Professional Documents
Culture Documents
Robert D. Hisrich
Mathew J. Manimala
Michael P. Peters
Dean A. Shepherd
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ENTREPRENEURSHIP
14
LEARNING OBJECTIVES
To understand how joint ventures can
help an entrepreneur grow his or her
business and acknowledge the
challenges of finding, and
maintaining, an effective joint
venture relationship
To be aware of the pros and cons of
using acquisitions to grow a business
and to know what to look for in an
acquisition candidate
14-3
Contd
LEARNING OBJECTIVES
To understand the possibilities of
achieving growth through mergers
and leveraged buyouts and the
challenges associated with each
To understand franchising from the
perspective of both the entrepreneur
looking to reduce the risk of new
entry and the entrepreneur looking
for a way to grow his or her business
14-4
Contd
LEARNING OBJECTIVES
To understand the tasks of
negotiation and develop the skills to
more effectively conduct these tasks
14-5
Joint ventures
Acquisitions
Mergers
Franchising
14-6
JOINT VENTURES
A separate entity that involves a
partnership between two or more
active participants
Types of joint ventures:
Between private-sector companies
Objectives - Entering new/ foreign markets,
raising capital, cooperative research
Industry-university agreements
Created for the purpose of doing research
Contd
JOINT VENTURES
Factors in joint venture success
Accurate assessment of the parties
involved to best manage the new entity
Degree of symmetry between the
partners
Expectations of the results of the joint
venture must be reasonable
Timing
14-8
ACQUISITIONS
Purchasing all or part of a company
Advantages of an acquisition
Established business
Location
Established marketing structure
Cost
Existing employees
More opportunity to be creative
14-9
Contd
ACQUISITIONS
Disadvantages of an acquisition
Synergy
The whole is greater than the sum of its
parts
Should occur in both the business
concept and the financial performance
14-10
Contd
ACQUISITIONS
Structuring the deal
Involves the parties, the assets, the
payment form, and the timing of the
payment
Two most common means of acquisition
Entrepreneurs direct purchase of stock or
assets
Bootstrap purchase of assets
14-11
Contd
ACQUISITIONS
Locating acquisition candidates
Brokers: People who sell companies
Accountants, attorneys, bankers,
business associates, and consultants
may know of candidates
Business opportunities in newspapers or
trade magazines (e.g. motels in US
advertising in India Abroad)
14-12
MERGERS
Joining two or more companies
Key concern - Legality of the
purchase
Process:
Determine the merger objectives and
resulting gains for both companies
Carefully evaluate the other companys
management
14-13
Contd
MERGERS
Determine the value and
appropriateness of the existing
resources
Establishing a climate of mutual trust
14-14
MERGER MOTIVATIONS
FIGURE 14.1
14-15
LEVERAGED BUYOUT
Purchasing an existing venture by
any employee group
Acquired firms assets serve as collateral
Long-term debt financing is provided by
banks, venture capitalists, and
insurance companies
Evaluation procedure:
Determine whether asking price is
reasonable
Assess the firms debt capacity
14-16
FRANCHISING
Franchisor gives exclusive rights of
local distribution to:
A franchisee in return for payment of
royalties and conformance to
standardized operating procedures
Contd
FRANCHISING
Advantages of franchising - To the
franchisee
Product acceptance
Has an accepted name, product, or service
Management expertise
Managerial assistance provided by the
franchisor
Capital requirements
Up-front support can save entrepreneur
significant time and capital
14-18
Contd
FRANCHISING
Advantages of franchising - To the
franchisee
Knowledge of the market
Offers experience in business and market
14-19
Contd
FRANCHISING
Advantages of franchising - To the
franchisor
Expansion risk
Allows venture to expand quickly using little
capital
Business can be expanded nationally and
internationally
Requires fewer employees than a nonfranchised business
Cost advantages
Supplies can be purchased in large
quantities to achieve economies of scale
14-20
Contd
FRANCHISING
Disadvantages of franchising
Inability of the franchisor to provide
services, advertising, and location
Franchisors failing or being bought out
by another company
Difficulty in finding quality franchisees
14-21
Contd
FRANCHISING
Poor management can cause individual
franchise failures
The ability to maintain tight control over
franchises becomes difficult as their
number increases
14-22
Contd
FRANCHISING
Types of franchises
Dealership - Acts as a retail store for the
manufacturer
Franchise that offers a name, image,
and method of doing business
(McDonalds)
Franchise that offers services (e.g. preschools EuroKids)
14-23
Contd
FRANCHISING
Changes that helped evolve franchising
opportunities:
Good health
Time saving or convenience
Health care
The second baby boom
14-24
INVESTING IN A
FRANCHISE
Factors to be assessed before making
the final decision:
14-25
INVESTING IN A
FRANCHISE
Contd
14-26
INFORMATION REQUIRED IN
DISCLOSURE STATEMENT
TABLE 14.2
14-27
Contd
INFORMATION REQUIRED IN
DISCLOSURE STATEMENT
TABLE 14.2
14-28
OVERCOMING CONSTRAINTS
BY NEGOTIATING FOR MORE
RESOURCES
Distribution task: Negotiating how
the benefits of the relationship will
be allocated between the parties
Integration task: Exploring possible
mutual benefits from the relationship
so that the size of the pie can be
increased
14-29
OVERCOMING CONSTRAINTS
BY NEGOTIATING FOR MORE
RESOURCES
Contd
14-30
OVERCOMING CONSTRAINTS
BY NEGOTIATING FOR MORE
RESOURCES
Contd
14-31
OVERCOMING CONSTRAINTS
BY NEGOTIATING FOR MORE
RESOURCES
Contd
14-32
OVERCOMING CONSTRAINTS
BY NEGOTIATING FOR MORE
RESOURCES
Contd
OVERCOMING CONSTRAINTS
BY NEGOTIATING FOR MORE
RESOURCES
Contd
Negotiation strategies
14-34