ERP Comparison of Developed and Emerging Markets

ERP Comparison of Developed and Emerging Markets Chapter 1: Introduction 1.1 Research Topic The investment dilemma hits when individuals earn more than their consumption needs. Considering the fast rising inflation globally, saving the surplus earnings for future consumption is not sufficient anymore. Hence, making an investment such that the surplus earnings grow or even multiply over time is almost imperative. Such an investment can be made in many ways for instance commodities, stocks, bonds, pension funds, real estate etc. This study is concerned with individuals investment in stocks. When an individual invests, he/she expects a certain rate of return in the future from the investment which should ideally compensate future consumption needs, future increase in inflation and uncertainty of return if any. Therefore, investments with higher returns are preferred. A number of studies find evidence of stocks giving higher return than government bonds, although the relative uncertainty of return from stocks being much higher than from bonds (Dimson et al, 2002; Ibbotson Senquefield, 1976). Consequently, the more uncertain the future return gets, the riskier it is to invest. Hence, when an individual invests in stocks, he/she expects added compensation for added risk which leads to the concept of Equity Risk Premium (ERP). ERP is the surplus return from stocks/equities over the return from nearly risk-free (here on mentioned as risk-free) asset such as government bonds.It is the premium that individuals demand for bearing the additional risk in equity investments (Reill y Brown, 1999). ERP is calculated using equation-1. Stock returns can be the returns from a benchmark index (market returns) such as FTSE 100 and the returns from risk-free asset (risk-free returns) can be those from UK gilts. (Reilly Brown, 1999) ERP is an important consideration from an investors point of view for building and analysing a domestic equity portfolio or an entire equity market especially for an investor looking to diversify globally (here on mentioned as global investor). Therefore, it is a widely researched topic, however yet the existing literature is inadequate, considering there are numerous debates and puzzles pertaining to various aspects of ERP. Hence, looking at its significance in theoretical practical finance, ERP is chosen as the central topic to be researched in this study. 1.2 Research Background Individuals (retail investors) use ERP to forecast the expected growth of their equity portfolios over long-term and for portfolio allocation decisions. Corporations (here on mentioned as organisations) need ERP as an input to determine the cost of equity i.e. the annual expected rate of return from investment in stocks and for capital budgeting decisions. Overall, ERP is a significant factor in most risk-return models of corporate finance and investment management. Hence, estimating future ERP and identifying possible reasons for the results found, is an important financial and economic research topic for academia and practitioners alike. Although historical data is most popularly used to estimate future ERP, there exist financial, economic asset pricing models developed over the years which predict an implied ERP based on companies, macroeconomic equity market data. Evidence from the relevant literature suggests that every ERP estimation method has a distinct set of assumptions a nd underlying ideas therefore exuding both merits and demerits when compared to another estimation method. Rapid economic growth of emerging countries has been apparent especially because of industrialisation. Consequently the performance of emerging equity markets has been remarkable in the past decade. The big 4 i.e. Brazil, Russia, India China (BRIC) alone, accounted for more than 50% of the world GDP in 2006 (RICS, 2008). Due to saturation in developed countries and growing avenues for investment in those emerging, the ERP of emerging markets has risen due to growing investor confidence. Although perceived social, economic political risks are equally high, financial systems have strengthened and macro-economic conditions have improved drastically for most emerging countries. Barry et al (1997) argues that investing in emerging markets is more than just profitable, considering the risk-return trade-off. Hence, gauging the future of emerging equity markets has become a vital research topic for economists, finance professionals and global investors alike. In a discussion of emerging markets, India cannot be left out. Post liberalisation (i.e. post 1991) India is definitely the secondmost preferred emerging economy by global investors after China. Although Foreign Direct Investment (FDI) flows have been average compared to other emerging countries, Foreign Institutional Investment (FII) flows increased almost 10 times, from United States Dollar (USD) 739million in 2002 to a record USD 7.59billion in 2003. CALPERS, the worlds biggest pension fund with a base of USD 165billion has recently included India in their list of countries for investment (BSE India, 2008). The noteworthy rise to the position of the sixth largest emerging equity market with a total market capitalisation of USD 818billion and 8% p.a. average economic growth (CIA Fact-book, 2008) over past decade accentuates the importance of Indias ERP estimation and analysis. 1.3 Research Gap, Objective Questions Most of the research on ERP has focussed on developed markets clearly because of their sound history and stable fundamentals. Within limited research conducted on ERP in emerging markets, Salomons Grootveld (2003) demonstrate the evident differences in ERPs of developed and emerging markets and claim that global business cycle influences these differences. Claessens (1995) argues through his empirical research that investment in emerging markets can be fruitful in long-term considering that high ERP compensates for high risk. Although these and similar related researches vaguely guide investors wanting to explore emerging markets, there lacks a clear evidence of the possible risks attached and whether those risks can be tackled to earn complete benefit of the high ERP. Bernartzi Thaler (1995) and Campbell Cochrane (1999) claim that the reason for increase in investors interest in U.S. markets was the high ERP it offered. Hence if the same rule is applied to emerging markets then i nvestments should be made without any prior estimation of possible risks, especially considering the success of U.S. markets. However it is not the case, as investors are still sceptical about getting confirmed high returns from emerging markets. Therefore, the precise reasons for the difference in ERPs of developed and emerging markets have not been clearly identified as yet, hence constituting the first research gap. There exists considerable evidence on how political, social and especially macroeconomic factors affect the equity market returns of developed countries, especially U.S. (Chen et al, 1986). Considering the limited work done on ERP of emerging markets on the whole, negligible contribution has been made to analysing ERP in India with respect to its growing economy, Mehra (2006) being the most notable, hence constituting the second research gap. Considering the importance of ERP it is interesting to note that in-spite of there being many ways to calculate ERP; there exists no consensus on the best approach. Financial market analysis is performed based on historical data and the ERP measured from past performance of equity markets is most commonly used as an estimate of future ERP. For instance Ibbotson Sinquefield (1976) exemplified first accurate calculations of annual rate of return on equity investments in U.S. and ERP. Since then, Siegel (1992) Dimson et al (2002) are two of the most notable researches on ERP estimations using the historical method. However, there exist models developed for instance by Fama French (2002) and Arnott Bernstein (2002) that determine future ERP entirely based on forward-looking information through estimation of future investors markets expectations. This variation of approaches to ERP estimation has only widened the range of results and complicated the unresolved debate, hence constitut ing the third research gap. The 3 research gaps identified above lead to the overall Research Objective of this study, which is: Comparative analysis of ERP in the leading developed emerging markets; determine the macroeconomic influence on ERP and examine the ERP estimation methods; all from a global investors point of view. It is not realistically possible to fill the research gaps entirely through this study considering time, knowledge and relevant experience constraints. However, this study aims to fulfil the above objective through the accomplishment of satisfying solutions to the following 3 Research Questions: After estimating future ex-post ERP in the chosen sample index of developed and emerging markets, what is the impact of risk responsible for the differences found through the comparison of their risk-return trade-off? What effect do the country specific macroeconomic factors have on the ERP in India, if any? After estimating future ex-ante ERP in India using a supply-side method and comparing it with the estimated ex-post ERP, what is the most suitable method for global investors, if at all, and why? Research Contribution As this study is predominantly aimed at analysing the ERP of leading emerging markets and particularly India, it is hoped that this study contributes to simplify the decision making of global investors regarding their equity investments in emerging markets India. Furthermore, it is hoped that this study provides guidance to the global investors regarding the macroeconomic situation in India and its influence on the ERP, for sound portfolio management. Moreover, it is hoped that this study adds a small brick to the large edifice of ERP analysis/measurement/estimation on the whole. Finally, if this study motivates the eminent researchers and consequently triggers some ground breaking academic scholarship regarding the ERP of emerging markets, then the worthiness of this study will be truly identified. 1.4 Research Structure The following is the chronology and brief content of the chapters in this study here on: Chapter 2: Literature Review: This chapter aims to explain the historical development of ERP through empirical researches and relevant theoretical background. Furthermore, it examines important research literature on ERP estimation methods and emerging equity markets. Chapter 3: Overview of Research Methodology: This chapter aims to briefly explain the chosen research methodology for this study and justify its appropriateness. It also describes the chosen data collection method and clarifies how the data will be collected used for achieving the research objective. Chapter 4: Data Analysis, Findings Interpretative Analysis: This chapter aims to identify the collected data, explain the data analysis technique/model/method in detail, analyse the data that is collected by using the chosen methods models; and finally, interpret, examine evaluate the results/findings from the analysis to identify justifiable solutions to the research questions. The chapter is divided into 3 parts, each part pertaining to each research question and the procedure is conducted separately for each. Chapter 5: Discussion Conclusion: This chapter aims to summarise the results from chapter 4, recapitulate the entire paper and testifies the level of fulfilment of the research objective. Also, it plausibly links the past literature results from this study to check the level of accomplishment in filling the research gap and to identify the need for future study. Chapter 2: Literature Review 2.1 Chapter Introduction ERP is a vital numerical figure in practical modern finance as it is considered by financial analysts, business managers and economists for the purpose of decision-making; perhaps best testified by Welch (2000, p.501) wherein he calls ERP the single most important number in financial economics. Consequently, it is and has been one of the most fascinating topics for academic scholarship leading to vast amount of literature. This Chapter discusses the various significant perspectives about ERP generated from the literature. The literature reviewed in this chapter is primarily related to the research questions that this paper aims to answer; having said that, other theoretical developments and empirical researches in the field of portfolio management and corporate finance that are significantly relevant to the research topic, are also discussed. Broadly speaking, the content matter in this chapter is organised in chronological order beginning from the earliest. Here on this chapter is divided into 5 sections. The historical advancements in productive assessment of the relationship between equity risk and return resulting from empirical researches which lead to the conceptualisation of ERP is discussed in section-2. The next section-3 highlights the important theoretical developments which laid the foundation for the large edifice of researches on investment management. Section-4 focuses on the models/methods that were formulated based on the theories, with an aim to calculate expected returns and measure estimate ERP. It also looks at the important contemporary researches in the field of ERP with a brief backdrop of macroeconomic factors. The following section-5 highlights the important literature with respect to the ERP Puzzle. It discusses the significant attempts by researchers to solve the puzzle. The next section-6 follows which briefly looks at the important literature on emerging equity markets overall. Finally, section-7 summarises the entire discussion. 2.2 Historical Conceptualisation of ERP The apt risk-return trade-off sought by investors worldwide augmented the importance of ERP evaluation and forecasting. Consequently, vast theoretical empirical research under various objectives has been conducted till date since the early 20thcentury on measuring, estimating and analysing ERP, most of which has concentrated on the developed markets, especially U.S. Furthermore, eminent financial economists have been engaged in empirical analysis of past investment results to gauge future investment strategies. In the late 19th and early 20thcenturies, most economists did not endorse the importance of risk in evaluating and justifying excess returns. The conception of the fact that incremental profit on equity investments is a result of the higher risk attached, was a gradual process. For instance, Clark (1892), professor at university of Columbia, claims that investments in some organisations give higher returns than risk-free rate some other organisations because those organisations have an advantage of monopoly in the market. Furthermore, modernisation and development in technology lead to comparatively higher competitive advantage which in turn gives excess returns. However, renowned author of the book Risk, Uncertainty and Profit, Knight (1921), does not endorse Clarks view but instead criticises him for inadequately exploring the association of risk and return in the models used in his economic research. Knight analyses the importance of risk in equity investments through past performance of U.S. markets and aimed at relating it to the concept of profit in the basic economic theory. He argues that any kind of risk deserves a premium (i.e. excess returns), even if the risk is unquantifiable (which he later termed as uncertainty), although, he could not suggest any solid and foolproof way of measuring the premium that he justified. As a cumulative result, the debate on equity risk and the attached premium flared up which necessitated ground breaking empirical researches based on historical data of past performance. Hence, many scholars developed stock price indices in early 20thcentury in order to measure long-term investment performance and estimate future returns; For instance, Mitchell (1910, 1916), Persons (1916, 1919), Cole Frickey (1928) in the U.S. and Smith Horne (1934) and Bowley et al (1931) in the U.K. However, Hautcoeur et al (2005) in their analyses of early stock market indices; argue that the main motive in development of these indices was forgotten in no time and instead they were used to gauge the influence of macroeconomic cycles on equity markets and as an easier way to estimate macroeconomic fluctuations. The popular index of 30 stocks developed by Charles Dow was never aimed at estimating future long-term returns but instead to measure daily returns on the market. Consequently, the relevance of the returns from risk-free assets like government bonds to comparatively risky equity returns was tested. The difference in their rate magnitude of returns solidified the so far debated idea of returns being a compensation of the risk attached to the investments made. Smith (1924) advocates through empirical research and later through his book that; equities give higher returns than bonds because they carry higher risk. He collected historical data on stock prices, dividends and corporate bonds from the stock exchanges at Boston and New York spanning 1866-1923. Furthermore, he divided this period into 4 sub-periods to recognise the economic development. After creating separate portfolios for each asset class (10 securities in each portfolio), he measured cash income and capital gains from both. Equity investments give higher appreciation and returns than bonds in the long-term in-spite of economic changes in the sub-periods, was his conclusion. Further in his book, he suggested a mechanical way of calculating ERP by paying out the equivalent amount of bond returns from the total equity returns and re-investing the remaining in the same equity portfolio. In this way, the relative growth rate of the equity portfolio is the ERP over the bond portfolio. Smiths estimation and method of ERP calculation attracted many retail investors towards the equity markets in 1920s. Later, Smiths attempt to assess equity investment returns over bonds; was improvised by Cowles (1938). He collected historical data on most of the stocks of NYSE instead of only 10 for the period 1872-1937 and notably created the first nearly-accurate index of total returns from common stock investments. Furthermore, he suggested of re-investing the dividend yields into the equity portfolio to save from measuring cash returns and value appreciation separately, the way Smith did. However, he made no concluding remarks such as equity investments can be more profitable than bonds, unlike Smith. By then, although the idea of an ERP was making financial economic sense, a solid way of estimating future ERP could not be developed yet; the two main reasons being the unavailability of adequate historical equity market data and the ignorance about the possibility of a forward looking method. However later, John Williams (1938) wrote the first book that defined; modelled and estimated forward looking ERP. Although he estimated future ERP in U.S. using Dividend Discount Model (DDM), he argued that ERP estimates based on Historical Method are equally precise. He believed that the most suitable way to calculate the riskiness of a security is by appending a premium to the risk. Later, he also became the first researcher to numerically estimate a forward looking ERP for U.S. By then, the concept of ERP had been clearly understood and its importance had been recognised. Nearing late 1940s economists and researchers had realised the importance of risk and conceptualised ERP as an essential ingredient to calculate future returns on equity investments. Moreover, enough historical data of U.S. equity markets was also available for past performance analyses and empirical researches. Even so, there was no method/measure that could quantify future risk and returns for any given portfolio of investments, as most experts and investors believed in calculating risk-return trade-off individually for equities and other securities. However, that did not serve the purpose of optimal risk-return trade-off as far as entire portfolio of investments was concerned, until 1952 when crucial theoretical developments began. 2.3 Theoretical Developments This section summarises the important theoretical developments which built models to quantify future risk and returns of equities and related vital researches in portfolio investment management and corporate finance, with a backdrop of their implications on ERP. The 4 most important theories/models reviewed in this section are Portfolio Theory, Capital Market Theory, Capital Asset Pricing Model and Arbitrage Pricing Theory. 2.3.1 Markowitzs Portfolio Theory Harry Markowitz (1952) introduced the Portfolio Theory or now what is called the Modern Portfolio Theory (MPT). It provides a formalised method to diversify the portfolio of all investments (not just equity) with an aim to achieve highest possible returns for lowest possible risk. MPT records expected returns, volatility or risk (standard deviation) for each investment and correlation of one investment to another to create the best combination. Therefore, risk is minimised while maintaining the expected returns, if investments are diversified based on the risk of each individual investment. However, Markowitz (1952) assumed that investors are naturally risk averse, i.e. they tend to choose the investment with highest returns for a given level of risk and refrain from investing if risk is higher than acceptable/favourable levels. Hence, by applying MPT, investors can choose less risky and highly risky investments at the same time in such a way that cumulative expected returns are unharmed and optimised. The risk appetite, although, of each investor differs from the other. Therefore, based on the above assumption, Markowitz (1952) believed that depending on the risk appetite, every investor aims at attaining highest possible returns for the level of risk that he/she is ready to bear. In other words, aims to build an Efficient Portfolio. Consequently, all the portfolios, ranging from high-risk to low-risk, which give optimal returns lie on the Efficient Frontier, as termed by Markowitz. Although Markowitzs MPT is still followed by many experts and investors, it also faces criticism on its unreal assumptions. MPTs assumption of volatility with figures of standard deviation or variance of an investment as its risk measurement may not always be true, especially for equities. It speaks about only a single period when actually volatility changes over time. Therefore, even if a portfolio is efficient today, it may be not be the same tomorrow. For instance, in an economic crisis or equity market crash, there is a high possibility of correlation of two assets in an efficient portfolio increasing than average. Malkiel Xu (1997) empirically prove that volatility of stocks increases with an increase in institutional ownership in the organisations. Similarly Campbell (2000) shows results of increased volatility with reduction in number of conglomerates as organisations started to narrow their focus. Lofthouse (2001) criticises MPT on the fact that it bases its calculation of expected returns, volatility and correlation on past historical figures which is inadequate especially when the aim is to build the most efficient portfolio possible. Furthermore, Bernstein (2002) notes that; MPT assumes that there is a possibility that some investments absolutely do not correlate with any of the other investments which is untrue, as each investment at some point in time correlates with one or the other investment in the portfolio. Hence, although MPT model enables investors to optimally gauge the future risk to gain highest possible returns, it is based on idealistic, theoretically decorative and practically unreal assumptions. 2.3.2 Capital Market Theory After MPT was developed, many researchers worked on the most important missing link in MPT, the inclusion of risk-free asset with zero volatility, zero correlation with risky assets and certain future returns. Tobin (1958) was the first to extend Markowitzs Portfolio Theory by introducing risk-free asset to the Efficient Portfolio. Later, Sharpe (1964), Lintner (1965) and Mossin (1966) contributed to his idea as they independently worked on similar theories. The final development is known as Capital Market Theory (CMT). It is important to note that CMT shares 3 assumptions with those made by Markowitz (1952) for MPT, as follows: Investors are always risk averse Investors decisions are solely based on expected returns and their volatility There exist no transaction costs and taxes However following are the new assumptions that CMT makes as extracted from Lofthouse (2001): All the investors have the exact same time-horizon for their investments Borrowing and lending at the risk-free rate is not restricted All the investors have the exact same expectations for correlation, risk and returns CMT states that the volatility for Efficient Portfolios that include risk-free asset; is actually the linear equivalent of volatility (risk) for the portfolios before risk-free asset inclusion. Hence these combined Efficient Portfolios lie on the straight line graph of risk and return, joining the risky and risk-free assets. This way, the optimal combined portfolio i.e. point-M in Figure.2.2, is identified at the tangency point formed by the ray starting from point-F in Figure.2.2 i.e. expected return of risk-free asset and the Efficient Frontier. It is optimal because it gives the highest possible returns for any level of risk. Therefore, it is known as Market Portfolio as it has all risky assets and the ray is known as Capital Market Line (CML). CMT advocates that all the investors should aim to build their portfolios on CML depending on their risk appetite. They could invest in risk-free asset by lending or borrow at risk-free rate to invest in Market Portfolio. Either way their p ortfolios will earn more returns than other portfolios (blue spots in Figure.2.2) on or off the Efficient Frontier, for any given risk (Brealey et al, 2007). Therefore, under the CMT the expected returns of the equity portfolio are calculated by determining the slope of CML which is the change in return for a given change in risk and intercept which is return of risk-free asset (See Equation-2). The risk is measured by the standard deviation (Lofthouse, 2001). The development of CMT was ground-breaking in the field of investment management. It clarified the effect of including risk-free asset in an equity portfolio. It formed the first equation made of ERP, risk and returns, all together. In Equation-2, change in return is market return less the risk-free return which is actually the ERP. However, this estimation of ERP is an empirical deduction (calculated from slope of CML), as early development of CMT by Tobin (1958) was just an extension of MPT. Until it was theoretically formalised by Sharpe (1964), Lintner (1965) and Mossin (1966) independently, which then led to the gradual development of the Capital Asset Pricing Model (CAPM). Hence, the CAPM is usually referenced as SLMs CAPM for Sharpes, Lintners and Mossins equal and vital contributions. 2.3.3 Capital Asset Pricing Model The CAPM is undoubtedly the most widely known model to calculate expected returns. It is a sophisticated improvisation of CMT, which in-turn is an extension of MPT and therefore builds on the relationship/trade-off between risk and returns. It is primarily based on the universal classification of risk into 2 broad categories namely: Systematic: Risk that affects almost all assets equally Unsystematic or Specific: Risk that affects only individual asset or asset class (Sharpe, 1964) The CAPM is developed through the conception of Security Market Line (SML) (See Figure.2.3) which is a ray similar to CML originating from the return of risk-free asset. However, the big difference being that SML represents the linear relationship between risk and return from individual assets and/or inefficient portfolios in respect to market portfolio, unlike CML which only represents efficient portfolios. The risk that is measured is only systematic as it is un-diversifiable and hence rewarded, unlike unsystematic risk. The standardised measure of this systematic risk is called Beta which is covariance of an asset or portfolio with market portfolio divided by variance of market portfolio. Market portfolio has Beta equal to 1. Asset with Beta higher than 1, is riskier than market portfolio and hence higher return is expected. Assets with Beta lower than 1, are less risky with lower return. The expected returns are calculated by adding return on risk-free asset to the product of ERP and systematic market risk borne by the stock (See Equation-3) (Sharpe, 1964), (Lofthouse, 2001). However, the value of Beta for individual stocks of portfolios is not known. It needs to be estimated and is hence subject to errors. Understanding the mechanics and application of the CAPM is imperative to the study of ERP, as the slope of SML i.e. linear relationship between risk (Beta) and return, equals the difference between market returns and risk-free returns which is ERP. The application of the CAPM is extremely vital in the context of ERP measurement methods as it uses ERP as an input to calculate the expected returns on a stock. The empirical studies and relevant literature related to the CAPM and its applicability in ERP estimation methods are discussed in section 2.4.3. 2.3.4 Arbitrage Pricing Theory As seen before, MPT and CMT both assess only the cumulative risk of individual assets and market risk respectively, while calculating expected future returns. Ross (1976) proposed the Arbitrage pricing Theory (APT) based on the perception that the risk of assets and their future returns vary in accordance with the risks affecting the overall economic situation. Ross believed that unsystematic risks can be curbed/nullified through diversification as suggested by MPT CAPM and hence will not affect expected returns. But systematic risks having influence on all assets cannot be diversified and hence can cause fluctuation in the expected returns. Although he did not suggest any particular factors that can trigger the systematic risk, empirical results of Burmeister et al (1997) implied the following 5 factors: Inflation Business cycle Investor confidence Time horizon Market timing APT states that; the sensitivity of assets to the unanticipated instability in the above factors varies due to which one of them can get mispriced therefore creating an arbitrage opportunity. Consequently, by selling the highly-priced asset to buy the low-priced asset, the investor can ensure profit and nearly-perfect pricing of both assets. This arbitrage can be termed as the Risk Premium for that particular factor. However, this profit is expected and not guaranteed unlike usual arbitrage gains. Like MPT and CMT, APT also has some underlying assumptions as follows: No transaction costs Short selling i.e. selling assets that are not owned, is allowed Enough assets to diversify unsystematic risks (Ross, 1976) APT has faced many criticisms on its applicability in calcul

Analysis of Canadas Healthcare System

Analysis of Canadas Healthcare System INTRODUCTION Canada is a developed country located in the northern part of North America. In 1867, it became a self-governing state while retaining its tie with the British crown. When it comes to economic and technology, Canada is developing in parallel to its neighbour to the south, which is the United State of America. It is a member of the Commonwealth of Nations, with a democratic constitutional monarchy as their form of government. In the past years, Canada’s politics faces the challenges of reaching the population’s demands for quality improvement in education, social services, economic competitiveness and health care. The health care system in Canada is funded publicly and delivered on a provincial or territorial basis, within a guidelines set by the federal government (Canadian Health Care, 2007). Every Canadian citizens are provided with preventative services and medical treatments from general practitioners at the same time having access to hospitalisation, dental surgery and other medical services. However, in the past few years Canada’s Healthcare System is facing controversy because of it’s soaring costs. INCREASING COST OF UNIVERSAL HEALTH CARE IN CANADA According to a latest study (Esmail N., Palacios M., 2013), conducted by the Fraser Institute with the title â€Å"The Price of Public Health Care Insurance: 2013 Edition†, the average Canadian household now pays approximately $7,860 in taxes for health care insurance., which is 53.3% higher than of in 2003. Over the past decade the cost of healthcare in Canada doubled and is believe to exceed the $200 billion budget mark. Canada’s health care costs continue to grow at a faster rate than the government’s revenue, largely driven by spending on prescription drugs. In the last five years, however, growth rates in pharmaceutical spending have been matched by hospital spending and overtaken by physician spending, mainly due to increased provider remuneration (Marchildon G., 2013). In addition, this trend is also caused by what the health system spends on doctors, which rose by an average of 6.8 % every year. Of that value, 3.6% was caused by the increase in physician’s fees. Other driving factors for the increase in healthcare costs are population growth, aging population and increased health care demand. Consequently, this rise in Canada’s universal health care costs is said to be the reason why the government has limited ability to provide other services such as education, transportation and pension benefits. Increased health care costs will results into higher labor costs, which might cause companies to hire lesser workers, produce less output, or raise their prices. The high expenditure for health causes the budget for other government programs and priorities be restricted. EFFECT ON CANADA’S ECONOMY The abrupt rise in health care costs and insurance can affect several parts of the economy. The rise in health care costs can cause job growth to slow down because it costs companies more money to add new employees. Wage increases have also slowed for current employees, since companies must spend more money on health care premiums. The public sector includes the federal, state and municipal governments. The public sector is dealing with costs rising more than revenues. This places a high degree of examination on discretionary health care spending. Companies are faced with rising health care spending often cut other expenses, such as reducing health care benefits, requiring employees to pay a larger share of their health care benefits, or reducing wage increases. Furthermore, increasing health care costs can cause Canada’s goods and services to be less competitive in the international markets. If all other factors remain constant, the increasing health care costs will most likely be reflected in final product costs and depending on how rapidly costs rise in other countries; this may result in more expensive goods and services. IMPACT ON NATIONAL AND INTERNATIONAL HEALTH CARE POLICY The soaring cost of healthcare is a burden to a country in so many ways. For the community, this increase means that there is less money in their savings and triggering hard choices in balancing food, rent and needed care. For small companies, it will make it harder for them to add new employees, more difficult to maintain coverage for retiree and makes them not competitive globally. The effect of it in the local government is it will lead to higher medicare cost thus reducing funding on other priorities such as infrastructure, public safety and education. The government’s activities to lessen the burden of high health care cost includes funding and facilitating data gathering and research to regulating prescription drugs and public health while continuing to support the national dimensions of medicare through large funding transfers to the provinces and territories. The governments collaborate through conferences, councils and working groups comprised of ministers and deputy ministers of health. Nongovernmental organizations at both federal and provincial levels influence policy direction and the management of public health care in Canada. One of the policy is that only physicians are legally allowed to prescribe a full range of pharmaceutical therapies. However, in recent years, a number of provincial governments have changed their laws and regulations in order to permit some providers, including nurse practitioners, pharmacists and dentists, to have limited authority to prescribe pharmaceutical therapies within their respective scopes of practice. Policy makers should develop funding strategies that will contain the cost of delivering health care and providing economic stimulus to increase provincial and territorial revenues or income, while maintaining the delivery of quality healthcare services to all Canadians. POLICY INTERVENTION SOLUTIONS EDUCATION AND TRAINING In addressing the issue of expensive cost of healthcare, one of the possible solution is the population-wide health education about prevention and any other relevant information about health. The government can launch self-care programmes that would lessen the demand for consultation and hospitalisation. Self -care programmes includes the â€Å"patient as the expert† approach, home self-monitoring techniques and the use of latest gadgets and technology such as mobile phones, computers and telemedicines. In general, these self-care programmes trains and empowers the people to be involved in their own care and be able to manage their own condition. It also includes interventions that imparts knowledge and skills to the people to participate in decision making, to monitor and control the disease and the change in behaviour thus decreasing the chance of seeking expensive medical services. TAX BENEFITS AND PAYMENT TO CAREGIVER In Canada’s Economic Action Plan (CEAC, nd), the government is committed to recognised the sacrifies that many citizens exerts to take care of their children, spouses, parents and other family members with health issue. In support of this objective, Budget 2011 introduced a new Family Caregiver Tax Credit to provide tax relief to those who care for an infirm dependent relative .This initiative provides tax relief to those who care for an infirm dependent relative, including, for the first time, spouses, common-law partners and minor children. Same with direct payments from government, such as agriculture subsidies or social security benefits, tax benefits and payment are given directly to the citizen in exchange of accomplishing a desired behavior. As a result, tax credits permit individual discretion on spending rather than the government dictating spending priorities for each person. The availability of tax credits is probably most beneficial to people with lower incomes,because low income families often cannot give up a salary to provide full-time care, nor do their jobs offer flexibility that would allow them to mix caretaking and working. A tax credit for individuals is a simple concentration of funds from the whole economy onto a specific population segment, assuming the tax credit is paid for with general revenues. In this manner the government’s expenditure on universal healthcare is somewhat reduced. In addition to that, there is a lesser need for aged care facility, disability care or hospital care since caregiver can perform home care. RESPITE CARE Caring for a disabled or old family member can be challenging, potentially impacting caregivers’ health, mental health, work, social relationships, and quality of life. To alleviate caregiver stress, enable caregivers to better cope with the demands of caring for a loved one, and improve caregiver and care recipient outcomes, many interventions have been developed. A short-term break for people and their carer/support person is called Respite Support. This short-term break is usually done away from home and overnight. Respite services are equipped to meet the needs of a disabled person while away from home and their usual support, and aim to create a positive experience for the person. Carer Support enables a usual caregiver to take a break from supporting a person by providing an alternative carer. Moreover, respite care is a vital part of the overall support that families need to keep their family members with a disability or chronic illness at home. Respite care is temporary care to persons with disabilities or special health care needs, including individuals at risk of abuse or neglect, or in crisis situations. Respite care can be an effective cost-saving measure that Canada’s government can venture more. In US, there is an estimated 50 million family caregivers nationwide that provide at least $375 billion in uncompensated services —an amount almost as high as Medicare spending and more than total spending for Medicaid, including both federal and state contributions and both medical and long-term care ($311 billion in 2005) (Gibson and Hauser, 2008). BUSINESS REGULATIONS COMBINING WORK AND CAREGIVING Caregiver can be defined as a person or individual who provides care or assistance to a member of the family in their home or the care recipient’s home who has a mental or physical disability, is chronically ill, old or who is on a palliative care. Caregiving is a difficult task but family members tend to naturally take care of their love ones and resort to medical institutions when the burden is too much. These caregivers might find it hard to balance their work and their family obligation. The government can addressed this issue by mandating businesses to allow employees to take medical leave to take care of a disabled or sick relatives. After the medical leave, the employee should be restored of the original job or to an equivalent job. By doing this business regulations, there is less demand for health services, nursing homes, disability services thus helping the government saved the cost for healthcare. REFERENCES Canadian Health Care (2007), Introduction. Retrieved from:  http://www.canadian-healthcare.org/ Esmail N., Palacios M., (2013), The Price of Public Health Care Insurance: 2013 Edition, Fraser Institute. Marchildon G. (2013), Health Systems in Transition: Canada Health System Review, University of Regina, Canada. CEAC, (n.d.), Family Caregiver Tax Credit: Canada’s Economic Action Plan, Retrieved from:  http://actionplan.gc.ca/en/initiative/family-caregiver-tax-credit Gibson, Hauser (2008), Valuing the Invaluable: A new look at the economic value of family-caregiving, Public Policy Institute, Washington. Analysis of Canadas Healthcare System Analysis of Canadas Healthcare System Canadian Health Care Canada is regarded as having one of the best health care services systems in the world. All Canadians residents are eligible to health care irrespective of income and health. However, like any benefit, there are a few exceptions that are governed in the policies of the provincial or federal governments. Although this system benefits Canadians immensely, there are still some people debating that by privatizing health care, better health care services would be available. However, another aspect of this is that the premium health care services would be only be affordable by the wealthy. The Canada Health Act was passed in 1984 by the parliament. This act established its principles on 5 main criteria: 1. Accessibility: all insured Canadians should have reasonable access to all health care services, as well as all health care providers must be equally compensated for the services provided. 2. Portability: any insured Canadian that moves to a different province is permitted to health care coverage for a territorial determined waiting period. 3. Universality: all Canadians insured by the Canada Health Act are eligible to equal levels of health care. 4. Public administration: all of the administration of health services needs to be done on a non-profit basis by a public authority. 5. Comprehensiveness: all health care services determined by the provinces require to be insured. The province and territories manage and provide the required health insurance to all its residents. In order to be eligible for health care benefits, the residents need to apply for a provincial health card. Once, the health card is issued, the individual is eligible to receive free health care for all necessary health services as listed by the province they reside in. There is a maximum waiting period of 3 months in being able to receive health care, for new residents. Some provinces provide additional health care services in addition to what is listed in the Canadian Health Care Act; however they are not required to provide any additional services than what is stated in the Act. For any additional health care service, like dental or optometry, people usually get private insurance, or employers give additional insurance to their employees. Health care funding is provided by both provincial and federal taxation from both individual and corporate income taxes. Additional financing is also obtained from sales taxes and proceeds from the lottery. Additional funds are delivered to the provinces by the federal government through the Canadian Health and Social Transfer. The funds are paid by cash contributions and tax transfer and to the provinces. The Canadian Health and Social Transfer is a transfer of funds from the federal government to the provinces for post-secondary education, health care, and social assistance. The provincial governments are not required to show the use of the transfer income; therefore the percentage used for health care is unknown. Although provinces may choose to spend this transfer as they choose, they have to follow the Canadian Health Act and they cannot impose any residency restrictions for the social assistance.   If these two conditions are not met the cash transfer to the provinces can be reduced. The Canadian Health and Social Transfer is distributed to the provinces at an equal per capita entitlement, but the cash transfer, which is dependent on the conditions set by the federal government, will vary across provinces. In order to receive an equal average of entitlements, provinces that have higher earnings will get more tax transfers, whereas the other provinces will receive more cash transfers. Critics of the health care system state that there should be a record of the federal governments contribution towards health care. Recommended solutions to this are to either separate the Canadian Health and Social Transfer into three separate parts, showing amounts for health, post-secondary education and social assistance or to separate the health care portion from the latter two portions. Since 1984, there have been numerous changes to the Canada Health Act, and it will continue to evolve as the requirements of the society change along with the advancements in the world of medicine. Regardless of what number of commentators has to say about the health care system, it is still viewed as the most successful and valuable health care systems of the modern era. Bibliography The Canada Health and Social Transfer. (2000). Retrieved from http://www.lop.parl.gc.ca/Content/LOP/ResearchPublications/tips/tip55-e.htm Canadian Health Care: Health Care and Politics. (2007). Retrieved from http://www.canadian-healthcare.org/page10.html Canadian Health Care: Canada Health Act. (2007). Retrieved from http://www.canadian-healthcare.org/page2.html Canadas Health Care System. (2012). Retrieved from http://www.hc-sc.gc.ca/hcs-sss/pubs/system-regime/2011-hcs-sss/index-eng.php Canadas health care system. (2016). Retrieved from http://healthycanadians.gc.ca/health-system-systeme-sante/system-systeme/about-apropos-eng.php

First Impressions :: essays research papers

  Ã‚  Ã‚  Ã‚  Ã‚  I can remember the first time that I’ve ever met a white person before. My first time was in sixth grade when I went to Academy school in Glastonbury. Sure I’d seen them in movies, at the stores, and maybe I had a white teacher, but the first time I’d ever interacted with a white person was that year.   Ã‚  Ã‚  Ã‚  Ã‚  I was an exceptional student then. Too smart for my grade they said. My English teacher in 5th grade, Mrs. Wimberly, told me I needed to get out of the Hartford Public School system. She suggested to my mother that I try out a program called Project Concern. This was a program that brought inner city youth out into suburban schools so as to give equal opportunities for education.   Ã‚  Ã‚  Ã‚  Ã‚  My mother applied to this and was informed before the end of my fifth grade school year that I was accepted and would be going to school in Glastonbury. Glastonbury!? Where the heck was that? I didn’t even know such a place existed in my small little world. The farthest I’d ever been was East Hartford or maybe the Westfarms mall, and I just saw those as extensions of Hartford. I was a little worried as to what this experience was going to be like.   Ã‚  Ã‚  Ã‚  Ã‚  I told everyone at Annie Fisher, my elementary school in Hartford, the news at the lunch table one day. While unwrapping my lunch from those plastic cases, and opening my carton of low-fat milk I broke the news. Some of the girls at the table began to say, â€Å"Oh we’re gonna miss you Chancellor!† Then the guys chimed in. My one friend, Barry, informed me that I was going to a mostly white school only he put it in other terms, â€Å"Ha ha, you’re going to be going to school with a bunch of crackers!† I’d never heard the term before, but another kid chimed in through mouthfuls of his dry salami sandwich, â€Å"You’re going to a white school!?†   Ã‚  Ã‚  Ã‚  Ã‚  I was a bit confused. What was this? I was never told I’d be going to school with white people. I’d never in talked to a white person before. They seem like some abstract, far off idea that I could not yet comprehend. I began to get nervous sitting at that lunch table, with my feet sticking to the dried juice on the floor. I asked them, â€Å"What are they like?

Emotions Essay -- essays research papers

Emotions No matter how hard you try, you cannot control your emotions, only attempt to hide them. Emotions influence every aspect of our lives, what we do, what we say, and et cetera. All of our emotions, from anger to insecurity, are influenced by several factors, just as our lives are influenced by our emotions (Gelinas, Emotions 35). First of all, it causes problems when one does not trust himself, and it shows up in many ways. Some people brag to call attention to themselves, causing others to believe that the egoistic person has a lot of self-respect. Very often though, egotism can be an attempt to cover up insecurity in a person who does not feel they will be good enough without it (Gelinas, Emotions 36). Bragging about one’s achievements, material possessions, or achievements reveals a sense of inferiority. Even though one may brag their whole lives, they never reach a sense of well being. This is caused by fixation, which is when a person does not grow emotionally after a certain point (Gelinas, Emotions 64). A person that brags a great deal may also be considered a snob. A snob may not act as a braggart for the same reasons egoistic people do, for what snobs do is act so that they end up isolating themselves. They do this to avoid the trouble of friends, responsibilities, and emotional relationships by giving a snobbish attitude to the people who put up with these things (Gelinas, Emotions 45). Another sign of...

Rational models and self evaluation Essay -- essays research papers

My supervisor requested a self-evaluation in connection with an upcoming annual performance review, the self evaluation was meant to answer questions regarding A certain customer service decision and accommodations made by me that went beyond company standard operating procedure and protocols. Conio-caca Graphics Imaging Corporation ordered my team to perform a systems installation for a small publishing company in North Miami. The installation was to be performed according to company standards; first the hardware which included an image setter and then a â€Å"Mac Server† running OS 10 (Operating system version 10) followed by installing specialized software to interface with a desktop publishing application. Upon completing the installation of the software and hardware, the team and the customer found the software was not functioning which effectively meant the customer at that point was, â€Å"Out of Business†. PROBLEM DEFINITION The on-site Team defined the problem (Bazerman, Max H. Judgment in Managerial Decision Making, 5th edition. New York: John Wiley & Sons. 2002), resolving; Apple Computer Corp. had shipped a machine to the customer with the very latest operating system on it which did not work with a standard desktop publishing application; it required a missing upgrade patch having a zipped (compressed) volume of about 80MB’s. Alternative1: After careful communication with my supervisor, I was ordered to tell the customer to order the upgrade patch on a CD direct fr...

Culture Collision Essay

Culture collisions has been both positive negative to those involved such as Columbus and his run in with the Natives Americans, French revolution and the Haitian slaves, and African Imperialism. In any culture, subculture, or family in which belief is valued above thought, and self-surrender is valued above self-expression, and conformity is valued above integrity, those who preserve their self-esteem are likely to be heroic exception. In the culture collisions I learned about most was trying to change others culture and views on life in this eassy I will give more backgrand on the positive and negatives of the collisions of new worlds like Columbus and the new American, Haitia revolution, and Africans new way of life. I start my culture collision with a young sailer by the name of Christopher Columbus and his run in with the Native Americans. Columbus sailed for Spain but was from Itialy. Columbus search was for spices. He thought by sailing west across the Atlantic it would bring a ship to Eastern Asia. His plans made sense, but columbus greatly underestimated earth’s size, and had no idea that two continents lay in his path. Once columbus got to the new world he call the natives, Indiains thinking he was in Asia. †As soon as I arrived in the Indies, on the first Island which I found, I took some of the natives by force in order that they might learn and might give me information of whatever there is in these parts†.(-christopher columbus 1492). After finding out that these people was not what they seem, Columbus and the Natives American made a treaty. The natives were good neighbood they tought Columbus how there lands works, and ways to serve the land. Columbus used this new found world to bring European, Americans, and African cultures together. Not only did he collied the culture he brought foods and animals. Even though the collision had good turn out there was a down fall of this collision with Columbus inhumain way of treating the Natives Americans. In two years, through murder, mutilation, or suicide, half of the 250,000 Indians on Haiti were dead.(-Zinn,). Columbus killed many of the Natives Americans after friending them. After they though him what he needed to know they was not use to him. Even though Columbus collied, the world at what cost was that to all the life’s he took. The next culture collisions was the revolution of Haiti and French,  starting with Napoleon against a free slave named Toussaint L’Ouverture. Haiti had heared to Enlightenment Thinkers talk of equal rights and thought that they should be intitled to the rights also. Napoleon started out as an Italian general and ended up being one of the greatest historical figures. First, Directors requested Napoleon’s support while organizing a coup d’etat. Then, Bonaparte fought Britain in order to benefit France. Lastly, he was called to help creating a new constitution and ended up as the First Consul of France. At home, he ruled using flattery, but also he strongly resisted the opposition. Napoleon is a pro-revolutionist because he denied all the privileges of the aristocracy, created a new constitution, and also established the Napoleonic Code.(-Brainard, 1998-2008)†Neapoleon was one of the greatest generals who ever lived. But at the end of the 18th century a self-educated slave with no military training drove napoleon out of Haiti and led his country to indepenence. The remarkable leader of this slave revolt was Toussaint Breda (later called toussaint l’ouverture, and sometimes the †black napoleon†). Slave revolts from this time normally ended in executions and failure, this time was different.†(-Brainard,1998-2008). Toussaint become the leader of the slaves rebellion. He successfully fought the French who were helped by succumbing to yellow fever in large numbers as well as invading Spanish and British( who wanted to take down napoleon for the beheading of the king and queen). After the French Revolution was in the hands of Jacobins, who leaded the Reign of Terror. So Napoleon and L’Ouverture agree to terms of peace by giving them there indepenence. A few months later l’ouverture was invited to come to a negotiating meeting will full safe conduct. When he got there napoleon betrayed the safe conduct and arrested him, putting him on a ship. Napoleon ordered that l’ouverture be placed in a prison dungeon in the mountains, and murdered by means of cold, starvation, and neglect. L’ouverture died in prison,(-Brainard, 1998-2008)but others carried on his fight and six months later napoleon gave up his fight. This collisions allowed the indepenence of haiti. In africa, Europeons wanted the copper,ivory, gold, and diamonds the africans held in there mines. African’s used slavery as a part of their everyday life. When the Europeans arrived overseas in Africa they were  intrigued by this idea of slavery. They felt that the African people were used to the hot weather and long and hard working days. They thought of the blacks as inferior as well. They needed people to do their labor in the New World and were sent over in the African Slave Trade (Corretti,1500-1800). Slavery had a different meaning in the New World than it did in Europe. People were considered chattel in the New World. This means that one human was the property of another human. The Europeans needed to find people to keep up with the labor on the plantations in the new world (Corretti, 1500-1800).Europeons capitalists carved up the continents in order to ensure their wealth. Many english, french, and germans travelled to make africans chistian. Europeons inslaved these africans and spilt families apart. Africans resistance to the imperialism. Shaka Zulu led the Zulu people againist the Boers and Brithish. Brilliantly fought off troops for 30 years. In the end Britin control Southen Africa. Yaa Asantewaa led the Asante Kingdom against the British in West Africa. Last battle in series of 100 years of war between Asante and England. Menelik the second led Ethiopia against Europeon colonists. Hired Europeons to teach them how to read and use Europeons weapons. In 1896, Ethiopia smashed the Italians; Ethiopia was never colonized.(-malone,2012) Beside ethiopia, the African Imperialism was a negitive culture collision it had no effects on the world in my eyes just the europeon mading others do there durty work. In conclusion, culture collisions privde to be both positive and negitive. Not one collisions had one with out the other, Columbus didn’t decover a New World but brought others together. But then again in his process of doing so he mistreated kind people and almost whiped out the native race. With the Haitian and French Revolution Napoleon ketp the haitain in slaved when he came to power. In the African Imperialism they inslave most of africa because of there industalition and need hard workers for little to no pay after the child labor laws. Well without any of these collisions we wouldn’t be living in the kind of world we do now.

Computron Inc. Case

Q1: How far does Zimmermann have to cut the price to have a chance? The cost of a 1000X computer for the European market usually consists of the cost to manufacture ($768’000), the overheads, a markup of 33 1/3% ($256’000) that includes the profit, research and development and selling expenses; in addition to these components, there are transportation and installation costs ($67’200) and finally the import duty ($153’600). Computron Inc. has previously assembled and manufactured its products in the US and shipped ready goods to Europe, thus having to raise the original US price in order to cover the expenses of the last component of the price, the import duty. Given that the company has made a strategic decision to build a factory in Frankfurt that would cover the assembling and manufacturing services for the European market, that consists of 15 countries, and given that the opening of this newly constructed facility is the 15th of September 2006; it is valid to assume that the manufacturing and assembly of the 1000X computer for Koning & Cie, AG, if the order is made, would take place at the local facility in Germany, rather than in the US. This factor eliminates the expenses related to import duty ($ 153’600) as well as significantly reduces the transportation costs. Moreover, knowing that the company’s policy has never permitted reducing the markup percentage in the European market and that Koning’s vice president in charge of purchasing is not in favor of purchasing any equipment that has a price of more than 20% higher than the lowest bid; subtracting the import duty from the original price of ($1’244’800) would b the first step in reducing the initial price to $1’091’200. The value is 4. 1% higher then $1’046’400, what would be the exact ‘maximum price’ mentioned by Koning’s official. If we do not take into consideration the potential for cost reduction from reduced transportation costs in order to make up for the loss in ‘before tax profit’ from 17% to 6% in the last year compared with the one before, the price should stay at $1’091’200. However, if the financial situation permits a further reduction in price, the price should be lowered to $1’046’400, which is exactly 20% higher then the lowest bid of competition ($872’000). This value should be final, because if Zimmermann will be tempted to further reduce the price in order to get the order, there is a very high risk of loosing on the image of ‘superior product’. Koning has made orders from Computron before and therefore they are well aware of the flexibility, accuracy and overall high quality of its products. Submitting the bid of $1’046’400, exactly 20% more then the lowest bid, would show compliance with the customer’s budget and thus will give a certain favorability to Computron, strengthening the already existing customer relationship with Koning and ensuring future contracts for products and services. Q2: What is gained by bidding low? According to a reliable trade source, Koning has a total of four different offers other than Computron. These are the four main competitors, three of which together with Computron itself, own 80% of the sales in the German Market. Since the original price, which Compuron is willing to offer, is 43% higher than the lowest bid, there’s a big chance Computron loses the sale. The fact that Koning is an already acquired customer of Computron is a major strength in terms of winning the sale. If Computron offers the lowest bid, Koning will definitely consider their bid. It is simpler for Konig’s to deal with a company they had purchased from already. Koning have experienced that Computron’s products are ‘flexible, accurate and of a high quality’ from their previous purchases. Bidding lower then the benchmark of a lowest bidder plus 20%, could possibly ensure getting the order, as well potentially maximizing the market share of Computron in the long-run. Furthermore, reasonable price is an important factor for Koning in acquiring this particular product and thus bidding low could be a favorable factor in this particular situation if we do not take into account the fact that Computron is already a market leader, so aiming to maximize their market share should not be of particular focus. The focus should be mainly on maximizing the levels of trust and loyalty with the customers. Q3: What is lost by bidding low? Zimmermann has calculated a price of $ 1,244,800 with respect to: markup costs, factory cost, 17. 5% of import duty and transportation & installation costs. The markup cost in European market was fixed for Computron at 33 1/3%. Considering the fact that sale in 2005-06 was 6% comparing to the 17% the year before, the company aims to increase the sales and profit for their current year. Meaning, Computron would preferably ncrease markup cost in order to increase profitability & sales. Although to have a higher possibility of making the sale to Koning, they have to reduce the price and recalculate their costs by much less than 43% of the lowest bid. This leads to Computron having to decrease markup cost, or eliminate other cost from the final offer to Konig’s. The reduction of markup cost will leave the company facing cash loss comparing to the amount the y’re paying for selling & administrative expenses, and the price their offering. Computron are investing 8% of the total markup cost in R&D. Research & Development has an effect on Computrons position in the German Market, whereas they have highest percentage of digital process control computer sales. Although, the company will have to invest less in R&D in order to prevent profit loss for reducing their price bid to Koning. Computron will go behind again in sales by offering low price, as it would be one of the biggest sales of the year, Computron would definitely increase their profit if they succeed making the sale with their desired price. Having to reduce the price will put Computron behind in their aim of increasing profitability. Furthermore, the lowest bid is 872,000, it’s too low for Computron regarding their transportation cost, and markup costs. It’s not an option for them to lower their price to that price. Even if they manage to reduce their costs enough to reach a similar price, it will affect Computrons quality image. As mentioned, they have a good reputation of quality and flexibility. Finally, if Computron reduce their price, it’ll be harder for them to have higher bids later in Germany, and especially with Koning, which have good experience with Computron. Q4: What is gained by bidding high? Computron’s position in the market and relationship with Koning seems strong. The price Computron ‘s offering represents the cost being implemented to provide high quality product that exceeds the customer needs. By insisting on bidding at the â€Å"normal† price, the company is actually setting a standard on their product price and the input on its enactment. As mentioned, Computron is aiming to increase their profit on sales for the current year. Bidding high in the Koning’s sale will prove the company stabilizes quality and performance. Koning will have no doubts of the price reduction, where elimination of cost could be related to the performance of the machine, especially if the price is drastically reduced. Computron is affirming their quality by sticking to their highest bid, although competitors are offering 43% lower prices. ’ Furthermore, by insuring the image of their superior product quality, supported by Koning’s opinion on their past machines, will add up to Computron reputation, and stronger market position. If the idea of quality and performance was introduced to Koning’s properly, and the fact that they provide them with after sale service, could convince the Koning’s to choose Computron over the competitors. If Computron wins the sale, they’d reach their goal of increasing profit on sales. Selling to Koning with a high bid and their quality will only provide the company with a stronger brand image and customer loyalty and respect. Considering their past experience and the prove of new good investment by purchasing Computron’s 1000X. Q5: That is happening in the market? It is predicted that the market will grow by 25% in the next several years. The market is valued at 16,000,000 dollars per year, of which Koning is a major part of, which leads to the conclusion that whoever seals deal, is likely to continue selling to Koning in the future. There worth of new business to come about in the period 2005-2006 is estimated to be worth 5,200,000 dollars, which includes; Koenig & Cie AG Frankfurt Plant$ 1,200,000 Dusseldorf Plant$ 1,000,000 Mannheim Plant$ 600,000 Central German power commission$ 1,760,000. Deutsche Autowerke $ 640,000 $ 5,200,000 The European market is in fact not so active, as Koenig happens to be the only major purchaser in the continent. Furthermore Computron hasn’t been receiving any major orders from big companies for their products; so far it has only been small businesses demanding Computron’s computers. It seems all the big purchasers already have what they need, and are only interested in post-sales servicing/maintenance/updates. The submission deadline for Koenig is 1st, August, 2006. Q6: What is the competition doing? Ruhr Machinenfabrik AG are developing a computer specifically for Koning’s bid, and their pricing is substantially lower than that of Computron’s 1000X. This is partly because they have an import duty advantage; as they are based in Germany, they need not to have this additional cost. This consequently allows for a 17?% price differential. This reiterates the aggressive nature of the firm. Up until now, they only engaged in the sale of general-purpose computers. However, their drive to increasing their market share is the likely explanation for such an aggressive reaction. Elektronische Datenverarbeitungsanlagen AG is seen as a long-range threat to Computron. They produce their product of a similar quality to that of Computron 1000X. In order to secure their position they sold their first computer at a break-even cost, and ever since then they have been selling below Computron’s price (by a differential of Computron’s import duty subject). Digitex produce a product of only a fair quality compared to Computron’s 1000X however uses a price cutting tactics/ sells at low cost (sometimes 50% below Computron’s). All the production is done in Germany. Their inferior quality has hindered their competitive capabilities. The rest of the competition is unlikely to cause any threat according to Zimmermann’s point of view. Q7: What is Koning’s thinking about the situation? Koning’s invitation for bids was basically for the reason of wanting to pay a reasonable price along with high dependability of the machine. Since the machines are going to be used for five years training, these requirements would best suit what its being used for. Koning wants to probably reduce the cost of machines used in training. It would be a good investment for the company to have five years training computers and still use it after for other duties, although the low price could be aimed to abandon the machine after. Requiring a machine specified for training wouldn’t’ have the same specifications in the computers needed for the on-line process control. Clearly the case showed the differentiation between having a flexible accurate machine, or a machine that is highly dependent for training purposes. Koning looking at the situation from a perspective which he wants o gain the best opportunity on having the lowest price for a training machine, even if the quality wasn’t as good as accurate machines needed. Koning already bought three machines from Computron, and are satisfied with the results of the machines performance and quality, and seems to match the requirements needed for their plants. The company is most probably now aiming to invest less in the machines they want to purchase, whi ch means having less concerns with the machine quality performance, as its not being used directly on their process. Q8: What is Zimmermann’s position as manager of the European sales? Zimmermann is in a rather sticky situation because it is imperative that he seals the sale with Koenig who is their most important customer and satisfies the buyer’s demands. However at the same time he must comply with Computron’s pricing guidelines. The pricing guidelines reinforce the customer perception of a high quality, superior and reliable product (diligence element). Furthermore a reduction in price in this case, will lead all future purchasers to believe that from now on, Computron’s products are cheaper and will automatically (wrongfully) anticipate lower prices from Computron in the future. There is no turning back. This situation is further accentuated with the factory construction in Germany. If the deal is not sealed, it is likely that that factory will remain idle for several months due to lack of business. This will have a devastating impact on their brand image. Lastly, and most importantly, they biggest strain placed on Zimmermann is from the competition. There are several competitors who have different advantages ranging from technological factors to pricing advantages. All want to make a sale just as bad. Zimmermann is going to have to address all of these, if he’s to seal the deal. Q9: What should Zimermann do? * Price reduction $1’046’400 (85. 4% of the original price) * Offer the price reduction + inform Koning & Cie, AG of the local manufacturing and assembly facility local support (opening 16. 09. 06) * Focus on absolute necessity of getting the order long-term business relationship & added credibility * Should NOT reduce the mark-up for European market (other customers will expect similar conditions with future orders) * Emphasize on Koning’s familiarity with the standards of Computron’s products affirm the quality