You are the newly promoted Manager of Operations at LongTech, Inc., an international communications company that manufactures, integrates, and installs communication equipment in terrestrial stations around the world. The customer base is approximately 65% government customers and 35% private service providers (telephone companies, internet service providers, etc.) who are licensed to operate by their governments.

You have been in the job for a few weeks, and your boss asks you to put together some priorities for future operational guidelines. You are required first to research the internal functions of the organization and then to make a few recommendations about what should be done when. As part of the exercise, you have just returned from a three-week fact-finding tour of all the firm’s business operations.

The company is a medium-sized manufacturing company, headquartered in Hagerstown, MD, with business operations and offices in the US, Italy, Denmark, Australia, China, and Japan. Manufacturing is located in the US and Vietnam; high-end product components are manufactured in Hagerstown, MD and then shipped to Vietnam, where low-end products and all assembly are conducted. All finished products are shipped from Vietnam to the regional offices. Each office serves its region with specialized staffs for finance and accounting, legal and contracts, sales, engineering, and after-sales support.

Sales breakdown is as follows:

US: 10%

Europe and Middle East: 25%

Africa: 10%

Asia: 40%

Australia: 5%

South America: 10%

Annual revenues are about $75,000,000.

Up until 3 years ago, this was a family business, but the second generation of the family sold the business to a private equity group and it is now a private corporation. The investors have a medium-term goal to grow the company to about $100,000,000 annual revenue and then to go public and to be listed on NASDAQ.

As you review operations worldwide, you see discrepancies in business practices in each business center. There is no uniform method of accounting except at the highest levels of corporate reporting There is no uniform requirement to abide by FCPA or OECD guidelines regarding corruption or bribery. There is no uniform way to manage the supply chain and the supply chain is not centralized so that one group can benefit from the activities of any others. Accounts payable payments vary from region to region. Accounts receivable issues plague every business unit. Salaries and responsibilities for different levels of employees are not uniform. In summary, instead of this being one company, it looks more like six independent companies managed with very little oversight from Headquarters. Nonetheless, the company is profitable and has met every financial and business goal that the board of directors has established.

In your recent grand tour of the company’s operations in every region, you sensed that the local management of each business unit appreciated that HQ did not impose overbearing requirements on the local offices and that each unit was allowed to “do its own thing”.

Nonetheless, you believe that some centralization is necessary for many reasons. Supply chain issues concern you, as do the A/P and A/R issues. There are too many independent banking relationships, and Long Tech can’t achieve any economies without a strong money-center bank assisting them. You also suspect, but you can’t prove, that some of the business units bend the few rules that are in place, and that some form of bribery may have been in play in a few, very competitive awards recently. You strongly believe that some central control should be established to include an ethical code of conduct, more training and education in both FCPA and OECD guidelines, and sensitivity to local laws and regulations regarding bribery and corruption. You cannot be dissuaded that some form of regular compliance review for each business unit should be established.

You also have concerns about the cost of such a set of programs and you don’t want to be seen as a “goody two shoes from corporate” who is taking away the independence that has come with decentralization. In short, you know that “if it ain’t broke, don’t fix it”, but you sense that without some control, Long Tech will be unprepared for problems when they arise.

What financial ratios might be important for you to look at in this case? Why?