Tanzanian subsidiary Following Homonate Travels desire to expand into other industries and other countries the company has established a subsidiary in the African country of Tanzania.

The subsidiary manufactures and distributes various hotel toiletries and personal care items such as shampoo, soap, shower gel, body lotion, shower caps and related products. The products will be produced and sold to hotels and lodges in Tanzania and other countries in Africa.

The Tanzanian government insists on local employment for all companies based in Tanzania, therefore Homonate will have to use local employees, and they are not sure of how competent they are. The products will mostly be manufactured with raw materials that are sourced and purchased from large South African suppliers. A payment for the raw materials will be made in the home currency of Tanzania (shilling) and Homonate Travels accountant is concerned about the high level of inflation in Tanzania and the consequent impact on future payments. He is particularly worried because it has been stated that the subsidiary has agreed to buy raw materials in large quantities with fewer shipments and therefore each payment will be for a high value. Profits from the subsidiary will be remitted to Homonate Travel on request and in accordance with any Tanzanian exchange control regulations.

The Tanzanian factory was developed with a government-owned joint venture partner. All new foreign companies entering Tanzania are required to establish joint ventures in this way.

The factory has just started selling its output to hotels in Tanzania, but sales volumes are low. Export sales to other countries such as Namibia and Botswana have not yet commenced and forecasts for future export sales have yet to be produced. These countries including Tanzania have high inflation levels.

The Tanzanian sales staff is concerned that the shortfall in sales will have an adverse impact on their bonuses because they are not meeting their targets. Tanzanian sales staff is reluctant to offer discounts to promote sales and reduce the excessive inventory. Their bonuses, which make up the majority of their remuneration packages, are based on average profit per unit sold.. The accountant has raised his concerns that employees may try to unethically manipulate transactions or collude with employees in the finance department.

REQUIRED: a) Identify and evaluate FIVE risks affecting Homonate Travels new Tanzanian subsidiary. (15)

b) Discuss the safeguards that should exist within any company to prevent the unethical manipulation of transactions. (You should refer to examples from the information above in your answer 1 mark per point.