WORD LIMIT: 2500 words (excl. executive summary, TOC & references)
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.” Financial position
In the latest published accounts the chairman of the board reported that turnover in 2004 had exceeded
expectations at $237,632,000, but that profits were lower than analysts’ expectations, at $6,693,000,
due to one off write-offs of obsolete stocks. The company did not pay a dividend this year, ploughing
back profits into product development and expanding production capacity.
Employees ABC International reported 1,280 employees at end 2004: 370 in Hong Kong, 910 in Shenzhen. Labour
productivity had steadily improved in recent years, partly due to investment in capitally intensive
manufacturing and assembly methods.
Shareholdings
According to a Hong Kong financial information company the balance of shareholdings in ABC at present
is: Goldbarb (a company registered in Bermuda) 39.8%
Transelec (a company incorporated in Australia) 15.6%
Public shareholdings
Institutional investor XXXXXXXXXX%
Other institutional investors XXXXXXXXXX%
Other investors 25.6% 44.6%
100%
The investment report states that Goldbarb is the holding company for the founding family’s investment
in ABC and that Transelec is the Australian joint venture partner. Transelec is the wholly owned
subsidiary of a company incorporated in Delaware in the United States and listed on the New York Stock
Exchange.
Share price history
The floatation in 1997 the ABC share price had risen from 19.80p per share to 63.5p, with an 11%
growth over the year 2004.
Board of directors
The latest annual report states that the board had eight members:
Executive directors
Alan K M. Yau President
Peter Y. M. Chow Vice President
Charles K. K. Lau Director Operations
Johnny Y. K. Ho Director Finance
Dr. Andy H. S. Woo Director Development
Rebecca H. S. Sun Director Personnel
Independent non-executive directors
Abraham P. K. Lau
Frederick W. L. Ho
The company secretary is Rebecca S. S. Cheung
Corporate governance report / annual report includes the statement that:
“In the opinion of the board, the company has complied with the code of best practices as set out in
Appendix 14 to the Listing Rules throughout the accounting year covered by this report. An audit
committee was established with terms of reference which deal clearly with its authority and duties in
Paragraph 14 of Appendix 14 of the Listing Rules, including a review of the company’s financial
reporting processes and internal audit systems and the review of audited financial statements. Two
independent non-executive directors have been appointed to the audit committee and a third
member is being actively sought.”
The company’s auditors are Deloitte Touche Tohmatsu, Hong Kong.
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 (10 marks)
2. Committee work (10 marks)
3. Board structure and styles (10 marks)
4. Transparency and accountability of the company (10 marks)
Guidelines
Your paper is to be written in report format (for case studies, i.e. it should consist of an executive
summary, table of contents, introduction/case background, body of analysis, conclusion and the
reference list - see the quick guide ‘Writing reports’ in the ‘Assessment Tasks and Submission’
section), observing Harvard referencing style and a clear and logical structure, along with the ability
to express yourself clearly and succinctly.
Your arguments have to be based on concepts and tools discussed in the topics of this unit and must
be supported through direct reference to (academic) literature (recent peer-reviewed journals
preferred). The report will be assessed based on your ability to develop arguments supported by
relevant and valid sources (please also refer to marking criteria). You are expected to use at least 5
academic sources (excluding the textbook) to support your viewpoints. All sources must be
properly referenced.
In addition to the academic references, and in case you want or need additional information about
the case, feel free to engage with non-academic literature, i.e. in order to gain a broader and more
detailed understanding of the case study environment, you can mention and use information and
facts from valid newspapers, magazines and/or official reports. Again, all sources must be properly
referenced.
Assignments strictly have to be within the word limit (- / + 10 %)
Where cases of plagiarism are found, students will be sanctioned in accordance with university policy