Reference no: EM132656130 , Length: word count:2500

ACC03043 Corporate Governance - Southern Cross University

Case Study - ABC International Ltd.

Case: ABC International Ltd.

ABC International Ltd. was incorporated in 1968 as a manufacturer of electrical components and telephone equipment in Hong Kong. In 1979 ABC entered into a joint venture with an Australian group in the telecommunications field and opened a factory in Shenzhen to manufacture components.

Subsequently rights were acquired to manufacture and sell a range of telecommunications equipment in Hong Kong and China. This proved to be a very successful arrangement and ABC grew substantially in turnover, profits and employees.

The company was listed on the Hong Kong stock market in 1997.

Business performance and prospects

The company manufactures and markets a range of equipment for large telecommunication systems, a proprietary telecommunication system for smaller organisations, and a range of telecommunication devices for the office and home. These markets include government, military, and industrial customers, as well as retail outlets. Growth is expected in each of these markets in Hong Kong and China. A mail order facility through the internet is being designed for direct sales. The business also has the potential to expand geographical throughout Asia Pacific, but a covenant in their joint venture agreement with their Australian partner prevents growth elsewhere in the world.

New products developments come from the Australian joint venture partner, who has also licensed various products, devices, and software from the United States. ABC is currently considering a strategy to develop a range of its own products and systems.

Competition for the existing range of products is high, except in the military field where there are various restrictions. Moreover, there are a number of new technologies, including wireless communication, computer based systems, and telecommunication systems convergence, that could have strategic implications for ABC. New entrants into the market could include computer manufacturers, telephone companies, and media network providers.

ABC imports some specialised electronic components from Australia, Japan, and the United States, manufactures other equipment and assembles the products and systems in its Shenzhen factory.

In his annual report to shareholders, the chairman said that:

"We expect the PRC to maintain its prudent approach to stable financial and monetary policies so as to strengthen and improve the effectiveness of its austerity measures. Your company will benefit from the growth of infra-structural investment at government and industry level and from the
increasing spending power of consumers"

A recent report in the financial press said that:

"The shares of ABC International raced up yesterday with a bullish report from Salmon, Smith
Barney. The company's recent announcement, of its latest range of telecommunication products, supports this confidence. Growing optimism on consumer spending and booming sales in electronic products in both the office and home markets also fuelled the enthusiasm. The company's earning prospects seem bright and it will also benefit from lower costs on imported products due to the weak Japanese yen and the economic slowdown in the US."

Your task

Mr. Y. K. Chan has sought your advice. He is a qualified accountant, employed as the Finance Director of Dim Sum Ltd; a Hong Kong listed company in the food industry.

Mr. Y. K. Chan has been asked by Mr Alan K.M.Yau, the Chairman of ABC International (another Hong Kong listed company), whether he would consider joining the board of ABC as an independent non- executive director. The Chairman also suggested that Mr. Chan should join the company's audit committee.

Mr. Chan tells you that he does not know the Chairman of ABC very well. He was introduced to him by Mr Johnny Y. K. Ho, the ABC Finance Director, who serves with Mr. Chan on a committee of the Hong Kong Institute of Certified Public Accountants. Mr. Chan subsequently had dinner with Mr Yau (chairman) at the China Club, where the growth of ABC, its current activities, and its prospects for the future were described.

Mr. Chan is an executive director of Dim Sum, but has no other experience of serving on boards of directors. He holds no shares in ABC, but would be prepared to invest up to HK$100,000. He believes that his wife's father also has some ABC shares. As far as he knows Dim Sum does not have business dealings with ABC, although he thinks the Dim Sum internal communications system uses ABC equipment.

Questions
Mr. Y. K. Chan has asked for your professional advice. Please write a report to him discussing the matters he should consider, in particular related to:

1. Duties, rights and competences of a director

2. Committee work

3. Board structure and styles

4. Transparency and accountability of the company

Attachment:- Corporate Governance.rar