Capital Budgeting 109

There is little value in refining an analysis that does not consider tire most
appropriate alternative and does not utilise sound. Management should
spend its time improving the quality of assumptions and assuring that all the
strategic questions have been asked rather than implementing and using
more refined evaluation techniques. (Emphasis added).

In fact a close linkage between capital expenditure, at least major ones, and strategic
positioning exists which has led some searchers to conclude that the set of problems
companies refer to as capital budgeting is a task for general management rather than
financial analyst Some recent empirical works amply support the practitioners concern
for strategic considerations in capital expenditure planning and control. It is therefore
B myopic point of view to ignore strategic dimensions or to assume that they are
separable from the problem of efficient resource allocations addressed by capital
budgeting theory.
Most companies in India consider strategy as an important factor in investment
evaluation. What are the specific experiences of the companies in India in this regard?
Examples of six companies showing how they defined their corporate strategy are
given as follows:

To remain market leader by highest quality and remunerative prices. This com-
pany undertook the production of a new range of product (which was marginally
profitable) for competitive reasons.
To have moderate growth for saving taxes and to set up plants for forward and
backward integration.
Our strategy is to grow, diversify and expand in related fields of technology oly.
Any project, which is within the strategy and satisfied profitability yardsticks, is
accepted. This company found a low-profit chemical production proposal ac-
ceptable since it came within its technological capabilities.

Strategy involves analysis of the company's present position, nature of its rela-
tionship with the environmental forces, company's evaluation of company's
strong and weak points.
To take up new projects for expansion in the fields which are closer to present
project/technology. This company rejected a profitable project (of deep sea
fishing and ship budding) while it accepted a marginally profitable project (of
paint systems) since it was very close to its current heat transfer technology.

To stay in industrial intermediate and capital goods line, and in the process to
achieve threefold profits in real terms over a 5-year period. This company
rejected a highly profitable project (of manufacturing mopeds) since it was a
consumer durable and accepted a marginal project.