Question

Explain the advantages in "Franchising" and "Acquisitions" when corporations pursue international markets?

Answer 1

An acquisition is a transaction in which a company gains control of another company by buying its stock, exchanging the stock for its own or, in the case of a private company, paying a purchase price to the owners. Cross-border acquisitions have gone up dramatically in our increasingly flat world. Cross-border acquisitions have accounted for more than 60 per cent of all acquisitions completed worldwide in recent years. Acquisitions are attractive because they provide easy, proven access to a new market for the product. They are costly however, which in the past had put them out of reach as a tactic to try for underdeveloped world companies.

Acquisition is a good entry strategy for choosing when scale is required, particularly in some industries (e.g. wireless telecommunications). Furthermore, acquisition is a good strategy when consolidating a market. Acquisitions, however, are risky. Several studies have shown that between 40 per cent and 60 per cent of all acquisitions do not raise the purchased company's market value by more than the amount invested.

Franchising works because it offers real advantages not only to the owner of the company but also to the franchisors. It offers the companies looking at global markets a number of clear advantages. It eliminates the need to invest in the venture capital and other substantial resources for the restaurateur. This uses the franchisee's local know-how and contacts to secure good sites and overcome obstacles with approvals and permits for local products. A franchise plan will see the local partner making the majority of the investment while benefiting from the franchising company's know-how, good name and quality assurance system.

Franchising also helps businesses to draw local investors of high quality. Such investors are highly sophisticated and have a great incentive in their local market to make the project . And franchising not only allows you to expand your company globally by taking advantage of local investors ' capital and resources, but also allows local investors to access the blueprint of a solid, established model with a well-known reputation.