Entrepreneurship

Lecture 14 – BBA2K19
By: Hassan Ali – Lecturer
Sindh University Campus, Thatta
Entrepreneurship
Chapter - 14
Accessing
Resources for
Growth from
External Sources
Accessing Resources for Growth from External Sources

Learning Objectives
 Franchising
 Joint Ventures
 Acquisition
 Mergers
 Leveraged Buyouts
Accessing Resources for Growth from External Sources

Franchising
An arrangement whereby a franchisor gives exclusive rights of
local distribution to a franchise in return for payments of
royalties and conformance to standardize operating
procedures.

 A license to sell another’s

products or to use another’s
name in business, or both
Accessing Resources for Growth from External Sources

Franchising
Advantages of Franchising to the Franchisee
 Product Acceptance
 Management Expertise
 Capital Requirements
 Knowledge of the market
 Operating the structural controls
Accessing Resources for Growth from External Sources

Franchising
Advantages of Franchising to the Franchiser

 Expansion Risk

 Cost Advantages
Accessing Resources for Growth from External Sources

Franchising
Disadvantages of Franchising
 Fees and profit sharing
 Limited product line
 Inability of franchisee to provide other
services, and advertising etc
 The franchise may face a problem when
it bought out by another company
Accessing Resources for Growth from External Sources

Franchising
Types of Franchises
 Dealership

 Offer Services

 Offers name, image and

methods of doing business
Accessing Resources for Growth from External Sources

Franchising
Investing in a Franchise
There are factors that must be assessed by the entrepreneur
when he/she want to invest.
 Proven vs Unproven Franchise.
 Financial stability of a franchise.
 Potential market for the new franchise.
 Profit potential for a new franchise.
Accessing Resources for Growth from External Sources

Joint Ventures
 Two or more companies forming a new company.
 It is a separate entity that involves a partnership
between two or more active participants.
 Strategic Alliances
• General Motors & Toyota
• General Electric & Westinghouse
Accessing Resources for Growth from External Sources

Joint Ventures
Types of Joint Ventures
 Private Sector Companies
– Mitsubishi, Fuji, Kawasaki
 Cooperative research
 Industry-university agreements
 International joint ventures
Accessing Resources for Growth from External Sources

Joint Ventures
Factors of Success
 How to best manage entity
 Ensuring relationships
 Degree of symmetry b/w partners
 Expectation of results
 Timing must be right
Accessing Resources for Growth from External Sources

Acquisitions
Purchasing all or part of a company.
Advantages of Acquisitions
• Determined Location
• Cost effectiveness
• Existing employees
• More opportunity to be creative
• Established business market structure
Accessing Resources for Growth from External Sources

Acquisitions
Purchasing all or part of a company.
Disadvantages of Acquisitions
• Marginal success record
• Overconfidence in ability
• Key employee loss
• Over evaluated
Accessing Resources for Growth from External Sources

Acquisitions
Synergy and Acquisitions

 The whole is greater than the sum of its parts.

 Lack = acquisition failure
Accessing Resources for Growth from External Sources

Mergers
 Joining two or more companies
 Key concern - Legality of the purchase
Accessing Resources for Growth from External Sources

Mergers
Process of Mergers
 Establishing a climate of mutual trust
 Carefully evaluate the other company’s
management
 Determine the merger objectives and
resulting gains for both companies
 Determine the value and appropriateness
of the existing resources
Accessing Resources for Growth from External Sources

Mergers
Merger Motivations
Accessing Resources for Growth from External Sources

Leveraged Buyouts
 Purchasing an existing venture by any employee group
• Acquired firm’s assets serve as
collateral
• Long-term debt financing is
provided by banks, venture
capitalists, and insurance
companies
Accessing Resources for Growth from External Sources

Leveraged Buyouts
 Evaluation procedures:
• Determine whether asking price
is reasonable
• Assess the firm’s debt capacity
• Develop the appropriate financial
package