Question one. A). Business Risk – it refers to adverse conditions to which it suppresses the business performances. These adverse conditions subjecting the business to greater risk can be externally or internally caused. The risk outsourcing This is unfavorable condition that relates to external factors beyond the business control. Also this risk can be regulated by producing internally. Regardless of the important benefits of outsourcing business firms is subjected greater risk and threats to the company that might lead to closure. Cheaper Eats Limited externally outsources 60 % of its major products from Zen Company.
Cheaper Eats Limited is not in agreement with the Zen’s terms of payment where during previous period Cheaper Eats Ltd is known to delay the payment however discouraging and breaking the Zen’s conditions of credit. The business will be on an operational risk where it will depend on the 40% internally produced materials that will be insufficient to meet the company’s operation. In relation to outsourcing operational risk, the Zen’s Limited managers should strategically consider outsourcing agreements as a fundamental challenge and should place more emphasis in controlling outsource process.
The 60% reliance on Zen’s Limited gives a competitive environment to Cheaper Eat Limited where the breach has contributed to decrease in the credit payment period which will contribute adverse potential impacts on outsourced materials. If the contract of supplies comes into ceased, this might lead to liquidation of the dependent company since the 40% internally produce materials cannot meet the company’s operations. Marketing RiskZen the Japanese firm is attributed to supply the Asian produce at a lower price Cheaper Eats Limited which means there retail price will as well low compared to Cheaper Eats Limited, therefore as the Zen company planned to establishes its branches in Australia market, Cheaper Eats Limited will in potentially in high marketing risk.
Due to the dissimilar retail price between the two Companies, Zen Company will have a deliberate advantage over Cheaper Limited due to supply chain partnership to Cheaper Eats Company. The Company will suffer due to competition from Zen Limited where it will be selling its similar products in the market. As a result of this risk of competition Cheaper Eats Ltd sales value is expected to drop drastically.
Also as due to drop in the sales these will earned less return to the Cheaper Eats Limited. The change from the budgeted turnover trend of the business is expected to subject the management to potential risk of withdrawal. To cover this deviating business trend management will be forced to manipulate entries in the company’s books of account so as to cover the changes from the business expectation. The risk of competition in the market will then hold down the prices of Cheaper Eats Limited hence prompting reduction in selling prices therefore leading to lower rate of marginal income thus this will force the management to appropriate a way to be adopted in order to meet the forecasted business results.
The divergence from the shareholders expectations will force Cheaper Eats Limited management to window dress the company’s transaction records to reflect the better business performance level and satisfaction to the directors and shareholders.