MODULE 8

Managing growth

GROWTH
y Growth is crucial for entrepreneurial process.

Objectives :
y Survival y Economies of scale y Expansion of market y Owner·s mandate y Technology y Prestige and power y Government policy y self- efficiency

FACTOR INFLUENCING GROWTH
y Globalization y Understanding markets y Questioning nature y Leadership, vision and purpose y Policies and rules y Technologies y Building team y Size of the firm y creativity and innovation y Communication y Efficiency

Using external parties to help grow a business
y Franchising

is an alternative means by which an entrepreneurs may expand his or her business by having others pay for the use of the name, process, product, service, and so on.

Franchising
y Franchising is a form of business organization in which a firm

that already has a successful product or service licenses its trademark and method of doing businesses to other businesses in exchange for an initial franchisee fee and an ongoing royalty.

Prerequisites of Franchising
y Uniqueness of its product or services y Consistent profitability of the firm y Firm·s year profitability y Degree of refinement of the firm·s business systems y Clarity of the business proposition

Steps to franchising a business
y Develop a franchise business plan y Get professional advice y Conduct an intellectual property audit y Develop franchise document y Prepare operating manuals y Plan an advertising strategy and a franchise training program y Put together a team for opening new franchise units y Plan a strategy for solicitating prospective franchisees y Help franchisees with site selection and the grand opening of their

franchise outlets

Advantages of Franchising
y Training and guidance y Brand name appeal y Proven track record y Financial assistance y Competition may be healthier y Franchise system has room for flexibility y Certain franchisees can greatly benefit y Franchisees are forced to focus on building a strong core for

their business y Allows for a more modern marketing strategy

Limitation of Franchising
y Greater franchise fees y Lack of control y High capital requirements y Franchisor/ franchisee trust may be affected y Marketing efforts can be weakened y Legal problems may arise

Joint ventures
y Joint ventures is a combined effort of two or more

companies to form a new company. Characteristics: y Critical driving forces y Strategic synergy y Great chemistry y Win-win y Operational integration y Growth opportunity y Sharp focus y Commitment and support

Types of Joint ventures
y Jointly controlled operations y Jointly controlled assets y Jointly controlled entities

Advantages of Joint ventures
y It may enable new technologies to be introduced more

conveniently. y It provides an opportunity to take a complex, uneconomical and highly risky project so as to achieve strategic advantage. y It makes possible to enter in a desirable foreign market, when market entry is restricted by govt. y It helps in increasing sales.

Disadvantages
y Sharing management y Differences in culture y Technological change y Change management y Extra management time y Financing y Length and costly negotiations y Managerial communication and commitment

MERGER AND ACQUISITION
y Merger: It is a combination of two or more organizations in

which one acquire the assets and liabilities of the other in exchange for shares or cash, or both the organizations are dissolved and the assets and liabilities are combined and new stock is issued.

Advantages
y Economies of scale
y Technical economies y Bulk buying y Financial y Organizational

y International competition y Mergers may allow greater investment in R&D y Greater efficiency

Disadvantages
y Higher prices leading to allocative inefficiency y Lower quality and reduction in consumer surplus y Fewer firm, less chance for consumers. y Less competition which reduces quality of the product y Productive inefficiency y Job losses

ACQUISITION
y ACQUISITION OR TAKEOVER

is currently the most popular strategy defined as the attempt of one firm to acquire ownership or control over another firm against the wishes of the latter·s management.

Reasons for acquisition
y Increased market power y overcoming entry barriers y cost of new product development y Adequate and easy terms working capital y Diversification y Competitive advantage

Advantages
y Venture into new business and markets y Profitability y Increased market share y Decrease competition y Increase economies of scale y Enlarge brand portfolio

Disadvantages
y Hidden liabilities of target entity y Monetary cost of the company y Cultural integration

Thank you