Question 1
Sources of the problem facing Wight
Despite Wright comprehend and being clear on his mandate as the Clearwater Seafood’s Chief Financial Officer (CFO) he had faced several challenges. As CFO, he was required to determine the best way to incorporate company’s foreign exchange risk management program into the overall growth strategy of the firm. The company has been benefiting from a weak Canadian dollar. However, strengthening of the Canadian dollar has become a source of the problem that Wight is facing. According to the article, as the Canadian dollar falls, the company’s foreign exchange risk management program has contributed significantly to the Clearwater Seafood’s bottom line. However, increasing of Canadian dollar value lead to decreasing of the bottom line of the program. This problem made Wight reconsider the Clearwater Seafood’s foreign exchange risk management program.
Wight, as Chief Financial Officer he had to recommend ways to minimize company’s financial risk as steps to encounter the problem. His suggested steps had to consistent with the Clearwater Seafood’s overall strategy to contribute to improving company’s long-term profitability. In addition, Wight had to suggest a method to advance the magnitude as well as the stability of the Canadian dollar value of the Clearwater Seafood’s global cash flows. However, Wight encountered another problem of improving company’s profitability that was caused by the investors. Investors did not understand company’s foreign exchange risk management strategy as well as its contribution to the bottom line. They only understood Clearwater’s operational strategy in the Seafood Industry.
Question 2
The appreciation of the Canadian dollar
According to the article, the appreciation of the Canadian dollar has an intensive impact on the current situation of the company. Wight noticed that as the Canadian dollar gradually increased its value, the contribution of the foreign exchange risk management program to the firm was progressively decreasing. Additionally, Wight recognized that the strengthening of the Canadian dollar was a trend that was going to prevail throughout the year of 2006. As a result, several problems emerged that was to be a challenge to him. The problems included dilute earnings in the short term due to restructuring of business operation, and hurting investor sentiment due to continuing of the suspension for too long. Moreover, increasing in the value of Canadian dollar was to weaken Clearwater’s competitive position in the market about seafoods companies across the world.
The appreciation of the Canadian dollar led the company into a crisis that was different from the situation that Clearwater was facing at the time the Canadian dollar was depreciating. The Fishing operations had benefited from the depreciation of the Canadian dollar much. The main benefit of the depreciating Canadian dollar to the company was the improvement of company’s foreign exchange risk management program that had a significant contribution towards the firm’s bottom line. Despite the seafood business being seasonal in nature, Clearwater Seafood had been fruitful in growing its business through the development of new products and attaining of new licenses and quotas. The company has established a large market size in the country with high population growth rates such as India, China, and the United States. Based on the new growth strategy, the company could operate on strategy rooted from the three pillars of the business that involve vertical integration, innovation, and diversity of species and market. All this was possible since the depreciation of Canadian dollar was favoring the operation of Clearwater.
Question 3
Alternatives before Wight
Before Wight holds the conference call, he understood that he require putting intensive considerations to the distinct alternatives. Additionally, he was prepared to clarify how the alternatives are related to the standards of interest to the major stakeholders of the company. Wight made two alternatives, one he argued that should they revise the company’s change and strategy, at a fundamental level, and the way they do business. The second alternative was, should they leave the strategy intact and pay focus on interacting better on its rationale to the stakeholders.
The alternative of changing Clearwater’s strategy was to focus more on attention to the company’s foreign exchange risk management operations. The aim was to increase the latter’s ability to generate profit and manage risk. The benefits of increasing company’s trading in foreign exchange alternative were to help Clearwater to mobilize its cash flows in distinct currencies and put the currencies to better use. Another benefit from this alternative will be the trade-off would be the Clearwater’s ability to hedge its imminent cash flows. The benefit of the second alternative, which was to change company’s operational strategy, was to decrease Clearwater’s exposure to foreign currencies. Therefore, the alternative ensured that the company diversifies its operations into other markets. The alternatives would allow distribution to be restored and allow the company to have sufficient cash flow to endure growth. In 2002, Clearwater Seafoods were converted into an income fund of Cdn$233 million. The amount was used to clear debt and pay down finance asset acquisitions, and hence, the company enhanced future growth and helped them to resume distribution payments quickly.
Question 4
For Wight to deal with financial risks, he had to have steps that are consistent with the Clearwater’s overall strategy that will improve the company’s long-term profitability. To address financial risks he had to identify the company’s strengths. Consequently, it was essential to provide enough financial resources to influence them so that the Clearwater would make adequate profits to restore distributions. In addition, Wight should ensure that the company has effective economic hedges that will typically help the company to involve borrowing in the foreign currency to make sure the company has match cash flow patterns. Wight should enhance a strategy that will focus on operational hedging as well as diversification that will be a long-term solution for the fluctuating value of the Canadian dollar.
Wight should ensure that operating managers to have competition based on environmental attributes, the speed of entry, alignments with the value chain, response to consumer demands, and new product launches than to compete with low-cost production. All these will help the company to justify premium pricing. Wight should enhance on a strategy that focuses on financial hedging as well as opportunities in the foreign exchange market that would allow for instantaneous results that will help in the rapid restoration of distributions. The proposed strategy to improve the stability and magnitude of the Canadian dollar value in the company cash flow done by Wight differed from the past policy that concerned investors. The strategy was to enhance and be committed to the long-term viability of the Clearwater, but the vast majority of the stakeholders were more interested in short-terms results. This put Wight under pressure to provide for a viable strategy for pushing the company forward.
