We list below as significant risks that we recognize as highly significant but that will not have a significant impact when they materialize, or those risks that we believe we can adequately address before the risk materializes:
Under its medium-term management plan "BE GLOBAL 2023," the Group aims to achieve sustainable earnings growth and business expansion, while simultaneously transforming its business model. To this end, we are investing in human resources and R&D, as well as in product development to strengthen our product competitiveness, and in the development and expansion of our business infrastructure. As announced on June 22, 2022, in October 2022, we plan to reorganize AVANT CORPORATION, DIVA CORPORATION, ZEAL CORPORATION, and FIERTE CORPORATION into three businesses through an absorption-type demerger agreement between the companies: (1) a business to support disclosure operations, (2) a business to support corporate value enhancement, and (3) a business to support digital transformation. However, it is possible that these business investments and restructurings may not produce the expected investment results due to changes in the
market environment or a gap between developed products and market needs. If the investment does not produce the expected effect, the Group's performance and financial position may be affected in the medium to long term.
In response to this risk, the Group carefully evaluates investment effects and risks qualitatively and quantitatively at the consideration stage of business investment and makes decisions in accordance with the authority stipulated in the "Authority Regulations" in advance. The Group strives to prevent risks from materializing and reduce their impact by continuously monitoring progress against the plan and implementing necessary measures in a timely manner.
The Group has developed several in-house software products in the areas of consolidated accounting, management accounting, and data utilization platforms. In the development of new products and additions to existing products, we continuously strive to improve quality and prevent the occurrence of defects through development based on our development management process, but we cannot deny the possibility that product defects may occur.
Defects in our group's products may affect our customers' operations, and failure to resolve such defects may cause a loss of trust in our group, which may affect our group's business performance and financial position.
The Group has established a quality control department to reduce quality risks during product development and is striving to improve product development quality.
The Group provides BPO services, which include implementation support and contracted development of software developed in-house or by a third party, as well as systemization and settlement of accounts services according to the needs of customers. In the provision of services, deviations from initial estimates may occur due to ambiguities in contractual content or requirements, or technical problems or project management issues that cannot be anticipated at the outset may arise, leading to increased costs and delays in schedules.
We recognize that this is an important risk because such problems could have a significant impact on our group's business performance and financial position due to higher-thanexpected costs and compensation payments for damages resulting from delays in delivery.
With regard to service quality, we are taking measures to reduce the impact on our business performance and financial position by insuring against contingencies, while improving project quality through the establishment of a quality control department as a basic measure.
We believe that one of the key factors in promoting our group's business and achieving growth is the timely and accurate understanding of customer needs and the continuous development of market-competitive products and services. However, if we do not make progress in securing and training the talented and knowledgeable personnel needed to achieve these goals as planned in the medium term, our future growth potential, business performance, and financial position may be affected.
In response to the above risks, we are striving to ensure competitiveness in recruiting by strengthening our recruiting system and understanding the market's appropriate compensation levels, and we are also promoting measures such as enhancing the training menu for new employees to enable them to contribute to the company as soon as they join.
Under its medium-term management plan "BE GLOBAL 2023," the Group aims to achieve sustainable earnings growth and business expansion, while simultaneously transforming its business model. To this end, the Company's policy is to make acquisitions and enter into capital tie-ups as necessary, while taking into consideration its business performance and financial position. However, in proceeding with M&A, there is a possibility that the transaction will not proceed as envisioned by our group due to reasons such as not finding a suitable candidate or not reaching agreement on transaction terms, etc. In addition, if problems arise after the investment or M&A that cannot be identified in the preliminary investigation, such as contingent liabilities or unrecognized liabilities, leading to impairment
of goodwill, etc., it may affect the performance and financial position of our group.
The M&A management organization conducts detailed due diligence on the financial position and contractual relationships of candidate companies in advance, and strives to mitigate this risk by verifying each identified risk and making decisions based on countermeasures.
In order to fulfill our social responsibility as a corporation, our group's greatest management goal is to "create a 100-year company" that can contribute to all stakeholders, including our customers, through the realization of sustainable business growth. We believe that the effective functioning of the Group's overall compliance system is indispensable to achieving this goal.
To ensure the effective functioning of the compliance system, the Group formulates compliance-related regulations, including the Compliance Risk Management Regulations, and ensures that all officers and employees are fully aware of them through education. In addition, the Compliance and Risk Management Committee promotes compliance activities by establishing quantitative checkpoints for compliance.
Although our group's organization is currently working to develop human resources and establish an organizational structure, we recognize that our management is highly dependent on Tetsuji Morikawa, President and Representative Director, and if a situation were to happen to the President and Representative Director, it could affect the promotion of our business activities and our business performance and financial position. We are working to develop successors by entrusting the management of the next generation of leaders as directors of operating companies and providing them with supervision and guidance from the holding company, as well as actively promoting recruitment activities.
In response to the spread of the new coronavirus infection, the Group is following the policies of the national and local governments and is taking measures such as limiting work that requires travel, using online formats for internal meetings, events, seminars, etc., and combining remote work, and is aware that the impact on our business has been sufficiently reduced. We believe that we have sufficiently reduced the impact on our business. In terms of domestic economic activities, the situation has not developed into a situation that would lead to a large-scale restriction of activities, and at this point, our business plan is based on the assumption that the impact of the spread of the new coronavirus will gradually begin to recover.
However, we cannot deny the possibility that the spread of a new infectious disease or the mutation of a new coronavirus could have a serious and prolonged impact on our ability to provide services in the event of future infectious disease outbreaks. In addition, IT investments may be further postponed against the backdrop of deteriorating business performance of domestic companies, resulting in a worse-than-expected performance of our group. In such cases, we are preparing countermeasures to limit the deterioration in performance by controlling some expenses, such as outsourcing costs.
On the other hand, we view the outbreak of a pandemic as an expansion factor for the market to which our group belongs, as it will drive the digitization of companies and increase the importance of management information over the medium to long term.
