SCS – Nov 2023 – L3 – Niikai Shito’s Strategic Expansion and Challenges

Level: Level 3
Series: NOV 2023
Case Study Tags: Corporate Governance, Expansion Strategy, Human Resource Planning, Investment Appraisal, Risk Management, Vertical Integration

Summarized Case Study

Niikai Shito Limited (NSL), a Ghanaian family-owned business specializing in the production of shito, has experienced significant growth since its inception. The company now seeks to further expand through vertical integration by cultivating some of its own raw materials and plans to retail its products directly through supermarkets in Kumasi. NSL’s expansion into farming and retailing brings both opportunities and risks, particularly as it ventures beyond its core competency in shito production.

The company’s management team must consider the effectiveness of their shared leadership structure, as well as their human resource planning, to ensure they can manage the growing workforce and increased production demands. The success of the team is crucial to meeting future challenges, especially with the complexity of the work involved and the long-term tenure of the existing team members.

NSL also faces corporate governance challenges, as the current board structure, consisting of three executive directors and one non-executive director, may hinder effective risk management and decision-making processes. Additionally, with the company’s planned international expansion, particularly in the United Kingdom, NSL must perform a thorough investment appraisal. This includes assessing the viability of the project in the UK, the implications of exchange rate fluctuations, and the impact of potential restrictions on fund transfers.

Finally, the company is contemplating the issuance of convertible bonds to raise capital without diluting the family’s shareholding in the short term. The advantages of issuing convertible bonds, both for NSL and the potential investors, are being evaluated as part of the company’s long-term financial strategy. The issuance would support the company’s ambitious expansion plans, but careful consideration is needed to balance risk, corporate governance, and operational capacity.

Full Case Study

Past Questions for SCS – Nov 2023 – L3 – Niikai Shito’s Strategic Expansion and Challenges

SCS – Nov 2023 – L3 – Q6c – Professional Practice and Codes of Ethics

Identifying and explaining two limitations of the OECD Principles of Corporate Governance.

Question

The OECD Principles of Corporate Governance, as an international statement of principles about corporate governance, establishes minimum acceptable standards of corporate governance. However, like any such document on corporate governance, it has several limitations.

Required:
Identify and explain TWO (2) limitations of the OECD Principles of Corporate Governance.
(5 marks)

Answer

Tags: Corporate Governance, International Standards, Limitations, OECD principles
Level: Level 3

Topic: Professional practice and codes of ethics
Series: NOV 2023

SCS – Nov 2023 – L3 – Q6b – Controlling Risk

Explaining two key roles the Board of Directors should play in risk management and internal controls at NSL.

Question

Risk management and internal controls are largely the responsibility of management at NSL. However, the Board of Directors has a role to play.

Required:
Identify and explain TWO (2) key roles the Board of Directors of NSL should play in relation to risk management and internal controls in accordance with the UK Corporate Governance Code and the Ghana Code of Best Practices for Corporate Governance.
(5 marks)

Answer

Tags: Corporate Governance, Ghana Code of Best Practices, Internal Controls, Risk Management, UK Corporate Governance Code
Level: Level 3

Topic: Controlling Risk
Series: NOV 2023

SCS – Nov 2023 – L3 – Q6a – Professional Practice and Codes of Ethics

Understanding agency costs avoided by NSL and the role of the non-executive director as per Higgs Guidance.

Question

NSL’s current corporate governance structure consists of three executive directors and one non-executive director, with the CEO serving as the chairman of the board. The board, as presently constituted, may have its strengths and weaknesses.

Required:
i) State and explain TWO (2) agency costs that the company would avoid as postulated by Agency Theory of corporate governance that “agency costs do not exist when the owners and the managers are exactly the same individuals.”
(5 marks)

ii) Explain TWO (2) roles that the non-executive director, Daniel Aidoo, ought to play on the board as identified by the document, Higgs Guidance (2003), to strengthen NSL’s board.
(5 marks)

Answer

Tags: Agency Costs, Corporate Governance, Higgs Guidance, Non-Executive Directors
Level: Level 3

Topic: Professional practice and codes of ethics
Series: NOV 2023

SCS – Nov 2023 – L3 – Q5b – Sources of Finance

Explaining three advantages of issuing convertible bonds for NSL and investors/bondholders.

Question

To defer dilution of the Martinsons’ shareholding of NSL, they have agreed to issue a 10-year convertible bond to new investors/bondholders.

Required:
Explain THREE (3) advantages of issuing convertible bonds to NSL and to investors/bondholders, respectively.
(9 marks)

Answer

Tags: Convertible Bonds, Debt Financing, Equity Dilution, Shareholders
Level: Level 3

Topic: Sources of Finance
Series: NOV 2023

SCS – Nov 2023 – L3 – Q5a – International Financial Management

Determine forward rates using interest rate parity and calculate the NPV for an international investment project.

Question

In connection with the proposed investment in the United Kingdom by NSL for shito production in that country, the shareholders require information to make the final investment decision.

Required:
i) Using the interest rate parity formula/equation, determine the forward rates/future spot rates at the end of 2024, 2025, 2026, and 2027.
(4 marks)

ii) Calculate the net present value(s) for the project at the beginning of 2024 that will determine whether the project should be accepted by the shareholders. Advise the shareholders whether they should accept and proceed with the project or reject it.
(7 marks)

Answer

Tags: Forward Rates, Interest Rate Parity, International Investment, NPV
Level: Level 3

Series: NOV 2023

SCS – Nov 2023 – L3 – Q4c – Controlling Risk

Identifying and explaining four production resource planning needs to manage production capacity challenges.

Question

It is evident that NSL has capacity challenges, and this has impacted the decision to expand to other markets. To succeed, NSL must plan to obtain the resources that it will need each year to meet the required capacity levels.

Required:
Identify and explain FOUR (4) production resource planning needs that NSL should focus on to effectively manage its production capacity challenges.
(6 marks)

Answer

Tags: Labor, Materials, Production Capacity, Resource Planning, Technology
Level: Level 3

Topic: Controlling Risk
Series: NOV 2023

SCS – Nov 2023 – L3 – Q4b – Strategy Implementation

Outlining and explaining the four main stages of human resource planning for NSL's growth.

Question

With the company’s audacious expansion plans, it must also plan for its human resource needs to effectively respond to the expected growth. David Martinson, the Finance and Administration Manager, needs advice on how to plan for the company’s human resource needs.

Required:
Outline and explain FOUR (4) main stages in the human resource planning process.
(8 marks)

Answer

Tags: Growth Strategy, HR Planning, Human Resource, Workforce Management
Level: Level 3

Topic: Strategy implementation
Series: NOV 2023

SCS – Nov 2023 – L3 – Q4a – Controlling Risk

Identifying and explaining the role of three stakeholders in corporate risk management.

Question

Risk management is critical for the success of every organization, including NSL. Responsibilities for effective risk oversight and management within NSL do not depend on only one stakeholder group.

Required:
Identify and explain the role of THREE (3) stakeholders as identified by the International Corporate Governance Network (ICGN) guidelines on responsibilities for the oversight and management of corporate risk (2010).
(6 marks)

Answer

Tags: Corporate Governance, ICGN Guidelines, Risk Management, Stakeholders
Level: Level 1

Topic: Controlling Risk
Series: NOV 2023

SCS – Nov 2023 – L3 – Q3 – Functional Strategies

Identifying and explaining factors that contribute to the effectiveness of shared management teams in improving organizational performance.

Question

The approach to leadership and management that NSL has adopted in managing the business is one of working closely as a team to get work done. This is often referred to as shared management teams. In shared management teams, management responsibility is distributed between individuals in a team or organization in such a way that the members of the team manage each other.

Required:
Research into shared management teams has identified several factors that contribute to the effectiveness of such a team and its ability to improve performance. Identify and explain FIVE (5) of those factors in relation to NSL.
(10 marks)

Answer

Tags: Organizational Performance, Shared Management, Teamwork
Level: Level 3

Topic: Functional strategies
Series: NOV 2023

SCS – Nov 2023 – L3 – Q2 – Methods of Development

NSL's adoption of backward and forward vertical integration through farming and retailing in Kumasi.

Question

Although the company’s core business is the production of shito, it has diversified into farming/cultivating some of its inputs and is also contemplating the idea of retailing shito to customers by renting gondola in supermarkets in Kumasi by 2025.

Required:
a) Clearly identify and explain the integration strategy the company is adopting by going into cultivating some inputs and the proposal to go into retailing in Kumasi.
(2 marks)

b) Explain to the Martinsons FOUR (4) potential weaknesses or disadvantages the company may or is likely to suffer with the integration strategy identified in (a) above.
(8 marks)

Answer

Tags: Backward Integration, Diversification, Forward Integration, Vertical Integration
Level: Level 3

Topic: Methods of Development
Series: NOV 2023

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SCS – Nov 2023 – L3 – Niikai Shito’s Strategic Expansion and Challenges

Past Questions for SCS – Nov 2023 – L3 – Niikai Shito’s Strategic Expansion and Challenges

SCS – Nov 2023 – L3 – Q6c – Professional Practice and Codes of Ethics

Identifying and explaining two limitations of the OECD Principles of Corporate Governance.

SCS – Nov 2023 – L3 – Q6b – Controlling Risk

Explaining two key roles the Board of Directors should play in risk management and internal controls at NSL.

SCS – Nov 2023 – L3 – Q6a – Professional Practice and Codes of Ethics

Understanding agency costs avoided by NSL and the role of the non-executive director as per Higgs Guidance.

SCS – Nov 2023 – L3 – Q5b – Sources of Finance

Explaining three advantages of issuing convertible bonds for NSL and investors/bondholders.

SCS – Nov 2023 – L3 – Q5a – International Financial Management

Determine forward rates using interest rate parity and calculate the NPV for an international investment project.

SCS – Nov 2023 – L3 – Q4c – Controlling Risk

Identifying and explaining four production resource planning needs to manage production capacity challenges.

SCS – Nov 2023 – L3 – Q4b – Strategy Implementation

Outlining and explaining the four main stages of human resource planning for NSL's growth.

SCS – Nov 2023 – L3 – Q4a – Controlling Risk

Identifying and explaining the role of three stakeholders in corporate risk management.

SCS – Nov 2023 – L3 – Q3 – Functional Strategies

Identifying and explaining factors that contribute to the effectiveness of shared management teams in improving organizational performance.

SCS – Nov 2023 – L3 – Q2 – Methods of Development

NSL's adoption of backward and forward vertical integration through farming and retailing in Kumasi.

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SCS – Nov 2023 – L3 – Niikai Shito’s Strategic Expansion and Challenges

Past Questions for SCS – Nov 2023 – L3 – Niikai Shito’s Strategic Expansion and Challenges

SCS – Nov 2023 – L3 – Q6c – Professional Practice and Codes of Ethics

Identifying and explaining two limitations of the OECD Principles of Corporate Governance.

SCS – Nov 2023 – L3 – Q6b – Controlling Risk

Explaining two key roles the Board of Directors should play in risk management and internal controls at NSL.

SCS – Nov 2023 – L3 – Q6a – Professional Practice and Codes of Ethics

Understanding agency costs avoided by NSL and the role of the non-executive director as per Higgs Guidance.

SCS – Nov 2023 – L3 – Q5b – Sources of Finance

Explaining three advantages of issuing convertible bonds for NSL and investors/bondholders.

SCS – Nov 2023 – L3 – Q5a – International Financial Management

Determine forward rates using interest rate parity and calculate the NPV for an international investment project.

SCS – Nov 2023 – L3 – Q4c – Controlling Risk

Identifying and explaining four production resource planning needs to manage production capacity challenges.

SCS – Nov 2023 – L3 – Q4b – Strategy Implementation

Outlining and explaining the four main stages of human resource planning for NSL's growth.

SCS – Nov 2023 – L3 – Q4a – Controlling Risk

Identifying and explaining the role of three stakeholders in corporate risk management.

SCS – Nov 2023 – L3 – Q3 – Functional Strategies

Identifying and explaining factors that contribute to the effectiveness of shared management teams in improving organizational performance.

SCS – Nov 2023 – L3 – Q2 – Methods of Development

NSL's adoption of backward and forward vertical integration through farming and retailing in Kumasi.

Our offerings

Contact Info

Customer

Get In Touch

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