(a)
Political factors
Ace Telecom Ltd. currently dominates its national telecommunications market with an 85% share of the market. The company will be under political pressure from the national government to reduce its dominance by opening up the national telecom market to competition and reducing prices for telecom products charged to consumers.
The government has appointed an industry regulator to be directly involved in the control of the telecom industry, and no doubt Ace Telecom Ltd. will be under close scrutiny. Political forces will be a major factor affecting the operations and plan of Ace Telecom Ltd.
Also, a very important consideration is the political conditions comprising the stability and the policies of the government of the day in the international markets where Ace Telecom Ltd. has operations.

Economic factors
There are three main economic elements that Ace Telecom Ltd. needs to consider. These are:

• Shareholder wealth – Ace Telecom Ltd.’s shareholders are a major stakeholder group who will have economic objectives of profit maximization and rising share value. This is crucial, especially as the company plans to obtain public funds from the stock exchange.
• The contribution of the telecommunications industry to the national economy – The telecommunications industry plays a major role in contributing towards economic growth and prosperity. Ace Telecom Ltd. has a responsibility to develop new technology and to provide a reliable, value-for-money service to its users.
• The economies of foreign countries – The economic conditions in each foreign country that Ace Telecom Ltd. operates in should be considered, e.g., foreign currency exchange rates and national economic boom and slump cycles.
• National Economic Indicators – Considering the proposed investment in technology for Ace Telecom Ltd. and considering the favorable national economic indicators within the external environment, the company can capitalize on the reducing interest rate to acquire cheaper debt capital towards its anticipated expansion programs. The operational and expansion could be supported by increasing demand within the economy due to falling inflation; however, this would largely depend on the elasticity of the products and services supplied by Ace Telecom.

Social factors
Telecommunication products are social products used by people for many reasons. The company should ensure that it understands the social needs of its customers and provides a reliable service. The company should also portray itself as a socially responsible company with a set of social objectives and keep close contact with consumers, e.g., by producing a range of services for elderly citizens who are more dependent on telephones for obtaining help when needed. Another dimension of the social environment, which includes the culture of the different markets where Ace Telecom operates, is issues of branding. Ace Telecom could pursue a strategy of inculcating the values and culture of each of their local markets into their products and services.

Technical factors
The telecommunications industry is a high-tech industry that is currently very dynamic. Ace Telecom Ltd. is the market leader in the industry and must be innovative to maintain its competitive advantage. The company must invest in research and development to ensure it has a constant supply of new products in the years ahead to replace those going into the decline stage of their product life cycle. Ace Telecom may also have to think of integrating after-sales support services as a core activity in its value chain for very technical products, especially as they are contemplating investing in high technology.

(b) By relating products to markets, Ansoff identified four main strategies for achieving long-term growth.
(1) Market penetration strategies – Ace Telecom Ltd. currently has 85% of its national market. There is little scope for obtaining any growth by increasing its market share. Most households and businesses will have a conventional telephone line, so some of the company’s products will be at the maturity stage of their cycle, offering little prospect of growth. Some market growth may be achieved by getting existing customers to use the telephone more. A market penetration strategy only offers limited growth prospects.
(2) Product development strategy – This strategy involves introducing new products into existing markets. Ace Telecom Ltd. has already achieved a good track record for new product development and with continued investment in research and development should maintain its momentum. There is a lot of market opportunity in the industry for this strategy, e.g., further development in mobile phone and internet technology.
(3) Market development strategy – Ace Telecom Ltd. has pursued a successful strategy of expanding into foreign markets with existing products. It currently has operations in South America, Asia, and Europe. In Ace Telecom Ltd.’s latest annual report, the Chairman refers to developing countries such as those in the Central Region where the company currently has operations.
(4) Diversification strategy – This involves introducing new products to new markets and is a high-risk strategy. Ace Telecom Ltd. is a large, profitable company with a prospector (innovative) culture. The company should carefully evaluate the risk of any diversification strategy, and if opportunities exist, they should be considered, e.g., digital television technology.
The company should pursue all four strategies with the main emphasis on product development and market development, as these exploit the company’s main strengths of expertise in research and development and growth in foreign markets.
Note: Some students may draw Ansoff’s Matrix. If this is correctly done without any subsequent explanation and relating it to the case, half of the total mark may be awarded.

(c)
(i) Reduction in bank base rate
(1) Change in costs of borrowing
This may occur directly through the change in the cost of borrowing and therefore the cost of capital. A fall in interest rates will make borrowing cheaper and therefore reduce the cost of raising the finance for the proposed expansion. This is likely to apply to any means of financing the company, since corporate borrowing rates are generally set at a certain premium above base rate. If Ace Telecom Ltd. applies DCF techniques in evaluating the expansion, the reduction in the cost of capital will lead to an increase in the level of the NPV for the proposals.
(2) Level of demand
Level of demand within the economy could be indirectly affected through the effect of interest rates. Keynesian theory contends that a fall in the level of interest rates will increase the demand for money, and hence the overall level of demand within the economy. Monetarists, on the other hand, believe that the level of consumer demand is unaffected by changes in interest rates. Ace Telecom Ltd. is trading in low-value basic products for which the level of demand is relatively inelastic. Even if a fall in interest rates affects overall demand in the way that Keynesians predict, this is unlikely to have any significant effect on the level of demand for Ace Telecom Ltd.’s products.
(3) Economic confidence
The reduction in the interest rate will increase general economic confidence and encourage expansion. Again, though, it is a contention that the level of confidence will not have much impact on the type of product the company is dealing in.
(4) Summary
To summarize, the reduction in the bank’s base rate is likely to reduce the cost of the expansion plans but will probably have little effect on the level of sales.

(ii) Effect of present and forecast rates of inflation
(1) Interest rates
Interest rates are unlikely to rise if inflation remains so low.
(2) Costs of purchases
The cost of the products that Ace Telecom purchases should remain stable. Wage rates may be less affected; there may be pressures other than inflation rates that cause wage increases.
(3) Price increases
In conditions of low inflation, it is hard to make any price increase without losing business. Ace Telecom, as already noted, is offering low-value products and services and thus is unlikely to increase prices up to a certain extent, thereby reducing its ability to compete favorably based on price. Low inflation is therefore likely to present more of a threat than an opportunity to Ace Telecom.

(iii) Effects of stable tax rates
(1) Consumer demand
Changes in personal tax rates can affect consumer demand, but as was discussed above, demand for Ace Telecom products and services is inelastic, and therefore the stability or otherwise of tax rates is unlikely to have much effect on sales.
(2) Tax relief
When planning the expansion, it is easier to plan with confidence since the levels for tax relief available to both the company and individual equity investors are known.
Stable personal and corporate tax rates will therefore help in developing the expansion plans.

(d) Arguments in favor of expansion
(i) Need to increase sales
Due to the low level of gross margins, Ace Telecom Ltd. needs to increase the level of sales in order to trade profitably. In view of the low level of recent sales growth, in spite of the addition of new products, it seems that the only way to increase sales significantly is by the opening of new outlets.
(ii) Bulk order discounts
Expansion of the business will increase the level of purchases and could lead to an improvement in the level of buying power with suppliers and the ability to take advantage of bulk order discounts. This would, in turn, have a positive impact on gross margins and profitability.
(iii) Wider geographical spread
A wider geographical spread will make the business less vulnerable to local events, such as an increase in the level of unemployment or the opening of a new superstore.
(iv) Economies of scale
Expansion could lead to some economies of scale, for instance, in the wider deployment of regional management.

Arguments against expansion
(i) Nature of products
Expansion will not change the fundamental weakness of the business, which is that most of the business is in low-value products with strong price competition. There is limited potential to grow, and other factors, such as the greater convenience of being able to buy practically all products required at a single large store, are working against the business.
(ii) Risk of political pressure
Ace Telecom Ltd. risks coming under greater political pressure if it tries to expand further to obtain a larger share of the market (already 85% is very significant and could lead to monopolistic behaviors by the company). Such political pressures could lead to greater political regulation and costs that may hinder the operations of the company.
(iii) Competitive pressures
Strong price competition due to low inflation and the position of the supermarket sector is likely to continue for the foreseeable future.

Conclusion
In conclusion, Ace Telecom Ltd. should think very carefully before committing to the expansion, since this is unlikely to do much to increase margins and profitability. The company could perhaps consider an alternative strategy of selling different higher-added-value products and changing the whole style of the operation. For example, it could consider expanding into areas that present greater opportunities for competing based on cost/price.

(e) The Accra Stock Exchange Listing requirements provide for six major ways by which a listed company can obtain quotation for its shares as follows:
(i) An offer for sale, which is an offer to the public by an issuing house or broker of securities already in issue or for which they have agreed to subscribe.
(ii) An Offer for Subscription
(iii) A Rights issue, which is an issue of shares at a special price by a company to its existing shareholders in proportion to their holding of old shares.
(iv) A Bonus/Capitalization issue, which is an issue of additional shares to shareholders instead of paying dividends, in proportion to shares already held.
(v) A placing, which is the term used to describe the sale of or obtaining subscription for securities privately by an issuing house or broker through the market and to or by their own clients.
(vi) An introduction, which describes an application where no marketing arrangements are required because the securities to be listed are already of such an amount and so widely held that their adequate marketability when listed can be assumed.