7. Emerging Strategic Trends

Dr. Parveen Kaur Nagpal
Emerging Strategic Trends

Franchising
❖Franchising is a form of business organization that involves a franchisor, the
company supplying the product or service concept, and the franchisee, the
individual or company selling the goods or services in a certain geographic
area.
❖According to the International Franchise Association, A franchise is the
agreement or license between two legally independent parties which gives:
• a person or group of people (franchisee) the right to market a product or
service using the trademark or trade name of another business (franchisor)
• the franchisee the right to market a product or service using the operating
methods of the franchisor
• the franchisee the obligation to pay the franchisor fees for these rights
• the franchisor the obligation to provide rights and support to franchisees

Franchising
• Franchising is a method to do business that involves a contractual
agreement between two parties - a franchisor and a franchisee, for the
marketing and distribution of products and services.
✓The Franchisor: is the provider of the franchise.
✓The Franchisee: is the person who pays for and purchases a franchise from
a franchisor and operates a business using the name, product, business
format and other items provided by the franchisor.
• The franchise concept began in the 1850s when Singer Sewing Machine
Company (franchisor) sold sales rights to independent entrepreneurs
(franchisees) in an effort to raise business capital.
• McDonald’s was one of the first companies to sell franchises internationally
in the 1970s.

Franchising
Many of today’s major franchise brands, such as McDonald’s and KFC, started
in the 1950s.
Through the 1960s and 1970s, many more types of businesses - clothing,
convenience stores, business services, and many others - used franchising to
distribute their goods and services
Like other forms of business, franchising is part of our global marketplace
economy
As international demand for all types of goods and services grows, most
franchise systems are already operating internationally or planning to expand
overseas.
Restaurants, hotels, business services, educational products, car rentals, and
nonfood retail stores are popular international franchises. E.g. Subway is the
largest sub-sandwich chain in the world.

Franchising
• In a franchise contract,
✓The franchisee pays a lump sum plus a royalty on all sales for the right to
operate a store in a specific location.
✓The franchisee agrees to operate the outlet in accordance with procedures
prescribed by the franchisor.
✓The franchisor provides assistance in locating and building the store,
developing the products or services sold, training managers, and
advertising.
✓To maintain each franchisee’s reputation, the franchisor also makes sure
that all outlets provide the same quality of services and products.
✓The franchise ownership format attempts to combine the advantages of
owner managed businesses with the efficiencies of centralized decision
making in chain store operations.

Types of Franchising
1. Product Franchise: In this type, manufactures control how retail stores
distribute their products. Through this kind of agreement, manufacturers
allow retailers to distribute their products and to use their names and
trademarks. To obtain these rights, store owners must pay fees or buy a
minimum amount of products E.g. Watches
2. Manufacturing Franchise: Through manufacturing franchises, a franchiser
grants a manufacturer the right to produce and sell goods using its name and
trademark. This type of franchise is common among food and beverage
companies. E.g. Beverages
3. Business Format Franchise: In this format, a company expands by
supplying independent business owners with an established business,
including its name and trademark. E.g. Fast food chains

Merits of Franchising
• Easy Start of Business
• Recognized Name, Product and Operating Concept
• Continuous Support (may be in terms of training and development, sharing
recipes, promotional campaigns, marketing etc.)
• Business Relationships
• Increased Purchasing Power
• Increased Ability for Franchisor to Expand
• Competitive Advantage
• Lower Failure Rate
• Credibility
• Goodwill/ Recognition

Demerits of Franchising
• Franchise Costs (fees and/or royalties, which are usually tied to a
percentage of sales. Fees for national and local advertising and
management advice may add to a franchisee’s ongoing costs)
• Loss of Control
• Lack of Creativity
• Danger of Image Tarnishing
• Restricted Operating Freedom

Case Study - Franchising
Setting Up (Sandwich) Shop in China
Lured by China’s fast-food industry, estimated today at $180 billion, Jim
Bryant, 50, was not the only entrepreneur to discover it is hard to do business
in China. In ten years, Bryant has opened 19 Subway stores in Beijing—only
half the number he was supposed to have by now—while other companies
such as Chili’s and Dunkin’ Donuts have given up their Chinese operations
altogether.
Subway, or Sai Bei Wei (Mandarin for “tastes better than others”), is now the
third-largest U.S. fast-food chain in China, right behind McDonald’s and KFC,
and all its stores are profitable. Although Bryant had never eaten a Subway
sandwich before, Jana Brands, the company Bryant worked for in China, sold
$20 million in crab to Subway annually, so he knew it was big business.

When Subway founder Fred DeLuca visited Beijing in 1994, Bryant took him
to a place not on the official tour: McDonald’s. It was Sunday night, and the
place was packed. “We could open 20,000 Subways here and not scratch the
surface,” Bryant remembers DeLuca saying.
Two weeks later, Bryant called Subway’s headquarters in Milford,
Connecticut, and asked to be the company representative in China. He would
recruit local entrepreneurs, train them to become franchisees, and act as a
liaison between them and the company. He would receive half the initial
$10,000 franchise fee and one-third of their 8 percent royalty fees. He could
also open his own Subway restaurants. Steve Forman, the founder of Jana
Brands, invested $1 million in return for a 75 percent stake.

All foreign businesses in China had to be joint ventures with local partners, so
Bryant used the Chinese business practice of relying on local relationships to
find a manager for his first restaurant in Beijing. The project ran into
problems immediately. Work on the store was delayed, and construction
costs soared. It didn’t take Bryant long to realize that he and Forman had
been swindled out of $200,000.
When it finally opened, the restaurant was a hit among Americans in Beijing,
but the locals weren’t sure what to make of it. They didn’t know how to order
and didn’t like the idea of touching their food, so they held the sandwich
vertically, peeled off the paper, and ate it like a banana. Most of all, the
Chinese didn’t seem to want sandwiches.

But Subway did little to alter its menu—something that still irks some Chinese
franchisees. “Subway should have at least one item tailored to Chinese tastes
to show they respect local culture,” says Luo Bing Ling, a Beijing franchisee.
Bryant thinks that with time, sandwiches will catch on in China. Maybe he’s
right: Tuna salad, which he couldn’t give away at first, is now the number one
seller. Today there are nearly 600 Subway stores in China, with China’s fast-
food industry estimated at over $180 billion.
Questions
1. What are some of the main problems U.S. franchisors encounter when
attempting to expand their business in a country such as China?
2. What steps can franchisors take to ensure a smooth and successful
launch of a new franchise business in a foreign country?
(Source: https://opentextbc.ca/businessopenstax/chapter/franchising-a-
popular-trend/)

Outsourcing
• Outsourcing is contracting with another company or person to do a
particular function. Almost every organization outsources in some way or
the other. The functions outsourced are normally non-core to the business.
• Outsourcing is normally done for those jobs that require technical expertise
and when the organization wishes to focus on the core business.
• The basis of outsourcing is the economies of production. Organizations let
others perform certain functions in much cheaper, better and faster way
and focus oneself on doing what one does the best.
• Gilley and Rasheed define outsourcing as “procuring something that was
either originally sourced internally or could have been sourced internally
notwithstanding the decision to go outside (make or buy)”

Outsourcing
According to Brown and Wilson: "Outsourcing is the act of obtaining services
from an external source."
According to Stephen P. Robbins: "Outsourcing is purchasing materials or
labour from around the world based on lowest cost."
The key factors which have led to a growing trend of outsourcing are:
• Lack of expert-labour in some portions of the business process.
• Availability of cheaper labour, whilst not comprising on the quality of
output.
• Ability to concentrate on the other crucial business process.

Outsourcing
Merits Demerits
• Concentrating on Core
Processes
• Expertise
• Risk-sharing
• Reduced Operational and
Recruitment Costs
• Better prepared to face
challenges
• Reduce capital expenditure
• Risk of Exposing Confidential
Data
• Some problems can be better
resolved within rather than with
an outsourced partner.
• Hidden cost
• Lack of Customer Focus

Strategic Reasons of Growing Outsourcing in India
• India has the largest technical and professional talent pool in the world
• Flexible pricing options
• Consistent high quality services
• Infrastructure and technological capabilities
• Indian Government is stable and offers attractive IT policies
• Indian companies provide the quickest time-to-market (due to the
advantages gained by time zone differences)
• India is the most preferred global destination
• Cost saving
• Outsourcing will focus more on core business activities
• Standardized outsourcing solutions will be favoured over customization

BPO & KPO
BPOs and KPOs constitute two dimensions of outsourcing domain.
Business Process Outsourcing (BPO) is the business strategy where one
company hires another company to perform a certain task for them, i.e. they
outsource a certain job.
Example: A manufacturing company may outsource their packaging or supply
chain management to another company who specializes in those functions.
There are two parties involved, the client company (the outsourced) and the
external service provider or the vendor (the outsourcer)
Generally firms outsource one or more non-core business activities or
processes such as after sales service, customer relations, supply chain
management, real-time accounting etc. to external service providers.

BPO & KPO
Knowledge Process Outsourcing (KPO) is a subset of BPO.
KPO is when difficult, high-level tasks get outsourced by a company to a
vendor.
They require skills, technical knowledge, and expertise.
A company may outsource these tasks to another company (vendor) or a
subsidiary company located in the same country or sometimes offshore.
KPO means information related business task or knowledge-based processes
such as research, analysis, consultancy or any other high-level task are
outsourced i.e. done by the workers of another company or allocated to the
subsidiary of the same organization.
Some famous companies providing such KPO services in India are Wipro, TCS,
WNS Global, Aditya Birla Minacs etc.

BPO & KPO
Merits Demerits
• Flexibility
• Cost Effectiveness
• Speed and Accuracy
• Skilled Manpower
• Access to the Best Talent
• Better Focus
• Specialized Efforts
• Better utilization of the
resources
• Communication Gap
• Different Time Zone
• Loss of Control
• Deteriorating Quality
• Hidden Cost
• Lack of Confidentiality
• Lack of employment
opportunities in ones country
(if outsourced to some
country)

E-Commerce
E-Commerce/ Electronic Commerce/ Internet Commerce means buying and
selling of goods, products, or services over the internet.
The transactions of money, funds and data are considered as E-commerce.
The standard definition of E-commerce is a commercial transaction which
happens over the internet. Online stores like Amazon, Flipkart, Shopify,
Myntra, Ebay, Quikr, Olx are examples of E-commerce websites.
E-commerce is one of the fastest growing industries in the global economy.

Features of E-Commerce
• Ubiquity: Available everywhere at all times, on all the days.
• Global Reach: Transactions across borders
• Universal Standards: Technical standards of e-commerce is shared by all
countries around the world
• Personalization and Customization
• Interactivity
• Information Density
• Social Technology: Sites like Facebook, Twitter, LinkedIn, Instagram, and so
on, are not merely for connectivity but they collect information and can be
used as effective marketing tools.

Types of E-Commerce Models
1. Business to Business (B2B): Companies do business with each other and
the final consumer is not involved. So the online transactions only involve
the manufacturers, wholesalers, retailers etc.
2. Business to Customer (B2C): Companies sell goods/services directly to the
consumer. The consumer can browse their website and look at products,
read reviews and place orders. E.g. Amazon, Flipkart etc.
3. Customer to Customer (C2C): Consumer to consumer, where the
consumers are in direct contact with each other. No company is involved.
It helps people sell their personal goods and assets directly to an
interested party. Eg. OLX
4. Customer to Business (C2B): This is the reverse of B2C, it is a consumer to
business. So the consumer provides goods/services to the company. E.g.
An IT freelancer who demos and sells software to a company.

Merits of E-Commerce
• Access to Global Market Place
• Data Sharing
• E-CRM
• Electronic Payment System
• Convenience
• Time Saving
• Wide Range of Options
• Easy Comparison
• Easy to Find Reviews
• Coupons and Deals
• Reasonable Prices
• Cash on Delivery Options

Demerits of E-Commerce
• Adverse Impact on Jobs (due to automation of jobs)
• Problem of Taxation
• Initial Cost of Set up
• User Resistance
• Security / Privacy
• Absence of Physical Touch
• Dynamic E-Commerce Environment
• Lack of Internet Access

Digital Economy
Digital economy is defined as an economy that focuses on digital
technologies, i.e. it is based on digital and computing technologies.
With the advent of technology and the process of globalization, the digital
and traditional economies are merging into one.
Digital economy is one collective term for all economic transactions that
occur on the internet.
It is also known as the Web Economy or the Internet Economy.
It essentially covers all business, economic, social, cultural etc. activities that
are supported by the web and other digital communication technologies.

Digital Economy
There are three main components of this economy:
• E-Business Infrastructure (hardware, software, telecoms, networks, human
capital, etc.)
• E-Business (how business is conducted, any process that an organization
conducts over computer-mediated networks)
• E-Commerce (transfer of goods, for example when a book is sold online).
Digital Economy is S.M.A.R.T Economy
• Social
• Mobile
• Apps
• Real-Time

Features of Digital Economy
• Knowledge - Organizations will be forced to change their old opinion of
employees and try to retain and develop the capabilities of knowledge workers
• Digitation - Information in digital form, facilitated by the digital devices allows
the free movement of vast amount of information in the shortest possible time
between people.
• Virtualization – Convert physical and tangible things into virtual
• Immediacy - The time lapse between ordering of a product and its creation and
delivery is reducing.
• Globalization - Knowledge becoming a key resource, there only one world
economy even if organizations still exist within local areas.
• Integration/ Internetworking - The suppliers, customers, competitors etc. will
have to interact and integrate in order to survive. The new economy is a
networked economy. E.g. Collaboration between the intel and Microsoft.

Features of Digital Economy
• Disintermediation - Disintermediation of the middle functions between
consumers and producers are being eliminated through digital networks.
• Convergence - The dominant economic sector is being boasted by the
convergence of computing, communications and content.
• Innovation - In innovation economy, human imagination and creativity are
the main sources of value. In digital economy, the challenge lies in creating
an environment which encourages and rewards innovation.

Digital Economy
Merits Demerits
• Promotes Use of the Internet
• Rise in E-commerce
• Digital Goods and Services
• Transparency
• Loss in Employment
• Lack of Experts
• Heavy Investment

Business Process Reengineering
Business Process Re-engineering (BPR) was propounded by Michael Hammer
and James Champy, it aims at transforming or reinventing an organization for
greater efficiency.
BPR aimed to help organizations fundamentally rethink how they do their
work in order to dramatically improve customer service, cut operational
costs, and become world-class competitors.
BPR refers to the analysis and re-design of workflows and processes both
within and between firms.
It is a business management strategy, originally pioneered in the early 1990s,
focusing on the analysis and design of workflows and business processes
within an organization.

Business Process Reengineering
Business process re-engineering is also known as business process redesign,
business transformation, or business process change management.
The concept of BPR is:
a) Operational Excellence
b) Process Orientation: The firm should look at ‘what work is being done’ as
well as ‘how it is being done’.
c) Face Competition Effectively
d) Fresh and New Ideas
e) Continuous Improvement

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7. Emerging Strategic Trends

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