SMARTWEAR

Case Requirement-1:

Briefing Papers:

Part-A:

FAO: Board of Directors

From: External Consultant

Subject: Environmental Analysis

Date:

The external environment of SmartWear can be analyzed using the PEST

Framework in order to achieve a holistic view of the national environment.
The Briefing paper analyzes the external environment of SmartWear which is
as follows:

Political:

The political situation seems to be deteriorating in Noria with the coalition

government which is unlikely to last its tenure which has resulted in
significant uncertainty nation-wide which would deter businesses from
investing in the country. It is SmartWear’s mission to continue its
investments in core markets, which does not seem to align with the current
uncertain atmosphere which has significantly deteriorated the investor’s
confidence. It is suggested that SmartWear should reconsider its major
investment plans in the country until the political environment becomes
favorable as the risk is currently at the higher end of the spectrum.

Economical:

The country of Noria has been suffering from a recessionary period for over 3
years now and with the recent comments made by the Mistry of Finance that
the period might last for another year too, survival in such an economy has
become increasingly difficult and with the inflationary pressure of 7% for
over a year now has created significant number of price sensitive customers.
Clothing businesses catering the higher end of the market have lost their
customer base as the public is shifting to lower price clothing brands such as
that of SmartWear which has previously gained benefit and was able to
remain profitable due to its low price and high-quality clothes having a
strategic goal of satisfying the needs and demands of low-cost product and
services to customers as a mission.
 However, with the continuous increase in the prices of commodities, it
seems to be unlikely that SmartWear would be able to achieve its goal. In
such an environment as of Noria, it can be suggested that SmartWear should
move to further low-cost strategies without compromising the quality of the
product to cater to the needs of the growing number of price sensitive
customers.

Social:

With a record high level of unemployment and 8% of the adult population

being unemployed, the country of Noria is experiencing a steady decline in
the standard of living. Growth opportunities in the country are significantly
deteriorating and it would be expected of a company surviving a
recessionary period to provide customers with more lucrative offers such as
clearance sales etc. However, this should be done by putting the quality at
stake and compromising the ethical standards of the company. SmartWear
has a strategic goal as its mission which states that the business will function
with high regards to ethical standards and social responsibility. This mission
should be incorporated in the future growth strategies of the business.

Technological:

All the success of SmartWear has come from its retail outlets and as given in
the scenario the business has never exploited e-commerce opportunities
which is currently a competitive market as there has been a range of new
entrants in the market over the past few years. This market seems to be
growing and there is an increasing number of customers even the traditional
ones who are now shifting to this mode of shopping and thus it is suggested
that SmartWear should also exploit this opportunity as there are positive
prospects for revenue growth and decrease in the overall overheads of the
company. However, this would increase the logistics cost for the company. It
is suggested that the company should keep itself updated with the recent
trends thus it seems likely that benefits would override the costs.

Part-B:

Major Risks Presented by Current Business Model:

Strategic Risk:

Risk: Analysts have remarked that SmartWear has never exploited e-

commerce opportunities, when there have been several new entrants into
the market in the past few years who only sell online. This would impose a
significant threat to the business on a strategic level as it requires a
company to change its business model and if quick actions are not taken
then it might result in the company losing its competitive edge over its
competitors which is also evident by the fact that majority of traditional
customers of SmartWear finding it appealing to purchase online than in-store
shopping as it provides convenience to customers. Moreover, the company
also regards itself with being cost effective and purse cost leadership
strategy which is possible by achieving economies of scale thus high-volume
production which SmartWear might not be able to sustain in the long-run due
to the emergence of new entrants in the market through the exploitation of
e-commerce opportunities.

Mitigation Strategy: To mitigate this risk, a strategic analysis for the

business should be made by the board and a change in business model
should be devised in accordance with the shift in the trend and convenience
of the customers. However, initiating online operations for the first time
would require significant investment to be made by SmartWear which the
board might not find appealing de to the current financial conditions of the
company but keeping the long-term impact in mind, this seems to be
appropriate. The company should continue to emphasize on cost control and
online presence would reduce costs for the company once it is fully
established as there would be no requirement to employ sales staff and bear
the overheads of operating a retail outlet. Thus, less performing outlets could
be closed by SmartWear, and the company could invest in other business
activities.

Investor’s Risk:

Risk: The finance director has proposed in a recent board meeting that the
company will not be able to make dividend payments to institutional
investors and other shareholders as the cash reserves of the company are
currently depleting. Although the company operates on a low-cost basis but
in the words of the finance director, the company is a victim of its own
success and now has significant infrastructure costs and overheads to carry.
This would discourage the investors as they are already concerned about the
significant fall in the share price of SmartWear. This increases the risk of the
investors extracting their funds from the business which would further
deteriorate the liquidity position of SmartWear.

Mitigation Strategy: The board should consider its current budgetary

system and should strictly monitor the control system in the buying depart
as this department seems to be one of the sources of the depletion of
company’s cash reserves as the buying department staff seems to have a
rather complacent attitude towards the suppliers and there are no checks or
comparisons being performed on the prices quoted by the suppliers in
relation to the industry average. An audit of the buying department will
enable SmartWear to identify surplus cash being paid to the suppliers and
would aid the board to come up with policies and strategies to overcome
these internal weaknesses.

Operational Risk:

Risk: There seems to be high dependence on overseas suppliers by

SmartWear which operates in European market and its core suppliers are
based in Southeast Asia which are quite distant from the sales market which
creates a risk of increased or long lead time which would increase the
operational risk for SmartWear as it would act as a barrier in the prompt
sales to customers. SmartWear operates in fashion industry which is driven
by continuous change, and it is possible that the company might not be able
to provide its customers with the latest trends in the market due to long lead
times thus, inability to promptly respond to the change in customer demand.

Mitigating Strategy: SmartWear might consider shifting its supplier base

to less distant countries as this would decrease the overall lead time of the
delivery. This would enable SmartWear to promptly respond to its customers’
orders and keep them satisfied with quick deliveries. The company should
closely link its marketing and sales department with its suppliers as then the
risk of stock outs and the company not being able to cater the needs of the
customers would be mitigated and clothing currently trending would be
ordered.

Foreign Exchange Risk:

Risk: SmartWear operates in 3 distinct European countries with different

currencies, the manufacturers of the company are also based overseas. This
suggests that the company is currently exposed to a high degree of foreign
exchange risk due to the volatility of exchange rates, which could increase
the company’s cost burden and would also further deteriorate the liquidity
position of the business. Furthermore, with the increasing inflationary
pressure in Noria which is the home country for SmartWear thus, the
financial statements would have to be prepared in Norian currency, the re-
translation of assets and liabilities could further deteriorate the profitability
position of the company.

Mitigation Strategy: The board should devise strategies to mitigate foreign

exchange risk which might be possible by establishing a risk management or
treasury department. This will help SmartWear to mitigate the exchange risk
as the treasury department would possess the necessary skills required to
identify appropriate financial instruments which would mitigate the risk.

Case Requirement-2:

Report

Part-A:

Analysis of SmartWear’s Strategic Position in the Southland Market:

To: The Board of Directors

From: External Consultant

Subject: Strategic Position in Southland Market

Introduction:

This report focuses on the strategic position of SmartWear in Southland

market and an analysis has been made using the Porter Diamond Model
which aids in assessing as to why specific countries appear to enjoy
competitive advantage over companies in other countries.

Factor Conditions:

Factor Conditions are those conditions which Porter believes that a country
creates for itself such as skilled labor, technological innovations etc. These
basically describes how a country works on itself and for improvement of its
infrastructure which also includes inherent benefits of a country such as its
natural resources which provides the country with competitive edge over
similar industries in other countries.

Southland has relatively lower population and approximately 60% of its

population is of working age with 43% being under 30 years of age which
suggests that there would be hardworking labor force available as young
people tend to be more enthusiastic and are more flexible to change in
working conditions as compared to people over 30 years of age.
Furthermore, the unemployment rate is also the lowest in Southland thus the
work force would be segregated into all the industries operating in Southland
suggesting that the country possess skilled labor force which SmartWear
could use for its advantage.

Demand Conditions:
Demand conditions are one of the most important factors which provides a
country with a competitive advantage over industries in other countries as
this provides a company with economies of scale and other economic
benefits. Increase in demand results in increased competition as new and
emerging technologies and products emerge in the market in order to
capture the public.

It is evident that the Southland market has the highest annual earnings,
which suggests that there would be increased demand in this region.
Moreover, retailing is one of the dominating business sectors of the country,
which suggests that it should be economically beneficial for SmartWear to
operate in such an environment.

Related & Supporting Industries:

An industry on its own might find it increasingly hard to flourish without the
support of related industries in the country. Related industries play a
significant role in the success of a company.

SmartWear operates in retail industry therefore, the support industry of

immense important would be the transportation links and physical
infrastructure for the delivery of the products and Southland being a
developed European country with transportation being a dominating
business sector, this would uphold the operation and distributions of
SmartWear in that geographical location.

Furthermore, developed capital markets in Southland means that SmartWear

would be provided with sources of finance which are vital for the growth and
success of a business in a free market economy. Thus, Southland seems to
be an ideal country for SmartWear to operate successfully.

Firm, Strategy, Structure, & Rivalry:

This factor in Porter Diamond Model is concerned with how a business is

being operated and managed, how are the strategies of a business
developed and the structure and culture adopted by the business.

Southland has a free-market economy which means that the market forces
determine the price, and the government does not intervene in the pricing
process which encourages competition between companies thus, rivalry.
However, as Southland has a democratically elected government, the
political environment can be expected to be stable. Southland seems to be a
suitable country for SmartWear to operate in as it has grown in the country
and now operating 30 retail outlets since it opened its first store 6 years ago
which evidences the growth in that country in comparison to the growth of
SmartWear at home. Overall, further growth can also be expected in this
country for SmartWear.

Part-B:

Strategic & Ethical Implications of the Planned Shop Closures:

Strategic Implications:

The Board of SmartWear has decided to close down 20 worst performing

retail outlets in Noria and withdraw entirely from the neighboring country of
Centrum, where SmartWear’s 15 retail outlets were all suffering heavy losses
and showing absolutely no sign of recovery. This decision would have a range
of strategic implications:

Reduction in Revenue:

These closures are decided due to the fact that these outlets are performing
quite poorly and in order to save the overheads being incurred on such
outlets. However, these would represent a reduction in business operations
by 15% and 20% in Centrum and Noria respectively. Although these outlets
do not contribute to majority of the company’s revenue, but it can be
expected that the closure would increase the overall profitability of the
consolidated business as the losses incurred in these outlets was one the
reasons for the reduced net profit margins. Still, the reduction in revenue
might establish a negative image of the company’s financial conditions.

Impact on the Brand Image:

Even though the closures are being made due to financial reasons, the board
should not ignore the non-financial impact of the closure. Generally, closure
of any business unit is not perceived to be good news for the company. In
particular, the closure of a business unit regardless of the unit being onerous
might create a negative impact of the whole organization as a whole and
people might perceive the company to be poorly performing or in liquidity
crisis. SmartWear Company’s board might have decided this reconstruction
to improve the share price of the company and its overall position in the
stock exchange, but it is quite possible that these closures might further
deteriorate the share price of the company and the brand image would be
reduced.

Redundancy Payments & Other Related Costs:

The closure of outlets in both Noria and Centrum would result in significant
redundancies being made. SmartWear is a long-established clothing retailer
in Noria, a highly developed northern European country and it is assumed
that there would be employment laws and regulations and other statutory
payments which would be obligatory for the company in case of closures.
These redundancy payments might differ from employee to employee with
the long-standing employees being awarded higher payments than others.
SmartWear should also comply with local employment law as it is listed on
the Norian Stock Exchange. The board thus needs to identify whether it has
sufficient resources and funds to be allocated to these requirements.

Effect on Employees:

The decision to close the outlets in Noria and complete withdrawal from
Centrum would have a significant impact on the employees of SmartWear as
their job security would be at stake and their motivation would deteriorate.
The new of closure might not be welcomed by the current employees and it
is quite possible that SmartWear would be faced with backlash from them,
even the employees who are not made redundant would feel de motivated
and might start to explore other job opportunities in order to mitigate
themselves from the unexpected redundancy. The board should consider all
of these factors and should adequately communicate the rationale behind
the decision to all the key stakeholders so that they would be informed of
such a big step taken by the company. This would also help the company to
maintain its brand image and reputation, which would have been at stake if
such strategic decisions were made hastily and without proper planning.

Ethical Implications:

There are also a number of ethical implications associated with the decision
to closure of outlets in Noria and complete withdrawal from Centrum. These
are as follows:

Employee Treatment:

The decision of closure is made on financial grounds by the board of

SmartWear but the employees being made redundant might feel that they
are being treated unfairly. However, the law for unfair treatment of
employees will not apply here as the board has jointly decided to close its
operation and such closures are not illegal. All the staff members of the
poorly performing outlets are being dismissed and no preference is being
given which dismisses the claim of unfair dismissal.
Ongoing Crisis:

The country of Noria is currently facing an economic downturn, which is one

of the reasons for the closure of 20 retail outlets in this country, which might
be economically beneficial for the company. This decision would also
increase unemployment in Noria, which currently has been reduced, and with
the ongoing inflationary crisis, the employees being made redundant might
find it quite hard to make ends meet. As a result, SmartWear might face
negative publicity for their decision and even though it would be financially
beneficial for the company in the short term, the decision would have to be
made at the expense of the long-term image of the company.

Needs of Investors:

Investors of SmartWear provide them with financial aid when it is required

thus, SmartWear has a fiduciary duty to act in the best interest of the
shareholders and investors of the company. The outlets being closed are the
worst performing and suffering heavy losses and showing absolutely no sign
of recovery therefore, the seems to be in the interest of the investors as the
company should not continue to invest the investor’s money in loss
generating business units.

Overall, considering the duty owed by the company to its shareholders and
stakeholders at large, the decision seems to be acceptable. However, non-
financial factors mentioned above should be thoroughly considered as they
might create reputational risk for the company.

Case Requirement-3:

Memo:

To: Buying & Merchandizing Director

From: External Consultant

Date:

Subject: Internal Controls

Dear Buying & Merchandising Director,

I have been provided with an internal audit report on SmartWear’s supply

chain management by the audit committee and I have identified some issues
concerning the internal control system at the company, particularly at the
procurement side which are described below. I have also provided you with
recommendations for the improvement of these controls. The following table
provides you with the evaluation and recommendations:

Particulars Weakness Recommendation

Effective Although there have Effective
Communication been no reported communication should
instances where be made between the
purchase orders have suppliers and the
not been completed on buying department
time or in full, but this personnel which keep
does not negate the regular updates
fact that effective regarding the orders
communication with placed and whether
the suppliers should not any issues are being
take place. A faced by the suppliers
complacent attitude such as increased
from the buying restriction on the port
department indicates or increased duties on
their lack of imports. This would
competence. This also increase the
suggest that they motivation of the
would only contact the suppliers and they
supplier when there is would also be
any issue and without accountable to
that no communication SmartWear for the
is needed which might supply of inventory.
have negative
consequences for the
company as then
suppliers would feel no
sense of responsibility
and accountability
towards their
customers.
Quality Checks There also seem to be Effective quality checks
no quality checks for should be put in place
the inventory being by the buying
delivered to the buying department which
department. As long as would ensure that the
the delivery is on time, inventory received is of
no attention is paid to the standard quality
the monitoring of the and communication
quality of the products. with the suppliers in
This might cause relation to any issues in
reputational damage to the quality checks
SmartWear. The should be made so that
 company might be they are also aware
perceived to be that their products are
exploiting its customers of unsatisfactory
as it would be providing conditions. This would
low-cost clothing but provide them with an
with compromise being opportunity to improve
made on the quality their activities.
which might not be
acceptable to the
customers.
Price Monitoring The price is set within Controls should be put
the contract terms for in place which would
between three to five ensure that competitive
years with prices prices are being paid to
charged are indexed to the suppliers and
inflation. However, no monthly or quarterly
monitoring of the price comparisons should be
changes is made by the made by the
buying department. department to gain an
This is evident by the understanding of the
fact that no efforts are variances (if any) and
made by the buying these should be
department during the communicated with the
contract period to suppliers as well.
compare the price paid
with the industry
average or competition.
This might lead to the
company paying
incremental prices to
the suppliers as no
checks are made. This
also reflects the culture
of carelessness within
the buying department.
Stewardship Allegations have been Smartwear has
made about the poor standards for its
working conditions in corporate social
some supplier factories responsibility which it
but have gone has reflected in all of its
unchallenged and contracts and the
unnoticed by the suppliers should be
buying team, which instructed to fulfil these
reflect the poor attitude conditions. This would
of the department. As boost eh reputation of
the focus of the the company as it
 department is majorly would be fulfilling the
on cost control being a needs of its key
cost center reflects the stakeholders by acting
focus on short-term as good stewards.
results only. This would Investigations against
be at the expense of such suppliers should
long-term factors to be take place who are
compromised. There valuing these terms,
have also been clear and the buying
contravention of the department should
conditions contained in report these issues to
their contracts which the senior management
also reflects the so that ties with such
suppliers negligence suppliers should be
which might be due to critically reviewed as it
lack of questioning in raises questions over
accountability of the the ethical
supplier. responsibility of the
company as a whole.
Clear Guidance on the Only serious breaches Effective
word “Serious” in the supplier’s communication should
performance are also take place within
reported to the senior the department which
management. However, would lead to all the
the word serious is members
rather subjective and it acknowledging that all
is entirely up to the issues should be
discretion of the buying reported to you.
department to report Furthermore, the final
on any matter. It is also decision about whether
quite possible that the matter is serious or
important matters not should be taken by
would be brought up to you as you are the
you as they were not director. You also have
considered to be much wider experience
serious by the than other members
department members, and your decision
this would lead to would be much more
important matters informed, and you
being unresolved. should be made aware
of all the issues.
Reporting Framework There is also no A formal reporting
evidence of a formal structure should take
reporting framework place with the
within the buying department as this
department. This has would result in all the
 led to supply chain issues being reported
issues only ever being to you and reduce the
considered or brought chances of any issue or
into attention. With the matter going
findings of the internal unresolved. This would
audit, there are serious also increase the
issues which should be overall operating
reported immediately effectiveness of the
to the senior organization.
management through a
formal structure.

Case Requirement-4:

Report:

To: The Board

From: Sales & Marketing Director

Subject: Customer Database System

Introduction:

This report has been prepared to present the board with the importance of a
sophisticated customer database system. It includes the benefits of a CDMS
including the loyalty scheme. In addition to this, the report also contains an
evaluation of the NPV analysis supporting the CDMS investment.

Part-A:

Benefits of Introducing CDMS including Loyalty Scheme:

A recently commissioned market research has concluded that SmartWear

appears to have no clear understanding of the profile of its customer mix,
and as a result operates quite unsophisticated and ineffective marketing
campaigns. The sales and marketing director has been considering the
development and implementation of a sophisticated customer database
management system (CDMS), incorporating a customer loyalty scheme, to
replace the existing very basic customer database. Following are the benefits
of introducing CDMS including loyalty scheme:

Improved Focus: A sophisticated customer database management system

would enhance the focus of SmartWear towards the ever-changing needs and
requirements of its customers. It would allow the company to better assess
the external environment. It would also help us to distinguish between our
regular and irregular customers so that we would be able to provide reward
points to our regular customers and provide lucrative offers to less regular
ones to increase their interest.

Customer Retention: A sophisticated customer database management

system could also be expected to result in increased customer retention for
the company as our customers would feel much more valued. The system
would help us to suggest products to the customers which are in accordance
with their preferences. As customers would feel valued and their choices to
be respected, their loyalty would increase. This is significantly important for
SmartWear due to the increased competition and our reduced ability to
retain customers.

Competitive Advantage: An improved system would also help us to

achieve competitive advantage as we have already developed the brand
image of our company by selling high quality clothing at reduced prices. Our
brand is popular with the public, and with the new system and provision of
lucrative offers to customers it can be expected that our customers will not
consider switching to other retailers as we would be providing bonus points
on their purchase.

Increased Reputation: A sophisticated customer management system

would also enhance our reputation with the public as we are already famous
for our low cost and low-price business. The system would also help us to
improve individualization among our customers, this would also increase the
loyalty of our customers. As the economy is currently in a recessionary
phase, insider perks or heavy discount offers would highly appeal to the
public, which would help us to retain the existing and attract potential
customers.

Part-B:

Evaluation of the NPV Analysis:

An NPV analysis has been undertaken by the marketing department which

suggests that the investment should be proceeded with as it generates an
18.42% ($7m/$38m) return on its initial investment. However, this analysis
incorporates a range of underlying assumptions which are questionable.
Evaluation of the analysis as follows:

Initial Investment:

The initial investment in the system is expected to be $38 million, which is a

significant amount given the financial conditions of the company and the
economy as a whole. There are some issues regarding the assessment of the
initial investment. It has included the initial capital outlay, which is correct,
however, it also incorporates sales tax on the purchase price recoverable
through the Noria tax authorities. Any recoverable sales tax should not be
included in the initial investment, only non-refundable purchase taxes should
be included according to the relevant reporting standard. This increase the
value of investment.

The investment also includes the amount of installation and system setting,
which is correct as all the cost incurred to bring the asset into working
condition should be included in the investment. However, the investment
also includes staff training cost which is a revenue expenditure for
SmartWear and should not be included in the cost of investment. Staff
training is an ongoing expenditure as the system would be updated with the
changes in technology and customer demands thus its incorporation as a
one-off cost is questionable. This should have been included as an annual
expense in the appraisal.

Lastly, the investment amount also comprises a 5-year maintenance and

support contract with the supplier which again is a revenue expenditure and
should not have been included in the initial investment amount. This should
have been included as a separate expense in the financial appraisal.

Operating Costs:

It is expected that the operating cost will remain constant over the record
period of 5 years. The assumption behind this analysis should be questioned
as it seems highly optimistic to assess that the operating cost would remain
the same.

Furthermore, no breakdown of these operating costs have been provided,

which would have made the evaluation much easier as a holistic view would
have been provided. Nevertheless, it is quite possible that the operational
costs would change during the course. The assumption behind this
estimation should be investigated.

Contribution:

It has been estimated that the project will generate $22 million in respect of
additional contribution which represents approximately 58% of the initial
investment. This also suggests that the payback period would be less than 2
years. However, this estimation also seems to be over optimistic as the
market research has asserted that SmartWear is finding it increasingly
difficult to retain and get repeat business from its existing customers and
customers are shifting towards the new e-retailers. SmartWear would be new
to this system and there is a high likelihood of errors and mistakes therefore,
it cannot be expected that we would generate such high contributions as
there is a high level of competition. Furthermore, this optimistic estimation
might also be due to the cost estimation which is also quite low.

Loan Financing & Interest:

It has been expected that a new loan will be taken out for the amount of the
initial investment, however, there is no evidence that whether any
communication has taken place with any loan providers such as bank. Due to
the economic downturn, finance providers might resist providing loans
despite the fact that Noria has developed capital markets.

Furthermore, when the weighted average cost of capital is used as the

discount factor for the financial appraisal, interest payable should not be
included as an expense. The reason for this inclusion should be further
investigated.

Taxation:

It has also been assumed that the tax rate of 30% will remain constant over
the record course which is an optimistic assumption as there are concerns
over the coalition government and it is expected that they might not last
their full term. This increases the chance of the elections which might result
in new tax rates being implemented in the country which reduces the
reliability of the estimate.

Overall, the estimates and assumptions made in the financial appraisal

require further consideration and a decision should not be taken
immediately. A new appraisal should be made with amendments and other
appraisal techniques such as sensitivity analysis should also be considered
prior to the final decision.

Case Requirement-5:

Presentation Slide:

Benefits of Integrated Thinking:

- Departmental Motivation
- Improved Focus
- Forward Looking
- Delivering long-term value
Integrated thinking refers to the collective thinking about the organization as
a whole including all the departments rather than concentrating on some
particular departments only. The benefits of Integrated Thinking are as
follows:

Departmental Motivation: Integrated thinking would increase

departmental motivation as it would help SmartWear to develop a
participative style of management and members of different departments
would feel inclusive in the overall decision-making process which would
increase the overall organizational effectiveness.

Improved Focus: Integrated thinking would help SmartWear improve its

focus on the effectiveness of the organization and its activities. Integrated
thinking would help the senior management of SmartWear to become aware
of the issues and concerns of all the departments, which would lead to more
informed decision-making. This would also help the board to incorporate the
key stakeholder concerns and the attached risk management into all the
departments.

Forward-looking Approach: Integrated thinking will help the organization

to have a more forward-looking approach to meet the needs of all of its
stakeholders. This would help SmartWear to address the concerns of its
stakeholders at large in a better manner as integrated thinking would
incorporate input from all of the departments which will lead to better
decision-making and in a forward-looking manner.

Delivering of Long-term Value: Integrated thinking will also help

SmartWear to improve its delivery of long-term value. Integrated thinking
would help SmartWear to align its long-term goals with the needs of its
stakeholders and given the recent financial conditions of the economy, long-
term value would be a critical factor for the sustainability of the company.
Integrated thinking would help us to deliver long-term value to our
customers despite the current uncertainties.

Part-B:

Briefing paper:

To: Finance Team

From: Chief Financial Officer

Subject: Integrated Reporting

Introduction:
This briefing paper has been prepared to address the wider finance team
about how the use of the Integrated Reporting Framework would enable
SmartWear to provide more relevant information to its shareholders about
the creation of sustainable long-term value.

Traditionally, our shareholders and others around the world were mainly
concerned with the financial performance of the business and returns on
their investment were a major contributor to assessment of the
organization’s value. However, in the recent economic and business
environment, the expectations of our shareholders have changed where the
need of non-financial information regarding to how we are creating value for
them has become of great importance.

An influential institutional has severely criticized us by perceiving that we are

short sighted and have a narrow focus on our business model. However, we
think that this criticism is unjustified, but this does not negate the fact that
we should not focus on why the criticism took place. We believe that the
most probable reason for the criticism is a lack of understanding by certain
investors of the SmartWear business rationale and the company’s integrated
thinking. To improve the communication with our shareholders and other
stakeholders we have decided to adopt our own version of Integrated
Reporting which would help us to inform our shareholders about how we
create value in short, medium, and long-term.

The use of integrated reporting will inform our shareholders regarding how
we manage the 6 capital and how these work in integration to maximize
value for our shareholders. We believe that the introduction of Integrated
Reporting would address the concerns of our shareholders and stakeholders
at large and would enable to them to make more informed decisions. It is
also expected that the introduction would boost our reputation among the
shareholders which has recently been threatened due to the criticism.