Chapter 9

Question 1

Which model summarizes how growth can be achieved

Break it down

Answer 1

Lynch model

Internal (organic means) - home country : home market penetration

Internal (organic means) - abroad : use step by step approach
1. Export
2. Set up overseas office
3. Manufacture abroad
4. Incorp legal entity abroad

External (use TP) - home country : JV, strategic alliance, merger, acquisition, franchise, licence

External (use TP) - abroad : JV, strategic alliance, merger, acquisition, franchise, licence

Question 2

What are the positives (6) of organic growth

Answer 2

Positives
- might be only sensible way to pursue genuine technological innovations
- no need for a suitable target for acquisition
- can be planned and financed easily from company’s current resources
- same style of management and corporate culture so there is less disruption
- hidden or unforeseen losses less likely
- cheaper

Question 3

What are the negatives of organic growth (5)

Answer 3

• may intensify competition in a given market compared to buying existing player
• too slow if market is developing quickly
• firm does not gain access to knowledge and systems of established operator so can be more risky
• initially lack economies of scale
• may be prohibitive barriers to entry in new markets

Question 4

What are the benefits of a merger (6)

Answer 4

• speed of growth
• economies of scale in production, marketing and management
• synergies
• risk -spreading
• overcome barriers to entry
• outplay rivals

Question 5

What are the drawbacks of mergers (10)

Answer 5

• finding a suitable target
• cost
• strategic fit
• integration of processes
• integration of culture
• integration of systems
• risk of govt intervention
• problems retaining key staff
• inadequate due diligence
• reluctance to be acquired

Question 6

What are the benefits of a JV (6)

Answer 6

• permit coverage of larger number of countries since each one requires less investment
• can reduce risk of government intervention
• JV with local firm provides local knowledge
• provide funds for expensive tech / research projects
• core competences not available in one entity can be accessed from the other
• less disruption on existing business

Question 7

What are the drawbacks of a JV (4)

Answer 7

• conflicts of interest over profit shares, amounts invested, management of JV
• not willing to share IP
• danger partner may seek to leave JV if priorities change
• lack of management interest in the JV

Question 8

Why may firms enter a strategic alliance (3)

Answer 8

Product, services, channels, expertise and resources owned by one party can be utilized by others

Regulatory environment prohibits formal takeover

Easier to break up than a legal relationship such as JV

Question 9

What are the benefits of franchising to the franchisor (4)

Answer 9

• rapid expansion with little equity of its own
• low financial risk
• economies of scale quickly available to the franchisor
• income stream as well as initial capital

Question 10

What are the drawbacks of franchising to the franchisor (2)

Answer 10

• clash between local needs or market opportunities and strategy of the franchisor
• most successful franchisees may break away and set up as independents, thereby becoming competitors

Question 11

What are the benefits of franchising to the franchisee (2)

Answer 11

Can adopt brand name, trading format that have been tested and practiced and marketed

Often additional help and training from the franchisor

Question 12

What are the drawbacks of franchising to the franchisee (2)

Answer 12

Franchisor will seek to maintain some control or influence over quality and service

Payment of royalties