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M odule iii


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M odule iii

  1. 1. Module III Choosing a direction, opportunity recognition and entry strategies
  2. 2. WHAT WE WILL BE STUDYING? • Franchising, Sponsorship and Acquisition, • The strategic window of opportunity: scanning, positioning and analyzing, • Intellectual Property creation and protection.
  3. 3. INTRODUCTION External Parties to help grow a business: • Franchising, • Joint Venture, • Acquisition and • Mergers
  4. 4. FRANCHISING Franchising is an agreement whereby the manufacturer or sole distributor of a trademarked product or services gives exclusive rights of local distributor to independent retailers in return for their payment of royalty and conformance to standardized operating procedures.
  5. 5. FRANCHISING (cont.) What you may buy in a franchise? • A product or service • A patented formula or design • Trade names or trademarks • Financial management system for controlling the financial revenues. • Managerial advice from experts • Economies of scale for advertising and purchase • A tested business concept
  6. 6. FRANCHISING (cont.) Advantages of franchising: 1. To the franchisee 2. To the franchisor
  7. 7. FRANCHISING (cont.) Advantages of franchising to the franchisee: 1. Product acceptance (accepted name, product, or service). No need to advertise. 2. Management Expertise (training program to franchisee regarding accounting, personnel management, production). (E.g.) franchisee has to spend some time at McDonald’s school. To work at their existing stores. 3. Capital requirement (demographic analysis, competitor, business condition, ability to pay) --- (Construction cost, purchase of equipment)
  8. 8. FRANCHISING (cont.) 4. Knowledge of market (target market, income of people, competition, location) 5. Operating and structural controls (Quality control of product and services, criteria of hiring/firing, training, cleanliness, including new product)
  9. 9. FRANCHISING (cont.) Advantages of franchising to the franchisor: 1. Expansion Risk 2. Cost advantages
  10. 10. FRANCHISING (cont.) Disadvantages to franchisor: 1. Considerable capital allocation is required to build the franchise infrastructure and pilot operation. At the beginning of the franchise program, the franchisor is required to have the appropriate resources to recruit, train, and support franchisees. 2. At the beginning of the franchise program there is a broader risk that the trade name can be spoiled by misfits until such time the franchisor is capable of selecting the right candidate for the business.
  11. 11. FRANCHISING (cont.) 3. There is a risk that franchisees exercise undue pressure over the franchisor in order to implement new policies and procedures. 4. The franchisor has to disclose confidential information to franchisees and this may constitute a risk to the business.
  12. 12. FRANCHISING (cont.) Disadvantages to franchisee: 1. The requirement to pay the franchise fees and royalty to the franchisor, which in some cases can be exaggerated. 2. The transfer of all goodwill built in the local market to the franchisor upon expiration or termination of the franchise contract. 3. The necessity of abiding by the franchisor’s operating systems, standards, policies and procedures. 4. Reduced corporate profit margin due to payment of royalties and levies.
  13. 13. FRANCHISING (cont.) Types of franchises: 1. Dealership: Commonly found in automobile industry & FMCG sector. Here, manufacturers use franchises to distribute their product lines. 2. Most common type of franchise is the type that offers a name, image such as McDonald’s Subway KFC
  14. 14. FRANCHISING (cont.) 3. Third type of franchise offers services. (e.g.) Income tax preparation companies, Real estate companies
  15. 15. FACTORS TO BE CONSIDERED BEFORE GOING FOR FRANCHISING 1. Unproven versus proven franchise: Unproven requires less investment but it is more risky. Proven requires high investment but it is less risky. (high growth rate) 2. Financial stability of franchise: How many franchises are in the organization? How successful is each of the members of franchise organization? Does the franchisor have management expertise in production, finance and marketing?
  16. 16. FACTORS TO BE CONSIDERED BEFORE GOING FOR FRANCHISING (cont.) 3. Potential market for new franchise.
  17. 17. JOINT VENTURE Two or more companies farming a new company. Sony-Ericsson is a joint venture by the Japanese consumer electronics company Sony Corporation and the Swedish telecommunications company Ericsson to make mobile phones. The stated reason for this venture is to combine Sony's consumer electronics expertise with Ericsson's technological leadership in the communications sector. Both companies have stopped making their own mobile phones.
  18. 18. JOINT VENTURE (cont.) Types of joint ventures: 1. Industry-university agreements: created for the purpose of research. Problems: a) Objective of firm is to obtain tangible results such as patent, from its research investment. b) University would like to share its research work through research paper. 2. Joint venture for cooperative research: Goal of this corporation is to sponsor basic research and train professional scientists and engineers to be future industry leaders.
  19. 19. JOINT VENTURE (cont.) 3. International joint venture:
  20. 20. JOINT VENTURE (cont.) Factors in Joint Venture success: 1. Accurate assessment of parties and how best to manage the new entity in the light of relationships. 2. Degree of symmetry between the partners. 3. Expectations of results of joint venture must be reasonable. 4. Timing must be right. (Environmental analysis, industrial analysis, target market etc.)
  21. 21. ACQUISITIONS Purchasing all parts of a company. 1. All tangible assets 2. All intangible assets
  22. 22. ACQUISITIONS (cont.) Advantages of an acquisition: 1. People are well aware of acquired firm’s brand name and its positioning in the market. 2. Acquired firm has its suppliers, wholesalers, retailers. 3. Actual cost of acquiring the business can be lower than other methods of expansion. 4. Employees of an existing business will be an important asset. 5. Since entrepreneur does not have to be concerned with finding suppliers, hiring new employees, customer awareness, so more time can be spent on looking opportunities and strengthening business.
  23. 23. ACQUISITIONS (cont.) Disadvantages of an acquisition: 1. Marginal success record 2. Overconfidence in ability 3. Key employee loss 4. Over-valuated
  24. 24. MERGERS
  25. 25. STRATEGIC WINDOW OF OPPORTUNITY Growth Strategies: Growth strategy is based on knowledge of product and market 1. Penetration Strategies 2. Market Development Strategies 3. Product Development Strategies 4. Diversification Strategies
  27. 27. STRATEGIC WINDOW OF OPPORTUNITY (cont.) Penetration Strategies: A penetration strategies focuses on the firm’s existing product in its existing market by penetrating the product by encouraging existing customers to buy more of firm’s current products. (e.g.) A pizza company engages is an extensive marketing campaign to encourage its existing customer base of university students to eat its pizza 3 times a week rather than 2 times a week.
  28. 28. STRATEGIC WINDOW OF OPPORTUNITY (cont.) Market Development Strategies: • New Geographical market • New Demographical market
  29. 29. STRATEGIC WINDOW OF OPPORTUNITY (cont.) Product Development Strategies: Diversification Strategies: 1. Backward integration: A step back in the valueadded chain towards raw materials. 2. Forward integration: A step forward in the valueadded chain towards the customers.
  30. 30. STRATEGIC WINDOW OF OPPORTUNITY (cont.) Implication of growth for the firm: 1. Pressures on existing financial resources i. Managing inventory ii. Managing fixed assets iii. Managing costs and profits 2. Pressure on existing Human Resources 3. Pressure on management of employees i. Establish a team sprit ii. Communicate with employees iii. Provide continuous training to employees
  31. 31. STRATEGIC WINDOW OF OPPORTUNITY (cont.) 4. Pressure on entrepreneurs time i. Increased productivity ii. Increased job satisfaction iii. Improved Interpersonal relationships