Essay: Global Business Strategies

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Global Business Strategies

a) One of the primary reason for which a company should reinvest its profit in the business is to stimulate growth and increase future revenues and profits (Kokemuller, 2011). There are several elements to be analyzed here. First of all, stimulating growth by reinvesting the profit means that the company will be able to have a sustainable growth over the future period of time, a growth that will allow it to consolidate and expand its market share, but also build its operations, invest in research and development etc. These elements will all translate into a better business and the capacity to attract more clients in the future, with the concrete prospect of higher profits in the next period of time.

There are also other reasons for which reinvesting the profits in the business is an important thing. Investing in the company will also create confidence on the market and for potential new investors. This means that the company will increase its chances that other people will want to invest in its operations. It will thus be on a good path to further growth, including with new capital that has been attracted.

The company will initially be in a growth mode, which means that the first couple of years of the business should rely on the profit to be reinvested, quite often entirely. This can be limited to 3-5 years, but still would need to continue to some degree in the next period of development as well. It is important, afterwards, that a part of the profit is retained for reinvestment, so that the company can remain active and reliable on the market, with potential for growth. This part of the reinvested profit should most likely vary from 30-50%, although there is no distinct recipe for success in this sense. Quite often, it will also depend on the situation on the market.

Bibliography

1. Kokemuller, Neil. 2011. What is the Importance of Reinvesting in the Business? On the Internet at http://smallbusiness.chron.com/importance-reinvesting-business-24402.html

b) Student 2: Hoover recommends that there are at least three different ways in which the profit can be reinvested. These include reinvesting in advertising (he recommends as much as 50% of the profits) as well as reinvesting in communication materials (Hoover, 2004). This points out to the importance of reinvesting the company's profits. Reinvesting in parts of the business such as marketing, communication, advertising etc. will mean that the company is likely to attract new clients, increase its base of consumers, maximize its customer retention and be able to grow in the future based on all these healthy variables.

Reinvesting in advertising also makes sense and is important because this are usually materials that remain in the ownership of the company and, as company assets, can be used at a future time for other campaigns. Hoover proposes that a lot of the reinvested profit goes into marketing and advertising and this does seem to make sense from… [END OF PREVIEW]

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