Question

PROJECT DETAILS

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.

QUESTION 2 (32 MARKS)

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. (12 marks)

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, . 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. (8 marks)

c) For two of the identified risks, what risk response alternatives do you believe are most appropriate with respect to this opportunity? Justify your choice. (4 marks) Performance

d) What type of capacity strategy would be most appropriate for this new line? Justify your choice. (2 marks)

e) What ethical considerations should EFI evaluate before making the decision to outsource to the village in Jiangsu Province? (6 marks)