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Entrepreneurship Chap 14

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Entrepreneurship Chap 14

  1. 1. HisrichPetersShepherdChapter 14Accessing Resources forGrowth from ExternalSourcesCopyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin
  2. 2. 14-2Using External Parties to Help Growa Business Some of the mechanisms entrepreneurs canuse are: Franchising. Joint ventures. Acquisitions. Mergers.
  3. 3. 14-3Franchising An arrangement whereby the manufactureror sole distributor of a trademarked productor service gives exclusive rights of localdistribution to independent retailers inreturn for their payment of royalties andconformance to standardized operatingprocedures. The person offering the franchise is known asthe franchisor. The franchisee is the person who purchases thefranchise.
  4. 4. 14-4 Advantages of Franchising—to theFranchisee Product acceptance - Has an accepted name,product, or service. Management expertise - Managerial assistanceprovided by the franchisor. Capital requirements - Up-front support cansave entrepreneur significant time and capital. Knowledge of the market - Offers experience inbusiness and market. Operating and structural controls – Helps instandardization and administrative controls.Franchising (cont.)
  5. 5. 14-5 Advantages of Franchising—to theFranchisor Expansion risk Allows venture to expand quickly using little capital. Business can be expanded nationally and eveninternationally. Requires fewer employees than a non-franchisedbusiness. Cost advantages Supplies can be purchased in large quantities toachieve economies of scale. Ability to commit larger sums of money to advertising.Franchising (cont.)
  6. 6. 14-6 Disadvantages of Franchising Inability of the franchisor to provide services,advertising, and location. Franchisor’s failing or being bought out byanother company. Difficulty in finding quality franchisees. Poor management can cause individual franchisefailures. The ability to maintain tight control overfranchises becomes difficult as their numberincreases.Franchising (cont.)
  7. 7. 14-7 Types of Franchises Dealership - Acts as a retail store for themanufacturer. Franchise that offers a name, image, andmethod of doing business. Franchise that offers services. Changes that helped evolve franchisingopportunities: Good health. Time saving or convenience. Health care. The second baby boom.Franchising (cont.)
  8. 8. 14-8Investing in a Franchise Factors to be assessed before making thefinal decision: Unproven versus proven franchise. Financial stability of franchise. Potential market for the new franchise. Profit potential for a new franchise. Franchisors are required to make a fullpresale disclosure. The franchise agreement contains therequirements and obligations of thefranchisee.
  9. 9. 14-9Table 14.2 - Information Requiredin Disclosure Statement
  10. 10. 14-10Table 14.2 - Information Requiredin Disclosure Statement (cont.)
  11. 11. 14-11Joint Ventures A separate entity that involves apartnership between two or more activeparticipants. Types of Joint Ventures: Between private-sector companies. Objectives - Entering new/ foreign markets, raisingcapital, cooperative research, etc. Industry–university agreements. Created for the purpose of doing research. International joint ventures.
  12. 12. 14-12Joint Ventures (cont.) Factors in Joint Venture Success: The accurate assessment of the partiesinvolved to best manage the new entity. The degree of symmetry between the partners. The expectations of the results of the jointventure must be reasonable. The timing must be right.
  13. 13. 14-13Acquisitions The purchase of an entire company, or partof a company; the company no longerexists independently. Advantages of an Acquisition Established business. Location. Established marketing structure. Cost. Existing employees. More opportunity to be creative.
  14. 14. 14-14 Disadvantages of an Acquisition Marginal success record. Overconfidence in ability. Key employee loss. Overvaluation. Synergy “The whole is greater than the sum of itsparts.” Synergy should occur in both the businessconcept and the financial performance.Acquisitions (cont.)
  15. 15. 14-15 Structuring the Deal Involves the parties, the assets, the paymentform, and the timing of the payment. Two most common means of acquisition: Entrepreneur’s direct purchase of stock or assets. Bootstrap purchase of assets.Acquisitions (cont.)
  16. 16. 14-16 Locating Acquisition Candidates Brokers, accountants, attorneys, bankers,business associates, and consultants may knowof candidates. Business opportunities in newspapers or trademagazines.Acquisitions (cont.)
  17. 17. 14-17Mergers Key concern - Legality of the purchase. Process: Determine the merger objectives and resultinggains for both companies. Carefully evaluate the other company’smanagement. Determine the value and appropriateness of theexisting resources. Establishing a climate of mutual trust. Determine the value of a merger candidate.
  18. 18. 14-18Figure 14.1 - Merger Motivations
  19. 19. 14-19Leveraged Buyout An entrepreneur (or any employee group)uses borrowed funds to purchase anexisting venture for cash. Long-term debt financing is provided by banks,venture capitalists, and insurance companies. Acquired firm’s assets serve as collateral. Evaluation procedure: Determine whether asking price is reasonable. Assess the firm’s debt capacity. Develop the appropriate financial package.
  20. 20. 14-20Overcoming Constraints byNegotiating for More Resources Distribution task - Negotiating how thebenefits of the relationship will be allocatedbetween the parties. Integration task - Exploring possible mutualbenefits from the relationship so that the“size of the pie” can be increased.
  21. 21. 14-21 Assessment 1: What will you do if anagreement is not reached? Best alternative to a negotiated agreement. Determine a reservation price.Overcoming Constraints by Negotiatingfor More Resources (cont.)
  22. 22. 14-22 Assessment 2: What will the other party tothe negotiation do if an agreement is notreached? Difficult to assess reservation price. Bargaining zone - Range of outcomes betweenthe entrepreneur’s reservation price and that ofthe other party.Overcoming Constraints by Negotiatingfor More Resources (cont.)
  23. 23. 14-23 Assessment 3: What are the underlyingissues of this negotiation? How important iseach issue to you? Focus on achieving aspects most desirable bytrading off aspects of less importance.Overcoming Constraints by Negotiatingfor More Resources (cont.)
  24. 24. 14-24 Assessment 4: What are the underlyingissues of this negotiation? How important iseach issue to the other party? Provides the entrepreneur an opportunity tosacrifice aspects of less importance to him/ herbut of high importance to the other party.Overcoming Constraints by Negotiatingfor More Resources (cont.)
  25. 25. 14-25 Negotiation strategies: Build trust and share information. Ask lots of questions. Make multiple offers simultaneously. Use differences to create trade-offs that are asource of mutually beneficial outcomes.Overcoming Constraints by Negotiatingfor More Resources (cont.)