Options for Expansion of Business
Question:
Discuss about the Organizational political ideology and the corporate.
Expansion of business is a rigorous task. It should be noted here that the expansion of business is the prime indicator of the fact that the selected business has potential and the opportunity to increase revenue is high. Here, the creation of a proper image in regards to the business entity is highly important as the major portion of sales depend on the image of the firm. This is because a firm penetrating the market will not only require innovative marketing skills but also will need to take over the trust of the targeted customers in order to be a potential competitor of the already present firms.
The major issue presented in the case study is that Anniben Plc is a large manufacturing company that is based in UK. One of the objectives of the corporate entity has been increasing its scope of sales and in turn the profits by the expansion of the sales to the international boundaries. A common practice in such situations is aiming at a target audience or a target market. However, in case of Anniben Plc the case has been different. It has not set a target market and aims to explore as many diverse countries as possible. Now, the sales director of the corporate entity is of the opinion that a successful expansion of business can only be carried out by the preparation of a proper corporate social responsibility framework, which will set apart the company from the other companies that are already present in the market. On the other hand, the finance director of the corporate entity is of the opinion that the preparation of accurate and proper financial statements of the company that reflect a true and fair image of the company should be enough to gain the trust of the customers in the foreign land. Thus, this will enable business to give real competition to the already established firms. The chairman of Anniben Plc wants to explore both the presented options that reveals the advantages and disadvantages of these considerations and finally come up with the correct recommendation.
This particular study aims to provide an overview into the presented options and the much-needed recommendation that will enable Anniben Plc to expand business thus, incur more profits.
CSR is a brand new concept in the field of business reporting and dominates the corporate entities in regards to its adherence. It should be noted here that the each and every corporate business has its own policy in regards to the social responsibilities that a corporate entity should carry out along with the reporting of its activities regarding the same in the annual sustainability report of the entity. The idea in regards to CSR is defined as the linkage between the global entities, governmental bodies and respective citizens. To be precise, these social responsibilities points out the duties, which a corporate entity carries out in regards to the environment in which it operates (Saeidi et al., 2015). The types of activities of a business organization that if dealt carefully may affect the environment in a positive way or else negatively affect the surroundings are as follows:
- The usage of the naturally derived resources which forms a part of the process of production
- The marketing strategies and other activities undertaken as a part of the competition between the fellow firms
- The improvement and enhancement of the standards of living of the local communities
- The particular activity in regards to the landscape transformation because of the extraction of the raw materials or storage of the waste products
- The proper and equal segregation of the profits earned not only within the organization but also the stakeholders of the firm
- The activities of the firm in regards to the current environmental issues like the global climatic change and the particular method in which the emission in regards to the greenhouse gases aggravate the problem
Corporate Social Responsibility
Therefore, it can be deduced from the above activities that the actions of an organization can significantly affect the external environment of the organization. The application of the organizational activities determines whether these actions can be beneficial or detrimental.
For understanding the significance of the CSR activities, the principles of the social responsibilities in regards to the corporate entities can be listed down as follows:
- Sustainability
- Accountability
- Transparency
The concept of sustainability can be defined as the impact that the actions that have been taken in the present times have on the options that will be available in the future. For instance, the particular decision by a firm for the utilization of the natural resources pertaining to a particular region will deplete the resources for use in the future. Therefore, a proper corporate social responsibility in this regards would be utilization of the resources in finite quantity (Yakovleva 2017).
Thus, sustainability implies that an organization must utilize that amount of resources that can be regenerated for future utilization. Furthermore, this particular principle implies that an organization is a portion of the broader economic system and that a particular corporate entity can maintain the sustainability standards by the development of the sustainable operations or by the planning in regards to the future that lacks the current required resources (Yakovleva 2017).
Next, the principle of accountability refers to the acknowledgement of the business entity that it affects the environment in which it operates and assumes responsibility for its actions. This concept therefore intends to quantify the impact of the actions taken by the organization in regards to both the external and internal environment of the organization. Moreover, the principle of accountability also deals with the measurements or steps undertaken by the particular organization for mitigating the negative impacts and the benefits accrued from such actions (Yakovleva 2017).
Lastly, the principle of transparency is the most important principle and applies to both the principles of sustainability and accountability. Transparency refers to the degree of clarity in the information that is conveyed to the external stakeholders of business via the annual report of the company. Transparency is significant and is of utter importance to the external stakeholders of business. This is because the external users of the sustainability report of the company lack the required knowledge and the background details that is already available to the internal users of such information (Gupta, Briscoe and Hambrick 2017)
The principles listed above deduce the fact that the corporate social responsibilities are taken seriously by the corporate entities worldwide, as the managers have understood that the real key to success is a proper corporate social responsibility structure or framework.
The prominence of corporate social responsibilities is further explained. This means that the corporate social responsibilities have emerged as an important part of the business structure because of the following points:
- Poor business behavior in regards to the customers
- Treatment of the employees in an unfair manner
- Ignoring the environment and the consequences of the organizational actions
These were the primary reasons that have contributed to the prominence of the corporate social responsibilities. This prominence has been recognized by the corporate entities in the recent times. The companies are no longer green washing the external stakeholders by pretending to report the sustainable developments in an artful manner but by producing the required clarity in the reports (Gupta, Briscoe and Hambrick 2017).
Principles of Social Responsibilities
Moreover, it should be noted here that the advantages of corporate social responsibilities are enough to contribute to the key success of business. The advantages of performing corporate social responsibilities can be listed down as follows:
- The performance of the corporate social responsibilities would help the organization and the labor unions to prevent the excessive exploitation of the manual workforce and incidents involving bribery and corruption
- The performance of the corporate social responsibilities would make the companies aware about the duties that are expected from them
- The different aspects of the corporate social responsibilities enhance the reputation of the business
- It could help to improve the profitability and the sustainability of the business
- The implementation of the proper corporate social responsibility standards would result in the exclusion of the companies that maintain lower CSR standards (Cheng, Ioannou and Serafeim 2014)
- The existence of strengthened CSR commitments in an organization helps in attracting and retaining employees. This is because a potential candidate would like to work for an organization that looks out for its staff and facilitates the providence of good working conditions (Cheng, Ioannou and Serafeim 2014). This will not only satisfy the employees but also enhance their production capacity which will increase the total production quality and quantity and in turn increase the total profit acquired by the firm
- Moreover, the existence of a proper corporate social responsibility structure will help to attract the attention of the investors so that they invest in the corporate entity. This will ensure a continuous inflow of cash in business and further strengthen the debt financing structure of business (Cheng, Ioannou and Serafeim 2014).
- A corporate social responsibility scheme will also ensure the protection of the environment that is affected by the operational activities of the business
- A good corporate social responsibility also facilitates positive publicity
Thus, these advantages provided by a corporate social responsibility structure make it a key component in ensuring the success of business. These responsibilities elevate the goodwill of the corporate entity.
However, there are certain disadvantages to the undertaking of the corporate social responsibilities. This can be explained as follows:
- Time-consuming process – the establishment of a proper corporate social responsibility structure requires time and patience. The society or the surroundings in which the particular firm operates cannot be improved in a single day (Hong and Liskovich, 2015).
- Shareholder Interests – the establishment of a proper corporate social responsibility structure requires changes to a number of processes along with a greater degree of reporting. It might be also required by the corporate entity to hire an additional CSR executive or personnel for the management of the activities. These activities will incur a certain cost, which will have to be derived from the acquired profits of the firm (Hong and Liskovich, 2015).
- Corporate Reputation– It may be noted here that the revealing of the sustainability information and incidents that affected the degree of sustainability of the organization may have a negative impact upon the trusted band of customers. These game changing pieces of information have wiped off the trust of the loyal customers and led them to believe otherwise in regards to their favorite corporate entities. For instance, the corporate conglomerate, Coca-Cola had reported in their sustainability report for the financial year of 2003 that a damaging chemical had been found in their products. This resulted in the sales dropping by a percentage of forty in a time period of two weeks (Hong and Liskovich, 2015).
- Cynicism of the customers – a lot of stakeholders and customers complaint that the sustainability report is just an eyewash and is only full of false promises. The customers are generally cynical in regards to the sustainability activities that have been undertaken by a business entity (Hopkins 2016).
- Competitive disadvantage – corporate social responsibility in some probabilities increases the time and cost in regards to production of a particular product. This means that the strict regulatory policies that have been implemented by the business entity in regards to the corporate social responsibility principles like the supply of raw materials from the suppliers that should possess the desired quality. This increase the production overhead which in turn increases the overall cost and time in producing the product. Other firms, not adhering to such strict principles might enjoy the benefit of competitive advantage of producing and satisfying the customers more quickly and at a lower cost (Hopkins 2016).
Financial reporting has become a major component of the managerial accounting in the recent times. To be more precise, financial reporting can be referred to as the bedrocks of modern business .
The fundamental structure of any industry that might be in the nature of manufacturing or service is that the existence of several departments in the organization that may or may not depend on each other. However, at the completion of all the activities that have been carried out in the different departments of the organization are connected by the Accounting and Finance department. This is because the finance department of the organization records the financial aspects of these business activities. This is reported at regular intervals for the assessment of the performance of the organization (Weygandt, Kimmel and Kieso 2015).
Financial reporting primarily involves the disclosure of the financial information in regards to the various stakeholders of business. Here it should be noted that the stakeholders refers to the internal and external members of business that are directly affected by the increment or decrement in business and have the capability to provide the impact in a similar way. Thus, it is justified that these stakeholders become the primary users of the financial reports produced by the management of a company in order to analyze the performance of the business entity. The significant stakeholders of business include the creditors, investors, debt providers and government agencies. Thus, financial reporting is of huge importance to these entities as they determine the major financial decisions on the basis of such reports (Weygandt, Kimmel and Kieso 2015). The components of financial reporting that increase the importance of the same are as follows:
- The major financial statement that depict the liquidity position of the company are the balance sheet of the company, the profit and loss account statement, the cash flow statement and the statement of changes in the stockholder’s equity
- The notes that are disclosed as part of the accounting statements
- Quarterly and Annual reports
- Prospectus
The objective of financial reporting as defined by the International Accounting Standard Board (IASB) is the providence of information in regards to the liquidity position and the performance of the corporate entity that is of major importance to a broad range of users in determining the economic particulars. The objectives of financial reporting can be summarized as follows:
- Providence of information to the management of a firm for facilitating primary decisions like planning, decision making and analysis (Bryce 2017)
- Providence of information to the third party investors for facilitating a perfect economic decision (Ehrhardt and Brigham 2016)
- Providence of proper information in regards to the various aspects of the organization to the shareholders and the general public in case of listed companies (Ehrhardt and Brigham 2016)
- Providence of information in regards to the utilization of the economic resources of an organization (owner’s equity and liabilities) and the exact way in which these resources and claims have undergone change over a specific time period (Bryce 2017)
- Financial reporting also facilitates the providence of the required information to the external auditors who find it easy to carry out the auditing procedures with the help of such financial reports (Bryce 2017)
- Lastly and most importantly, the aspect of preparation of a clarified and contextual financial report facilitates the reflection of a true and fair image of the firm, which in turn enhances the aspect of social welfare by safeguarding the interests of the employees, trade union and Government (Ehrhardt and Brigham 2016).
- The primary advantage of corporate financial reporting can be explained by the function of providing the foundations for the comparison of the performance of individual firms with their competitors. This is because the already established principles and accounting regulations that form a benchmark that has to be followed by the corporate entities in the preparation of the financial reports. The particular way in which the financial particulars like the income, expense and assets should be recognized has been standardized by the present framework and any kind of discrepancy or deviation from the proposed standards can be easily identified and measured (Leuz and Wysocki 2016)
- A proper financial reporting can be used by the investors and the owners of the business for the purpose of taking proper financial decisions. Now, financial reports that are not genuine in nature will facilitate wrong investment decisions on the part of the third party investors and the other stakeholders of business. The particular process of financial reporting also aims to enhance the understanding of the organizational activities and also keeps the society aware about the activities carried out by the organization in a particular financial year (Leuz and Wysocki 2016)
- It must be noted here that there comes a time in the life cycle of a corporate entity when it exceeds the limit to borrow funds from the outside third parties. The selling of the stocks facilitates this process. Now, the establishment of a proper financial report will attract the potential investors of business thus enable the raising of required funds (Leuz and Wysocki 2016)
- The primary feature of the financial reports is that they facilitate the preparation of such report at definite intervals. This enables the shareholders and other stakeholders of business to obtain the required information from the accounting reports of the companies. For instance, the shareholders who are specifically interested in the organizational performance pertaining to the near past instead of depending on the input that is provided by him can refer to the financial reports of the past financial years. Moreover, the provided standards enable the easy identification of errors in the financial statements of the company (Cavusgil et al., 2014)
- The clear image that is reflected by the accounting statements of the company help to gain the trust of the customers and other stakeholders of business. Moreover, the providence of the proper disclosures in the financial statements facilitates the understanding of the financial position and other related financial particulars of business (Cavusgil et al., 2014)
Thus, the advantages provided by the financial report can be a potential key to the success of the business and can be utilized for the purpose of acquiring more profits.
However, there are certain disadvantages to the aspect of financial reporting that must be considered. The disadvantages of financial reporting can be listed down as follows:
- The objectives of the financial reporting are not only impacted by the environment within which the particular report is prepared but also by the information that is restricted in nature. It must be noted here that a significant portion of the financial statements are prepared based on certain assumptions which further limit the scope of the financial report (Hill, Jones and Schilling 2014)
- A financial report, as the name suggest provides the financial particulars of the company. The performance of the company has been quantified and further explained on the basis of numbers. Thus, a financial report does not provide an overview into the non-financial indicators of business. Therefore, a financial report does not necessarily help the user to understand the non financial performance of the company (Hill, Jones and Schilling 2014)
- Moreover, a financial report pertains to a single corporation thus, missing out on the aspect of industry benchmark. This means the users of the financial statements of a particular organization can only carry out the assessment of the financial performance of a corresponding company without the availability of the financial information in regards to the financial performance of the industry in which the industry belongs. Therefore, the users are able to execute a restricted analysis of the financial performance via the financial report of the company (Hill, Jones and Schilling 2014)
- The information that is presented by the financial reports is derived from approximate results instead of accurate measures. These approximate measures primarily refer to the estimates, classifications and summaries, which help in the preparation of the financial report. Therefore, the financial report is partially based on assumptions which is a barrier to the reflection of the true and fair image of the company (Crowther 2016)
- Moreover, a financial report provides information in regards to the activities that has been already carried out by the corporate entity. For instance, a user of the financial statement might opt to get information in regards to the future plans and objectives of the organization but a financial report fails to provide such information. This is because a financial report is prepared on the basis of performance of the company in regards to the past financial year. Therefore, it misses out on the future outlook of business (Crowther 2016)
- Different entities make use of the different accounting policies like the International Financial Reporting Standards (IFRS) and US Generally Accepted Accounting Principles create a distinction between the financial reports prepared by the corporate entities following the different reporting standards. This will limit the common foundation which could facilitate the interpretation of the financial reports irrespective of the geographical boundaries to which the corporate entities belong (Crowther 2016)
- Historical cost is the most abundantly used process of measuring the assets in case of preparing a financial report. The utilization of the historical cost poses certain problems in regards to the users of the accounting statements. This is because the preparation of the accounting statements on the basis of historical cost restricts the users of the financial statements as this particular method fails to account for the change in the level of price of the assets over a specific time period (Kearney and Liu 2014)
Thus, it can be primarily concluded here that the aspect in regards to solid financial reporting can effectively contribute to the success of the business. However, the potential limitation should be considered while treating it as the sole driver of success.
Importance of Corporate Social Responsibilities
The discussion in the preceding paragraphs lists the potential advantages and disadvantages of maintaining a solid financial report or the utilization of the corporate social responsibilities as a tool in regards to expansion of business. Here, it must be noted that the corporate entity that has been highlighted in the question, Anniben Plc is an already established organization and intends to expand business in the desired international market of various countries. Thus, the recommended solution in such a case would be that the company opts for the suggestion presented by the sales director. This means that the company should frame a proper social responsibility structure for winning the trust of the target market in the foreign land. Anniben Plc is an already established company and it can be readily assumed that it already maintains a true and fair structure in regards to the particular process of financial reporting. This can be further evidenced by the fact that the business is considering expansion plans, which is the primary indication that it has been a success in the homeland, and now the management is considering to achieve the similar or increased level of success outside the domestic boundary. Therefore, the chairman of Anniben Plc should consider the opinion by the sales director of forming a suitable governance structure. The company should consider preparing a report in regards to the particular accounting theory it follows in relation to the maintenance of its stakeholders of business and the environmental and societal initiatives taken for the improvement of its surroundings in the recent past. Moreover, the primary fact that the company will be extending its business in different geographical locations indicate the fact that the accounting regulations and principles followed at these different geographical locations, in all probabilities, will be different. Thus, the formation of a solid and clarified financial report would be of no use as the particular report might follow the International Financial Reporting Standards while the accounting regulations primarily followed in the selected foreign country for expansion is Generally Accepted Accounting Principles. Thus, it can be evidently concluded that a proper corporate social responsibility structure would be the key tool for Anniben Plc to carry out a successful business venture outside its domestic boundaries.
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