Apple is arguably the most valuable company in the world. The company has become very successful and is growing at a very unprecedented rate. Given that Apple is still expanding its operations, there is an opportunity for the company to open new stores in Africa. In recent times, Africa has opened new opportunities for electronic companies such as Samsung which has managed to become the top seller of smartphones in the continent. This implies that there is a lot of potential for a leading smartphone company like Apple Inc. in Africa (Baker & English, 2011). Therefore, Apple Inc.’s new possible investment item would be the opening of Apple Stores across the continent of Africa.
There is a very probability that the company’s top management will approve the proposed capital investment project. This is because the project will ensure that the company is present in almost the continents of the world. The project will also ensure that the company remains ahead of competition from companies such as Samsung and LG. Using cost estimates from Apple Store projects that the company has carried out in China, I estimate that Apple Inc. will incur an initial cost of 600 million dollars. The initial cost will cover a total of fifty stores of which the company will open in lucrative markets across Africa. However, the company will establish half of the number of stores in South Africa. The company will spread the rest of the stores across the continent in countries such as Egypt, Nigeria, Libya, and Kenya. According to market analyst reports, Apple Inc. opened a number of Apple Stores in China and the company recorded phenomenon success. In this case, I also expect that the company will be successful (Shapiro, 2008).
A single Apple Stores will record annual revenues worth 6.25 million dollars. Since the company will be investing 600 million dollars for fifty stores, a single store will cost 12 million to put in place. Therefore, Apple Inc. will have a payback period of two months. Apple Inc. will record 2.4 billion dollars in operating income from the new stores. Using an average corporate tax of 25 percent, the company will be recording a net income of 6.25 million dollars per store. Despite the fact that project appears to be very lucrative, Apple Inc. will face a number of challenges in its attempts to implement the project.
First of all, risk poses the greatest challenge to the implementation of the project. Above everything, risk is the main factor that differentiates between success and failure of a project. Apple Inc. is venturing into a new market and is unaware of the risks associated with the African market. Even though the company may conduct a feasibility study, it is highly unlikely that it will identify all the risks associated with operating Apple Stores. There are two possible risks that the company may encounter including schedule risk and operational risk (Peterson & Fabozzi, 2004). The company’s project manager will create a project schedule for the new project. However, the parties involved in the project may not follow the schedule. Consequently, the company faces the risk of delaying the completion of the new project. In the case of operational risks, the day-to-day operations of the company during the project may create some level of uncertainty. The main risk is safety and business continuity. It is uncertain if the stores will be able to see the light.
Secondly, it is very difficult to estimate the cost of putting in place a single store because this is a completely new market. There are a lot of hidden costs associated with the actual project. For instance, there may be a requirement that the company pays an additional amount of tax on imported items. The other problem is the cost of business operation such as labor. Since Africa is far from America and China, the company will have to use local manpower. It is very difficult to determine how much the company will spend on labor. Therefore, the estimates are likely to be lower than the actual costs.
Thirdly, the project may not get the support of the company’s board of directors because of a number of reasons. Apple is one of the best performing companies in the world and the top management may not be willing to invest in risky areas like Africa. Africa has numerous cases of political instability, which has led to Africa becoming one of the riskiest markets in the world (Baker & English, 2011). It will be very difficult to explain to the top management that the project will be beneficial to the company.
Lastly, it will be very difficult to promote the project in Africa because of the limited penetration of marketing activities like advertising and public relations. In Africa, companies are still relying on the use of the print media. There is very low penetration of digital media, and this will slow the campaign to promote awareness of the project. This may have a negative impact on the company’s image (Shapiro, 2008).
References
Baker, H. K. & English, P. (2011). Capital Budgeting Valuation: Financial Analysis for Today's Investment Projects. New York: John Wiley & Sons.
Peterson, P. & Fabozzi, F. (2004). Capital Budgeting: Theory and Practice. New York: John Wiley & Sons.
Shapiro. (2008). Capital Budgeting and Investment Analysis. New York: Pearson Education.
