless the perceived value is higher than the price of acquiring the product.
Since the this is an entirely new venture to service a saturated market, investors will be disinclined to invest in the new policy direction of the company especially when the project offers little to no short term returns albeit its high risks. However, the prospects for long-term and the opportunity cost of declining will motivate some investors to take the risk with the expectation of leveraging the risk for controlling stock of the company. The management can mitigate the risk by developing a portfolio of another short-term low-risk investment projects assists the company. By implementing strategies to improve the bottom line.
The reason for the low short-term returns and high investment risk is because of the huge capital asset and infrastructure acquisition costs as well as the inventory costs resulting from new market launch and slow initial sales until sales increase. Indirect market factors can affect the expected rate of return in both short term and long term, one such factor is Government regulation, Macro Economic factors such as inflation and Forex Exchange fluctuations.
Instinctively investors and prospects will prefer to invest in established portfolios, however with the right tools and measurements, Business can evaluate the risks associated with a project proposal and advance terms that will offer higher Expected Returns motivating investors and prospects to support the project. By advancing terms that offer subscribers higher long-term returns and Value high-risk projects that have lower short-term returns can secure funding. “No investments must be made unless the expected rate of return is high enough to compensate for the perceived risk” (Brigham & Houston, 2012, p. 233). Probability Distribution is a tool that lists all possible outcomes according to their chance of occurrence; another Measurement tool that can inform business to advance the terms to prospective investors is Expected rate of return and standard deviation.
the Expected rate of return our business prospects in the short term is low, and the market is a high-risk market. Optimizing business operations will serve to enhance the Expected rate of return on investments which will increase interments and accelerate the actual rate of return.
Brigham, E. F., & Houston, J. F. (2012). Fundamentals of Financial Management. Mason,: South-Western Cengage Learning.