8: Risk Factors and Risk Management
8-1: Business Risk
Having been established in 1987 as an integrated electronics parts and products manufacturer, the Company, under the Vision, “We shall strive to be the world’s best manufacturing service company by providing high quality products and services to ensure maximum customer satisfaction.”, aims for only one OEM manufacturer in the field of the electrical, electronical components and car parts finished goods which focuses on Differentiation Strategy by pursuing superior EQCD and complete customer satisfaction. The Company, through continuous development of better technology and improvement of productivity, is a manufacturer of components and semi-assembled products, as well as finished, products, having high capability and responsibility for marketing, production, sales and distribution. The business risks of the Company are as follows.
8-1-1: Production Risk
Production risk is a risk of the deficiency of products incurring during the production process, despite inspection. The Company must take full responsibility for damage that has resulted in a flawed product whether it has resulted from human error, machine failure or defect of parts purchased from outside suppliers. Presently, the Company is covering business areas so broadly from manufacturing simple parts to assembling more complex and high-valued products that risks relating to quality of parts purchased from outside suppliers, for instance, should be recognized as a supply chain risk and has become much more critical ones to the Company than it had a decade ago.
>> Risk management
In order to ensure continuity and good quality of supply, the Company always pays special attention to managing key parts and their suppliers. Since last year the Company had started establishing a new system “Key/Critical Suppliers” and “Key/Critical Parts” in our supplier management Framework which ensure good quality and continuity of supply. The company not only evaluates the quality, technology, delivery performance, price and other reliabilities of the suppliers, but also analyses their financial status. The Company has been entering into the Basic Transaction Agreement and the Quality Assurance Agreement with suppliers which play critical roles in quality management of its products. In addition to that, the Company, in 2018, has started revising the content of these agreements and pushing further in executing them in order to reduce and minimize this Production Risk.
8-1-2: Product Risk
Product risk occurs with the utilization of the product by the end user; in case of injury, for example, of a consumer through faulty functioning of a product sold by the Company.
>> Risk management
In order to prevent this risk, the Company constantly and carefully reviews specifications and design of products. Since the Company’s responsibility is basically on manufacturing the products designed by customers, the Company’s should take this Product Risk caused by product design as not so much critical as the customers.
8-1-3: Inventory Risk
Inventory risk is a risk arising from deterioration in the quality of raw materials, parts and manufactured products during storage. The Company is accountable for damage or loss caused by such deterioration of the inventories.
>> Risk management
The Company always pays special attention to keeping the inventory in good quality and order by applying various principles, practices and systems to inventory management. The Company has successfully established a new system which could up-grade its inventory management.
8-1-4: Credit Risk
Credit risk is a risk due to a customer’s inability to pay for their purchases and a payment failure by a supplier on its debt to the Company.
>> Risk management
The Company is carefully checking daily paying performance of customers and suppliers. Before starting a transaction with any new customer or supplier the Company carefully investigates creditability of it. In 2017, the Company started a credit control system including payment record investigation and credit rating of customers to maintain the minimize credit risk.
8-1-5: Market Risk
Market risk is possible loss of manufactured product, purchased parts and raw materials in inventory due to market change or sudden order cancellation from customers.
>> Risk management
The Minimum Inventory Activity policy, which the Company has been deploying, is extremely essential in order to minimize this risk. The Company is well-prepared to meet any challenge in order to stay ahead of competitors in both product quality and product pricing; for instance, the Company is, through revising the Basic Transaction Agreement with suppliers, aiming to establish effective cooperation with them which could make both parties act more flexibly to the market changes.
8-1-6: Competition Risk
As a manufacturing service provider, the Company has to compete against not only competitors of the same business model but also the customer itself because the manufacturing provided by the Company must be better than or at least the same level of the customers. For the same reason, the Company should also compete against competitors of the customer. The Company inherently faces this kind of competition risk.
>> Risk management
In order to compete and survive in the industry, the Company should further strengthen its competitive edges as follows;
– Broad range of production method and technology as a manufacturing service provider including metal stamping, plastic molding, painting & printing, surface mounting on PCB, assembly of component & finished product, die & mold design, die & mold manufacturing, and metal surface treatment
– Seamless integration of various manufacturing lines of assembling components and/or finished products applying various methods and technologies as mentioned above in the most effective way
– Well-coordinated cross-functional cooperation established through the history and experience covering not only production but also sales, logistics, procurement and administration
8-1-7: Economic Condition Risk
Since the Company has been involved in global supply chains relating to various industries, it is inevitably exposed to conditions of global economy. Now that global economic growth could face a serious slowdown driven by several events such as US-China trade war, China’s economic slowdown, European economic volatility facing Brexit, tension in the Middle East causing oil price fluctuation etc., the Company’s business could also face a downturn risk.
>> Risk management
In order to manage all the aforementioned risks, the Company will continually monitor and analyze events which may affect the Company’s business. Apart from the negative impact from an event, e.g. US-China trade war, if it may create any positive one by making a shift in global supply chains, the Company should take proper action without loosing opportunity. In any case, under this kind of volatile situation, the Company should keep stringent due diligence process before making a decision.
8-1-8: Compliance Risk
As a publicly listed company, the Company is required to comply with various laws and regulations. Any failure to comply with any one or more of such laws and/or regulations could expose the Company to penalties or other legal action against the Company and its Senior Management. In addition to that, such a failure could affect reputation of the Company and could damage trust of customers, business partners, communities and other stakeholders.
>> Risk management
Since establishing the Good Corporate Governance Committee in 2016, the Company has been making continuous improvement of compliance-related matters, e.g. “The Company’s Regulations Re-Establishment Project” that concerned regulations were updated, renewed, or newly created continuously. In year 2022, the Company was qualified level 5 (“Excellent”) in the Corporate Governance Report of Thai Listed Companies (CGR) 2022 by the Thai Institute of Directors Association (IOD). The Company will continue and strengthen the improvement.
8-1-9: Corruption Risk
Corruption is a serious problem and obstacle of the Company’s sustainability which affect both financial and non-financial loss such as profit, penalty and reputation. Even in case the Company has strict measures and internal control, corruption can possibly occur anytime. The Company should give attention to and tackle this risk.
>> Risk management
The Company has established Anti-Corruption Policy, Corporate Code of Ethics and related policies, and provides all the employees with educational programs. The Company also provides employees and business partners with the whistleblowing channel set in several different routes. In 2019, the Company, through the Risk Management Committee, made a corruption risk assessment, as a trial basis, following “A Guide For Anti-Corruption Risk Assessment” published by United Nations Global Compact Office with the form, “Table of Corruption Risk Assessment” ANNEX 1 of the Self-Evaluation Tool for Countering Bribery, Private Sector Collective Action Coalition Against Corruption (CAC).
8-2. Technology Risk
In the world of electrical and electronics appliances business development and progress has been there always, and accelerated more and more recently.
>> Risk management
The production of components has to keep pace and to be in line with this ever-evolving progress. The Company must make investment in a number of areas to maintain the lead over competition. These areas include high technology machinery, measuring equipment and the training of skillful engineers and workers. The Company has started a new project to correspond to the electronics industry to warding smaller, more efficient and more complicated designs, according to its mid-term business plan. The Company’s technology and capability of die-making, which represent special value among its technical resources, should be important to secure valued orders from customers and to keep costs down. The Company has expanded its training program in this technology.
8-3. Workforce Risk
The industry of electrical and electronic components production depends enormously on the workforce, not only on technicians and engineers but also on workers in production lines, where though the Company even uses high technology automatic machines and robots, it still relies very much on the human power and abilities as critical resource of its pursuing value.
>> Risk management
The Company greatly values the importance of its personnel at all levels by setting employee welfare at a high standard. An executive/employee joint committee called CP&H Kai (Creation, Power & Harmony Committee) has been founded to coordinate and communicate effectively between executives and employees. In 2016 the operation rules of this committee have been improved by inviting more participation from employee side. This has promptly resulted some positive modifications of employee treatment through meeting with in the new committee. With actively working of this committee, company has achieved the greatest result in employee relations and has received “Thailand Labor Management Excellence Award” for 15 consecutive years.
8-4. Financial Risk
As many products of the Company are exported, directly and indirectly, to foreign countries, and a lot of raw materials and components, which are not available in Thailand, need to be imported in a foreign currency. Therefore, it is inevitable that the Company is exposed to currency exchange matters.
>> Risk management
The Company has been making efforts in matching foreign currency income to the payment in the same currency in order to reduce the actual exchange profit or loss into acceptable level. In addition to that, the Company manages to minimize cash balance maintained in USD and JPY currency and utilizing financial tools including forward booking. The Company has established internal policies and rules covering such transactions. Concerning a risk on financial resource, the Company has built good relationships with financial institutions in Thailand as well as abroad in order to secure a long-term and stable fund facility for possible expansion, rehabilitation and diversification of operation in the future.
8-5. Environmental Risk
The Company is always aware of its mission to provide society with environmentally sustainable and energy-efficient operation. Otherwise, environmental issue could be a significant risk to the Company.
>> Risk management
The Company has been operating with ISO 14001certification for many years. In 2017, the Company successfully received a certification under the up-dated version of the system. In 2016 the Company reached up to level 4 of the Green Industry qualification promoted by Thai government and then is keeping it. The Company has established internal policy “Safety, Health, Environmental Objectives and Action Plan 2021”. With such system, qualification and plan, the Company is continuously improving its sustainability including chemical substances control and waste materials management.
8-6. Disaster Risk
The Company could be exposed to risk from fire or natural disasters, which might interrupt production and bring a serious impact to the Company’s business.
>> Risk management
The Company has insurance for property damage in order to mitigate this risk. This year the Company has significantly reduced a temporally flood risk in a day of heavy rain by improving drain system around its factory. In addition, the Company could, based on the BCP, ask support from other production sites of affiliate companies in a same corporate group, which locate in Thailand and other countries.
8-6-1: Epidemic Risk
The outbreak of the COVID-19 has not yet seen an end and effects on the Company’s operation cannot be predicted.
>> Risk management
The Company has established a policy and practice guidance to conform to the guidelines of the Ministry of Public Health by passing information about disease prevention and hygienic care to employees to ensure the correct practice during the outbreak in order to be to continue the business. The Company also monitors the situation and news closely. We are promoting the vaccination of employees, and the vaccination status is over 80%. We are preventing the spread of infection by conducting regular antigen tests for all employees.
8-7. IT-Security Risk
Due to rapid and continuous progresses in information technology, there are risks associated to IT security or technological threats that could occur either as a result of system faults, human errors and cyber-attacks etc. If the information system is down or encounters any circumstances that cause data loss, data leakage, failure and/or malfunction, it would be a severe and serious impact to the Company’s operation, competitiveness, reliability and eventually reputation in the industry.
>> Risk management
The Company has re-established Information System Management Regulations as well as IT Security Policy. Under these Policy and Regulations, the Company has been managing security measures including firewall installation, hardware redundancy, anti-virus software, software patches, back-up facilities, access authorization to the critical systems etc. In addition to that, the Company has also been building awareness of employees to IT security issues through education and training and conducting regular risk assessment and audit.
