BUSINESS STRATEGY

Suggested Answers
Nov-Dec 2021

Answer to the Question # 1 (a)

Requirement: (i)
Business strategy:
The actions or decisions taken by the organization that helps in building the performance level and
elimination of the competition are referred to as business strategies. A plan is prepared that includes the
methods to attract new customers or increase the sales of the business and finally achieve the objectives
set.
The correct option is “a”.
When a company decides to offer a new product to eliminate the competition, then this strategy is termed
product differentiation. When a new or varied product that is superior in quality is offered to the public, it
helps in attracting new customers.
Explanation for incorrect options:
Options b, c, and d are incorrect because these are not the strategies of the business when there is an
innovation of a new product.

Requirement: (ii)
In present era it is difficult to plan a corporate strategy due to dynamic environment such as advancement
in technologies. Startups have more tools to deal with problems which makes them powerful than expected.
Technology is one of the key driving forces that make strategic management a priority in the organization,
especially since technological change and new technologies have been and still are moving in a wide range
of interest, especially by organizations that have a competitive position that drives them to search for
aspects Innovation.
Perpetual Innovation is the term used to describe how new information-centric technologies replace old
ones. The short life cycles of products resulting from this rapid proliferation of new technologies have
created a competitive premium by enabling companies to rapidly introduce new products and services to
markets. In fact, when products cannot be distinguished because of the widespread and rapid proliferation
of technologies, market access may be the primary source of competitive advantage.

Requirement: (iii)
Corporate culture is a set of characteristics that define a business. It involves employee attitudes, standards
(policies and procedures), and rites and rituals. The culture of a company is connected to the characteristics
found in the surrounding society, but it also has some traits, such as a hierarchy system, that are unique. It
can be negative, neutral, or positive, and although some businesses like to portray corporate culture as
static, in most cases, it changes over time. The attitude of those within a company is perhaps the most
fundamental element of corporate culture. When executives, managers, and rank and file employees are all
on the same page as far as basic corporate values, it becomes possible to have general agreement on the
relationships that must be in place to accurately reflect the desired set of characteristics for the business.
For example, when employees are provided with ways to make suggestions that could improve the
productivity or the general working environment of the company, it can be said that the environment is
inclusive, as it allows for free communication between everyone employed by the business. Whenever
you get two or more people together in any organization, those people will create methods of
communicating and interacting among each other that help organize time and effort. These methods could
include the way desks and workstations are positioned, where people go to lunch, after work activities,
dress codes and annual parties. These things make up “Company” culture. When you hear people say,
“At our company, we work hard and play hard,” or “It’s a family atmosphere,” that’s a company culture
they're talking about. All organizations have a “company” culture. When people get together, they create
one. It just kind of happens. Now “Corporate” culture is very different. A “corporate” culture is a
 combination of systems and processes that are put in place specifically to drive competitive advantage in
the marketplace. Encompassing such things as workflow processes, infrastructure, training,
communication, and commitment to a well articulate mission statement (there are lots of others), a
corporate culture is deliberate, difficult to build, hard to imitate and results in consistent returns to the
organization in product quality, service delivery, cost controls or a combination of those. Corporate culture
can’t easily be imitated. Very few organizations have a corporate culture. It’s hard to build, and even
harder to maintain, despite the benefits" (Levy, 2007).
Requirement: (iv)
Blue Ocean Strategy implies that the business product / service is being offered in uncontested
marketspaces. The Red Ocean are where the competition is intense.
Hence, no,
One cannot execute both strategies at the same time with the same product or service in the same
marketplace.

Answer to the Question # 1 (b)

Requirement: (i)
Impact of ethics on strategy:
• In the formulation of strategic objectives, some firms will not consider lines of business for ethical
reasons
• External appraisal will need to consider the ethical climate in which the firm operates. This will
raise expectations of its behavior
• Management should consider whether present operations are ‘sustainable’, i.e., consistent with
present and future ethical expectations
• Management should consider the ethical implication of proposed strategies before selecting and
implementing them.

Requirement: (ii)
Influences on planning horizon:

(i) Nature of ownership

Firms with shareholders are obliged to ensure some financial return each year to their shareholders. Making
sufficient profits each year will normally be needed in order to promote shareholder value. State-owned
organisations do not have this obligation. But they will have different ownership issues to contend with,
such as the changing nature of political agendas, different governments’ attitudes to funding and state
control.

(ii) Capital Structure

Some investors, such as banks or private equity investors (sometimes called venture capitalists) do not
require short term profits. Banks will continue lend providing assets cover the loans and interest is paid.
Private equity investors require profits and share values grow over a 5 – 10 year period to give them a
substantial capital gain when they sell their holding.

(iii) Nature of industry

Industries such as aircraft development, satellite communications and oil pipelines require large capital
investments that take a long time to build and to pay back. Long – term plans are essential to justify these.

(iv) Nature of business environment

In rapidly changing environments it is likely that long-term planning may be futile. For example, industries
such as bio-technology, home entertainment and mobile communications where effects of technology and
legislation are hard to predict, will tend to avoid plans and instead adopt a strategic management approach
within a series of short-term plans.
 (v) Nature of management
Long-term planning is a skill and it is time consuming. Some entrepreneurial managers will avoid it, for
example because they lack the time or skill, or because they are unwilling to become ‘tied down by red
tape’. Others, for example the management of family firms, are reluctant to consider changing the ‘way it
has been always been done’.

Answer to the Question # 1 (c)

Requirement: (i)
The term electronic commerce (e-commerce) refers to a business model that allows companies and
individuals to buy and sell goods and services over the Internet. Ecommerce operates in four major market
segments and can be conducted over computers, tablets, smartphones, and other smart devices. Nearly
every imaginable product and service is available through e-commerce transactions, including books,
music, plane tickets, and financial services such as stock investing and online banking. As noted above,
ecommerce is the process of buying and selling tangible products and services online. It involves more
than one party along with the exchange of data or currency to process a transaction. It is part of the greater
industry that is known as electronic business (ebusiness), which involves all of the processes required to
run a company online.
E-commerce has helped businesses (especially those with a narrow reach like small businesses) gain access
to and establish a wider market presence by providing cheaper and more efficient distribution channels for
their products or services. Target supplemented its brick-and-mortar presence with an online store that
allows customers to purchase everything from clothes and coffeemakers to toothpaste and action figures
right from their homes.

KEY FEATURES OF E-COMMERCE

• Ecommerce is the buying and selling of goods and services over the Internet.
• It is conducted over computers, tablets, smartphones, and other smart devices.
• Almost anything can be purchased through ecommerce today.
• It can be a substitute for brick-and-mortar stores, though some businesses choose to maintain both.
• Ecommerce operates in four market segments, including business-to-business, business-to-
consumer, consumer-to-consumer, and consumer-to-business.

E-commerce has changed the way people shop and consume products and services in Bangladesh. More
and more people are turning to their computers and smart devices to order goods, which can easily be
delivered to their homes. As such, it has disrupted the retail landscape. Amazon and Alibaba have gained
considerable popularity, forcing traditional retailers to make changes to the way they do business.

In recent years, Bangladesh has seen a rise e-commerce along with other countries around the world. Many
young entrepreneurs have come up with various digital products and services for customers. The
availability of internet has helped the growth. In Bangladesh, the industry has gone through so many
changes since then, resulting in a great deal of evolution. Traditional brick-and-mortar retailers were forced
to embrace new technology in order to stay afloat as companies like Alibaba, Amazon, eBay, and Etsy
became household names. These companies created a virtual marketplace for goods and services that
consumers can easily access.
New technology continues to make it easier for people to do their online shopping. People can connect
with businesses through smart phones and other devices and by downloading apps to make purchases. The
introduction of free shipping, which reduces costs for consumers, has also helped increase the popularity
of the ecommerce industry.
Requirement: (ii)
Advantages:
• Convenience: E-commerce can occur 24 hours a day, seven days a week.
• It is faster and time saving.
• Reduce cost of products.
• Increased selection: Many stores offer a wider array of products online than they carry in their
brick-and-mortar counterparts. And many stores that solely exist online may offer consumers exclusive
inventory that is unavailable elsewhere.
Limitations:
• Limited customer service: If you shop online for a computer, you cannot simply ask an employee
to demonstrate a particular model's features in person. And although some websites let you chat online
with a staff member, this is not a typical practice.
• Lack of instant gratification: When you buy an item online, you must wait for it to be shipped to
your home or office. However, e-tailers like Amazon make the waiting game a little bit less painful by
offering same-day delivery as a premium option for select products.
• Inability to touch products: Online images do not necessarily convey the whole story about an
item, and so e-commerce purchases can be unsatisfying when the products received do not match consumer
expectations. Case in point: an item of clothing may be made from shoddier fabric than its online image
indicates.
• There is chance to cheat the customers in countries like Bangladesh.

Requirement: (iii)
Causes of failure of e-commerce business in Bangladesh:
Recently, the e-commerce sector in Bangladesh came to the limelight in connection with a huge scam of
certain e-commerce ventures. It has created a negative image of this type of business. Causes of failure of
the sector are as under:
In our country there is a section of people who wants to thrive using only unfair means. Unfortunately, this
number is increasing every day and not just in the e-commerce sector. The financial sector is another
example where incidences of even bigger irregularities are unearthed regularly
The absence of a regulatory framework for the e-commerce sector has helped dishonest people to take the
opportunity and commit fraud. Many digital commerce operators do not have license or a Tax Identification
Number.
The dishonest business has cheated people in the following ways:
Customers paid advances but the companies failed to deliver their products and refund their payments.
Even before this revelation, there were red flags regarding the integrity of some online businesses which
have been conducting e-commerce.
The quality and price of products, delay in delivery of products to customers, difficulty in returning
products, risk of not getting refunds, and overall quality of customer service have been the common
complaints against a number of companies.
The most talked-about company among the lot seemed to have performed every trick to cheat its customers
and siphoned off a large amount of money by not refunding customers' advance payments, even though
they failed to deliver goods for a long time.
This whole episode of huge fraud by a widely promoted e-commerce platform even by some of the
country's respected media has shaken not only the integrity of the company itself, but also of those which
have been advertising the services of the company. Of course, in a welcome move, a reputed financial
transaction company has immediately disassociated itself with this fraudulent e-commerce platform.

Requirement: (iv)
Remedial measures to be taken:
At a time when there is a growing demand for e-commerce in Bangladesh, such irregular practice has
destroyed the trust of consumers greatly. E-commerce is performed between businesses and customers
 based solely on trust as there is no face-to-face interaction between them. Customers rely on the e-
commerce entities and pay for whatever product is displayed on the screen. Once the trust is gone, the
sector will lose its customers. Retrieving the trust will require a lot of hard work and dedication. Even
many large global e-commerce establishments have failed to survive once their reputation was at stake.
For remedial measures the following steps to be taken:
E-commerce business should be clearly defined
If one goes by the strict definition of "e-commerce", many businesses will not qualify to be e-commerce
entities at all. It is not only about having a license to operate the business. The e-commerce company should
also have proper policies about shipping, delivery, returns and refunds.
Full disclosure on the product and also on the company about its assets and liabilities is a must.
Besides, privacy policy on customer information is also an essential requirement for conducting e-
commerce
Since many e-commerce companies do not fulfil these pre-conditions, the customers are being deprived of
having value for their money and even being cheated by not receiving either the product or a refund.
The absence of a regulatory framework for the e-commerce sector has helped dishonest people to take the
opportunity and commit fraud.
e- commerce operators do not have license or a Tax Identification Number. Recently, the Ministry of
Commerce has launched Digital Commerce Operations Guidelines 2021.
The guideline instructs that the maximum number of days for the delivery of products will be five days
once an advance payment is made by the customer. There are also details on when a company would hand
over the ordered product for delivery and what will be the penalty if products are not delivered on time.
It also instructs companies to inform customers about order updates through mobile text messages, emails
or telephone calls. In case of failure to comply with the guidelines, the government can close down the
company.
Consumers can also lodge complaints with the Consumer Rights Protection Department and relevant
courts.
Increasing customer literacy on digital business is also very important. Due to lack of awareness, customers
fall prey to the businesses' tricks which ultimately leave them in distress.

Answer to the Question # 2 (a)

a) More than 4,600 RMG factories constitute the largest industrial sector in the country and contribute to
36% of manufacturing RMG. The Bangladesh economy remains highly dependent on the ready-made
garments industry for manufacturing employment, foreign reserve, and women empowerment. The
industry contributes 11.2% to the gross domestic product of the country and
employment engaging 4.1 million workers. Industrious, disciplined and low-cost women workers are the
backbone of this industry. With 61% women employment, the RMG industry has played a crucial role in
women empowerment and gender equity. Bangladesh’s market share in global RMG trading is circa 6.5%,
and the country consistently remained the second largest exporter after the People’s Republic of China.
Bangladesh primarily exports to the European Union (62%) and the United States of America and Canada
(21%). Over the last three decades, the RMG exports have registered a cumulative average growth of 14.8%
per annum reaching $34.2 billion in FY2019 which is 84.2% of the country’s total exports.
The RMG sector is on the verge of an unprecedented humanitarian and business catastrophe. To flatten the
corona virus spread curve, the government declared nation-wide holidays up to 25 April 2020 and business
and industrial activities have come to a grinding halt except emergency services. Many international buyers
are cancelling or postponing confirmed procurement orders as their retail outlets are substantially closed
in Europe, North America, Asia and elsewhere. According to Bangladesh Garment Manufacturers and
Exporters Association (BGMEA), international buyers have either cancelled or suspended $3.16 billion
worth of shipments involving 1,142 factories affecting 2.26 million workers as of 18 April 2020.7 Millions
of workers stare at joblessness as new orders dried up given the collapse in global demand for apparels.
Reportedly, 1 million workers have already been fired or furloughed.8 According to a survey conducted
by the BRAC University, 47% RMG workers reported not receiving their wages and felt uncertain about
their current job status with their respective employers. 9 Defying government lockdown, thousands of
RMG workers have demonstrated on the streets throughout the country demanding arrear wages.10 4. A
report by New York University Stern Center for Business and Human Rights observes that though
 Bangladesh has seen its apparel exports grow impressively, the industry generally has not progressed
beyond cutting and sewing basic items to which relatively little value is added and from which profits are
modest. Bangladesh’s garment industry has created jobs, offered a degree of independence to rural young
women, and helped prop up the country’s shaky economy. But it has not made the same progress in terms
of the quality of those jobs, the value added to exports, or increases to workers’ real wages.11 5. With a
monthly minimum wage of Tk 8,000 ($95)–one of lowest wages in the global garments supply-chain–the
sector requires $470 million, at a minimum, to pay wages every month to the workers (Figure 2). The
BGMEA President has appealed to the international buyers to take delivery of the goods already produced
and pay just the wages for the goods under production.12 Apart from direct humanitarian and business
impact, there will be significant reduction of foreign exchange inflows creating external sector
vulnerabilities.

Answer to the Question # 2 (b)

b)Recovery of the industry
The first year of the pandemic was extremely tough—as RMG factories and many of our major export
markets were in lockdown. It was difficult to get raw materials. Brands and retailers were cancelling orders
left, right and centre. And there was a general level of uncertainty and chaos in the air, the likes of which
was not experienced in more than two decades
During beginning of 2021 Bangladesh RMG sector has begun to find some breathing space. Several things
have been in our favour. The first is the global vaccine rollout, which has led to the opening up of major
markets and the removal of lockdowns across the US and Europe. The second is the "bounce" we have
seen as shoppers return to shops and make up for lost time in purchasing clothing. Many are calling this
"revenge" spending. The last issue is that our rivals in Vietnam and China have had harsher lockdowns of
their textile industries than Bangladesh. This, combined with the fact that Myanmar—another competitor—
has had a military coup has led to brands and retailers placing more orders with us. In a world of uncertainty,
Bangladesh is seen as a "safe bet" right now for fashion retailers.
Throughout this past 18 months, Bangladesh's RMG industry has shown strength in adversity. The relative
stability of our political environment coupled with our pragmatic management of the pandemic—allowing
factories to remain largely open was a smart move by our industry leaders—means we are well placed to
capitalise on future opportunities.
But we must use this time to build resilience in our RMG sector and not let our hard-won gains go to waste.
To return to the point made at the beginning , none of us can be sure of what is around the corner. A
recession in 2022, which some forecasters are predicting, could quickly derail things.

Answer to the Question # 2 (c)

c)Planning for recovery and government support
To recover the business of RMG sector a long term planning is necessary by the government and the sector
leaders.
This can be done in three ways:
The first refers to the current situation we find ourselves in. RMG is picking up extra orders due to
complications in the supply chains of some of our competitors. We need to make these orders stick and
turn them into long-term business opportunities. We must see it as an important feather in our cap that
buyers have turned to us in their hour of need, at a time when all retailers are struggling to secure product
in the run up to the festive season.
All of us need to go above and beyond to illustrate that Bangladesh is a safe pair of hands—a true
thoroughbred when it comes to textile and garment sourcing.
The second issue relates to logistics. One thing we have seen in the past few months is how a few small
issues in terms of moving cargo about can soon mushroom into much larger ones. A problem in one part
of the world can spread like a virus, and supply chains can quickly become unstuck.
More than ever, we need to invest in our logistics infrastructure—our roads, our ports, our rail network—
to make moving product about slick and seamless. There is talk of a 10-fold increase in the global cost to
move a container from one part of the world to another this past 12-months. Nobody can live with this kind
of uncertainty long-term. China has been particularly hard hit, but these problems can strike anywhere.
 Finally, we must continue to lead on sustainability in line with the demands of buyers. The presence of
Bangladeshi representation at the 26th UN Climate Change Conference of the Parties (COP26) is critical
for our industry. Our buyers, more than ever, are turning to us for solutions to their emission challenges.
The environmental crisis will not be solved in the shiny stores of our buyers—for instance, the products in
the stores need to be manufactured back in Bangladesh using renewable energy. Government support is
essential for planning and making the sector complying with the different international guidelines and
compliance.

Answer to the Question # 3

Requirement: (a)
a)Analysis of strategic options proposed by the marketing director through ANSOFF matrix.
Ansoff matrix is as follows:
Market Existing Product New product
Existing market Internal efficiency and market penetration Product development
New market Market development Diversification

Internal efficiency and market penetration involve attempts to reduce cost or further penetrate existing
market taking market share from the competition. The outsourcing of some manufacturing was presumably
an attempt at increasing internal efficiency in order to match competitors through low cost manufacturing,
but this does not appear to have generated additional sales. Thus to have market penetration, it may be
better, marketing director suggests, to focus on differentiating itself from its competitors on a quality basis.
A marketing campaign aimed at emphsising the traditional English heritage might achieve this, although
the problems identified suggest that this approach may not be viable given the change in dining habits, the
narrow customer base and the credit crunch. Indeed given that FCL are operating in a niche market, their
market share of penetration may already be high and there may be little scope to increase this, unless they
can persuade customers to buy multiple dinner service for different occasions or increase penetration of
sales to hotels and restaurants through links with restaurant owners.
Hence, increased sales growth is likely to necessitate other strategies.
Product development involves selling new products to existing customers and normally require research
and development expenditure.
The introduction of Mr. Akbar’s the everyday designer tableware image could be said to represent product
development , although it is also possible to view this as simple an extension of the existing product range.
The fact that Rahman intents to introduce this by way of a joint venture. Would be deemed external
domestic development according to Lynch expansion matrix. This share some of the risk and may allow
Rahman to save marketing as it will enjoy additional publicity from the association of Mr. Akbar.
Alternatively as this product is not going to be targeted as existing customers, who are in the older age
range and may not associate with the celebrity chef, it could argued that it is a means of market
development.
Other possible product development opportunities include increased R& D to make innovations in patterns
and design; own brand ranges to large retail chain; giftware, and other associated items for dining.
Market development: Market development involves sellin existing products to new customers and involves
investment in marketing.
In this case the marketing director is proposing two elements of market development. One domestic
expansion in terms of targeting a new market of younger customers, and the other is overseas expansion in
the context of exporting to the SAARC market. According to Lynch this could be achieved organically or
through some form of J/V or licensing agreement. The fact that the marketing director is keen to emphasise
the English heritage may mean that use of a local partner is inappropriate.
Rahman could also consider overseas development of other market in the SAARC countries like India.
Diversification involves making new products for new markets. It can be vertical, horizontal, Far does not
appear to be considering diversification at this time Possible diversification opportunities include wider
ceramics manufacture for bathroom and kitchen. As they have no experience of this, it would be sensible
to use external development method as joint venture or acquisition method. It is possible to argue that J/V
with Melinda for tableware and younger market is possible for market development.
Requirement: (b)

b)Change Management issue:

Currently it appears that the Chairman has adopted a very authoritarian , centralized management structure,
with all the key decisions being taken at Board level. The structure of the business does not appear to have
changed despite growth.
The production director suggests that this has stifled innovation, and led to inflexibility and slow response
times. He also implies that the sales forecast produced centrally may have been inaccurate causing
problems of overstocking and at the same time outstanding orders. Decentralising involves granting greater
decision making power and autonomy to a wide range of manager with in the company.
Benefits of proposed change:
Increased speed to response to change in local markets and local condition
May facilitate supply change changes and hence improved customer service. Individual managers are likely
to have a better idea of customer requirements and can stock the products the customers actually require,
reducing level of incorrect inventory.
Local knowledge and expertise might improve quality of information and decision making and allow
production to be driven by demand.
Less rigid structure may foster a different culture and promote innovation regarding methods and designs.
This may help extend the product life cycle or attract a wider range of customers.
Would free up the Board to focus on strategic rather than operational decision making, therefore allowing
the Chairman and the other directors to address the declining profitability.
Increased responsibility may motivate more junior managers and create acareer path/on the job for senior
management.
Disadvantages:
Chairman and other directors may reluctant to relinquish control.
Lack of experience may lead managers to make incorrect decisions, exacerbating the issue of overstocking,
etc. May also lead to incongruent decisions if local managers have different objectives
Would not reduce lead timeas these area result of basing production inAsia.
Increased need for coordination and communication as decision mkers will be spread across the business.
Like to require training of junior managers, some of them may not want the added responsibility.

Requirement: (c)

c)Benchmarking issue:
By suggesting that FAR might use PCE experience , the production director is referring to the activity of
benchmarking .
Bench marking is identifying, understanding and adapting business best practices and processes to lead to
superior performance.
This can lead to changes which may improve productivity, reduce cost or increase competitive advantages.
In FAR case it appears that a key aim is to improve its supply chain in terms of responsiveness, reliability,
and relationship and hence improve customer satisfaction.
There are four bases of benchmarking:
• Internal- comparison within the business over time, or between business units
• Competitive- Coparisonwith other firms in the same industry/sector.
• Best of class/activity- best practicein a different industry
• Generic-against a conceptually similar process.
 When a company or its whole industry is performing badly or losing out to other industry , there is a case
for the wider perspective offered by best in class and generic benchmarking. This would i nvolve
identifying benchmarking partners.
The production director is thus correct that there may be lessons to learn from PCE’s experience in re
engeering their supply chain and this would be in the context of activity/best in class benchmarking.
The chairman is correct that PCE’s targets may not be appropriate for Far, but benchmarking is more than
just collecting data or setting targets. Far needs to identify thedrivers of good performance. So, comparison
with PCE might indicate the areas of the supply chain that Far need to focus on and may give FAR an
insight into the problems that were experienced by PCE in managing the change.

Requirement: (d)

d)Corporate governance and Non-executive director issue:

Corporate governance involves the set of rules which governs the structure and determines the
objectivesof a company ang regulate the relationship between a company’s management, its boardof
directors and its shareholders. It is not about the day to day management of operations or the formulation
of business strategy.
Key aspect of good corporate governace involve the transparency of corporate structure and operations;
the accountability of managers and board of directors to shareholders and corporate responsibility towards
employees, creditors, suppliers and local community.
Corporate governance code issued by IFAC and by BSEC sets out the requirements which Far currently
does not comply with:
• There should be separate chairman and CEO, whereas present chairman holding both roles.
• The board shoul consist of sufficient non-executive directors to prevent domination by the
executive director.
• Non-executive director should establish a remuneration committee to decide on directors’
remuneration and an audit committee to work with the external auditors. As there is no non executive
directors FAR does either of this currently.
As far is a listed company it must comply the code. A bigger issue may arise, as the institutional
shareholders are becoming increasingly unhappy with the situation. In addition NED can be a balance of
power in the board. They can help improve the efficiency and effectiveness of the decision making.

Answer to the Question # 4 (a)

The management may consider the following factors in evaluating a proposal to outsource its cleaning services:

Costs and benefits from outsourcing

• Fees charged by contractors
• Cost presently incurred by using its own staff
• Financial returns from transfer of assets to contractor (floor polishing machines, vacuum cleaners etc.)
• Potential redundancy costs of staff not transferred
• Costs of writing and agreeing suitable contracts and service level agreements
• Costs of monitoring compliance of contractors with service agreements
Risk from outsourcing
• Financial stability and robustness of the contractor
• Track record of contractor in delivering suitable service elsewhere
• Availability of controls over performance (e.g., whether staff will take instructions from hospital mangers,
performance indicators, regular meetings, legal redress mechanisms)
• Potential staff and media criticism of decision
• Extent of proof of link between hospital cleanliness and acquired indicators
• Extent of public hostility to outsourcing as a source of increased indicators
 • Will legal liability for negligence claim pass to the contractor or stay with the hospital?

Risk form continuing to provide cleaning in-house

• Operational risks from cleaners not being available (e.g., strike action)
• Employment risks of having own staff (e.g., claims for industrial injury, discrimination etc.)
• Rising wages and other employment costs
• Legal costs of negligence claims resulting from poor cleaning
• Potential fines for inadequate monitoring of staff (healthy and safety)

Risk environment and appetite

• Potential change in government policy resulting in contract penalties
• Extent of pressure on hospital to cut costs
• Management’s previous experience of outsourcing agreements
• Relative risks of other cost – cutting measures under consideration
• Degree of support management enjoys from influential stakeholders (e.g. media, government, doctors,
nurses)
• Potential personal consequences foe management of bad decision (e.g., personal liability, career impact,
stress of dealing with problems).

Answer to the Question # 4 (b)

Requirement: (i)
Scope of due diligence may among other cover the following issues:
Quality of the financial records: Review of accounting policies and practices of the organisation including
(i) revenue recognition, accounts receivables and related reserve accounting (ii) inventory and related
reserve accounting (iii) fixed assets capitalisation, depreciation etc.
Existence and quality of the assets: Physically verify and conform existence of all assets of the organisation
including leasehold assets, assess quality of assets and evaluate remaining life of assets of the organisation.
Verification of liabilities: Verification of short term and long term liabilities including debts and all
liabilities of the organisation.
Existence of any contingence liabilities which may crystallise on the predator (e.g. tax and pension
liabilities): Verification of contingence liabilities, guarantees, other liabilities, off balance sheet items.
Verify tax assessment status, tax liability of the organisation, comments, observations and claims of tax
authority. Verify long term liabilities towards employees of the organisation.
Quality of client: Review customer profile of the organisation. Assess quality of the clients of the
organisation.
Supplier relations: Evaluate relationship of the organisation with its suppliers and vendors.

Requirement: (ii)
Different valuation techniques and recommended valuation technique for BLPL
A number of valuation methods are available;
Price earnings ratio: The EPS of the target multiplied by PE of the predator (if a comparable business) or
of a well-run firm in the same industry as the target. This gives a guide to maximum value of the target.
Present share price of the target: This would be the minimum price that shareholders could be expected to
accept. Shareholders expect a bid premium on top of this.
Accounting rate of return: Under this valuation method, the company is valued by estimating future profits
over return on capital.
Value of net assets: This is another minimum value but may be relevant if the firm has significant assets
(e.g. mineral extraction firms) or if break-up of an underperforming group is contemplated.
Dividend yield: Dividend yield of an organisation gives a guide to the investment value of the share.
Discounted cash flows: If cash flows are generated by the acquisition, a suitable discount rate (e.g. the
acquirer’s cost of capital) should be applied.

Recommended valuation method for BLPL.

BLPL is private limited family owned composite leather manufacturing facility. BLPL is established as a
leading leather manufacturing facility and maintained a good customer portfolio with top buyers in the
world. BLPL has additional unused land with possibilities of future expansion. The following valuation
methods may be appropriate for BLPL:

Price earnings ratio (PE): BLPL is an unlisted company so listed comparable will not be available.
However, as BLPL is a well-run firm and Bangladesh has many export oriented composite leather
manufacturing facilities, suitable comparable will be available in the same industry and a PE multiple can
be used for valuation of BLPL.

Accounting rate of return: As BLPL is a well-run company and history of past good business performance,
future performance of BLPL can be estimated. As such accounting rate of return method can be used as a
method for valuation of BLPL.

Value of net assets: Fair value of net assets of BLPL can be used as method of valuation of BLPL.

Discounted cash flows (DCF): Discounted cash flow method can be used for BLPL. Future cash flows of
BLPL will be possible to forecast and therefore DCF will be a suitable valuation method for BLPL.
Answer to the Question # 5 (a)

Date:

To: Ms Zaara Mahjabin, Managing Director, Torrecid Lamination Limited

From:

Subject: Proposed business plan

The planning processes

The planning process broadly covers:
• Creation
• Implementation
• Review

Creating the business plan involves a position analysis for TCL which would include the following:
• Torrecid Lamination Limited’s mission, which could be changed to include civilian private sector
markets.
• Shareholder analysis, which would highlight the anxiety of staff and the need to return TCL to
profit.
• Internal strengths and weaknesses of DCL such as high product quality. The critical success factors
are mentioned below.
• External pressures and future events, including rivalry, political changes, new technology, and
economic forecasts.

Implementing the plan

Implementing the plan involves two seps.
• Setting objectives that are measurable, specific and realistic. Targets are needed which to aim, but
these will presumably include sales and profit measures, as well as cash flow. In addition, it is suggested
to consider qualitative targets such as customer satisfaction and product quality.
• Deciding on a strategy. This is up to the company, although, it will involve debt factoring. It would
be helpful to have a unique proposition of put to NAM Financial Services Limited (NAM) and it is
imagined sales and language expertise must be part of the team. An implementation timetable would be
required to set.

Reviewing the plan

Reviewing the plan means assessing three factors.
• Is the plan consistent? Does the plan fit in with the position analysis that have been done?
• Is the plan sufficient? Does it meet the objectives previously set?
• Is the plan feasible? Do the company possess the resources necessary to implement the plan?
It would be sensible for the review to be done independently. Perhaps, by Sartaj Islam.
Critical success factors
Success may depend on six factors
(1) TCL’s ability to adapt to new markets. This should be possible, given that TCL has high quality
flexible production facilities. If TCL can make any type of glass in any size, then TCL should penetrate
new markets.
 (2) Finding new customers in the non-defence sector. TCL’s brand name counts for very little and
potential customers must be convinced that TCL is serious. TCL’s ability to meet their exact requirements
will evidence this, but TCL will have to diversify to a new customer base or face closure.
(3) Providing top quality and specific solutions. Each customer is a new challenge and, if TCL wants
to compete with other niche rivals, TCL must offer excellent quality and innovation TCL will also have to
ensure that they have high standard product testing facilities.
(4) Retention of key employees as TCL’s rivals perceive a threat and try to poach them.
(5) TCL’s willingness to tackle overseas markets. If TCL are to be successful, it needs to be prepared
to travel, employ interpreters and take some risks in unknown markets.
(6) Bad debt and foreign exchange risks. If TCL achieves overseas sales, it will be exposed to these
risks, but NAM financial services may provide some stability and credit insurance for a free.

Answer to the Question # 5 (b)

For an organisation to be innovative, and continually responsive to the need for a change, a systematic
approach should be established, for planning and implementing changes. The plan for the change needs to
be communicated. Communication of a change process is a continuous process. An organisation can
communicate change process among the stakeholders in the following way:

What they How to

Stakeholder Their needs
want to know communicate
That there is well thought- • The press
Shareholders Reassurance through strategy. How the • Financial statements
strategy will benefit them • AGM
• Website
What is happening, the
The press A good story rationale, and whether the Briefings
changes are under control
Meetings face-to-face
Suppliers Information How the changes will affect with major suppliers.
their working relationship Letters/e-mail to small
suppliers
Customers Motivation That the service will continue The press
uninterrupted advertisements
How they will be involved and
Senior Acknowledgement opportunities in the new One-to-one meetings
Managers and involvement structure. Reassurance over
employment positions
Staff Help to adapt Training and support job • Briefings
security • One-to-one meeting
with line manager
Line Managers Involvement Opportunities to be involved and • Briefings
opportunities to learn • One-to-one meeting
with senior
manager/HR

Answer to the Question # 5 (c)

Business risk is the exposure a company or organization has to factor(s) that will lower its profits or lead it to
fail. Anything that threatens a company's ability to achieve its financial goals is considered a business risk.
There are many factors that can converge to create business risk.
Ultimately, all business risks will be reflected in financial risk. For the purpose of managing risk it helps to
break risks into their origins.

Business risk is the variability of returns due to how a business trades or operates, its exposure to markets,
competitors, exchange rates etc. This business risk itself can be sub-analysed into:

Strategic risk: Risk associated with the long-term strategic objectives of the business, potential variability of
business returns arising as a result of the company strategy and its strategic position with respect to competitors,
customers, reputation, legal or regulatory change, political change. Strategic risk also encompasses knowledge
management, ie the effective management and control of the knowledge resources including key personnel,
intellectual property and production.

Operational risk: Variability arising from the effectiveness of how the business is managed and controlled on
a day to day basis, the accuracy and effectiveness of its information/accounting systems, its reporting systems
and its management and control structures. Operational risk also encompasses compliance with issues such as
health and safety, consumer protection, data protection etc.

Hazard risk: The exposure a business may have to natural events and their impacts, the actions of employees,
the consequences of accidents etc., be it on the business, its trading partners or customers.

Financial risk: Financial risk is the risk arising as a result of how the business is financed – its level of gearing
or leverage, its exposure to credit, interest rates and exchange rates, liquidity risks, Financial risk tends to
amplify the inherent business risk at low levels of gearing, and it higher levels may directly contribute to the
risk of business failure. Interest and exchange rates, taxes, and the state of the economy will bear more heavily
on firms with operations limited to one country than they will upon a transnational operator.

Compliance risk: Compliance risk is the risk arising from non-compliance with laws or regulations. This
incudes, breach of laws/regulations by the company, or breaches by a stakeholder. Which may have
consequence for the company. It may relate to financial laws/regulations or to non-financial laws/regulations.

Internal risk: Internal risk are risks arising from factors internal to the company, factors that the company can
exercise complete control whether it does or not.

External risk: External risks arising from factors outside of the control of the business, factors outside of the
control of the business, factors that the company may be subject to but that it has no influence over, e.g. natural
disaster.

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