how do you decide whether the company should employ aggressive capital investments in global business areas

One key managerial tool that can help decide whether or not a company should employ aggressive capital investments in global business areas is capital budgeting.

Capital budgeting is a quantitative evaluation of the opportunities within a business space and helps management to decide based on the most acceptable trade-off between returns on investment and risk, which opportunity is worth taking a shot at.

Explanation:

Availability of Capital: Capital budgeting assumes that there is enough capital in the first place.

Payback Period: This is a budgeting technique that measures the time taken to recover the initial capital outlay into a business. Some investment have long payback periods other short payback time frame. A short payback period is generally more acceptable than a medium-term or longer-term payback. However, none of the payback period frames are in themselves good or bad. They become acceptable or not when compared to other factors. For example, in a business space or industry where there is a very high barrier to entry such as a patent protecting competition from replicating a similar product, a long-term payback becomes acceptable as long as it fall within the patent period.

There are so many other capital budgeting related factors that help the investor company decide how aggressive it should go. They are:

Risks: Given that the company is playing in the global business arena, knowledge about global risks and in-country specific risks are very strong determinants about whether or not the company can go aggressive.

If the financial feasibility is high and the risk is very high, the company may excercise restraint.

If the risks are very low, the company may go aggressive.

Detailed Business Plan: It is a very good practice to have a detailed business plan for investing in certain areas.

One key component of the business plan other than those already discussed is the Human Capital component.

If the risk of the investment if admissible and the financial feasibility checks out, there has to be adequate availability of human capital to manage the investments.

Regardless of how big the company is, I would thread carefully if we don't have tested and trusted hands at the executive level to oversee capital investments.

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