Consumers Decide The Winner

I talked about “upside potentials” the day before yesterday in this blog but, when I talk about a company, the decision making process to either go for upside potentials or to minimize downside risks would be different.


For example, under the recent stagnant condition in Japan, it has been very difficult to increase revenue or stay in business unless cutting of expenses in order to protect shareholders’ value and employees (although there are some companies lay off people quite often).


I learned at Business School that corporate managers should maximize their shareholders’ value no matter what. Back then, I was quite enthusiastic to challenge American students about “who owns a company?” together with fellow German classmates saying, “A company is owned by employees!”  Nowadays, as the financial market became more matured and people in the street of Kabuki-cho also had started mention about “protecting shareholders’ value” as a matter of fact, less people might not claim that a company is owned by employees.


I try to avoid the discussion of “who owns a company?” here as it will be endless but I simply assume that shareholders own a company.


One of the reasons that a company cannot always search for upside potentials is that it needs to protect shareholders’ profit.  In the industry that I am currently working for, it is in the same situation and some companies are trying to pay quarterly dividends as much as they can or to provide short-term capital gains depending on the types of investors.  Those investors request the companies cut of expenses for upside potentials in order to protect their short-term profit.  On the other hand, investors who search for long-term return such as for pension fund might prefer blue-chip companies with reasonable investment for R&D and development of human resources with sustainable growth.


Now, let’s take a look at this from a different point of view.  Japanese corporations tend to focus more for upside potentials in the long run by sacrificing a bit of short-term profits whereas foreign-owned companies (except for German-owned! : ) ) tend to focus only on short-term planned profits.  The company that I worked for, because it is a foreign capital company, always cut off media budget immediately after finding out that the bottom line goal cannot be met followed by other marketing fund.  However, if the profit is expected to be more than planned due to appreciation of Japanese yen, senior management gives our marketing team abundant marketing budget for the sake of meeting the bottom line target.  As for R&D, they are not willing to spend so much as the product life-cycle of consumer goods tend to be very short and they wants to pay off the R&D investment as fast as they can.    


Now, could we satisfy consumers in this way?


Of course, Fast Moving Consumer Goods Companies are aggressively analyzing consumers’ wants and needs in order to constantly provide whatever the goods that they are willing to purchase.  However, which one could grasp consumers’ mind, those who try to keep the short-term profit for shareholders or those invest for the future in R&D constantly?


Consumers will decide the winner and the result will be shown in the market share.

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