CBSE Class 12 Entrepreneurship Enterprise Growth Strategies Worksheet Solved

What is meant by Growth and development of an enterprise? What are the different ways of Expansion?

Very Short Answer Type Questions

Question. Who is a franchisor?
Answer : Franchisor is the manufacturer or sole distributor of trademarked product or service who gives exclusive rights to the local distribution to the individual retailers so as to earn the royalties.

Question. What is franchising?
Answer : Franchising is a deal between two entities namely
1. The manufacturer or the sole distributor of a trademarked product or service (known as franchisor)
2. retailers (known as franchisee) get into an agreement. As part of this agreement the franchisor provides exclusive rights to the franchisee for local distribution of their  product or service. In return the franchisee pays the royalties to the franchisor.

Question. What is acquisition?
Answer : Acquisition is a process where in an organization purchases all or almost all the ownership stakes of another organizations so as to take complete control of that organization.

Short Answer Type Questions

Question. Explain in brief the three ways in which an organization can expand externally.
Answer : An organization can expand externally in any one of the following 3 ways.
1. Franchising: In this form, the manufacturer or the sole distributor of a trademarked product or service gives exclusive rights to the local distribution to the individual retailers so as to earn the royalties. This is done through the franchise agreement. This helps the franchisor to expand their business without investing any capital or manpower or time. The following are the types of franchising.
a. Product franchise business opportunity.
b. Manufacturing franchise opportunity.
c. Business franchise opportunity ventures
d. Business format franchise opportunity.
2. Mergers: In this form of expansion two companies join hands to form a larger company through strategies like stock exchange or cash payment to the target. The acquiring organization acquires all the assets and liabilities of the merged company.
Merger can happen in two ways:
a. Amalgamation: Two organizations are merged to form a single new organizations. The combining organizations will cease to exist.
b. Absorption: One organization gets absorbed into another.
The following are the different types or mergers:
a. Conglomerate
b. Horizontal
c. Vertical
d. Product extension
e. Market extension
3. Acquisition: Acquisition also called as takeover is a process where in an organization purchases all or almost all the ownership stakes of another organizations so as to take complete control of that organization. The payment is done either through cash or the acquiring company’s stock or both.
There are four types of acquisitions:
a. Friendly
b. Reverse
c. Back flip
d. Hostile

Question. Differentiate between consolidation and merger.
Answer :
Basis
Consolidation
Merger
1. Definition
One company acquires another company and takes over the assets and liabilities of the merged company.
Two companies of similar size combine and form one bigger company.
2. Resultant company
The company absorbed ceases to exist and only the company which acquired the smaller company exists.
Both the companies involved cease to exist. A new large company comes into existence.
3. Formation
A + B = A, where the firm B is merged into the firm A.
A + B = C, where C is an entirely new big entity.
4. Other Name
This is also called as absorption.
This is also called as amalgamation.

Question. Explain the types of acquisition.
Answer : There are four different types of acquisitions specified as follows.
1. Friendly acquisition: The acquisition occurs through mutual approval of both the companies. The process is friendly.
2. Reverse acquisition: A private company acquires a public company.
3. Back flip acquisition: The purchasing company will become the subsidiary of the purchased company. This occurs very rarely.
4. Hostile acquisition: A bigger company creates an atmosphere where in a smaller company is forcefully made to accept the acquisition to save itself. If the smaller company does not accept the acquisition, the bigger company buys off all of its shares.
The bigger company thus becomes a major stake holder and then start the acquisition process.

Long Answer Type Questions

Question. What are the disadvantages of franchising to the franchisee?
Answer : The following are the disadvantages of taking up a franchise as it is like that the differences arise between the franchisor and franchisee regarding specific formal and informal commitments that are not implemented. Few of these are 
1. Right and the only way of getting the things done: The freedom of the franchise is limited. The franchisor tries to exert exaggerated levels of control. The owner of the franchise is likely to feel that their freedom is lost their freedom to innovate is reduced.
2. Continuing cost implication: Apart from the fee and royalties paid, the franchise should continuously share the revenue with the franchisor. In addition to this the franchisor charges for the services like advertising and training. The more reputed is the franchisor, the more are these costs.
3. Risk of franchisor getting bought: The franchisee suffers problems, losses and difficulties when the franchisor fails or if the franchisor is bought out by anotherbusiness.
4. Inability to provide services: When the franchisor is unable to provided services as advertised the franchisee will go into a risky situation as the required supportto run the business is not available.

Question. What are the different types of value added?
Answer : Value addition is used to improve the products and services. The various types of added values can be applied together irrespective of the current product or service cycle.
1. Quality added value: This consists of adding
a. convenience
b. ease of use
c. or any other characteristics that the customers value
Examples: Converting a commodity into branded product or design improvements by adding pull tabs for easily opening or sipper tops on beverage bottles.
2. Environmental added value: Providing environment friendly methods or systems which are eco-friendly. Something like using a. less electricity, b. increased fuel efficiency c. using recycled packaging material etc.
3. Cause-related added value: This is a social marketing strategy where in the business contributes part of the revenue from the sale of a product or service to contribute to a cause. Examples include a business donating a percentage of revenue from each transaction to a cause such as providing quality education to the underprivileged children or contributing to the wildlife preservation.
4. Cultural added value: This is also a social marketing strategy where in the methods or systems of production incorporate cultural aspects or they allow for the needs and sensitivities of cultural groups. For instance, promoting halal food (considering the Islamic standards) or using the language used by other ethnic groups in a community in all the written communication.

Very Long Answer Type Questions

Question. Explain in detail the types of mergers
Answer : They following are the different types of mergers
1. Conglomerate: When two companies which are in entirely different businesses merge, it is called as conglomerate. It is further classified as 
a. Pure conglomerate: In this the two firms have nothing in common.
b. Mixed conglomerate: In this the two firms are looking for product or market extensions.
2. Horizontal merger: When two companies which are in the same industry merge, it is called as horizontal merger. It occurs between companies that are competitors in the same industry and are offering the same goods or services. This type of merger usually occurs in the industries where there are few competitors and the competition is high. When these industries merge they’ll have much bigger synergies and potential gains.
3. Market extension merger: This occurs between two firms that are offering the same products but in different market regions. The motive behind this type of merger is to make sure that the merging companies will be able to operate in a bigger market and there by getting huge number of clients.
4. Product extension merger: This type of merger occurs between two companies that offer the products that are related to each other and operating in the same market. The merger helps to group the products together and reach a huge client base. It increases the profit margins too.
5. Vertical merger: This occurs between two companies which are producing different goods or services for one specific finished product. It occurs when two or more firms that offer products which are part of an industry’s supply chain merge their operations. The purpose of merger is to increase synergies created by the merging entities and operate more efficiently as a single business unit.

Question. What is meant by moving up the value chain? Explain with the help of an example.
(You can watch the video of the question Diagrammatically explain the Michael Porter’s Generic Value Chain )
Answer : Value Chain refers to all the activities that create and build value at every step.
Thus the total value added to the final product or service is the sum of the individual value added at every step. As per Michael Porter value chain refers to the higher level model of
◆ How the business procures the raw materials
◆ Add value to the raw-materials through various processes
◆ Sell the finished products or services to the end users.
Thus value chain analysis is performed at every step of the business with one goal of delivering maximum value, from getting raw-materials to end users.
Michael Porter suggested that the activities in an organization should add value to the products and services. And all these activities should be run optimum level.
Then only the organization can achieve true competitive advantage. When these processes are run efficiently, the value delivered far exceeds the cost incurred in adding the value. This leads to customer satisfaction and encourage customers to do the business with the organization again and again.
As per Michael Porter, the activities within an organization should be split into primary and support activities as follows.
1. Primary Activities:
◆Inbound Logistics
◆Operations
◆Outbound Logistics
◆Marketing and Sales
◆Services
2. Support Activities:
◆Procurement
◆Technological Development
◆Human Resource Management
◆Firm Infrastructure
Example: Consider the example of a fast food restaurant. Their inbound logistics involve procuring the flour, vegetables etc. They’ll process them and make the final food items. The food items are then delivered to the customers. Enough marketing is made to ensure that customer is aware of the product. As part of service, discounts are offered for returning customers.
The secondary activities involve procuring the best raw materials at the best price. Use modern technology equipment (micro wave oven, electric baking equipment etc)in the preparation of food and make sure that it is available online to the customers (most of the pizza centres have a website). They should make their staff well trained to provide satisfactory customer service. They will also maintain good finances and management.

Question. Explain the requirements for value chain management.
Answer : The following are the six requirements that are needed to manage the value chain.
1. Coordination and Collaboration: Coordination and collaboration is essential to increase the efficiency of an organization. To eliminate the duplication of efforts, the work groups need to coordinate with each other. Organizations should use the theory that , The whole is greater than the sum of its parts. It can be implemented when one group collaborate with the other work groups and individual to achieve a common goal.
2. Technology Investment: Technology plays significant role in manufacturing and distribution. When the organization uses out dated technology such as old machinery or computers, it loses the competitiveness as the productivity will be drastically reduced.
3. Organizational Process: Each aspect of an organizational process is identified. The processes are improved through the use of better technology, increased procedural knowledge. This will help in present and future success of the company.
4. Leadership: When the leaders are strong it results in the successful implementation of value chain management. Good leaders exhibit sound management practices and there by earn the respect from their employees. Strong leaders will be efficient in conflict management, motivation and providing direction.
5. Employee/Human Resources: For efficient functioning of the organization, it is essential to have good information on benefits, company policies, hiring and conflict management. When the human resources department is knowledgeable and active, the employees feel secure. In situations where the employee is hesitant to reach their supervisors directly regarding any issues, the human resources department can act as a liaison.
6. Organizational culture and attitudes: To attract and retain top talent, the organizations should foster strong cultural identity with positive attitude. There should be regular corporate sponsored activities to help in the building of cultural unity and help the employees to develop a positive attitude. This also increases productivity.