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 past 15 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 partly 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.

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 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, using

local silkworms. 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.

a) Using the PESTEL framework, identify at least two potential risks for each PESTEL

element related to the accessories line.

b) List four of the risks you identified in part a) and label them 1 through 4. Plot these

four risks on a risk matrix, as discussed in Topic 4.2-3. Your "heat map" should show

each of the numbers 1 to 4 in their appropriate matrix box. Explain your rationale for

each placement on the matrix by explaining your estimate of probability of

occurrence and extent of impact. You can select more than one risk from the same

PESTEL element.

c) For two of the identified risks in part (b), what risk response alternatives do you believe are most appropriate with respect to this opportunity? Justify your choice.

d) What type of capacity strategy would be most appropriate for this new line? Justify your choice.

e) What ethical considerations should EFI evaluate before making the decision to outsource to the village in Jiangsu Province?