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Question 1

Please set out clearly all the commercial , legal and other risks Kajicars Limited faces in the present economic situation.

  1. COVID-19 Recession - Less demand for vehicles - Fewer wholesale orders / fewer sales. 

  2. Supply risk/disruption of supply - (Covid and other conflicts in the world - possible disruption of raw material imports). 

  3. EU/UK trade deal delays at the border/custom forms - Just-in-time manufacturing 

  4. New regulations - ban of Petrol and Diesel cars by 2030. 

  5. Possibly more stringent regulations e.g. new emission standards. 

  6. Possible IP theft - Very similar cars being produced by competitors. 

  7. Self-driving cars - Less demand for traditional vehicles. 

  8. UBER/LYFT - less demand for personal vehicles/growth of gig economy. 

  9. Technological automation of production - competitors becoming highly automated. 

  10. Competitors are producing hybrid and electric alternatives - does the company have enough capital to invest in R&D and new production facilities.

  11. Macroeconomic risk - higher corporation taxation due to high government borrowing. 

  12. End of Furlough - does the company have enough cash reserves to maintain current workforce? 

  13. Has the company got sufficient quality control policies in place - Kaizen? - Prevent future recalls. 

  14. Low Productivity of the UK workforce. 

  15. Exchange Risk - Profits in the UK → Japan. When profits are transferred to Japan they are receiving less in Yen.

Question 2

Please advise the company how it should mitigate or avoid the risks you have identified.

  1. Analyse profitability of all models of vehicle - shift production to the most profitable. Review cost strategy / production and try to reduce variable costs. In turn making the vehicle cheaper for purchase - increased demand.

  2. Change suppliers or ensure that the suppliers have good Corporate Social Responsibility. 

  3. Comply with customs regulations and in the extreme situation consider establishing production facilities in the EU. 

  4. Urgently invest in R&D and change the production to produce approved electric vehicles (Question 3).

  5. Company will have to adjust their production. Ensure that all vehicles produced comply with the new regulation. 

  6. Ensure all IP is protected, patented and rigorously pursue any breaches, anywhere in the world. 

  7. Invest in R&D to start producing self-driving vehicles (long term objective). 

  8. Market our cars to the Gig economy. 

  9. In order to remain competitive, they will need to invest in automation to cut costs in the production line.

  10. Company will need to invest heavily in R&D to produce new models of hybrid and electric vehicles. 

  11. Structure our corporate organisation to move profits to a tax haven/country with lower taxation. 

  12. Cut workforce numbers or cut their salary. Move production to a cheaper country. 

  13. Ensure quality checks are maintained - invest in new methods of quality control. 

  14. Consider increasing automation and/or moving to a country where productivity is higher (e.g. China, South Korea, Vietnam or in the EU: Slovakia etc). 

  15. Enter into hedging arrangements/ forwards/ derivatives.  

  16. Seek government grants or subsidies to support the production of new EVH.

Question 3

Should the company change production to produce electric or hybrid cars , and if so, what are the risks associated with that plan ?

  1. Risks – Crowded market. Need to differentiate it's new electric & hybrid vehicles EHV)  from others. EHV are still generally more expensive than petrol / diesel vehicles – will their loyal customers be able to afford/ want to buy their new EHV ?

  2. Have to conduct R&D into the technology used for EHV. Issues around life of the batteries for EHV and the range of EHV.

  3. Limited infrastructure to support charging of EHV . Time to charge EHV is too long.

  4. Need to spend a huge amount of money in R&D to develop new technology. Has to differentiate itself from existing technology. Might consider entering into a joint venture with another car manufacturer in relation to jointly developing EHV technology.

  5. Have to prove environmental credentials – can not afford another vehicle emissions scandal.

  6. Have to convince existing customers to continue to buy their brand of EHV.

  7. Huge capital expenditure to change production plant/ machinery - does the company have finance? Green revolution ?

  8. Seek government grants or subsidies to support the production of new EVH.

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