Blackwell Reference Online

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Over the long term many capital‐intensive businesses, especially those involved in basic industries, achieve wholly inadequate rates of return on the capital they employ. Around the world examples abound in what are becoming known as SCRAP industries sectors, to which list could readily be added many businesses involved in construction materials such as flat glass; agricultural commodities such as palm oil or wheat; extractive industries such as tin, coal, and soda ash; and many fields of transportation, typified by the malaise in passenger airlines around the globe. That these sectors have experienced periods of attractive return or that certain competitors manage to break out is not in question. What remains observable, however, is that over the long term the typical level of performance for the majority is totally inadequate. The extent to which capital‐intensive businesses underperform the norm in the P rofit I mpact of M arket S trategy (PIMS) database is explored in order to develop the reasons for that underperformance. Capital or “investment intensity” is defined as: the net book value of plant and equipment plus working capital (i.e., total assets less current liabilities) expressed as a percentage of sales revenue or as a percentage of the value added generated by the business (where value added is defined as net sales revenue less all outside suppliers inputs). In ... log in or subscribe to read full text