Accessing Resources for Growth from External Sources 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 of standardized operating procedures.” Franchising Franchisee Benefits Product Acceptance Managerial Expertise Capital Requirements Money saving features Knowledge of the Market Operating & Structural Controls Standardized suppliers Franchising Franchisor Benefits Expansion risk Cost Advantage Disadvantages Franchisee v. Franchisor Failure or Selling Franchisor disadvantages Franchising Types Dealership Name, image, method of doing business Cars Subway, McDonald’s Services Trends Good health Time saving or convenience Environmental consciousness Second Baby Boom Investing in a Franchise Entrepreneurial Commitment Factors Proven v. unproven Financial stability Potential market Profit potential Collect Information FTC’s Franchise Rule Compare costs Contact Joint Ventures Definition Types Private-sector companies Cooperative research Industry-university agreements Two problems International joint ventures Factors of Success How to best manage entity re: ensuing relationships Degree of symmetry Expectation of results Timing must be right Acquisitions Considerations Advantages Established business Location Established market structure Cost Existing employees More opportunity to be creative Acquisitions Disadvantages Synergy Structuring the Deal Marginal success record Overconfidence in ability Key employee loss Overevaluated Direct Purchase Bootstrap Purchase Locating Acquisition Candidates Mergers Department of Justice How does it take place? Requirements Determining value Leveraged Buyouts Definition Why buy? Financing Debt-to-equity ratio Steps before buying Is asking price reasonable? Assess firm’s debt capacity Develop appropriate financial package Overcoming Constraints by Negotiating Two tasks Distribution task Divide up the pie Integration task Make the pie larger Negotiating What will you do if no agreement is reached? Reservation Price What will the other party do if no agreement is reached? Bargaining zone Negotiating What are underlying issues for you? How important is each issue? Trade-offs What are underlying issues for other party? How important is each issue? Understanding=Increased integration Negotiating Strategy Build Trust and Share Information Ask Lots of Questions Probe for preferences Make Multiple Offer Simultaneously Best outcome Can it hurt the negotiations? Show what’s important based on choices Used to Create Trade-offs that Result in Mutually Beneficial Outcomes