ACCESSING RESOURCES FOR

GROWTH FROM EXTERNAL

SOURCES
ACCESSING RESOURCES FOR GROWTH
FROM EXTERNAL SOURCES
Using External Parties to Help Grow a Business . Some of the mechanisms
entrepreneurs can use are:
• Franchising.
• Joint ventures.
• Acquisitions.
• Mergers.
FRANCHISING
An arrangement whereby the manufacturer or sole distributor of a trademarked
product or service gives exclusive rights of local distribution to independent retailers in
return for their payment of royalties and conformance to standardized operating
procedures.
• The person offering the franchise is known as the franchisor.
• The franchisee is the person who purchases the franchise.

Royalties: An amount of money that is paid to the original creator of a product,

book, or piece of music based on how many copies have been solved.
 TYPES OF FRANCHISING
There are three types of franchising:
1. Dealership:
A form commonly found in automobile industry. Here, manufacturer use franchises to
distribute their product line. These dealerships act as a retail store for the manufacturer. In
some instances, they are required to meet quotas established by the manufacturers, but as is
the case of any franchise, they benefit from the advertising & management support provided
by the franchisor.
2. Franchise that offers a name, image, and method of doing business:
This is the most common type such as McDonald’s, Subway, KFC. There are many of these
types of franchises
3. Franchise that offers services:
A third type of franchise offers services. These include personal agencies, income tax
preparation companies. These franchises have established names & reputations & methods
of doing business..
JOINT VENTURES
Two or more companies forming a new company is a joint venture. A separate entity
that involves a partnership between two or more active participants to share markets,
intellectual property, assets, knowledge and of course profits.
Example: BMW and Toyota co-operate on research into hydrogen fuel cells, vehicle
electrification and ultra- lightweight materials.
.
 Types of Joint Ventures:
1.Between private-sector companies:
Although there are many different types of joint venture ,the most common is still between two or
more private sector companies. Objective of this type of joint venture is entering new/ foreign
markets, raising capital, cooperative research, etc.
Example: Boeing, Mitsubishi, Fuji & Kawasaki entered into a joint venture for the production of small
aircrafts to share technology & cut costs.
2.Marketing joint venture:
In a marketing joint venture structure, two marketing companies come together to promote the
product equally . A joint marketing venture can benefit in cutting down the individual cost and avails a
better reach. Most of the large enterprises or firms implement this efficient technique.
Benefits of a joint venture marketing include combined advertisement, co-hosting facilities for
promotional seminars, etc.
3.International joint venture:
An international joint venture occurs when two businesses based in two or more countries form a
partnership. A company that wants to explore international trade without taking on the full
responsibilities of cross-border business transactions has the option of forming a joint venture with a
foreign partner.
 ACQUISITION
Acquisitions Another way the entrepreneur can expand the venture is by
acquiring an existing business.
An acquisition is the purchase of an entire company, or part of a company;
the company is completely absorbed & no longer exists independently.
OR
An acquisition is a situation whereby one company purchases most or all of
another company's shares in order to take control . An acquisition occurs
when a buying company obtains more than 50% ownership in a target
company.
ADVANTAGES OF ACQUISITION
These are the following advantages :
1. Established business: the most significant advantage is that the acquired firm has an
established image & rack record. If the firm has been profitable, the entrepreneur need only
continue its current strategy to be successful with the existing customer base.
2. Location: New customers are already familiar with the location.
3. Established marketing structure: An acquired firm has its existing channel & sales
structure. Known suppliers, wholesalers, retailers, & manufacturers are important assets to
an entrepreneur.
4. Cost: The actual cost of acquiring a business can be lower than other methods of
expansion.
5. Existing employees: The employees of an existing business can be an important asset
to the acquisition process. They know to run the business & can help ensure that the
business will continue in its successful mode.
 DISADVANTAGES OF ACQUISITION
These are the following Disadvantages of an Acquisition:
1. Marginal success record: Most ventures that are for sale have an erratic, marginally
successful, or even unprofitable track record.
2. Overconfidence in ability: Sometimes an entrepreneur may assume that he or she can
succeed where others have failed. This is why a self-evaluation is so important before entering
into any purchase agreement.
3. Key employee loss: Often when, a business changes hands, key employees also leave.
4. Overvaluation: It is possible that the actual purchase process is inflated due to the
established image, customer base, channel members, or suppliers.
If the entrepreneur has to pay too much for a business, it is possible that the return on investment
will be unacceptable. It is important to look at the investment required in purchasing a business &
at the potential profit & establish a reasonable payback to justify the investment.
MERGERS
Merger is a joining of two or more companies. The transaction involving two or more
possible companies in which only one company survives.
Process:
• Determine the merger objectives and resulting gains for both companies.
• Carefully evaluate the other company’s management.
• Determine the value and appropriateness of the existing resources.
• Establishing a climate of mutual trust.
TYPES OF MERGER
There are 3 main types of merger.
1.Horizontal Merger:
Horizontal mergers are those mergers where the companies manufacturing similar
kinds of commodities or running similar type of businesses merge with each other. E.g.
Lipton and Brooke Bond.
2. Vertical Merger:
A merger between two companies producing different goods or services. E.g. Time
Warner Incorporated, a major cable operation, and the Turner Corporation, which
produces CNN, TBS, and other programming, Pixar- Disney Merger
3. Conglomerate Merger:
A merger between firms that are involved in totally unrelated business activities. E.g.
Walt Disney Company and the American Broadcasting Company.
 ADVANTAGES OF MERGER
These are the following Advantages of Merger:
• Does not require cash.
• Allows shareholders of smaller entities to own a smaller piece of a larger pie, increasing
their overall net worth.
• Merger of a privately held company into a publicly held company allows the target
company shareholders to receive a public company's stock.
• Allows the acquirer to avoid many of the costly and time-consuming aspects of asset
purchases, such as the assignment of leases and bulk-sales notifications.
DISADVANTAGES OF MERGER
Disadvantages of Merger are:
• Diseconomies of scale if business become too large, which leads to higher
unit costs.
• Clashes of culture between different types of businesses can occur, reducing
the effectiveness of the integration.
• May need to make some workers redundant, especially at management levels
this may have an effect on motivation.
• May be a conflict of objectives between different businesses, meaning decisions
are more difficult to make and causing disruption in the running of the business.
THANK YOU