Scenario
You are the CEO of business which you want to develop significantly by expanding into a new country.
You need to present a proposal to the board of directors of the company to gain their approval for the expansion. They are, generally, a bit risk-averse, and medium to long-term thinkers.
An expansion of this size requires special shareholder approval, only obtainable at an annual general meeting. Therefore, you only have one opportunity to pitch your proposal.
Using appropriate analysis and techniques, write a report that covers the major features of the expansion. These could be in the briefing document, inferred by it, or from further relevant and substantiated research you may have carried out.
This assignment uses scenarios and topics that are broadly covered in the literature, press, by researchers, and by other commentators. You are expected to use these widely available research and information sources to shape and support your submission.
About the business
You are the CEO of a multi-national financial services business.
Founded in the UK in the 1980s, the business concentrates on providing specialist insurance,
trade finance, and associated services, including consulting, for companies involved in
international commodities trading.
The business does not have retail customers. Its expertise and focus are business-to-business.
Shareholders and company control
The company is listed on the main London Stock Exchange with a roster of institutional
shareholders, the largest of which is an insurance company with an 8% stake. You and the
other directors collectively own around 2.5% of the company.
The value of the shares is £440 million.
Trading performance
The business’s clients are UK based in the main with 85% of the turnover and 90% of the
profits after tax coming from UK commodity traders and brokers. There are a few European
based companies who provide the rest of the business.
Group turnover is £ 500 million per annum with net profits at £ 60 million, and profits, after
tax, are £45 million. There is no debt. Cash in the bank totals £ 89 million at the time of the
report. ROCE is 35%.
Despite this healthy financial position, over the past few years, business growth has stagnated
somewhat.
Opportunity knocks
However, because of your positive reputation, you have been asked on many occasions, to
provide services for Australian commodity businesses who export to China. Similarly, Chinese
commodities buyers based in London have asked you to provide services for them in their
local markets.
You feel that you should expand to exploit the Chinese market and believe that, in order to
do the job properly, you need to commit to opening a business where commodity buyers and
sellers are – therefore in China.
Over the years, several of your predecessors as CEO have proposed similar actions. Indeed,
once the company did expand into the US market, only to close the operation when
commodity prices slumped resulting in client collapses with your company being owed
significant fees. Other issues included cultural differences. You view this as a valuable learning
experience for the company, rather than a reason not to try and expand again.
Board approval
You have had the long phone calls and lunches discussing ideas and options.
You have gathered the information and have a plan in your mind. You conclude that China is
a long- term, super-scale market. You also feel that, in order to compete and be taken
seriously, you need to be there physically and culturally.