You have recently joined Dre$$ense as a senior finance manager reporting to the Finance Director. Dre$$ense is a large clothes retailer in Euland a major developed country where the currency is $. Stores sell a wide range of clothing to the people living in Euland, and the underlying aim is to sell fashionable clothes at the lowest possible prices. Dre$$ense obtains most of its clothes from suppliers in developing countries. A factory belonging to Fabrykate, one of Dre$$enses suppliers, recently collapsed killing or injuring a large number of people. The Finance Director has several tasks she wants you to help her with and set up a number of meetings with key members of staff which were held last week. Requirements are as follows: 1. The board will also be discussing Dre$$enses relationship with its stakeholders and how this could influence the companys strategy. Required: Analyses the stakeholder claims of Dre$$enses customers, suppliers and pressure groups such as IWCN and explain how these may be in conflict. 2. The Finance Director has asked you to prepare a presentation and some briefing notes for a forthcoming professional development session for the Board. Following the recent events in Deeburgh one of the topics covered in the training will be corruption. The other topic will be risk. The Finance Directors believes that the major risks facing Dre$$ense are market risk, financial risk (liquidity and gearing), and international political risk. Required:(a) In preparation for the presentation, prepare THREE slides with accompanying notes, explaining each of the risks identified by the Finance Director, and how each may be of importance to Dre$$enses shareholders . (b) Prepare a briefing note which explains how corruption undermines stakeholder confidence in general and discusses how corruption at Fabrykate contributed to the collapse of the building and the loss of life. 3. Dre$$ense has successfully followed a cost leadership strategy without having created an on-line store. The Board are now considering whether they should develop their E-business strategy through an online store, and are looking to you to explain the key features of an E-business strategy and whether this is something Dre$$ense should consider. Required: Prepare a report which includes the following: (a) An explanation of what is meant by an E-business strategy and a brief outline of the processes most likely to be affected by such a strategy. (b) An explanation of the e-marketing principles of interactivity, intelligence, individualisation and independence of location and how these might be applied to Dre$$ense. . Exhibit 1 Company background and analysis Dre$$enses business strategy is based around vigorous cost leadership and it prides itself on selling fashionable garments for men, women and children at the lowest prices compared to its main rivals. For most fashion retailers, e-commerce plays a key role in fulfilling customer demands. However, Dre$$ense has achieved its success despite not having an online store. The lack of an online store does not mean that Dre$$ense does not have an online presence.Dre$$ense has generated an active online following, in which customers share photos and images of their recent purchases via social media. Dre$$ense recently announced that it is opening five new stores, and the Finance Director said 'Despite the fact that the economy in Euland is still relatively weak, customers recognise the value for money which Dre$$ense offers, and we expect to see like-for-like sales continuing to increase over the next year.' However, the company warned that the rising costs of key raw materials - such as cotton - and the relatively weak value of Euland's currency could reduce profit margins, as could the increase in the minimum wage in Euland which the government is expected to announce in its next budget. Many of the retail assistants who work in Dre$$ense's stores are paid the minimum wage. One of the contributory factors to the rising cost of cotton, a popular clothing material for customers of Dre$$ense and other retailers and their suppliers, is the sustainable cotton movement championed by environmentalists across the globe. Whilst cotton is the most profitable non-food crop in the world employing 7% of the labour force in developing countries, the water used in the production of just one cotton t-shirt, would be enough to sustain a person for nearly 3 years. The company would not comment on whether its prices would increase during the coming year, but most analysts think this is likely. As one analyst noted, 'Ensuring product ranges remain fashionable will be vital for retaining sales, because the cost increases are likely to affect all retailers, putting pressure on their margins.' Exhibit 2 - Briefing note given to you by Dre$$enses Procurement Director during your meeting with him. Dre$$enses business strategy is based on cost leadership through carefully sourcing men, womens and childrens fashion from carefully chosen suppliers to fit in with our cost leadership aim. Gross margins are currently 12% as compared to most of our competitors who have margins around 20%, so it is essential that we keep our costs low. Sources tend to be from suppliers in developing countries where labour cost are cheaper than in Euland. For the last few years, 65% of supplies have come from Deeburgh, a relatively poor developing country known for its low labour costs and weak regulatory controls. There are a number of issues raised by our supply chain in Deeburgh. For instance we are aware that Deeburgh has a reputation for corruption, including government officials, but on the plus side, its workforce is known to be hard-working and reliable. Most employees in Deeburghs garment industry are employed on zero hours contracts, meaning that they are employed by the hour as they are needed and released with no pay when demand from customers including Dre$$ense is lower. Deeburgh is in a part of the world where there is a physical and economic water scarcity. Physical water scarcity is where there are inadequate natural water resources to meet a regions domestic, industrial, agricultural and environmental demands, and economic water scarcity is where a country is unable to provide water in an accessible manner. The increase in economic activity and agriculture are contributing to the physical scarcity, and the lack of investment in essential infrastructure or technology to draw water from rivers, aquifers or other water sources is failing to tackle the economic scarcity. The population in Deeburgh are included in the one quarter of the world's population affected by economic water scarcity. Communities are often left without reliable access to water and sometimes have to travel long distances to fetch water that is often contaminated from rivers for domestic and agricultural uses. The government are reluctantly addressing the economic water scarcity issues and are planning on increasing taxation to help fund the investment. The majority of Dre$$enses purchases from Deeburgh are from Fabrykate Company, a longstanding supplier to Dre$$ense owned by the Fabbio family. You may have heard about the recent problems Fabrykate have had with one of their factories. Partly in response to recent events and also because the Government appear to be responding to demands for improved water supply infrastructure and improved worker conditions, Fabrykate have announced that they will be asking for a 5%-8% price increase, when it comes to the new contract which will be discussed in the next few months. We must resist this robustly, so that we can continue to achieve the margins our shareholders wish to see. Exhibit 3 - Press article following the accident at Fabrykates factory. 1000S KILLED AND INJURED AT FABRYKATE NEW FACTORY WHO IS TO BLAME? The collapse of one of Fabrykates newest factories killed over a 1,000 people and injured more than twice that many. This was only five months after, at least 100 workers had lost their lives in another tragic accident, trapped inside the burning fashion factory on the outskirts of Havara. These disasters, among the worst industrial accidents on record, awoke the world to the poor labour conditions faced by workers in the ready-made garment sector in places like Deeburgh. We MUST ask ourselves how this latest example come about! What do we now know? Fabrykate outgrew its original premises, largely due to contracts from big companies such as Dre$$ense, and wished to build a new manufacturing facility in Deeburgh for which permission from the local government authority was required. It has become clear that in order to gain the best location for the new factory and to hasten the planning process, the Fabbio family paid a substantial bribe to local government officials. Why, we might wonder, did the Fabbio family feel the need to resort to bribery? Did the Fabbio family feel under so much pressure from companies such as Dre$$ense to keep their prices low that they sought to reduce overall expenditure including capital investments? Perfect conditions! Because the enforcement of building regulations was weak in Deeburgh, the officials responsible for building quality enforcement were bribed to provide a weak level of inspection when construction began, thereby allowing the family to avoid the normal Deeburgh building regulations. In order to save costs, inferior building materials were used which would result in a lower total capital outlay as well as a faster completion time. In order to maximise usable floor space, the brothers were also able to have the new building completed without the necessary number of escape doors or staff facilities. In each case, bribes were paid to officials to achieve the outcomes the Fabbio family wanted. Once manufacturing began in the new building, high demand from Dre$$ense meant that Fabrykate was able to increase employment in the facility. Although, according to Deeburgh building regulations, the floor area could legally accommodate a maximum of 500 employees, over 1,500 were often working in the building in order to fulfil orders from overseas customers including Dre$$ense. The result: After only two years of normal operation, the new Fabrykate building collapsed with the loss of over 1,000 lives. Collapsing slowly at first, the number of people killed or injured was made much worse by the shortage of escape exits and the large number of people in the building. As news of the tragedy was broadcast around the world, commentators reported that the weakness in the building was due to the Wests obsession with cheap clothes. Dre$$ense was criticised as being part of the cause, with many saying that if retailers in the developed world pushed too hard for low prices, this (the collapse of the building) was one consequence of that. In response, Dre$$enses public relations department said that it entered into legal contracts with Fabrykate in order to provide its customers with exceptional value for money. Dre$$ense said that it was appalled and disgusted that Fabrykate had acted corruptly and that the Dre$$ense board was completely unaware of the weaknesses and safety breaches in the collapsed building. Who is to blame? One of those able to escape the building was Mai Zum, who was also the leader of a national pressure group Improve workers conditions now! (IWCN) lobbying the Deeburgh government for better working conditions and health and safety practices for workers in the country. Having seen hundreds of people killed and injured in the collapsed building, she believed that although the government could do more, much of the blame lay with Dre$$ense and the pressure it continually placed on Fabrykate to keep its prices low. Mai questioned whether multinational companies such as Dre$$ense should be allowed to exert so much economic pressure on companies based in developing countries. As concern over the state of other workplaces in the developing world became an increasing concern in the media, Miss Zum wrote a letter to the board of Dre$$ense, which she also sent to newspapers and other media both in Deeburgh and Euland. Many of the newspapers and television channels in both countries reproduced the letter and it became a talking point in many countries because of the issues it raised. In the letter, she said that Dre$$ense was an unethical company because it supplied a market in its home country which was obsessed with cheap clothes. As long as its customers bought clothes for a cheap price, she believed that no-one at Dre$$ense cared about how they were produced. She said that the constant pressure on prices had created a culture of exploitative wages, including at Fabrykate. Miss Zum received a lot of support after her comments on Dre$$enses accountability. She said that large international companies such as Dre$$ense needed to recognise they had accountabilities to many beyond their shareholders and they also had a wider fiduciary duty in the public interest. The defective Fabrykate factory in Deeburgh, she argued, would not have existed without demand from Dre$$ense, and so Dre$$ense had to recognise that it should account for its actions and recognise its fiduciary duties to its supply chain as well as its shareholders. We asked Dre$$ense for a comment, but the company would only state that it had entered into legal contracts with Fabrykate in order to provide its customers with exceptional value for money, and that all at Dre$$ense were appalled and disgusted at the corrupt behavior of the Fabrykate board.