Entrepreneurship Development Instructions:
1. This assessment covers topics you have learnt in Unit 3 and 4.
2. As this is an individual assignment, you are advised not to share withothers.
3. Please answer all the questions.
4. Please write all your answers in essay format. Do not answer in pointform unless the questions mention “List” or “State”. It is not necessary to precede each answer with an introduction and end with a summary. Proceed directly with the answer.
5. The total marks for TMA 2 is 100 and this contributes 25% towards the total weightage of this course.
6. Do remember to submit online and by the deadline.
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Case Study 1
Building Succession Plans: The Family Publisher Years ago, Ted started a company that today publishes three successful community newspapers. As he approaches retirement age, Ted says that he wants the business to remain
in the family, but he refuses to discuss management succession issues with his three sons, all of whom work in the family business and would like to take it over when Ted retires. Rather than develop a management succession plan, Ted has included the company in his will, which means that his wife and his three sons will inherit the business as equal owners.
Ted’s son Frank and his brothers are concerned that by including the company in his will, Ted is creating the real possibility that estate taxes will create such a large financial burden that they will have to sell the business to pay the tax bill. With the business included in his estate, the value of Ted’s estate is likely to exceed the exemption for the federal estate tax. Frank and his brothers also see the potential for a dispute over the roles they will assume in the business when their father does step down from the helm. What roles will they play in the family business? What about management control? Who will become CEO? Frank and his brothers would like to get the benefit of their father’s many years of experience in the newspaper business, but without a succession plan, any transfer of knowledge will be purely incidental.
At age 7, Roger Peugeot became an apprentice in the plumbing business his father started in 1950. After graduating from high school, Roger joined the family business full-time and then took it over when his father died suddenly 10 years later. The company now has $5 million in annual sales, 15 trucks, and 25 employees. At 60, Roger is approaching retirement age, and he wants to create a plan for transferring the business to his children that allows for a smooth transition of ownership and minimizes the impact of estate taxes. Roger and his wife already have set up
bypass trusts so that after they are both gone, their estate will be taxed only once. Both of Roger’s sons work in the family business. One is a master plumber, and the other is being groomed as a manager and hopes some day to become CEO.
Answer all questions.
1. Discuss the implications for these family businesses if their owners neglect to create management succession plans? (10 marks)
2. Explain the tools these business owners can use to minimize the impact of estate taxes on their family businesses.(20 marks)
3. Examine the steps these owners should take to build management succession plans for their companies. (20 marks)
Case Study 2
India a hot spot for franchising As franchisors have found wringing impressive growth rates from the domestic
market increasingly difficult, they have begun to export their franchises to international markets, including those with developing economies. Indeed, franchising is ideally suited for developing economies because it allows people with limited business experience and financial resources to become part of an established business. India, with a population of more than 1 billion people, is attracting the attention of franchisors across the globe. More than 750 franchisors now operate in India, where the franchising industry is growing at an annual rate of 30 percent. India’s middle class, which currently stands at 50 million, is expected to grow to 583 million by 2025, a growth rate that appeals to franchisors. India also has 35 cities with populations that exceed 1 million people compared to just 9 in the United States. The Global Retail Development Index published by management consulting firm A.T. Kearney ranks India as the most attractive market globally for retail investment. Although franchises in a multitude of industries operate in India, fast food franchises such McDonald’s, Pizza Hut, and others, were among the first to enter the Indian market. Their vision is paying off; the pizza market in India has been growing at an annual rate of 40%. Pizza Hut, which recently was named the “most trusted food service brand” in India for the fifth consecutive year, operates 156 restaurants in 35 Indian cities. In India, per capital incomes are growing but remain relatively low by Western standards, which require franchisees to be conscious of the prices by charge. At Pizza Hut locations, Indian customers can purchase a four course meal for two that includes a chicken tikka pan pizza, garlic bread called naan, tomato soup, and mango ice cream for just $6.25. Because 80% of Indians are vegetarians, pizza chains such as Pizza Hut and Domino’s include many vegetarian items on their menus and are fanatical about keeping kitchens separate. One of Dominos’s Pizza’s most popular items in India is a $3 Veggie Lovers personal pan pizza.
McDonald’s operates 157 restaurants in India and recently announced plans to open nearly 200 more by 2015. To appeal to Indian customers, McDonald’s has modified its traditional U.S, menu significantly; the company’s restaurants serve no beef or pork in any of their dishes. Instead, the Indian McDonald’s menu offers burger “lookalikes” that are made of vegetables and spices and are seasoned to local tastes. For instance, restaurants
serve the McVeggie sandwich (a vegetarian patty made from peas, carrots, green beans, red bell pepper, potatoes, onions, rice and seasonings), Curry Pans (a vegetable medley baked on a spiced bread with a cheese topping), and the Pizza McPuff (a mixture of vegetables and spices inside a pastry). The only nonvegetarian items on the McDonald’s India menu are served with either chicken of fish. Outlets offer a chicken version of the Curry Pan, a Fish-O-Fish sandwich (one of the few items on the Indian menu that is the same as in U.S McDonald’s restaurants), and sandwiches made with grilled or fried chicken patties. “Today 70% of our menu is “Indianized”, says Vikram Baksi, managing director of McDonald’s India North. U.S franchisors operating in India know that it will take time for their investments to come to fruition, but they believe the payoffs will be worth the wait. Success requires patience and commitment. “We are planting the seeds for a bigger future,” say Sam Su, president of Yum! Restaurant, China.
Answer all questions.
1. Explain FOUR (4) steps that should franchisors take when establishing outlets in foreign countries. (20 marks)
2. Identify the challenges faced by franchisors when entering emerging market such as India. (10 marks)
3. Outline FOUR (4) suggestions that will help new franchisors looking to establish outlets in India. (20 marks)
Case study 1
Question 1 : – The business will die off
– Brothers will have conflict to who become CEO/director
– Hardwork will be taken over by other ppl.
– Family members have good transitions and management sufficient plan.
Question 2 : – Buy-sell agreement
– Lifetime gifting
– Setting up a trust
– Estate freeze
– Family limited partnerships
( 5 points with explanation & elaboration x 4marks = 20 marks)
Question 3 : – Select a successor, how to select and what is successor
– Create a survivor kit for successor
– Groom and train the successor
– The successor must sensitive and familiar with financial figure
– Promote environment and power support.
( 5 points with explanation & elaboration x 4 marks = 20marks)
Case study 2
Currently, the biggest trend in franchising is the globalization of franchising systems. Increasingly, franchising is becoming a major export industry for countries like the United States just because markets outside U.S. borders offer most franchisors the greatest potential for growth. One of the most attractive international countries is India because of its increasing population rate, strong demand for consumer goods, growing service economies, and the number of highly populated metropolitan areas.
For franchisors moving into foreign markets, adaptation is one key to success. Although they keep their basic systems intact, franchises that are successful in foreign markets quickly learn how to change their concepts to adjust to local cultures and to appeal to local tastes. Other than that, appreciating and understanding the culture and the market is very much important. It is essential to appreciate the needs of the market and understand how that market defines “value”. It is also important to study growth rates and locationattributes to optimize success potentials. Some other points that can be considered are raising personal incomes, strong demandfor consumer goods, growing services economies and spreading urbanization. ( 4 points with explanation & elaboration with 5 marks = 20marks)
International franchisors face a number of challenges that should be taken into account before entering a target market. For example, a franchised concept may not ‘‘translate’’ well in another country. In addition, the goodwill associated with the franchise in the host country may be non-existent in another country, and consumers may be biased against foreign brands for certainproducts and services. The franchisor’s net revenues from international franchising are often lower than domestic net revenues due to increased expenses and sharing of revenues with master franchisees. Revenues from international franchising may also be affected by international tax treaties and fluctuations in currency exchange rates. International franchising may require more management resources than the franchisor can spare. In addition, supporting and supplying international franchisees can be more difficult and expensive. India is a large market with a thriving class of more than 500 million potential consumers. India has no specific legislation regulating franchise arrangements, but there are a number of areas of the law that affect the franchisorfranchisee relationship. Intellectual property, taxation, labor, competition, property, and exchange control regulations all influence franchising.
( 4 points with explanation & elaboration x 2.5marks = 10 marks)
Question 3 : – Popoluation trends
– Location information by city and area
– Work arrangements and restrictions
– Food and custom restriction
– Preferences, trends and tastes
– Inventory of technology opportunities and limitations
– Configuration of the physical space
– Law and restrictions impacting the venture
( Any 4 points with explanation & elaboration x 5 marks = 20marks)