1. Module III
Choosing a direction, opportunity
recognition and entry strategies

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. INTRODUCTION
External Parties to help grow a business:
• Franchising,
• Joint Venture,
• Acquisition and
• Mergers

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. 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. FRANCHISING (cont.)
Advantages of franchising:
1. To the franchisee
2. To the franchisor

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. 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. FRANCHISING (cont.)
Advantages of franchising to the franchisor:
1. Expansion Risk
2. Cost advantages

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. 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. 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. 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. FRANCHISING (cont.)
3. Third type of franchise offers services.
(e.g.) Income tax preparation companies,
Real estate companies

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. FACTORS TO BE CONSIDERED BEFORE
GOING FOR FRANCHISING (cont.)
3. Potential market for new franchise.

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. 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. JOINT VENTURE (cont.)
3. International joint venture:

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. ACQUISITIONS
Purchasing all parts of a company.
1. All tangible assets
2. All intangible assets

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. ACQUISITIONS (cont.)
Disadvantages of an acquisition:
1. Marginal success record
2. Overconfidence in ability
3. Key employee loss
4. Over-valuated

24. MERGERS

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

26. STRATEGIC WINDOW OF OPPORTUNITY (cont.)

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. STRATEGIC WINDOW OF OPPORTUNITY (cont.)
Market Development Strategies:
• New Geographical market
• New Demographical market

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. 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. STRATEGIC WINDOW OF OPPORTUNITY (cont.)
4. Pressure on entrepreneurs time
i. Increased productivity
ii. Increased job satisfaction
iii. Improved Interpersonal relationships