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10. Restructuring and Franchising

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Questions to be considered...........................................................................1
Corporate Alliances and Acquisitions............................................................1
Franchising....................................................................................................3
Test yourself..................................................................................................5
..............................................................................................6
Questions to be considered
corporate alliances and acquisitions;
franchising.
Corporate Alliances and Acquisitions
Nowadays business all over the world is becoming increasingly
competitive. In order to withstand the pressure of rivals and get a competitive
edge, companies have to undertake various measures to sell cheaper, for
instance: produce goods and services with unique selling points, invent new
ways of marketing and distribution, decrease production expenses.
Corporate alliances are another way to maintain market position:
companies unite their efforts to create a mutually beneficial business. An
alliance can be achieved in a number of ways:
1. Joint venture two or more companies agree to collaborate and jointly
invest in a separate business project. This type of deal allows the
partners to combine their strengths in one specific area.
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2. Merger two companies, often in the same industry, come together to

form one company. Companies merge for different reasons, for
example, to increase market share and to cut costs in certain areas,
such as research and development.
3. Acquisition or takeover one company accumulates enough of another
companys shares to take over control and ownership.
A successful alliance allows a company to strengthen its position on the
market by gaining the following advantages:
companies acquire a bigger market share;
companies increase their capital and budget on different purposes;
companies use the best of each others management and labour force;
companies use the best of each other premises, equipment, technologies,
procedures;
companies dont spend extra money to acquire more customers they
receive another companys customer base.
However, corporate alliances are not a complete remedy in a
competitive struggle. Sometimes stakeholders are interested in cooperation
but they cant come to the agreement and have to give up the idea. The
reasons for such an outcome can be that:
companies are afraid that a voluntary joint venture or merger will turn into
a forced takeover;
companies dont want to lose their identity and corporate style, as a result
they may lose their loyal customers;
when the negotiations about an alliance have started, companies learn
more details about each other and come to the conclusion that an alliance
will be no good for their business and financial position;
there can arise difficulties to agree on costs and prices;
companies dont agree to reduce their staff or change work conditions;
both the personnel and shareholders may feel lack of trust in management
personalities;
companies cant agree which company representative will become the
CEO.
Not to make an alliance fail, companies should seriously approach the
problem of business meetings where they discuss the terms of a deal. The
success of a meeting mainly depends on its chairperson, whose
responsibilities are:
to open and close the meeting;
to establish clear purpose;
to set an appropriate agenda and stick to it; sometimes if necessary, keep
to the point and make sure everybody stays focused;
to make the participants be aware of the agenda to contribute their ideas,
and during the meeting ask for reaction regularly;
to seek clarification, understanding and agreement;
to summarize agreed action points regularly, at least after each point on
the agenda;
to establish deadlines for action points;
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 to keep an eye on time and keep things moving.

The essence of the meeting is usually reflected in the minutes to allow
everybody, who is concerned and interested, be in the know of the situation.
Franchising
Another strategy to decrease the influence of competitive market on a
company performance is to found a franchising company a business in
which a company (or franchisor/franchiser) sells an individual (or franchisee)
the right to operate a business using the franchisors established system,
format, or trademark.
When businesspeople are looking for a franchisor to represent its
trademark, among other factors they evaluate if the company is established
on the market and has enough of customer loyalty. This allows to reduce
substantially the expenses on franchisee promotion and take a strong market
position from the very beginning.
The parties sign a franchise agreement, according to which a
franchisee has the following expense items:
franchise fee, or front end fee an initial sum of money for the rights to
start a business under a franchisors trademark;
royalty, or management service fee a payment for continuing advice and
assistance, which is usually calculated as a percentage of annual turnover;
advertising fee a contribution to the franchisors annual advertising and
marketing costs.
The advantages of buying a franchise are the following:
a franchisee doesnt need to spend money on promoting a company and
making it known to the public;
investing in business that is already established on the market implies less
risk;
a franchisee doesnt need to think over business procedures, structures,
schemes, rules;
a franchisee can always get quick advice from the franchisor when facing
some difficulties.
But this business also has some peculiarities that many businesspeople
consider being disadvantages:
a franchisee has almost no room for creativity, in order to follow
established rules and procedures carefully and thoroughly;
a franchisee is always under tight control.
Franchisors also receive the advantage from the deal:
selling a franchise allows them to expand their business and cover a
bigger territory with their products or services without investing money.
The disadvantage of selling a franchise is that:
the franchisor risks the reputation of the company in case the franchisee
does something incorrectly and breaks the established rules.
To support the activity of a franchisee the franchisor provides an
operations manual a document that contains all the information about
running the business, such as:
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 corporate style and corporate culture;

a code of practice where the franchisor sets the standards for customer
care;
a list of preferred suppliers;
the fixed range of goods and services that should be provided by the
franchisee;
dress code for employees;
a list of documents that the franchisor demands to carry out the
supervision.
The franchisor has to carry out constantly strict control of how precisely
the standards of the business are met. The franchisor may appoint a master
franchisee to supervise the franchisee company. For example, in McDonalds
a master franchisee is called a Mystery Diner a person who comes to the
restaurant as an ordinary customer to supervise the quality of goods and
services provided. Later both the franchisor and the franchisee get the report
with a Mystery Diners conclusions and recommendations.
Adverbs
When writing a report or some other documents, we often need to
characterize something more precisely and definitely. For this purpose
different adverbs are used. Adverbs help to give extra information about
verbs, adjective and other adverbs. To form an adverb, there are the following
rules:
add -ly to an adjective:
definite definitely
, ,
, ,
efficient efficiently

add -ally to adjectives ending in -ic:
dramatic dramatically

some adverbs are irregular and are nor formed with -ly:
good well

fast fast
-
some adverbs ending in -ly have a different meaning form the adjective:
hard hardly
, -
some words ending in -ly are adjectives and not adverbs:
friendly

lovely
,
A group of adverbs forms expressions of frequency, which can be
ranked, from always (100% of the time) to never (0% of the time):
always > nearly always > usually/normally/regularly/generally >
frequently/often > sometimes > occasionally > rarely > hardly ever > never.
To determine frequency more precisely, there are used other
expressions of frequency, such as: once/twice a week/day, every
hour/day/week, hourly/daily/weekly. We can use hourly, daily, monthly,
weekly and yearly as both adjectives and adverbs.
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Used to do and be/get used to doing

When we describe the development of a situation, we can easily
confuse the expressions used to do and be/get used to doing:
1. Used to + infinitive is used to talk about things that happened regularly
in the past but have changed now:
The owner of a franchisee used to work for many well-know companies and
has got a sound work experience.
2. Be/get used to + -ing form is used to talk about things we dont mind
doing because we have become familiar with them:
The owner of a franchisee is used to taking important decisions every day.
Word building - nouns
We can form nouns from adjectives and verbs using the following
suffixes:
Suffix
Examples
-ment
agree agreement, require - requirement
-ness
aware awareness, willing - willingness
-ity
popular popularity, confidential - confidentiality
-ation
organise organisation, prepare - preparation
Business is never frozen; it is constantly developing and changing. In
the process of development companies emerge, restructure, reorganize,
merge, take each other over. They undertake all these measures in order to
stay afloat and conquer market leadership.
Test yourself
1. What is the main reason to create corporate alliances?
2. What are the ways for a company to get a competitive edge?
3. What types of corporate alliances do you know?
4. What is a joint venture?
5. What is a merger?
6. What is an acquisition?
7. How can companies benefit from an alliance?
8. What may prevent a company from bringing the idea of an alliance to
fruition?
9. What is business meeting chairperson responsible for?
10. How does franchising help to resist competition?
11. What expense items does a franchisee face?
12. What are the advantages of buying a franchise?
13. What are the disadvantages of buying a franchise?
14. What is the advantage of selling a franchise?
15. What is the disadvantage of selling a franchise?
16. What is an operations manual?
17. Who is a master franchisee?


1. Graham Tullis, Tonya Trappe. New Insights into Business. Students book.
Pearson Education Limited, 2005.
2. Graham Tullis, Susan Power. New Insights into Business. Workbook.
Pearson Education Limited, 2004.
3. Longman Dictionary of Contemporary English. Pearson Education Limited,
2004.