Explore topic-wise InterviewSolutions in Current Affairs.

Internal Expansion and External Expansion are the two ways in which an organisation can expand.

Importance of Franchising: 

1. Proven idea: Business is based on a proven idea. Success of the product can be checked in the market and is also known. 

2. Profit from brand recognition: Franchises develop an image in the marketplace. This saves both time and money of advertising, promotion, recognition, etc. Image of the product is a favourable one and is in the minds of consumers. 

3. Recognized brand name and trademarks: Entrepreneur gets a recognized brandname and trademarks. Benefit from any advertising or promotion by the parent company automatically benefits the franchise. 

4. Support from parent company: The franchisor gives support in the form of training, help setting up the business, a manual telling how to run the business and ongoing advice. 

5. Exclusive rights of the territory: The franchisor can’t sell any other franchises in the same territory which leads to the creation of monopoly power in the territory. 

6. Easier Financing: Financing the business becomes easier due to the associated brand name. Banks are more likely to lend money to buy a franchise with a good reputation.

Franchising is an arrangement through which the manufacturer or sole distributor of a trademarked product or service gives exclusive rights of local distribution to independent retailers in return for royalties and conformance to standardized operating procedures

1. Franchising is helping thousands of individuals be their own boss operate their own business.

2. Franchisingis allowing entrepreneurs to be in business for themselves

3. There is high chance of success when an individual takes a franchisee.

Creativity: It means bringing something new into existence. It is a type of ability, which is present in all but in varying quantity. More are the creative persons of this ability, more are the chances of doing something new, or which was not present earlier, e.g. new painting of an artist. It also means bringing about certain improvements in already existing products. 

Innovation: It refers to performing a task in a new way. There may be many ways of doing a thing but the innovator always tries to do it in a new way or new method e.g. the products are packed by company but the company which makes its package consumer friendly compared to other is innovation.

Every entrepreneur is expected to fulfil all its statutory and legal responsibilities. This is the duty of each entrepreneur. He must pay license fees, taxes, social security contributions, minimum were; interest on loans, dividends, etc. well in time. Moreover any recent changes in the laws must be taken care of. Enterprise comes under many laws like, Factories . Act, Minimum Wages Act. Payment of Wages Act etc. Fulfilment of legal aspects is the legal as well as moral duty. Violation of laws leads to punishment or fine. This leads to loss of goodwill, affects faith of shareholders and also results in loss of money, time and energy.

Stage of consolidation for an enterprise is the stage, which is normally 3 to 5 years after the take-off stage. During this stage the turnover of the enterprise is maintained.

The three ways in which an organisation can expand externally are: 

1. Franchising: Franchising is an arrangement through which the manufacturer or sole distributor of a trademarked product or service gives exclusive rights of local distribution to independent retailers in return for royalties and conformance to standardized operating procedures, 

2. Merger: It is the combining of two firms into a single large firm. 

3. Acquisition: Acquisition or takeover is enveloping in itself a range of acquisition transactions by a firm.

If an enterprise is not sensitive to change in technology then its technology will become outdated and it has to quit the market. It is mainly because the cost of production will become higher compared to other enterprises; this will lead to decrease in demand of this product.

Each entrepreneur is expected to be a member of healthy competition. Unhealthy competition leads to downfall of the enterprise in the long run. Discipline in dealing with competitors, always leads to better quality products and more consumer satisfaction. Depending on illegal activities, malpractices etc. for getting major share of the attitude is undesirable. Every producer has the right, to sell. This right could not be taken away.

The main ingredients of a franchise agreement:

1. Contract Explanation: This part , of the agreement outlines the type of relationship a franchisee is going to have with the franchisor.

2. Operations Manual: It is the section of the agreement that details the guidelines that the franchisee must legally follow. Amendments may be made from time to time and the franchisee has to adjust operations accordingly. The franchisee has to maintain the confidentiality.

3. Proprietary Statements: This part tells how the franchise name is to be used. What marketing and advertising procedures is required to follow. It also documents how much the franchisee will be required to contribute toward national advertising efforts.

4. Ongoing Site Maintenance: It includes the types and time frames regarding various maintenance items and upgrades that must be made to the franchisee’s location.

Following are the growth sustaining activities: 

1. Franchising: In franchising the rights of selling a product or service are transferred to another enterprise. This saves time as the parent company has its own marketing strategy, fixed requirement of infrastructure, written rule and regulations. The franchisee need not require expenditure on promotion, advertisement, layout, etc as it is the responsibility of the franchiser, e.g. McDonalds had expanded itself by offering franchisee. 

2. Manufacturing more than one product: Under it, the enterprise grows by producing a new product. This new product can be a complementary good or any related product or a non-related product, e.g. Videocon started with the production of electronic goods. But now it is producing various other consumer goods like mixer-grinder, etc. thus this type of diversification helps in the growth of the enterprise. 

3. Up gradation: An enterprise can upgrade itself by adopting new technique, process etc. This not only increases efficiency of the enterprise but also reduces the cost of production. Also it helps in reducing the per unit price of the commodity which provides a competitive edge to the enterprise. Thus this type of up gradation or modernization helps in the growth of the enterprise. 

4. Increasing Turnover: An enterprise can increase its turnover for growth. For raising its turnover it may have to modernize or expand or both. With the increase in volume of production the growth takes place though such rise in production is also associated with increase in number of employees, demand for raw materials etc.

1. Raymond Ltd: Raymond Ltd, started in 1325 as a woollen and readymade garment industry. It has more than 503 stores. It opted for franchise model for expanding in smaller towns as these areas are not affected by recession. In smaller towns the franchised Stores can be driven by local entrepreneurs who are aware of the preferences of the local customers. 

2. NUT: NIIT, a firm in IT education industry, has a franchising network of more than 12,500 centres spread over in more than 40 countries worldwide, ap’art from India. This success has bfeen possible due to their business partners, who have been a crucial element. The Business Partner Network helped NIIT expand its presence across India and reach the unreached, and also entrepreneurship in the country. 

3. JSW Steel Ltd: It is the third- largest Steel manufacturer in India, operates through 174 JSW Shoppe outlets that work on the franchise model. It is planning to take the count of its JSW Shoppe outlets to 340 by 2011. 

4. Mahindra & Mahindra Ltd: It a part of the India Industrial Mahindra Group. It has taken the franchise route to expand its 100 per cent subsidiary. It is planning to take the count of its outlets to 450 in the next four years.

1. Franchising began in 1850’s when Isaac Singer; the inventor of sewing machine wanted to distribute his machines outside of his geographical area, and also provides training to customers. Singer began selling licenses to entrepreneurs in different parts of the country. 

2. In 1955 Ray Kroc took over a small chain of food franchises and built . it into today’s most successful fast food franchise known as McDonald’s.It has the most franchise units worldwide of any franchise system.

Acquisition is a more general term, enveloping in itself a range of acquisition transactions. It could be leading to takeover of a company. Acquisition refers a corporate action in which a company buys almost, the target company’s ownership stakes in order to assume control of the target firm. It is often made as part of a company’s growth strategy whereby it is more beneficial to take over an existing firm’s operations . It is often paid in cash, it could be the acquisition of company’s stock, tangible assets, intangible assets, ‘ rights, acquisition of control, and other kinds of obligations. It is also known as a takeover, means the buying company takeover or acquire by another. 

For Examples: Bharti Airtel acquired Zain Africa, February 2010 

1. Bharti Airtel is the largest mobile network in India. It is also expanding its reaches throughout the globe, Bharti Airtel added 180 million new customers in its list by acquiring an African Mobile Network provider called Zain Africa. 

2. Tata Steel acquired 100% stake in Corus Group on January 30, 2007. It was an all cash deal which cumulatively amounted to Rs 12.2 billion.

1. The concept for enterprise marketing is sales promotion. Sales promotion is one level or type of marketing aimed either at the consumer or at the distribution channel (in the form of sales-incentives). It is used to introduce new product, clear out inventories, attract traffic, and to lift sales temporarily. The concept for growth strategy is acquisition. Acquisition are often made as part of a company’s growth strategy whereby it is more beneficial to take over an existing firm’s operations and niche compared to expanding on its own. Acquisitions are often paid in cash, the acquiring company’s stock or a combination of both. 

2. Following are few of the values which ‘ Jagriti Ltd.’ wanted to communicate to the society: 

• Job opportunity for youth 

• Equal opportunities for both men and women 

• Care for environmental cleanliness.

1. The Enterprise Growth Strategy involved is Horizontal merger. Horizontal merger: This merger is between companies in the same industry. It is a type of business consolidation that occurs between firms which are competitors and offering the same goods or service. It is in the condition where competition tends to be higher and the potential gains in market share are much greater for merging firms in such an industry. 

Example: A merger between Coca-Cola and the Pepsi beverage division, wquld create a new, larger organization with more market share. 

2. There is Direct/zero level of distribution channel.

Small enterprises are more vulnerable than large ones to small changes in environment, change in taste and preference of consumers, taxation policies, other government policies, cost of raw materials, etc.

Value addition refers to creation of a competitive advantage by, combining, packaging features and benefits or through any other method that results in greater customer acceptance. 

Its examples are: 

1. Offering one year of free support on a new computer would be a value-added feature. 

2. Turning cotton into fabric  Here, fabric has more usefulness than cotton. 

3. Turning milk into cheese  Cheese has got more specific uses than milk.

 4. Packaging ready-to-use grated cheese into serving size packets. 

5. Turning wood into paper  Utility of paper is more than wood. C. LONG

The two ways of expansion are : 

1. Internal Expansion 

2. External Expansion Internal Expansion: It refers the gradual increase in the activities of the concern. It can be in the form of: 

1. Increase its present production capacity by adding more machines or by replacing old machines with the new machines with higher productive capacity. 

2. It can also be undertaken by taking up the production of more units. 

3. By entering new fields on the production. 

4. Adding new market and marketing sides. 

5. It may be financed by the issue of more share capital. 

6. Generating funds from old profits/ retained earnings. 

7. By issuing long-term securities. 

The net result of internal expansion is the increase in business activities and broadening the present capital structure. 

External Expansion: It refers to business combination where two or more concerns combine and expand their business activities. It can be in the form of:

1. Combining two or more units engaged in similar business or related process or stages.

2. Sometimes stages of the same business join with a view to carry on their activities.

3. Giving shape, their polices on common basis.

4. In coordination for mutual benefit.

5. To earn maximum profits.

The combination may be among competing units or units engaged in different processes. After combination, the constituted firm pursues some common objectives or goals.

The big corporate houses have opted for a franchise route because : 

1. It considers franchising as an easy mode of expansion. 

2. Chances of success are higher due to high commitment level of the franchisor and the franchisees. 

3. It is a powerful and ideal way to expand business. 

4. It is best suited for a company which does not have any capital, manpower or time to build the network of company-owned outlets.

The concept is of diversification. It is a process of adding new products or markets to the existing, by an enterprise. Here, the enterprise thus is able to produce more types of products e.g. not only washing soap, but toilet soaps, shampoos, detergents, washing powders etc. are produced by such enterprises. For example, Samsung not only produces TV but washing machines, copying machines, printers, etc. 

Usefulness of diversification for an enterprise: 

1. Risk is reduced: If one type of product is not sold then other products can be sold. This reduces the chances of incurring overall loss to the enterprise.producers are producing the product. 

2. Continuous revenue: By diversification an enterprise continuously receives payments. This makes the inflow a continuous process. The financial obligations of the company can thus be easily met. 

3. Financial obligations can be met easily: Due to a variety of products being sold the cash flow becomes regular. This helps in fulfilling the financial obligations like installments premium, payment for power, payment for raw material, etc. 

4. Helps in branding: When one product is able to gain faith of consumers, then this faith can be utilized for increasing the sale of other products. Thus, a brand name comes into existence.

Following can he reasons for the take over:

1. ABC Company may have decided to expand in terms of its production and wanted to raise its sales and turnover.

2. ABC Company may have decided to expand its area of sales and so may be desirous to take over the marketing area of XYZ Company.

3. ABC Company may have wanted to use the research and development of the XYZ company for raising its output and sales.

It is called as product extension mergers, where a firm that produces one product that requires the application of similar type of manufacturing or marketing techniques strategies.

There are four types of acquisitions:

1. Friendly acquisition: Here, both the companies approve of the acquisition under friendly terms. There is no use of force or pressure and every thing gets over cordially. 

2. Reverse acquisition: Here, a private company takes over a public company. 

3. Rack flip acquisition: Here, the purchasing company becomes a subsidiary of the purchased company. 

4. Hostile acquisition: Here, the entire process is based on force. The smaller company is forced to say yes to the acquisition or the bigger company just buys off all its share.

Franchising helps the start-ups in following ways: 

1. Working: Franchising changed the working of the start-ups because already the product carriers a name in the market already. The start-ups pay royalty to the franchisor. Startups save struggling time and money involved in the process. 

2. Training: Start-ups take up trainingto understand the product. Franchisors make franchises fully known with the product/services. Start-ups are the sales person. And franchisors charge a fee for this purpose. 

3. Fast growth: The start-ups can grow fast without having to increase cost through increasing labour, operating costs, etc. because normally buyers straight away contact them. 

4. One plus one eleven: Franchises work for the benefit of franchisors i.e. they turn up one plus one eleven. Both are open to help each other. Franchisors’ efforts to boast their franchises are always real and sincere. No clash of interest arises.

Curtis Bean bought a dozen franchises in Checkers of America Inc., a firm that provides auto inspection services. After losing Rs 200,000, Bean and other franchisees filed a lawsuit claiming that the franchisor had misrepresented advertising costs and had made false claims including that no experience was necessary to own a franchise.

1. The big corporate houses that have opted for a franchise route consider franchising as an easy mode of expansion as per the requirement and commitment level of the franchisor and the franchisees. 

2. It is a powerful and ideal way to expand business, for a company which does not have any capital, manpower or time to build the network of company-owned outlets. Example – Dabur is one of the big established brand that has taken up franchising for expansion.

Following are the types of franchising: 

1. Product Franchise Business Opportunity: Here, the manufacturers use the product franchise to govern how a retailer distributes their products. The manufacturer grants a store owner the authority to distribute goods by the manufacturer and allows the owner to use the name and trademark owned by the manufacturer. The store owner purchases the inventory in return for these rights. Example: Some tire stores. 

2. Manufacturing Franchise Opportunity: It provides an organisation with the right to manufacture a product and sell it to the public, using the franchisor’s name and trade mark. This type of franchising is very common. For example, in the food and beverage industry, bottlers of soft drinks, etc. 

3. Business Franchise Opportunity Ventures: Here, a business owner purchases and distributes the products for one specific company. The company provides customers or accounts to the business owner. In return, the business owner pays a fee as compensation. Example, vending machine routes and distributorships. 

4. Business Format Franchise Opportunity: Here, a company provides a business owner with a proven method for operating a business using the name and trade mark of the company. The company provides a significant assistance to the business owner in starting and managing the company. The business owner pays a fee or royalty in return.

Successful entrepreneur will make sure there is a constant flow of new ideas and a commitment to try out at least some of these new ideas. An organization has to maintain its momentum through interplay of flexibility and change. This calls for growth and development which in essence is achieved through constant strife.

Two forms of merger are: 

1. Amalgamation: Amalgamation is a union of two or more companies, made with an intention to form a new entity or company. 

2. Absorption: It means an existing company taking over one or more company. In this case one or more company will close down their business and this business will be continued by the name of the existing company.

Disadvantages of franchising : 

1. Higher cost: Costs may be higher than expectations. The costs include initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor, this may be more than the expectations. 

2. Huge restrictions: The franchise agreement usually includes strong restrictions on how to run the business. Franchise might not be able to make changes to suit the local market. 

3. Risk: There is a risk that the franchisor might go out of business and in this case a huge risk is involved. 

4. Bad reputation: Other franchisees could give the brand a bad reputation, so the selection process needs to be perfect.

5. No sale option: Franchise finds it difficult to sell to someone if willing to sell due to any reason. It can only be sold to someone approved by the franchisor.

Some of the disadvantages to franchising to franchisor are as follows: 

1. Difficulty in identifying quality franchisees: 

(a) Sometimes the franchisor may find it difficult to identify quality franchisees. 

(b) Even after extending all support towards training and providing capital, poor management may lead to the failure of the franchisee and in turn, which may affect adversely franchisor and the system as a whole. 

2. Legal Regulation: 

(a) Franchising is a regulated activity and requires follow with federal and state franchise laws. 

(b) To successfully establish a franchise, franchisors are required to work with an experienced franchise lawyer to establish a solid blueprint for franchising. 

3. Investment: Every one knows that franchising serves as a source for the capitalized expansion of your business (i.e., franchisees invest in your expansion), the establishment of a franchise system requires the investment of capital to cover legal fees and the cost of establishing a franchising infrastructure.

1. The franchisor can purchase supplies in large quantities, thus achieving economies of scale that would not have been possible otherwise. 

2. Many franchise businesses produce parts, accessories, packaging and raw materials in large quantities, then in turn sell these to the franchisees. 

3. The franchisee are usually required to purchase these items as part of the franchise agreement and they usually benefit from lower prices. 

4. One of the biggest cost advantages of franchising a business larger sums of money to advertising. Which covers major media wide geographical area. Therefore each franchisee contributes a percentage of sales (1 to 2 %) to an advertising pool.

Hindustan Unilever Company acquired Lakme, it helped HUL to enter the cosmetics market though an established brand. 

1. Glaxo an Smithkline Beecham merged, to gain market share and eliminate competition between each other. 

2. Tata Tea acquired Tetley to leverage Tetley’s international marketing strengths.

1. The company is looking to strengthen its pan India franchisee network.

2. It is targetting Tier I, Tier II, Tier III cities and small towns for expansion.

3. Franchise requirement include potential franchise partners who can invest Rs 10-20 lakh, area requirement is about 350 sq ft and the preferred location is a high street traffic areas like market, colleges, business areas and residential catchments.

Synergy is the benefit that results when two or more firms together achieve something either one couldn’t have achieved on its own. It’s the concept of the whole being greater than the sum of its parts. For example, if firms A and B merge and the value of the combined entity— V(AB)—is expected to be greater than (VA+VB), the sum of the independent values of A and B, the combined entity is said to be benefitting through synergy. 

Synergy can take place in two forms: 

1. Operating synergy: This refers to the cost savings that come through economies of scale or increased sales and profits. It involves raising scale of production by changing all factors of productions of the firm. It leads to the overall growth of the firm. 

2. Financial synergy: It is the type of synergy which is due to financial factors such as lower taxes, higher debt capacity or better use of idle cash. When a loss making firm merges with a profitable firm and the combined firm can set off such losses against its profits, a financial synergy, known as tax shield, occurs.

One of the most important advantages of buying a franchise is that the entrepreneur does not have to incur all the risks associated with creating a new business. Typically, the areas that entrepreneurs have problems with in starting a new venture are product acceptance, management expertise, meeting capital requirements, knowledge of the market, and operating and structural controls. In franchising, the risks associated with each are minimized through the franchise relationship, as discussed below: 

Advantages to the franchisee: 

1. Product acceptance: The franchisee usually enters into a business that has an accepted name, product or service. Example: In case of Subway, 

(a) Any person buying a franchise will be using the Subway name, which is well known and established throughout the United States. 

(b) The franchisee does not have to spend resources trying to establish the credibility of the business. It already exists based on past performances from how long the franchise exist. 

(c) The franchise has also spent millions of dollars in advertising, and thus build a favourable image of the products and services offered. 

2. Management expertise: 

(a) Franchisee always get the advantage of managerial assistance provided by the franchisor. 

(b) Special training programme and education provided by them on all aspects of operating the franchise like classes in accounting, personnel management marketing and production. Example: McDonald’s, for example, requires all its franchisees to spend time at its school, where everyone takes classes in these areas. In addition, some franchisors require their new franchisees to actually work with an existing franchise owner or at a company-owned store or facility to get on-the job training. Once the franchise has been started, 

• Most franchisors will offer managerial assistance on the basis of need. 

• Toll-free numbers are also available so that the franchisee can ask questions anytime. 

• Visit the local franchisees to offer advice and keep the owners informed of new development. 

• The training and education offered is actually an important criterion that the entrepreneur should consider in evaluating any franchise opportunity. 

• If the assistance in start-up is not good, the entrepreneur should probably look elsewhere for opportunities unless he or she already has extensive experience in the field.

3. Capital requirements: 

(a) The franchise offers an opportunity to start a new venture with up-front support that could save the entrepreneur’s significant time and huge investment of capital. They also provide initial investment to start operation. 

(b) Some franchisors conduct location analysis and market research of the area which include an assessment of traffic, demographics, business condition and competition. The initial capital required to purchase a franchise generally reflects a fee for the franchise, construction costs and the purchase of equipment. The layout of the facility, control of stock and inventory and the potential buying power of the entire franchise operation can save the entrepreneur significant funds. 

4. Knowledge of the market: 

(a) Any established franchise business offers the entrepreneur years of experience in the business and knowledge of the market. This knowledge is usually reflected in a plan offered to the franchisee that details the profile of the target customer and the strategies that should be implemented once the operation has begun. This is particularly important because of regional and local differences in markets. 

(b) Competition, media effectiveness, and tastes can vary widely from one market to another. Given their experience, franchisors can provide advice and assistance in accommodating any of these differences. Most franchisors constantly evaluate market conditions and determine the most effective strategies to communicate to the franchisees. Newsletters and other publications that reflect new ideas and developments in the overall market are continually sent to franchisee

5. Operating and structural controls: 

Two main problems that generally an entrepreneur face during the start-up: 

(a) Maintaining quality control of products and services. 

(b) Establishing effective managerial controls. The franchisor, particularly in the food business, identifies purveyors = and suppliers that meet the quality standards established. 

Some of the supplies are actually provided by the franchisor. Standardization in the supplies, products and services provided helps ensure that the entrepreneur will maintain quality standards. Administrative controls unusually involve financial decisions related to costs, inventory and cash flow and personnel issues such as criteria for hiring/firing, scheduling and training to ensure consistent service to the customer. These controls are usually outlined in manual supplied to the franchisee upon completion of the franchise deal. Although all the above are advantages to the franchisee, they also represent important strategic considerations for an entrepreneur who is considering growing the business by selling franchises. Since there are so many franchise options available for an entrepreneur, the franchisor will need to offer all of the above services in order to succeed in the sale of franchises. One of the reasons for the success of such franchises as McDonald’s, Burger King, KFC, Boston Market, Subway, Midas, Jiffy Lube, Holiday Inn, Mail Boxes and Merry Maids is that, all these firms have established an excellent franchise system that effectively provides the necessary services to the franchisee.

The most obvious advantage of franchising for an entrepreneur is that it allows the venture to expand quickly using little capital. 

1. It involves low capital investment by the franchisor as the capital used to expand the network comes from franchisees. 

2. By using the franchisees’ capital, the franchisor is able to establish a large number of outlets in a short period of time. 

3. A franchisor can expand a business nationally and even internationally by authorizing and selling franchises in selected locations. 

4. Quick expansion can be achieved without incurring the overheads and costs associated with opening company-owned outlets. 

5. Operating a franchised business requires fewer employees, this allows the franchisor to maintain low payroll and minimizes personnel issues and problems. This brings benefit to both the franchisor and franchisee as it helps build consumer recognition quickly and establish the franchise. 

Example: Just think of the capital needed by DeLuca to build 8,300 Subway sandwich shops! The value of the franchise depends on the track record of the franchisor and on the services offered to the entrepreneur or franchisee. Subway’s low franchise fee has enhanced expansion opportunities, as more people can afford it.

An entrepreneur has a dual role to play— as a leader and as a manager. Leader provides direction and energy while the Manager processes the input and gives the production or output. To ensure the continued efficiency and profitable functioning and growth of enterprise, extra managerial ability is required.

In a consolidation, a new firm is created after the merger, and both the acquiring firm and the target firm stockholders receive stock in this firm. For example Citi Group, was created after the consolidation of Citicorp and Travelers Insurance Group.

1. Merger through Consolidation/ Amalgamation 

2. Meaning: A consolidation is a combination of two or more companies into a ‘new company’. In this form of merger, all companies are legally , dissolved and a new entity is created. Here, the acquired company transfers its assets, liabilities and shares to the acquiring company for cash or exchange of shares.

Following things make the concept of Goli Vada Pav so special: 

1. It is a spicy vegetable patty in bun sold through retail outlet. 

2. It offers quality and hygienic fast food which is quite affordable. 

3. It sells hygienically prepared food items made in fully automated ‘HACCP’ certified hands free plant with an authentic touch. 

4. It is known as an established, reputed, and popular Indian fast-food brand offering clean food for those who have less money and time.

Yes, I agree as a leader he provides direction and energy and as a manager he processes the input and gives the output.

In mathematical terms, a synergy is where 2 + 2 =5.