Questions:
- Analyze the theories and models in Finance, Marketing, Operations and Human Resources.
- Al Rawabi Dairy Company is a leading
dairy and juice company in the UAE with a wide range of products from milk,
yoghurt, laban, juice and functional products. Currently, Al Rawabi operates in
the UAE, Oman and Qatar serving more than 12,500 stores with fresh products.
At its farm in Al Khawaneej, Al Rawabi has a cattle stock of 13,500 cows. Starting in 1989 with 500 imported cows, Innovation is at the core of the company – it introduced the plastic bottles in 1991 in the UAE and is the first company to introduce fresh juices in the GCC in 1995. It is also credited with introducing pasteurized juices in the region and functional products in the dairy industry – such as Nutree Boost and Super Milk.
The new functional products are enriched with multivitamins and minerals and designed to help solve the health concerns of the GCC population. The company is awarded with ISO 9001:2015, ISO 14001:2015, ISO 22000:2005, HACCP and OHSAS 18001:2007 and has received many local and international recognitions, such as AgraME Award for Best Dairy Innovations in the UAE, Dubai Municipality Award for Excellence in Animal Welfare, Super Brand Award, Best Environmental Practices award as well as being listed among the 40 strongest brands in the Arab World by Forbes Magazine in 2008 and 2015 respectively.
- What are the factors influencing the demand for Al Rawabi’ products?
- Suppose that one of Al Rawabi’s products has an elastic demand. The manager of Al Rawabi Company has decided to increase the price of this product. Explain to him/her if this is a good or bad idea.
Solution:
Case 1
Question 1: Theories and Models in Finance, Marketing, Operations and Human Resources
Finance Theories and Models
The financial theories and models are adopted as the building blocks of the modern corporate world. As noted by Brest (2010), the building blocks of the finance theory are used in laying the foundation of the multiple contemporary tools adopted in areas such as asset pricing and investment. They are majorly characterized by aspects such as the equilibrium analysis, information economics and contracts which are all firmly rooted in the classical microeconomics.
Pecking Order Theory
This theory is based on the capital structure and initially suggested by Donaldson (Serrasqueiro & Caetano, 2015). This theory is based on the assumption that managers adopt a hierarchy of selecting sources of finance. In any event, the internal financing which is the point of preference is not sufficient, the managers focus on the external resources. For instance, an organisation can issue debt for generating funds with an event where the debt is not sustainable equity are issued. Apart from the decision making on the type of financing offered, Chen and Chen (2011) have noted that the company finance choice sends signals on the market. In any event the company has sufficient reserves for sourcing their funding needs, this is an indicator of the business strength and ability to withstand any form of market pressures. The critics of the model such as Machielsen (2013) have argued that it is not clear on the extent to which the theory could be used differently in the financial crisis and during the financial crisis. Also, limited evidence has been noted to exist on the pecking order relevance on the incremental financing practices of different firms.
Agency Cost Theory
This theory is based on the analysis of the existing conflict between the shareholders and managers-agents of shareholders (Mustapha & Che Ahmad, 2011). It notes that conflicts arise as a consequence of the shareholder’s demand for payouts for their investment, reduction of internal resources controlled by managers. Due to the fact that the managers are compensated based on accounting profits, it ends up increasing their incentives for manipulating information and favouring projects with a poor net present value in an event prompt profits are provided (Boodhoo, 2009). This phenomenon elicits a negative implication on the possibility of losing the value of public corporations. The critics of this theory argue that the demand for high rewards by the managers induces distinct manipulation, overestimations and in some instances underestimation. This has a direct implication on the value of a firm in terms of low budgets and inefficient debt targets.
Intertemporal Capital Asset Pricing Model This theory developed by Sharpe-Lintner-Mossin mean-variance equilibrium model of exchange which is also identified as the capital asset pricing model (Merton, 1973). This model is based on the assumption that multiple investors play an instrumental role in maximizing………………………………………………………………………………………………………………………………………………………….Please contact our team to receive guidance, support and tutorial services on this assessment in full
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