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Equity Investment Strategy Essay (Critical Writing)

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Updated: Jun 21st, 2020

Application of the equity investment strategy

Basically, equity investment strategy in business refers to investing money through buying stocks. In order to recover this investment, a shareholder has to sell the stocks to other interested investors. Under this strategy, “stocks are selected for their strong earning potential and appreciation over the long term” (Peng, 2013, p. 29). This means that this strategy is applicable in companies that specialize in purchasing stocks or buying companies on behalf of clients. The shares are often grouped into different categories, depending on their worth and period of investment. Normally, “as long as the stock’s underlying fundamentals hold true, the stock is retained in the portfolio, even though there may be price swings” (Morrison, 2009, p. 46). The stocks may be liquidated whenever when the company feels that the dynamics in the stock market are unfavorable.

Applying the equity investment strategy at Berkshire Hathaway

Berkshire Hathaway Incorporation is a multinational company that specializes in several business interests within the US and other parts of the world. The company has a conglomerate of different products and owns businesses such as NetJets, FlightSafety, and BNSF among others. The company has shares in companies such as America Express, IBM, Coca-Cola, and series of restaurant brands across the globe (Berkshire Hathaway Inc, 2015). Interestingly, the company “averaged an annual growth in book value of 19.7% to its shareholders for the last 49 years, while employing large amounts of capital, and minimal debt” (Morrison, 2009, p. 39).

Over the years, the company has been consistent in investments in stocks that are publicly quoted for different companies across the globe. Besides, the company has been very successful in buying companies and shares for clients. At present, the company’s portfolio includes businesses in railroad, publishing, retail, petroleum, and manufacturing sectors. Since company has interests in buying shares, Berkshire Hathaway may use the equity investment strategy successfully in the UK market.

In the case of the Berkshire Hathaway, the use of equity investment strategy in the UK market will be very successful since the company has been very consistent in the business of buying stocks and companies across the globe. In the case of the UK petroleum industry, the Berkshire Hathaway may apply market-timing and short-selling strategies to buy shares in companies such as BP Group, Tallow, and Imperial Energy Corporation.

Under the market-timing strategy, the Berkshire Hathaway would apply the buy-and-hold approach in order to capture the current short term dynamics in the UK petroleum industry following the current reduction in the global oil prices. The Berkshire Hathaway may apply this approach to maximize stock returns through simple strategy of buying as many shares as possible at the current low prices and holding them to be sold when the prices rise. As a renowned contrarian investor, the Berkshire Hathaway Incorporation “may look for certain market indicators that reflect an overbought or oversold condition and take an opposite position against the prevailing trend” (Peng, 2013, p. 34) to maximize returns within the UK petroleum industry.

Why Berkshire Hathaway would be successful

Since the Berkshire Hathaway has been successful in buy-and-hold approach in the US stock market, it would find it easy to penetrate the UK petroleum industry through use of the market-timing approach. Besides, the company has strong knowledge stock buying and selling through use of fundamental market outlook tools to minimize any risk as a result of bad investment. In addition, the company has admirable sound equity performance over the past three decades. At present, the company has two categories of shares called share A and share B (Berkshire Hathaway Inc, 2015).

Export-base strategy

Under the export-based strategy, the primary intention is to evaluate the underlying potential of the export products of a company within the international markets. This may be achieved through critical review of product performance at the local market and the possible demand in the international market. For instance, for a successful company based in the UK such as the SCISYS Company, there is high probability that its products would perform well the in the US market since the two regions share similar market dynamics and needs. Another significant tool that is used to access the sustainability of export-based strategy is reviewing the unique product features.

For instance, when the quality or specks of a local product is very difficult to duplicate in a foreign country, there is a high chance that such a company will excel in the foreign market. Generally, unique products may face minimal competition and high demand in the foreign market since the export potential is high. In addition, when a product is facing a shortfall in demand at the local market due to changed customer preference, it is possible to expand into foreign markets where the demand for the same product is still high.

Applying the export-based strategy at SCISYS Company

In the past two decades, technology has significantly become sophisticated making it easier and economical for people to carry out business across the world. Two major driving forces for this are improvement in the communication networks and popularity of the internet in the global business arena. The driving forces have broken down many physical barriers to worldwide communication which used to limited connectivity between businesses over long distances. The entire business platform of the SCISYS Company in the UK is base on technology service delivery. Founded in the year 1980, SCISYS Company has been successful in the UK technology market as a provider of accounting software, broadcasting services, and digital satellite products (SCISYS Company, 2015).

Export-based strategy has influenced dramatic increase of product export as a strategy for the SCISYS Company and has accelerated the role of foreign markets in its current business sustainability strategy. Export-based trade appears to be understood as a continuous process of increasing cross-border economic flows, financial and socio-economic, leading to economic interdependence among formally distinct companies. In the case of the SCISYS Company, export-based strategy flourished in nineties through export flow into Germany, operations in other counties rather than home, and through its internationalization strategy.

SCISYS Company introduced its overseas markets in Australia in 1990, Thailand in 1999, New Zealand in 2000, and Indonesia in 2004 while the company engaged with 12 overseas production factories in 2006. SCISYS Company view export-based strategy as a more efficient way to address future aspect in advance including spreading unpredicted risks and prospects (SCISYS Company, 2015).

Export-based strategy has created positive impact in the technology sector with an innovative and deviating period of organizational economic activities including development of technology, increasing market demand, production and workflow, investment and trade patterns. Moreover, export-based strategy has positively modified the employer and employee relation within the SCISYS Company and given a new shape in the business activities crossing the border limit.

With lean production and outsourcing, the technology industry in the US is increasingly important for global production chains. Many technology companies are going over to modular assembly in which the main components manufacturer not only supplies but also coordinates the design manufacture and installation of the major parts or systems in different technology products. Due to export-based strategy, the emergence of local production systems has facilitated regional integration by creating opportunities in the foreign markets. With reference to the SCISYS Company, there is high potential of penetrating the US market through application of the export-based strategy for its products. This is possible since the current competitors in the US have very expensive products.

Through use of friendly pricing strategy, the company may tap the low economic end market. From past experience, SCISYS Company’s mode of entry in markets such as Germany was through direct selling of products via private outlets. This mode of entry is known as specialty product producer and may be applied in the US market. In this mode, the company produces, sells, and promotes its self in the foreign market. This approach has been successful in some countries due to the company’s renowned brand name.

Why SCISYS Company would be successful

An entry mode can be defined as the approach which an organization uses to enter a new international market. Since the SCISYS Company will use different channels to market its technology based products, the organization’s strong brand name and association with quality will guarantee its success in the US market. Some of the channels that company may use are systematic product modification within foreign markets and partnerships with local businesses to ensure that the export-based strategy is successful.

References

Berkshire Hathaway Inc. (2015). About us. Web.

Morrison, J. (2009). International business: Challenges in a changing world. New York, NY: Palgrave Macmillan. Web.

Peng, M. (2013). Global strategy. Alabama, Al: Cengage Learning. Web.

SCISYS Company. (2015). About us. Web.

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