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National University of Singapore Department of Finance and Accounting ACC4612: Internal Control and Risk Management in China Semester II, 2013/2014 Instructor: Neale Gilbert O’Connor Office MRB-07-17 Tel: 82583604 Email: [email protected]

Course Description

This module is designed to prepare accounting honors students with the necessary knowledge and skills to analyze and write reports on firms operating in China. This module is designed to prepare the accounting honors students with the necessary knowledge and skills to ‘lead from Asia’, a core mission of the NUS Business School. This course came about and is distinguished from other courses on Asia or China in that it focuses on the things that you need to know to do business in China today. This course covers strategy execution issues in engaging China and doing business in this complex and fast-growing economy. It is suitable for students with an interest in gaining an understanding of important risk and control issues such as factory location, capital structure, logistics, operations management and industry trends associated with firms operating in China. As the second largest economy in the world and poised to overtake the United States in economic output, China offers vast opportunities for a wide range of businesses and challenging careers for business graduates from all parts of the world.

The course is conducted by way of formal lectures, field work, one invited guest speaker and case discussions. The case approach is adopted to give the students a sense of how real problems are encountered and solved in the "real world."

ACC4612: Internal Control and Risk Management in China 2

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Learning Outcomes:

After successfully completing the module, you will be able to: a) Appreciate the current political, economic and operation risks facing businesses in China

b) Critically analyze the causes and consequences of management control practices in firms operating in China, as well as understand how MNCs manage and work with their suppliers in China

c) Critically analyze the causes and consequences of internal control issues facing Chinese firms and the Sarbanes Oxley (SOX) compliance issues.

d) Generate, design and conduct field based research

The course is taught in seminar format with lectures, class discussions and case studies.

Prerequisites: Course Assessment:

ACC4612 is a continuous assessment (CA) module. You are assessed upon:

- Individual Participation 25% (A) - Individual Province/Sector Report Presentation 25% (B)

- Group Case Study/Research Paper Presentation 10% (C) - Fieldwork Project 40% (D)

Total 100%

(A) Participation will be assessed based on student attendance, asking questions and raising issues in class.

(B) An individual assignment focused on a particular business sector/province in China. The presentation based on a minimum 3 page report will also include a sector / province analysis, risk issues and opportunities.

(C) A case study will be discussed in each session from Week 4 to Week 12. Each student will take turns to do at least one 15 minute in-class presentation on the assigned cases.

(D) Students have a choice to undertake a field work project. There are two types of field work projects

a. Individual Firm Report - a report on a single firm based in Asia and how it is

managing its supply chain originating from China. This will include both strategic location of suppliers, the effects of materials, labour and other costs, as well as operational control issues. The report will also include brief country analysis, strategic positioning of the supplier and challenges and options. OR


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b. China sourcing Expo Report – a report on a group of Chinese suppliers and how they are managing their number one challenge. This report will focus on the key challenges facing Chinese suppliers and the key strategies that they are using to be successful. Student will have access to recorded and word document summaries of over 800 interviews with Chinese suppliers.

c. The report will be graded according to: Extensiveness of the information

obtained (25%), focus of the questions (15%), analysis (35%, impact for the reader (25%). It should be compiled in a professional manner that reflects the approach taken by analysts and consultants (min 2000-words). To be submitted by 2nd May 2014.

Optional Expo Visit : There will be a visit to the China Sourcing Expo in Hong Kong (April 2014).

COURSE MATERIALS Text: O’Connor, N.G. (2012) The China Casebook on Operational Risk, Pearson: Singapore, 2012. Supplementary materials will be provided based on research and reports.


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Week Topic Case Study Presentation Reading

RISK MANAGEMENT - POLITICAL AND ECONOMIC RISKS IN CHINA

Wk1 (15Jan)

MACRO Introduction to China and Field-based Research

Introduction and explanation of course and assessment

Are you a bull or bear on China? What factors are relevant to keep an eye on for sensing the shifts in the short and long term risks of doing business in China? Homework – Find an article on China that supports a bullish or bearish case. Note the factors used to support such case.

Wk2 (22Jan)

HOW TO SOURCE FROM CHINA? Lecture – Small Buyer Risk Workshop presentation

What are the different industrial regions in China?

What do you have to do to successfully source from China?

Homework – You have been put in charge of purchasing souvenirs for your local association’s forthcoming gala dinner. The souvenirs must have your association’s logo. Find two quotes online for 1000 pieces of USB or something similar. Note the terms and conditions of making such purchase


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RISK MANAGEMENT – OPERATIONAL RISKS & MANAGEMENT CONTROL SYSTEMS IN CHINESE FIRMS

Wk3 (29Jan)

AUDITS Lecture – Operational risks in China Factory Audits Product Audits Social Responsibility Audits 20 minute Question and Answer Skype Call - Asia Quality Focus

So what are the different types of audit services available in China? What are the key things that you need to know when deciding to hire an auditor? Homework: Find two audit services online and compare and contrast their services offered.


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Wk4 (05Mar)

IP RISKS Lecture – IP Risks and Due Diligence Research in China 20 minute Question and Answer Skype Call – IP RISK Lawyer

So what Big Buyers Doing to manage Chinese suppliers? 4. Student Case Presentation 6. O’Connor, N.G. (2010). PQI: Management of Suppliers. The China Casebook On Operational Risk (2012).


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Wk5 (05Feb)

SUPPLIERS Lecture - AOS 2011 Presentation Main concerns of foreign firms and Chinese suppliers

What is the China Factory Competitive Framework? What are the key examples of problems that occur when buyers put cost pressure on suppliers? What are successful MNCs doing to manage this framework? 1. Student Case Presentation 1. O’Connor, N.G., S. Vera-Munoz and Francis Chan. The Effect of Market Competition and International Orientation on Management Control System, Use by Emerging Market PLCs. Accounting, Organizations and Society. (2011) 36, 246-266. 2. O’Connor, N.G. (2011). China Automotive Finance: Service Operations Re-design. The China Casebook On Operational Risk (2012). Homework: Find an article on a Chinese firm that engaged in one of the opportunistic actions in the China Factory Competitive Framework.

1. What was the behavior? 2. Why did it occur?


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Wk6 (12Feb)

SUPPLIERS Lecture – Management Controls in Chinese firms

So what Chinese suppliers doing in response to pressure from foreign buyers? Evidence from the China Supplier 1000 Study. What is the main challenges facing Chinese suppliers? How are they responding to these challenges? Homework: Read 5 of the case vignettes in the China Supplier 1000 website and summarize the main challenges and responses taken by the Chinese firms. 2. Student Case Presentation 3. O’Connor, N.G. (2011). Shanghai Delphi Automotive Door System: Running a Manufacturing Operation in China. The China Casebook On Operational Risk (2012). 4. O’Connor, N.G. & Anne Wu. Magic Group—Implementing the balanced scorecard in the electronics industry. The China Casebook On Operational Risk (2012).

Gillon, Kirstin; Hodgkinson, Robert; Lee, Anyu; Mao, Ji-Ye; O’Connor, Neale; Wright, Ning; and Zhang, Jerry (2012) "IT Innovation in China: Industry and Business Capabilities," Communications of the Association for Information Systems: Vol. 30, Article 24. Available at: http://aisel.aisnet.org/cais/vol30/iss1/24

O’Connor, N.G., Inter-organization Communication, Monitoring and Performance Measurement Alignment, Working Paper, NUS Business School (2012)


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Wk7 (19Feb)

MNC BUYERS Lecture – Management Controls in Chinese firms

So how do large firms manage their suppliers in China? 3. Student Case Presentation 5. O’Connor, N.G. (2011). Xinan Pharmaceuticals – Implementing the Balanced Scorecard to Manage Intangible Assets in a Chinese Joint Venture (Part II) The China Casebook On Operational Risk (2012).

Sources of Bargaining Power and Inter-organizational Cost Management and Monitoring Practices (with Anne Wu and Kerry Jacobs). Under review with Accounting, Organizations and Society. How Great Companies Manage Their Suppliers in China: Lessons from the Consumer Electronics Industry (With Anne Wu).


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Recess Week (24Feb-02Mar)

Wk8 (12Mar)

MNC BUYERS Lecture – Bargaining Power and Big Customer Best Practices Presentation

So what Big Buyers Doing to manage Chinese suppliers? How does Apple manage its suppliers in China? 4. Student Case Presentation 7. O’Connor, N.G. (2010). Strategic Performance Management of Suppliers at HTC. The China Casebook On Operational Risk (2012).

Relative Performance Evaluation in a Multiple Supplier Environment: Evidence from SMT Smartphone Electronics Supply Chain Working Paper, NUS Business School (2012)


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RISK MANAGEMENT AND INTERNAL CONTROL SYSTEM FRAMEWORKS

Wk9 (19Mar)

SOX Lecture – SOX and China

SOX Internal Control Deficiencies: Chinese versus U.S. Firms (with Ray Baker and Gary Biddle). WP 5. Student Case Presentation 8. O’Connor, N.G. (2011). PCL: A Breakdown in the Enforcement Of Management Control. The China Casebook On Operational Risk (2012).


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Wk10 (26Mar)

OTHER ISSUES 40 minute Question and Answer Skype Call – Lecture –

6. Student Case presentation 9. O’Connor, N.G. (2011). Sunshine Fashion: Fraud, Theft and Misbehaviour among Employees. The China Casebook On Operational Risk (2012).


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Wk11 (02Apr)

DEBT COLLECTION Lecture – Payment Risk and Debt Collection in China 45 minutes - (In Class) Guest Speaker – On Debt Collection in China

7. Student Case Presentation 10. O’Connor, N.G. (2011). ECG Group: Negotiating The Liquidation of a Joint Venture in China. The China Casebook On Operational Risk (2012).

Wk12 (09Apr)

Lecture – Major Challenges Facing Chinese Firms

Project Presentations

Presentations and Summary

Wk13 (16Apr)

Lecture – Summary of the four sections

Project Presentations

Presentations and Summary Submit final reports by 2nd May

Reference：O’Connor, N.G.. (2012) The China Casebook on Operational Risk, Pearson: Singapore, 2012.


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BIO of INSTRUCTOR – DETAILS AT WWW.NEALEOOCONNOR.COM Prof. Neale O’Connor obtained a BBA degree from Ballarat College of Advanced Education (Australia), and worked for Mann Judd Chartered Accountants for two years before pursuing a Postgraduate Diploma in Accounting from the University of Melbourne (Australia), and a PhD degree from Griffith University (Australia). He is a Certified Practicing Accountant (CPA Australia). O'Connor has a diverse consulting and executive education portfolio with a wide range of companies in the Asia-Pacific region. His work has focused on controllership, financial performance metrics, and human resources management. He has also developed corporate business cases for a number of companies including HTC, PQI, EU Design, Philips, Sungod Fashion, Delphi, Alpharma, and Rescom Realestate. His most recent research examined the use of management controls in international joint ventures in China and the adoption of formal management control mechanisms in Chinese SOEs. He is currently involved in researching how great firms manage the risk associated with their suppliers in China, the adoption of performance measures and their linkage to manager compensation in a publicly listed firm in China. Prof. O’Connor has also published a book: Management Control of Multinational Enterprises in China. Specialties Risk measurement, performance measurement, supplier management - with particular emphasis on China.

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