question archive Exclusive Fognini Inc
Exclusive Fognini Inc
Subject:ManagementPrice:4.87 Bought7
Exclusive Fognini Inc. (EFI) is a family-owned business specializing in high-end customized skis. Giulio, a remarkable engineer, is the majority shareholder and president of the company. The balance of shares is owned by three family members. Giulio founded the business 15 years ago. His wife, Haley, was a professional skier at the time, and she attributed the gold medals she won to the highly innovative skis her husband had built for her. The market for high-end, customized skis presented an unmet demand, and Giulio took advantage of that opportunity. Operating just outside of Vancouver, EFI produced strong sales numbers even within the first year. The skis were priced to sell at a large premium, and the company made significant investments (initial and ongoing) in research and development. EFI turned a profit in its third year and has achieved strong results since that time. The company's controller is a young CPA who joined EFI soon after receiving her designation and has grown with the company. Financial statements are prepared in accordance with ASPE and are reviewed by JK&L CPAs, a three-partner CPA firm in Vancouver.
EFI does not invest in advertising but relies instead on word-of-mouth referrals. Giulio offers his wealthy clientele not only highly customized skis with a guaranteed exclusive design, but also the highest quality available on the market. In addition, microchips are embedded in each ski to make them easy to locate in case of loss or theft. The company offers a unique level of personalization and free maintenance at the beginning of each ski season; this has won over many prospective clients. Giulio's brother, Antonio, took on the responsibility for the maintenance service and has kept customers happy over the years
Giulio's brother-in-law, Marcus, is an EFI shareholder and the ski instructor of choice for wealthy skiers in Whistler, B.C.; and Aspen and Vail, Colorado. Marcus has spent his career as a ski patroller, medic, and instructor. He devotes a few days to each client or group of clients and travels between the three resorts as frequently as required, all while promoting EFI skis to his clientele. Each December, Giulio and Haley travel to the famous ski resorts of Europe, where they introduce new designs to powerful sponsors and selected clientele. The couple invites those clients who purchased new skis or recommended the new skis to a buying customer to an annual spring skiing event in Whistler, which is sponsored by EFI. The event provides EFI's customers with an opportunity to show off their prized possessions — the exclusive skis — and to enter into new business relationships, all while enjoying the outstanding Whistler-Blackcomb ski terrain and upscale hospitality
In recent years, EFI has continued to achieve strong and stable sales levels, but the growth rate has slowed. Giulio has begun to look for ways to expand the business and take advantage of new opportunities. Giulio's ultimate goal is to take EFI public in a few years, after which he wants to stay with the company for a few more years before retiring. Performan
Given his goal to take the company public, Giulio has started looking at the changes he should make to EFI's governance structure. Currently, the board comprises the following members:
• Giulio, as chair
• Haley
• Marcus
• Giulio's father, Arrigo Arrigo owns 10% of EFI but is not involved in day-to-day operations. He is a wealthy retired businessman who immigrated to Canada as a young adult. He had been a farmer and cheese maker in Italy and was disappointed with the lack of variety in Canadian cheeses, so he began an importing company to bring European cheeses and other specialty foods to Canada.
The board meets twice per year, and board meetings are combined with other family events. One meeting is held to review and approve the year-end financial statements, and the other meeting is a spring planning session. The board members are in frequent contact, so board meetings do not require a formal agenda. There are no board committees at this point, as the board is small enough to make all decisions efficiently as they arise
As one option for growth, Giulio's daughter, Lucia, who specializes in accessories design, has proposed that the company diversify into silk and leather ski masks and gloves, which would follow EFI's tradition of exclusive design, high quality, and personalization. The accessories would carry a high unit cost, but Lucia sees launching the new products as an indirect but excellent investment in advertising for the core of the business, the skis.
Lucia has recently returned from touring in China. As part of her travels, she visited a small village in Jiangsu Province, where she was amazed by the local women's silk production. She has suggested to the EFI board that, if the accessory line is determined to be a good opportunity to pursue, she would like to have women from the village produce the silk accessories. Lucia would design the accessories, incorporating the village's style, and the village would organize the women's efforts by building a small production facility. The project would help provide a more stable income and higher standard of living in the village.
Required: a) Using the PESTEL framework, identify at least two potential risks for each PESTEL element related to the accessories line.
b) For two of the identified risks, what risk response alternatives do you believe are most appropriate with respect to this opportunity? Justify your choice.
c) What type of capacity strategy would be most appropriate for this new line? Justify your choice.
d) What ethical considerations should EFI evaluate before making the decision to outsource to the village in Jiangsu Province?
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Answers:
a) POLITICAL FACTORS:
1. Political stability:The country in which the business is operating should be stable so that there is stable and friendly business environment. In order to launch a new accessory line there should be proper stability in country and the company.
2. Changing policies: There may be any change in the policies that are prevailing in the country. The policy changed can have the two effects on the accessory line. One, it becomes easy operate and second, it becomes difficult to work in new accessory line.
ECONOMIC FACTORS:
1. Inflation: If there is already inflation in the economy that means the company is facing increased prices then it will difficult for the organization to continue in that accessory line. If still the company continue but there is lack of demand, then the consumers also not buy the same.
2. Labor market conditions: As the new accessory line is coming from the small village in china. The labor is involved in the same. The labor market conditions such as wage rate, etc. should in control of the organization i.e. they are able to fulfill it but in case they are beyond the control then it is risk for new accessory as company has full right neglect the new line of accessory.
SOCIAL FACTORS:
1. Demographic trends: The demographic trends are the features of the population i.e. the age groups, etc. these trends also affect the success of the new product as this will show that there is need of that new product or not. The customers will prefer using the same or not.
2. Societal norms and class distribution: There are norms in the society regarding different things which shows the acceptance of product in the society. The society should accept the product and there may be chances arise when the acceptance to the product is not given.
TECHNOLOGICAL FACTORS:
1. Social media marketing: The social media marketing also plays a important role in the success of any product but in case the company not indulge in the social media marketing then it may create risk for the organization.
2. Shortened product life cycle: The development of the product requires time which should be short so that immediate demand is fulfilled but if the life cycle of the product has prolonged period then in that case there is risk for the new accessory line.
ENVIRONMENTAL FACTORS:
1. Renewable technologies: If the company is using renewable technology then the people will like but if in production of new accessory line there is no use of non-renewable technologies then the risk arises.
2. Attitude towards eco-friendly products:The people have positive attitude towards the products which are eco friendly in nature. The attitude is converted into negative when the products are harming the nature. In this new development one should know that what is the effect on the economy.
LEGAL FACTORS:
1. Intellectual property laws: The intellectual property laws protect the company's patents and copyrights. The company should ensure that for new accessory line there is full protection given by the company under law but in case the protection is not given under the law then in that case the risk arises.
2. Employee protection laws: There should be laws for the protection of the employees. The employee should feel happy and safe while working for the organization but in case the organization is unable provide protection then the risk arises.
b) For two of the identified risks, what risk response alternatives do you believe are most appropriate with respect to this opportunity? Justify your choice.
Ans: For the risk arises due to social media marketing the company should form the proper channels and resources through which there is social media marketing in order to aware the consumers about the new product.
The other identified risk is of employee protection laws. The organization should ensure that there is fulfillment of employee protection laws in order to safeguard the employees so that they will work hard for the organization while remaining happy.
I had chosen these two risks as the company has to deal with these two people i.e. employees and consumers.
c) What type of capacity strategy would be most appropriate for this new line? Justify your choice.
Ans: For this new line of product the capacity strategy is met as by knowing the balance between demand and supply. If there is more demand the supply should be increased and if the demand is less the supply should be decreased.
The company should use lead strategy for the situation when there is more demand.
d) What ethical considerations should EFI evaluate before making the decision to outsource to the village in Jiangsu Province?
Ans: The following are the ethical considerations that should evaluated by EVI:
1. The company capacity to produce that product.
2. The outsourcing agency is trustable or not.
3. Is there availability of same work in the country in which they are working.
4. The cordial relations with other countries.
