Financial appraisal of proposed subsidiary in Nigeria
As funds will be remitted to the parent company at end of each year, an appropriate approach to appraising the project is to –

• Forecast foreign currency cash flows.
• Forecast exchange rates.
• Convert foreign currency cash flows to home currency cash flows using spot or forecast exchange rates as appropriate at the end of the year.
• Discount home currency cash flows at the parent company’s domestic cost of capital to obtain project NPV in home currency.
  

• Improving corporate image/reputation/brand loyalty – Strong ethical principles that go beyond upholding the law can add value to Apusco in terms of improving its brand. Failure to act ethically can cause social, economic and environmental damage and undermine Apusco’s long-term survival. Being such a large, multinational organisation, Apusco’s ability to demonstrate strong ethical principles across its whole organisation will help to sustain its future viability. Ethics must be embedded in its business models, organisational strategy and decision making processes.
• Often organisations which adopt strong ethical approaches will also see an improvement in profitability. Although this may not be the main driver for Apusco, it is a consideration in a highly competitive global marketplace.
• By having a range of suppliers which Apusco has trained in its ethical ways of operating, it is investing in the future and can work with them on repeated projects globally. This will tie these suppliers into Apusco and provide a stable working relationship which will deliver cost savings in the long-term. This is a complete contrast to many companies which operate a short term focus and change suppliers regularly or which are let down by non-delivery or poor performance of its sub-contractors. Apusco should not experience these problems and should gain a better reputation with its customers for on time delivery and good quality of work. All suppliers (services and products, such as building materials) will be at the standard that Apusco expects and requires as it has established a good working relationship with the companies it works with. Also, by being ethically responsible, Apusco can reduce its cost by avoiding fines and law suits as well as payment of compensations which are associated with being ethically irresponsible.
• The ethical tone has to come from the top of the organisation. Therefore, it is at a strategic level that the ethical tone is set. The senior managers and business leaders of Apusco must demonstrate an ethical approach by example. This will show that middle and junior managers will be rewarded for taking an ethical stance and create the appropriate organisational culture.
• Apusco places high regard towards ethical and sustainable business practices which appear to be clearly communicated to staff and suppliers and by communicating its positive actions this should assist in achieving its overall business objectives.

Below are the objectives Events Tech seeks to achieve by establishing an internal audit department

• Review of the accounting and internal control systems. The establishment of adequate accounting and internal control systems is a responsibility of management and the directors. Internal audit is often assigned specific responsibility for the following tasks.
   Reviewing the design of the systems
   Monitoring the operation of the systems by risk assessment and detailed testing
   Recommending cost effective improvements
  Review will cover both financial and non-financial controls using the COSO Framework.
• Examination of financial and operating information. This may include review of the means used to identify, measure, classify and report such information and specific enquiry into individual items including detailed testing of transactions, balances and procedures.
• Review of the economy, efficiency and effectiveness of operations (value for money audit).
• Review of compliance with laws, regulations and other external requirements and with internal policies and directives and other requirements including appropriate authorization of transactions
• Review of safeguarding of assets
• Review of the implementation of corporate objectives. This includes review of the effectiveness of planning, the relevance of standards and policies, the company’s corporate governance procedures and the operation of specific procedures such as communication of information.
• Identification of significant business and financial risks, monitoring the organisation’s overall risk management policy to ensure it operates effectively, and monitoring the risk management strategies to ensure they continue to operate effectively.
• Special investigations into particular areas, for example suspected fraud.

Strategic Advantages

• One of Azugu’s strategic aims is making gyms more accessible to people and to open more gyms in Ghana. East Legon Gyms will help satisfy this aim and is an opportunity for Azugu to achieve growth in gym numbers.
• Synergies are possible whereby Azugu and East Legon Executive Fitness Club reduce their aggregated costs by operating together as one bigger organisation. For example, they may utilize bulk buying discounts or obtain more favourable financing deals as part of a bigger operating unit.
• Also, by sharing ideas and expertise, both elements of the business may find more effective ways of working.
• It also appears that this particular acquisition may be cost-effective as East Legon Executive Fitness Club can be obtained “at a very good price”.
• Location advantage may also accrue to Azugu considering the fact that East Legon Executive Fitness Club is located in a very prime area. This may not be easily acquired by Azugu through organic growth.
• Economies of scale by means of equipment purchases and other services sought by the combination of the two organisations.
  Strategic challenges
• The acquisition of East Legon Gyms is a new type of venture to Azugu. To date Azugu has achieved growth purely organically. It does not have experience of acquisitions and may need to obtain professional advice.
• Any acquisition process can be a concern for staff of Azugu. Unlike organic growth, an acquisition leads to uncertainty and fear, particularly at the target company, and if staff leave as a result, the target can become less valuable.
• Integration problems – Differences in organisational culture may not be easy to manage. Through organic growth Azugu can roll out their desired company culture as they proceed. This will be more challenging when acquiring East Legon Gyms and we will have to decide whether we want to change the culture at East Legon Gyms to bring it in line with our Azugu culture.

• East Legon Gyms staff will need to be reassured, perhaps face-to-face, that Azugu value and intend to keep the luxury, highly staffed approach. Communication should focus on educating staff about the impacts of the change and dispel rumours.
• Azugu may want to back up face-to-face meetings with good quality, regular and transparent electronic communications by email or an intranet to keep staff informed of the process and their part in it.
• Another way of ensuring staff remain loyal and motivated is to involve them in the process. Letting them have their say and giving them roles within the acquisition project will help them to feel part of the new organisation and reassure them they have a future post-acquisition.
• Removing uncertainty through timely and appropriate information exchange is key to preventing staff from searching for alternative employment through fear of their own position within the organisation. Reassuring staff of their long term role by sharing ideas and plans will reduce concerns and may lead to the generation of new and useful ideas that smooth the course of the change.

• The multiple stakeholder obligations stance is that many groups have a stake in what the organisation does.
• This is particularly important in the business context, where shareholders own the business but employees, customers and government also have particularly strong claims to having their interest considered. It is suggested that modern corporations are so powerful, socially, economically and politically, that unrestrained use of their power will inevitably damage other people’s rights.
• Under this approach, the exercise of corporate social responsibility constrains the corporation to act all times as good citizen. Particular emphasis is laid on the preservation of employment and protection of the environment.
• Stakeholder stance posits that the essence of business primarily lies in building relationships and creating value for all its stakeholders. Though the composition of stakeholders may differ depending on company’s industry and business model, the main stakeholders typically include employees, customers, communities, suppliers, and financiers (owners, investors). All these stakeholders are equally important for the company and any trade-off among the stakeholders should be avoided.
• Performance should not be measured simply through the financial bottom line. Long term survival is dependent on social and environmental performance as well as economic (financial) performance, and therefore it is important to take account of the views of stakeholders with interests relating to social and environmental matters.
  NOTE: The following points can also be considered as significance of the CSR stance taken by the Board:.
• Redeem company’s image through damage control.
• Reliable source of supply of inputs to ensure continuity of operations.
• Reduce labour turnover and improve service quality to customers.
• Avoid legal suits and associated costs.

Inadequate corporate governance systems

• It is a requirement of good corporate governance that the board of directors should review the effectiveness of the system of internal control (either financial control only or financial, operational and compliance control) and risk management. However, it is quite probable that, in some banks at least, the systems of control were inadequate for their purpose. Perhaps because of the complexity of many aspects of banking, the board of directors might not have had the knowledge or understanding to carry out a sufficient review, with the result that banks were exposed to excessive uncontrolled risk. It would certainly appear that not all banks were fully aware of the business risks that they were taking.
• It is possible that some banks were led by dominant chief executives, board chairpersons and/o majority shareholders, and that the non-executive directors did not act sufficiently well as a counter-balance to the power and influence of the dominant individual or group of individuals.
• Lack of supervisory effectiveness on the part of non-executive directors. A consequence may have been that some banks pursued high-risk strategies without sufficient challenge from the NEDs. This also raises the question about how effective the annual performance evaluations of the NEDs were, and the assessment of what they were contributing to the board and it’s decision-making.
• Transparency in financial reporting and other reporting is another aspect of good corporate governance. The financial statements of major banks are complex and difficult to understand even for many experienced investors. The lack of clarity and transparency in financial reporting may possibly have resulted in a situation where shareholders were not properly aware of the financial position of the banks and the security of their investment.
• Lack of adequate knowledge and expertise of board members to effectively supervise management of the failed banks.
• Ineffective or poor independent scrutiny by external auditors.
• Failure of the regulator (Bank of Ghana) to perform its oversight functions effectively and to supervise the behavior of internal actors.

• The threat of new entrants
  New entrants into the mobile money industry will bring extra capacity and more competition.
  The strength of this threat depends on:
  The strength of the barriers to entry. The amount of capital required to start the mobile money business.
  The likely response of existing competitors to the new entrant.
• Availability of a Substitute
  A substitute product is a good or service produced by another industry which satisfies the same customer needs. The ability to transact business and to make transfers using online banking on a mobile phone.
• The bargaining power of customers
  The bargaining power of customers may force down the profitability providers of mobile money services as customers want better quality products and services at a lower price. Just how strong the position of customers will be depends on a number of factors.
  How much the customer pays for the services?
  How critical the product is to the customer’s own business
  Switching costs (ie the cost of switching from mobile money to online banking)
  When mobile money service quality is important to the customer, the customer is less likely to be price-sensitive and so the industry might be more profitable as a consequence.
• The bargaining power of suppliers
  Mobile money providers can exert pressure for higher prices. The ability of suppliers to get higher prices depends on several factors.
  Whether there are just one or two dominant suppliers to the industry, able to charge monopoly or oligopoly prices
  The threat of new entrants or substitute services to the mobile money industry
  The importance of the supplier’s service to the customer’s business
  Whether switching costs for customers would be high..
• The rivalry amongst current competitors in the industry
  The intensity of competitive rivalry within an industry will affect the profitability of the industry as a whole. Competitive actions might take the form of price competition, advertising battles, sales promotion campaigns, introducing new products for the market, improving after sales service or providing guarantees or warranties.
  Competition can stimulate demand, expanding the market, or it can leave demand unchanged, in which case individual competitors will make less money, unless they are able to cut costs.

Organisations that provide a similar product/service aimed at the same target market will experience a certain degree of competitive rivalry. The intensity of competitive rivalry within an industry will affect the profitability of the industry as a whole as price wars and advertising fees reduce the profits of the rivals.
Factors that can create competitive rivalry include:

• Low barriers to entry
  Low barriers to entry to the industry increase the number of organisations in that industry and so rivalry is created.
• Market growth
  Rivalry is intensified when firms are competing for a greater market share in a total market where growth is slow or stagnant.
• Cost structure
  If fixed costs are high, there is short-term temptation to compete on price as any contribution from sales is better than none at all.
• Switching costs
  If switching costs are low, ie customers can easily change suppliers, then the suppliers will compete. In some industries, the Internet has increased both the number of suppliers and the ease of switching supplier, for example switching to an online bank.
• Uncertainty
  Uncertainty in the environment will increase rivalry. If one firm is unsure what another is up to there is a tendency to respond by developing a more competitive strategy.
• High exit barriers
  Exit barriers make it difficult for an existing supplier to leave the industry and as such will fight to maintain market share until they are forced out.
• Strategic importance
  If success in a particular market is a prime objective for a number of firms, these firms will be likely to act more competitively to succeed in that market.

Competitive advantage refers to any activity or factor which gives one organisation an edge over its rivals. The edge that an organisation has over its competitors may be viewed from three angles namely superior position, superior skills and superior resources. Organisations should adopt a strategy which is intended to achieve some form of competitive advantage. Doing something better, or more efficiently than competitors should ultimately lead to profitability. If this can be done long term, despite the efforts of competition, then the organisation possesses a sustainable competitive advantage.
There are three bases on which Asawasi company could use to achieve competitive advantage.

• Cost leadership
  This means being the lowest cost producer in the industry as a whole. By producing at the lowest cost, the manufacturer can compete on price with every other producer in the industry and earn higher unit prices.
• Differentiation
  This is the exploitation of a product or service which the industry as a whole believes to be unique. This can be achieved via brand image, product special features, marketing techniques etc.
• Focus
  This involves restricting activities to only part of the market (a segment). This is also known as a niche strategy. There are two ways to achieve this:
  Providing goods/services at a lower cost to that segment (cost focus)
  Providing a differentiated product/service to that segment (differentiation focus)

The Market-advantage Test: this test of fit with market strategy is fundamental, following Alfred Chandler’s classic principle that “structure follows strategy”. For example, if coordination between two steps in a production process is important to market advantage, then they should probably be placed in the same structural unit.
The Parenting Advantage Test: the structural design should fit the “parenting” role of the corporate centre). For example, if the corporate centre aims to add value as a synergy manager, then it should design a structure that places important integrative specialisms, such as marketing or research, at the centre.
The People Test: the structural design must fit the people available. It is dangerous to switch completely from a functional structure to a multidivisional structure if, as is likely, the organisation lacks managers with competence in running decentralized business units.
The Feasibility Test: this is a catch-all category, indicating that the structure must fit legal, stakeholder, trade union or similar constraints. For example, after scandals involving biased research, investment banks are now required by financial regulators to separate their research and analysis departments from their deal-making departments.
The Specialized Cultures Test: This test reflects the value of bringing together specialists so that they can develop their expertise in close collaboration with each other. A structure fails if it breaks up important specialist cultures.
The Difficult Links Test: this tests asks whether a proposed structure will set up links between parts of the organisations that are important but bound to be strained. For example extreme decentralization to profit-accountable business units is likely to strain relationships with a central research and development department. Unless compensating mechanisms are put in place, this kind of structure is likely to fail.
The Redundant Hierarchy Test: any structural design should be checked in case it has too many layers of management, causing undue blockages and expense. Delayering in response to redundant hierarchies has been an important structural trend in recent years.
The Accountability Test: this test stresses the importance of clear lines of accountability, ensuring the control and commitment of managers throughout the structure. Because of their accused of lacking dual lines of reporting, matrix structures are often accused of lacking clear accountability.
The Flexibility Test: In a fast-moving world, an important test is the extent to which a design will allow for change in the future. For instance, divisional domains should be specified broadly enough to allow divisional managers to follow new opportunities as they emerge. As Kathleen Eisenhardt puts it, structures should also have enough ‘modularity’ (i.e standardization) to allow easy “patching’ of one part of the organisation on to another part of the organisation., as market needs change.