QUESTION $8(10$ marks $15$ minutes$)$

Paintmaker Ltd is a large paint and related product manufacturer. The company$$s products

are aimed exclusively at the expensive end of the market and the company has built up a

reputation for quality. The market for this type of product is very demanding and it is

extremely important for manufacturers in this sector to maintain product quality. The

directors are considering whether to introduce a cheap range of paint into the local market

directly aimed at the mass housing sector. This market is very competitive and specialized in

its own way, but the production director has suggested that the company$$s existing

manufacturing equipment could be adapted to produce the low$-$quality paint.

The company has a diverse operational staff ranging from many semi$-$skilled wage earners

to scientifically trained product researchers. All the product researchers are trained in

Germany.

Paintmaker Ltd$$s manufacturing process for its major product $($paint$)$ is complex. Innovation

and development in manufacturing technology is aimed at producing better quality paint is

rapid and equipment is expensive. Paintmaker Ltd$$s preferred method of funding equipment

is by financial lease. All the major equipment and machinery must be imported from

Germany. German technicians fly out twice a year to service the equipment.

All of the company$$s information systems, for example financial, marketing, inventory control

as well as the manufacturing process are computerized, the latter being a very sophisticated

system. Most of the raw materials for manufacture are imported.

The paint manufacturing process produces fairly extensive waste, some of which is used in

the manufacture of related products. Paintmaker Ltd does export some paint but most sales

are local. The paint manufacturing industry is highly regulated regarding pollution, emissions,

etc.

Because raw materials are imported it is necessary for Paintmaker Ltd to hold substantial

inventories of raw materials, many of which are highly flammable.

The board of directors believes strongly in sound corporate governance including

compliance with King IV$.$ The risk management process is overseen by a risk committee.

For the purposes of risk assessment, the risk committee categorizes the risks faced by the

company into the following types:

$1.$ Strategic $-$the risk associated with strategic decisions to be taken by the

company.

$2.$ Financial risks which have a direct effect on the financial aspects of the company.

$3.$ Reputational risks to the reputation of the company.

$4.$ Compliance the risk that a business decision may result in significant breaches of

legislation.

$5.$ Operational risks which arise from the operation of a paint manufacturing process.

$6.$ Information risks facing the company$$s information technology systems.

YOU ARE REQUIRED TO:

Identify, from the information given above, risks which Paint maker Ltd faces. $(10)$