What the Administration Can Teach Business about Stock Value (Part 2)
What the Administration Can Teach Business about Stock Value (Part 1)
New Cost Effectiveness Pressures on Global Stocks
All companies have enjoyed some degrees of cost protection during the days of tariff barriers and government dominance of certain sectors. These artificial barriers are under persistent attack wherever they have not been destroyed already. Most companies now use scales of economy to win unbeatable cost advantages. Hence, market shares are under constant threats except for the most differentiated goods and services. Cost effectiveness has always been a success driver in any generic business, but these capabilities now threaten entrenched brands as well. It is self-defeating to prevent exhaustive cost audits, because the market and customers abhor system inefficiencies.
Cost effectiveness and globalization are also related because of wide disparities in costs of human resources and utilities. Relatively small nations have captured disproportionately large slices of world trade because they provide skilled people and infrastructure at more affordable costs. Some poor nations have questioned value addition formulae at various levels of a distribution chain, but have lost out to their peers without qualms on this account. That is why developed economies have had to impose quotas on how much they buy of product categories such as textiles from emerging nations. The entire outsourcing story, which has been a major plank for the economic growth of India, is actually a cost-effectiveness ploy by western corporations.
New Spectacles for Marketing and Operation Expenses in Stock Analysis
Costs tend to be entrenched and inherited. Companies worry about top and bottom lines, leaving the middle ones as they have always been! Many expenses are extrapolated during budget preparations, thus perpetuating inefficiencies. The Homeland Security Department and the Office of Management and Budget are unlikely but powerful reminders for all of us that we may be parties to unnecessary costs which eat in to returns for stock holders and affect market shares as well. It is never too late to look at costs afresh, and to approach their management with renewed vigor. It helps to have outsiders and specialists examine costs with sharp lenses because even one feasible suggestion can turn around a floundering business, even if all the other observations are impractical.
Aggregation is a great enemy of small stock investors who want to question cost effectiveness. Statutory financial statements do not provide the kinds of break-ups and details that allow meaningful analyses. That is why stock investors should seek qualitative actions and results to support all costs incurred by companies they own-regardless of size and nature. Do you agree? Are you frustrated by lack of details in financial disclosures of expenses by companies? Did you know that the Homeland Security Department and the Office of Management and Budget saved us millions in 2007?