A

PROJECT REPORT

ON

“GLOBAL STRATEGIC
MANAGEMENT”

Submitted In Partial Fulfilment of the Requirement

For The Award of the Masters of Business Administration (MBA)

SUBMITTED BY: SUBMITTED TO:

___________________ ___________________

MBA – 3RD SEMESTER

BHARATI VIDYAPEETH DEEMED UNIVERSITY

SCHOOL OF DISTANCE EDUCATION
Academic Study Center - BVIMR, New Delhi
 An ISO 9001:2008 Certified Institute
NAAC Re-Accredited Grade “A” University
 ACKNOWLEDGEMENT

"Accomplishment of any task necessarily depends upon the willingness and

enthusiastic contribution of time and energy of many people."
From the starting till the completion of this project, there are many people without
whose assistance all my efforts would have been fruitless. I, therefore, acknowledge
all who generously helped me by sharing their time, experience and knowledge with
me without which this project would have never been accomplished.

I must express my gratitude to ___________________ (my project guide) whose

perceptive guidance, constant encouragement, constructive criticism and affection
were the light of guidance during my tenure of my work.

Finally, I would like to state that the project not only fulfilled an academic
requirement, but would also help me in future endeavors in the years to come.
 PREFACE

A hallmark of any premier business school is its willingness and ability to constantly
explore and implement new ideas and practices in the field of management education.
Institute constantly reorients their programs in order to keep abreast of changing
development.

The initial interaction between school students and industry takes place when the
students undergo project is usually for knowing the process for recruitment, selection,
industrial relations & training of that institution. It is often the exposure to corporate
culture that a student receives, particularly true for students without prior work
experience.

The main purpose of the study is to know the policies of the bank regarding marketing
& financial services, which helped me in gaining knowledge about the different
working pattern of different departments of a bank.
 TABLE OF CONTENT

PARTICULAR PAGE NO.

ACKNOWLEDGEMENT

PREFACE

CHAPTER-1 INTRODUCTION

CHAPTER-2 RESEARCH METHODOLOGY

CHAPTER-3 DATA ANALYSIS

FINDINGS

RECOMMENDATION & SUGGESTIONS

BIBLIOGRAPHY
ANNEXURE
 Chapter I
Introduction
 INTRODUCTION

Understanding the History of Global Trade

Global trade is one of the few remaining corporate functions where arcane ‘old style
businessrituals’ are still the norm. Like other corporate functions before they were re‐
engineered and automated, global trade has been dominated by paper documentation
and strapped together with multiple tiered manual processes. Service providers in
charge have depended on the use of historical, intuitive knowledge of “what’s
supposed to happen to process trade goods.”

When errors are discovered (often simply stumbled upon) they are corrected one
transaction at a time. It is classic ‘fire‐fighting’ style process management, usually
without a plan or executive oversight. It’s not working well.

The long history of International Trade is fraught with supply chain complexity and
unknown risks. Meeting today’s challenges will require re‐engineering using modern
tools of automation. If your company is sourcing or selling on the world stage in the
21st Century, you will need sophisticated international trade knowledge and
automated operations or your company will simply fall behind competitively.

As global trade activity continues its exponential growth, operational and financial
executives will require a clear picture of projected cash flow, inventory levels,
compliance metrics and hard and soft financial commitments. Global supply chain
uncertainties ─ such as delayed or incomplete shipments, freight expediting expenses,
unexpected customs fees or fines, and foreign currency fluctuations will need to be
anticipated, decoded, and integrated into the company’s overall business strategy to
maintain a competitive advantage.

One Chief Financial Officer confided that his import operation is “a big black hole,”
lacking the information he needed to effectively assess risk and improve operations.
But the world of global trade is undergoing a massive transformation, an automation
revolution. Enlightened executives are re engineering their internal work processes,
improving their companies’ global trade systems and creating new wealth through
competitive trade advantages.

The Competitive Advantage of International Standards

To be competitive on both a national and a global basis, organizations must adopt a

forward-thinking approach in developing their management strategies. In this article,
we will review ISO 9000 and ISO 14000 and suggest how these standards may be
used to move an organization toward that paradigm and thus enable it to compete
more effectively in today's global marketplace.

Many of our current quality management and environmental management systems are
reactive—that is, they have been developed in response to federal, state, or local
regulations. We need to ask ourselves, is this a competitive way to work? When we
are in this reactive mode, are we really listening to our customers? Are we able to
seek out innovative means of getting the job done?

International standards force companies to look at their processes in a new light and to
take a more active approach to management. For example, if a company wishes to
pursue the new environmental standard, ISO 14000, its environmental management
system's pollution control policy will have to be revamped to focus on prevention
rather than command-and-control. As the company moves in that direction it will truly
become more competitive, and will do so on a global basis.

Global Strategic Management

During the last half of the twentieth century, many barriers to international trade fell
and a wave of firms began pursuing global strategies to gain a competitive advantage.
However, some industries benefit more from globalization than do others, and some
nations have a comparative advantage over other nations in certain industries. To
create a successful global strategy, managers first must understand the nature of
global industries and the dynamics of global competition.
Sources of Competitive Advantage from a Global Strategy
A well-designed global strategy can help a firm to gain a competitive advantage.
This advantage can arise from the following sources:

Efficiency
 Economies of scale from access to more customers and markets
 Exploit another country's resources - labor, raw materials
 Extend the product life cycle - older products can be sold in lesser
 developed countries
 Operational flexibility - shift production as costs, exchange rates, etc.
 change over time

Strategic
 First mover advantage and only provider of a product to a market
 Cross subsidization between countries
 Transfer price

Risk
 Diversify macroeconomic risks (business cycles not perfectly correlated
 among countries)
 Diversify operational risks (labor problems, earthquakes, wars)

Learning
 Broaden learning opportunities due to diversity of operating environments

Reputation
 Crossover customers between markets - reputation and brand identification

The Nature of Competitive Advantage in Global Industries

 A global industry can be defined as:
 An industry in which firms must compete in all world markets of that product
in order to survive.
  An industry in which a firm's competitive advantage depends on economies of
scale and economies of scope gained across markets.

Some industries are more suited for globalization than are others. The following
drivers determine an industry's globalization potential.

1. Cost Drivers
 Location of strategic resources
 Differences in country costs

 Potential for economies of scale (production, R&D, etc.) Flat experience

curves in an industry inhibits globalization. One reason that the facsimile
industry had more global potential than the furniture industry is that for fax
machines, the production costs drop 30%-40% with each doubling of volume;
the curve is much flatter for the furniture industry and many service industries.
Industries for which the larger expenses are in R&D, such as the aircraft
industry, exhibit more economies of scale than those industries for which the
larger expenses are rent and labor, such as the dry cleaning industry. Industries
in which costs drop by at least 20% for each doubling of volume tend to be
good candidates for globalization semiconductors are more global than ice.

2. Customer Drivers
 Common customer needs favor globalization. For example, the facsimile
industry's customers have more homogeneous needs than those of the furniture
industry, whose needs are defined by local tastes, culture, etc.
 Global customers: if a firm's customers are other global businesses,
globalization may be required to reach these customers in all their markets.
Furthermore, global customers often require globally standardized products.
 Global channels require a globally coordinated marketing program. Strong
established a local distribution channel inhibits globalization.
 Transferable marketing: whether marketing elements such as brand names and
advertising require little local adaptation. World brands with no dictionary
 names may be developed in order to benefit from a single global advertising
campaign.

3. Competitive Drivers

 Global competitors: The existence of many global competitors indicates that

an industry is ripe for globalization. Global competitors will have a cost
advantage over local competitors.
 When competitors begin leveraging their global positions through cross
subsidization, an industry is ripe for globalization.

4. Government Drivers
 Trade policies
 Technical standards
 Regulations

The furniture industry is an example of an industry that did not lend itself to
globalization before the 1960's. Because furniture has a high bulk compared to its
value, and because furniture is easily damaged in shipping, transport costs
traditionally were high.
Government trade barriers also were unfavourable. The Swedish furniture company
IKEA pioneered a move towards globalization in the furniture industry. IKEA's
furniture was unassembled and therefore could be shipped more economically. IKEA
also lowered costs by involving the customer in the value chain; the customer carried
the furniture home and assembled it himself. IKEA also had a frugal culture that gave
it cost advantages. IKEA successfully expanded in Europe since customers in
different countries were willing to purchase similar designs. However, after
successfully expanding to several countries, IKEA ran into difficulties in the U.S.
market for several reasons:
 Different tastes in furniture and a requirement for more customized furniture.
 Difficult to transfer IKEA's frugal culture to the U.S.
  The Swedish Krona increased in value, increasing the cost of furniture made
in
 Sweden and sold in the U.S.
 Stock-outs due to the one to two month shipping time from Europe
 More competition in the U.S. than in Europe
Country Comparative Advantages

Competitive advantage is a firm's ability to transform inputs into goods and services
at a maximum profit on a sustained basis, better than competitors. Comparative
advantage resides in the factor endowments and created endowments of particular
regions. Factor endowments include land, natural resources, labor, and the size of the
local population.
In the 1920's, Swedish economists Eli Hecksher and Bertil Ohlin developed the factor
proportions theory, according to which a country enjoys a comparative advantage in
those goods that make intensive use of factors that the country has in relative
abundance.
Michael E. Porter argued that a nation can create its own endowments to gain a
comparative advantage. Created endowments include skilled labor, the technology
and knowledge base, government support, and culture. Porter's Diamond of National
Advantage is a framework that illustrates the determinants of national advantage. This
diamond represents the national playing field that countries establish for their
industries.

Types of International Strategy: Multi-domestic vs. Global

Multi-domestic Strategy
 Product customized for each market
 Decentralized control - local decision making
 Effective when large differences exist between countries
 Advantages: product differentiation, local responsiveness, minimized political
risk, minimized exchange rate risk

Global Strategy
  Product is the same in all countries.
 Centralized control - little decision-making authority on the local level
 Effective when differences between countries are small
 Advantages: cost, coordinated activities, faster product development

A fully multi-local value chain will have every function from R&D to distribution and
service performed entirely at the local level in each country. At the other extreme, a
fully global value chain will source each activity in a different country.
Philips is a good example of a company that followed a multidomestic strategy. This
strategy resulted in:
 Innovation from local R&D
 Entrepreneurial spirit
 Products tailored to individual countries
 High quality due to backward integration

The multi-domestic strategy also presented Philips with many challenges:

 High costs due to tailored products and duplication across countries

 The innovation from the local R&D groups resulted in products that were
R&D driven instead of market driven.

Decentralized control meant that national buy-in was required before introducing
a product - time to market was slow.

Global Cost Structure Analysis

In 1986, Whirlpool Corporation was considering expanding into Europe by acquiring

Philips' Major Domestic Appliance Division. From the framework of customers,
costs, competitors, and government, there were several pros and cons to this proposed
strategy.

Pros

 Internal components of the appliances could be the same, offering economies

of scale.
  The cost to customize the outer structure of the appliances was relatively low.
 The appliance industry was mature with low growth. The acquisition would
offer an avenue to continue growing.

Cons
 Fragmented distribution network in Europe.
 Different consumer needs and preferences. For example, in Europe
refrigerators tend to be smaller than in the U.S., have only one outside door,
and have standard sizes so they can be built into the kitchen cabinet. In Japan,
refrigerators tend to have several doors in order to keep different
compartments at different temperatures and to isolate odors. Also, because
houses are smaller in Japan, consumers desire quieter appliances.
 Whirlpool already was the dominant player in a fragmented industry.

Since Philip's had a relatively small market share in the European appliance market,
one must analyze the cost structure to determine if the acquisition would offer
Whirlpool a competitive advantage. With the acquisition, Whirlpool would be able to
cut costs on raw materials, depreciation and maintenance, R&D, and general and
administrative costs. These costs represented 53% of Whirlpool's cost structure.
Compared to most other industries, this percentage of costs that could benefit from
economies of scale is quite large. It would be reasonable to expect a 10% reduction in
these costs, an amount that would decrease overall cost by 5.3%, doubling profits.
Such potential justifies the risk of increasing the complexity of the organization.

Because of the different preferences of consumers in different markets, a purely

global strategy with standard products was not appropriate. Whirlpool would have to
adapt its products to local markets, but maintain some global integration in order to
realize cost benefits. This strategy is known as "mass customization."
Whirlpool acquired Philips' Major Domestic Appliance Division, 47% in 1989 and the
remainder in 1991. Initially, margins doubled as predicted. However, local
competitors responded by better tailoring their products and cutting costs; Whirlpool's
profits then began to decline. Whirlpool applied the same strategy to Asia, but GE was
outperforming Whirlpool there by tailoring its products as part of its multi-domestic
strategy.

LITERATURE REVIEW

Globalizing Service Businesses

.
Service industries tend to have a flat experience curve and lower economies of scale.
However, some economy of scale may be gained through knowledge sharing, which
enables the cost of developing the knowledge over a larger base. Also, in some
industries such as professional services, capacity utilization can better be managed as
the scope of operations increases. On the customer side, because a service firm's
customers may themselves be operating internationally, global expansion may be a
necessity. Knowledge gained in foreign markets can used to better service customers.
Finally, being global also enhances a firm's reputation, which is critical in service
businesses.

High quality service products often depend on the service firm's culture, and
maintaining a consistent culture when expanding globally is a challenge.

A good example of a service firm that experienced global expansion challenges is the
management consulting firm Bain & Company, Inc. In consulting, a firm's most
important strategic asset is its reputation, so a consistent firm culture is very
important.
Bain faced the following challenges, which depend on the firm's strategy and which
affect the ability to maintain a consistent culture:
 Coordinating across offices and sharing knowledge
 Whether to hire locals or international staff
 How to compensate

Modes of Foreign Market Entry

An important part of a global strategy is the method that the firm will use to enter the
foreign market. There are four possible modes of foreign market entry:
 Exporting
 Licensing (includes franchising)
 Joint Venture
 Foreign Direct Investment
These options vary in their degree of speed, control, and risk, as well as the required
level of investment and market knowledge. The entry mode selection can have a
significant impact on the firm's foreign market success.

Issues in Emerging Economies

In emerging economies, capital markets are relatively inefficient. There is a lack of

information, the cost of capital is high, and venture capital is virtually nonexistent.
Because of the scarcity of high-quality educational institutions, the labor markets lack
well trained people and companies often must fill the void. Because of lacking
communications infrastructure, building a brand name is difficult but good brands are
highly valued because of lower product quality of the alternatives. Relationships with
government officials often are necessary to succeed, and contracts may not be well
enforced by the legal system.
When a large government monopoly (e.g. a state-owned oil company) is privatized,
there often is political pressure in the country against allowing the firm to be acquired
by a foreign entity. Whereas a very large U.S. oil company may prefer acquisitions,
because of the anti-foreign sentiment joint ventures often are more appropriate for
outside companies interested in newly privatized emerging economy firms.

Knowledge Management in Global Firms

There is much value in transferring knowledge and best practices between parts of a
global firm. However, many barriers prevent knowledge from being transferred:
 Barriers attributable to the knowledge source lack of motivation lack of
credibility
 Barriers attributable to the knowledge itself - ambiguity and complexity
  Barriers attributable to the knowledge recipient lack of motivation (not
invented here syndrome) lack of absorptive capacity - need prerequisite
knowledge to advance to next level
 Barriers attributable to the recipient's existing process - process rigidity
 Barriers attributable to the recipient's external environment and constraints
Furthermore, even when the transfer is successful, there often is a temporary drop in
performance before the improvements are seen. During this period, there is danger of
losing faith in the new way of doing things.

To facilitate knowledge transfer a firm can:

 Implement processes to systematically identify valuable knowledge and best

practices.
 Create incentives to motivate both the knowledge source and recipient.
 Develop absorptive capacity in the recipient - cumulative knowledge
 Develop strong technical and social networks between parts of the firm that
can share knowledge.

Country Management

Country managers must have the following knowledge:

 Knowledge of strategic management
 Firm-specific knowledge
 Country-specific knowledge
 Knowledge of the global environment
Country organizations can assume the role of implementer, contributor, strategic
leader, or black hole, depending on the combination of importance of the local market
and local resources.
The least favourable of these roles is the black hole, which is a subsidiary in a
strategically important market that has few capabilities. A firm can find itself in this
situation because of company traditions, ignorance of local conditions, unfavourable
entry conditions, misreading the market, excessive reliance on expatriates, and poor
external relations. To get out of a black hole a firm can form alliances, focus its
investments, implement a local R&D organization, or when all else fails, exit the
country.
Country managers assume different roles

 International Structure: Country manager is a trader who implements policy.

 Multinational Structure: Country manager plays the role of a functional
manager with profit and loss responsibilities.
 Transnational Structure: Country manager acts as a cabinet member (team
player) since management control systems are standardized and decision
making power is shifted to the region manager. The country manager develops
the lead market in his country and transfers the knowledge gained to other
similar markets.
 Global Structure: Country manager acts as an ambassador and administrator.
In a global firm there usually are business directors who oversee marketing
and sales. The role of the country manager becomes one of a statesman. This
person usually is a local with good government contacts.

Global Strategy

Global Strategy is just one part of the larger subject of Strategic Management.
Typically in many strategic management textbooks, International and Global Strategy.
International and Global Management is concerned with the techniques and practices
that are involved in directing and controlling international organisations. Thus, it
covers all the issues that arise as a consequence of international and global strategies.
In practice, strategy and management at the senior level of a company are inter-
related.

Take the Blackberry RIM range of mobile phones. This Canadian company has been
very successful, so far, in terms of its international and global strategy. But it began by
using the basic principles of strategic management - customer focus on the business
customer, competitive advantage through its focus on the easy email access, resource-
based analysis based on its patented technology - rather than anything specific to
global strategy.

But then Blackberry RIM added a global strategy - for example, its co-operation with
the Reliance mobile network in India shown right - to add to the basic strategy.
Background to strategic management development

In reality, strategic management is a relatively young subject. It has its roots in the
economic and social theories of the 1930s and 1940s - perhaps even earlier. But it
only really began to emerge as a separate topic in the 1960s and 1970s. Even today,
there is only partial agreement on the fundamental principles of strategic management
with many views, ideas and concepts. This makes the topic interesting and
challenging.

But it also means that there is no fully accepted body of knowledge unlike, for
example, mechanical engineering or organic chemistry. According to one recent
authorities survey amongst academic strategist there are two main streams of thought
related to strategic process:

Prescriptive (or intended) strategic processes and emergent strategic processes.

The authors produced the following definition from their survey over the period 1983-
2004: 'The field of strategic management deals with the major intended and emergent
initiatives taken by general managers on behalf of owners, involving utilization of
resources, to enhance the performance of firms in their external environments.'

EXPORT STRATEGY

Developing a sound business plan for export

An export strategy is an essential component of your business plan. Keep it simple,
but make sure everyone in the company involved in achieving export results is aware
of the plan and has a sense of engagement with it.

Why have export strategies?

Developing a sound export strategy helps you define your export aims and match your
resources to those aims. Your export strategy will help you manage the market sectors
you have identified as core business. Focusing your resources enables you to provide
quality responses and service to your new export customers.
A well-developed export strategy will help in dealing with a range of service
providers. It singles you out as a company that has well-developed, realistic goals and
programs designed to achieve them.

Incorporating exports in your business plan

An export strategy must be integrated with your company’s overall business plan.
Align export activities with daily operations and avoid any conflicts between your
domestic and international activities.

Understand the areas where you have a strong competitive advantage. These areas
may include your technology, your staff or business systems. Determine how best to
use them to achieve your export goals. Also identify any weaknesses.

What are the key elements of an export strategy?

Bring your key export goals into sharp focus – so you know exactly where to aim
your efforts. Particular aims could include reducing seasonal demand swings,
reducing fixed costs, fully realising production capacity, accessing new technology,
consolidating your international reputation or matching the performance of your
domestic competitors who are already selling offshore. There are excellent export
planning tools available online – see the list of websites below.

Use some simple scenarios

Assess the outlook for your business in the Australian market. What are the
constraints on your export growth? Apply three simple scenarios from low growth and
intense competition to a high growth situation. Prepare yourself for a range of
marketing contingencies to help assure yourself of your company’s ability to meet
varying levels of resource commitment and market demand.

It’s not complex

The best export strategy is concise and simple. It involves on-going discipline to
assess why your company should export and how you will achieve your goals. Make
sure your objectives are clear and that all staff involved in export contribute to the
strategy.
Export Marketing Strategy assists small and medium sized businesses in increasing
their overseas sales.
1. Develop an export strategy tailored to leverage your competencies and
designed to achieve your profitability goals.
2. Market worldwide to targeted customers over their media, in their language.

3. Provide multilingual sales support to help your sales department better

understand customer needs and close more sales. Often we can accomplish this
with the manufacturer exporting direct, without resorting to local distributors,
thus eliminating markups.

4. Export Marketing Strategy will help you manage the overseas market sectors
you have identified as core business without overburdening your present
marketing
organization.

5. Provide international customer support and follow-up service to your new

export clients.

Facilitate payment flow and shipping logistics.

Franchising

1. WHAT KINDS OF OPPURTUNITIES DOES THE FRANCHISING

OFFER?

 Independence
There's a good reason the United States is called the Land of Opportunity. The
spirit of independence is one of the cornerstones in the nation's founding. That
spirit persists today in the world of business, where independent-minded
entrepreneurs take the risks and reap the rewards of running their own business.
There's something inspiring in the idea of doing it yourself, of making it on your
own. And nowhere is this spirit of independence and potential reward more clearly
available than in the world of franchising.

 For decades now, franchising has offered individuals a chance at the American
Dream. Whether in response to a dead-end corporate job, fear of being laid off or
 downsized, or simply in response to the entrepreneurial pull that burns in so many
of us, generations of Americans have turned to franchising for the independence
and financial fulfillment it provides. And, when carefully considered and
diligently executed, franchising can indeed offer that independence -- and a whole
lot more.

 Did you know that franchise businesses generate $2.3 trillion in sales in the U.S.
each year? Or that 41 cents of every retail dollar is spent at a franchise operation?
(Especially impressive when you consider that fewer than five percent of all small
businesses are franchised.) Or that there are more than 2,900 franchise concepts in
the U.S., spanning 75 industries? That a new franchise opens every 8 minutes of
each business day? These numbers show there is little need to go out on your own
and create a business from scratch -- a very risky move considering the failure
rates of start-up businesses. Instead, through franchising, you can become an
independent business person.

 A Proven System

one of the key beauties of franchising is that you can remain independent while
you tap into a proven, well-oiled business machine and all that it offers. There's no
need for you to create a product or service, no need for a proprietary business
plan, and in most cases, no need to initiate marketing and advertising plans. The
franchisor has already done all the work for you. And successful franchises
concepts have been tried, tested, and tweaked to perfection -- and are backed by
money, management, infrastructure, and an effective distribution system. What
works on the East Coast will work on the West Coast -- and everywhere in
between.

As a franchisee, your up-front investment and continuing royalty stream paid to

the franchisor buy you ongoing marketing and technical support, continued
product and brand development, and even assistance with location, site selection,
grand opening, hiring and training, management, and long-range strategic
planning.

 Established Brand Awareness

 Everyone knows what the McDonald's logo looks like and what the "Golden
Arches" represent. No matter where you go in the world, if you set foot inside a
McDonald's you can order a Big Mac or Quarter Pounder and know exactly what
it's going to taste like. Established brand awareness, reliability, and uniformity are
part of the power of franchising.

Imagine the time and resources needed to create awareness for an independent,
start-up brand. It would be tremendous. An established franchise brand already is
well-known and provides each new franchisee a market presence that is
recognizable locally, nationally, and globally.

Brand awareness -- typically through coordinated marketing and advertising

efforts -- is something a franchisor handles, while you and your fellow franchisees
reap the benefits. Established, successful franchisors will prepare and pay for the
development of professional advertising campaigns at the national, regional, and
local levels -- a practice that benefits all the franchisees in the system and builds
the brand.

Many franchisors also work directly with their franchisees to provide advice and
resources to help them develop effective marketing programs for their local area
through a cooperative marketing fund (you and all of your fellow franchisees have
already contributed to the fund through your fees and royalties).

Franchisors also provide marketing materials to their franchisees, as well as

marketing guidance starting with initial training and continuing through the length
of the franchise agreement. One of the biggest benefits of owning a franchise is
the marketing program, so keep that in mind as you make your franchise selection.

 Economies of Scale

Any large organization has built-in economies of scale. Franchising is no

different, and the economies of scale created by the franchisor are available to all
franchisees. That's something that you won't find when starting your own
business, perhaps ever. There's power in numbers.

This power in numbers also benefits other areas of operations, such as marketing
and advertising, as described above. Because the franchisor, you, and your fellow
 franchisees are contributing to a regional and/or national marketing fund, the
amount and quality of your advertising efforts are significantly greater than if you
were an independent business operator -- providing a tremendous advantage over
independent and smaller competitors.

And when you become a franchisee, you gain immediate access to a peer group of
franchisees all across the country and world. Experienced franchisees have faced
the same problems and questions that you will face for the first time as a new
franchisee. Since every successful franchise unit helps the brand to grow as a
whole, most "veteran" franchisees will be happy to share with you how they've
handled those issues, and provide you with solutions and advice on avoiding
beginners' mistakes.

2. HOW TO CHOOSE THE RIGHT FRANCHISE FOR YOU?

 Making a List
make a short list of the kinds of industries you're interested in - food service,
senior care, home repair, etc. Review the players, the competition, and any
regional strengths and weaknesses for the industries you're considering. Older,
more established brands may look safe and solid but could be less flexible to deal
with. Likewise, newer brands may be big on innovation, but could be short of
cash, or worse, struggling financially. Evaluate your risks carefully

 Skills and experience

How do you know which franchise is right for you? With nearly 3,000 franchise
brands available in 75 different industries, the choices can be mind-boggling.

First-time franchisees typically invest a significant portion of their net worth into
their new business. They draw from their savings, retirement funds, home equity,
and borrow from friends, relatives, and banks for their chance at the American
Dream of working for themselves and taking control of their future. It's a huge
commitment. For most, failure is not an option.
 One way to determine which franchise brand to choose is to answer a few
fundamental questions:

 What do you love?

 2) What are you willing to risk, and possibly lose?
 3) What are you willing to sacrifice to make your new venture succeed?

 Level of investment

The number-one question franchise candidates ask is: How much money can I
make? Part of the answer depends on how much you invest.

3. WHAT ARE THE PROS AND CONS OF FRANCHISING VS

TRADITIONAL? DISCUSS….
Going into business for yourself is a major life decision. One path is to start your own
business or buy an existing one. Another is to choose the franchising model and buy
into a proven system with a known brand name. Each path has its own promise, as
well as perils. Once the choice is made, the question becomes what type of business to
choose.

Passion and enthusiasm are key ingredients in steering a business from startup to
success. Many customers of their favorite sub shop or pizza place think, "I'd love to
own one of these!" That is, until they realize they're not cut out for retail, managing
teenagers, or spending 60 or 70 hours a week in their new restaurant for a year or
two... or three. Choosing a business - and a business model - should be a "business
decision." After all, you're in it to make money, right?

Weighing the benefits and costs of franchising against those a traditional (non-
franchised) business should begin with a self-assessment. Are you able to follow a
prescribed system, or do you need the freedom to innovate and experiment? Do you
need total independence in every aspect, or can you follow a ready-made system 100
percent?

In terms of "cost/benefit," there is a price to pay for buying into a franchise system.
But there also is a price to pay in starting your own business. The pros and cons,
detailed below, must be weighed against the benefits, in terms of both investment and
personal values and goals.

Brand awareness
If you walk into any of the 30,000 Subways or McDonald's around the world, you're
guaranteed your meal will be the same (or nearly) no matter where you are. That's the
franchise proposition of uniformity and replicability. Customers know this and seek
out the reliability and familiarity of their favorite brands, which have been established
over years or decades.

Control/autonomy
When you start your own business, you're in control over every detail, large and small.
With a franchise business, you sign an agreement to follow the rules laid out by the
franchisor. (Remember, franchisees don't "own" their franchise unit: they are awarded
a license to use the franchisor's brand name, operating system, equipment, uniforms,
etc. that have been fine-tuned and perfected over many years.) Yes, you control your
franchise unit in terms of the culture and values you set, and who you hire and fire,
but you must follow the franchisor's operating system.

Operating system
Would you rather invent the wheel, or buy one ready-made? If you're the creative,
innovative type, starting your own business is the way to go. A franchised business
provides a complete, out-of-the-box business, ready to "plug and play." You have to
follow the operating manual. If you can't, fly solo.

Equipment and supplies

Outfitting your new business with everything you need to succeed means researching
what equipment to buy, finding suppliers, and negotiating deals. You may buy a pizza
oven that's too big or buy more fresh food than you need; or you may buy one that's
too small and run short on capacity as your business grows, or run short on pepperoni
on a busy evening or weekend. Franchisors can provide invaluable help in knowing
both what and how much to buy - often at reduced prices.
Economies of scale
If you're a sole entrepreneur, you have the buying power of one. If you're a franchisee,
your franchisor can negotiate bulk rates and pass along the savings to you. Also,
having the power of a recognized brand behind you often eases the mind of a supplier
in extending credit: if a successful franchisor is willing to trust you, vendors are more
likely to do so as well.

Legal disclosure
Franchisors are required by law to disclose certain information about their business in
documents regulated by federal and state law. If you're looking to buy an existing
business from an individual, can you (and your attorney) trust the seller? And if the
seller disappears, where's your recourse? Even if a franchisor opposes you in court, at
least you have a fighting chance.

Financing
Starting your own business can cost less than buying a franchise, and many
entrepreneurs have started on a shoestring budget and succeeded. But most new
businesses require startup capital, especially for retail space and equipment. While
most franchisors do not supply financing, many have relationships with lenders who
will view that brand's referrals more favorably than an independent business owner
just starting out.

Marketing
If you're Joe's Pizza, you're on your own when it comes to marketing and advertising.
If you're a Pizza Hut franchisee, you have the power of the brand's multi-million-
dollar national and regional marketing and advertising behind you. There's a price to
pay for these benefits: a monthly contribution to a national advertising fund. But if
you're Joe, every penny to market and advertise your business comes directly out of
your bottom line.

Speed to market
You can build the most beautiful retail store or buy the perfect van for your mobile
business and fill both with the most expensive equipment. That takes time, as well as
money. Or you can sign up with a franchisor who's done this hundreds of times and be
handed a shopping list of exactly what you need to set up shop, allowing you to open
for business more quickly than if you had to research it all on your own.

Faster ROI
No matter how grand your opening, when you start your own business it takes time to
build a client base and local reputation. When you advertise a known brand name in
your new market, customers come ready-made, and the cash starts flowing faster.

Training
You may be the best at what you do, but do you know how to manage a business, hire
and train employees, market your product or service, keep the books, etc.? When you
start your own business, you must learn all these things on your own, with "rookie
mistakes" part of the learning curve. Franchisors provide new franchisees with
extensive training in every aspect of their new business, from flipping burgers to
which point-of-sale system to buy. And many offer advanced training to help you stay
on top of your business as it grows.

Franchisor support
Most entrepreneurs, franchised or not, love what they do. In fact, they're rather do
what they love, which can result in neglecting how they manage their business.
Additionally, caught up in the day-to-day details of such "mundane details" as taxes
and supplies, they fail to innovate and to develop as leaders and executives. Many
franchisors provide field support specialists to help keep their franchisees on track,
training them to become managers and leaders "working on the business, not in it."

Peer support
If you own your business, you can join the Chamber of Commerce, Rotary, or other
local business organizations, so you're not completely alone. As a franchisee, you
receive ongoing support not only from your franchisor, but also from your fellow
franchisees. This can be locally, regionally, at annual national conventions, through an
online support network, or just by picking up the phone. Local business groups are
invaluable for the networking connections they can provide, but who better to ask for
help with your business than someone who's already solved the problem you're facing
for the first time?
Product/service innovation
Introducing a new product or service that flops costs precious time and money. If you
own a traditional business, it's your time and money down the drain. Franchisors
develop new products, try them in their company-owned stores or with other
franchisees willing to test them. By the time McDonald's introduced its new line of
coffees, the kinks had already been worked out. So while it may cost a franchisee
some big money to install new equipment or introduce a new store design, the ROI is
more likely than with your own new great idea.

Site selection
There's a lot of competition out there in the retail sector. Setting up your coffee and
breakfast business on the wrong side of the street can severely hurt sales. You can hire
a site selection expert, but what do they know about your business? A franchisor can
provide teams of real estate experts, advanced site selection software, and years of
experience in finding the best sites for their brand. They also can provide expert
assistance negotiating leases with landlords - an oft-ignored, yet critical component of
profitability.

Culture/fit
In your own business, the only person you have to get along with is yourself (and your
customers and employees, if you want to have any). Many franchise experts describe
the franchisor/franchisee relationship as a marriage. Unlike a marriage, you don't sign
on for life (it's usually 5, 10, or 15 years), but you do need each other to succeed.
That's why it's so important to ask if your values and goals align with those of the
franchisor. They don't award a license and say "See you in 10 years. Be sure to send us
a check every month." It's an ongoing, win-win proposition.

Exit strategy/resale value

Selling an independent business can be very lucrative - but the pool of potential
buyers is smaller than with a known brand. When faced with a choice between Carl's
Jr. and Fred's Burger Boat, prospective business owners often opt for the safety and
familiarity of a known brand over a private business, just as consumers do when
looking for a burger. And in tough times if you need to sell you may have to do so at a
bargain basement price - if you can find a buyer at all. With a franchise, there's always
a buyer of last resort: the franchisor, who can always buy your unit and run it as a
company store until they find a suitable buyer.

4. HOW MUCH COSTS INVOLVED IN OPENING A FRANCISE?

You have to spend money to make money. So the old saying goes.
In franchising you can spend a lot or a little, and still make money. Once you've
decided 1) that you want a franchised business, and 2) what industry segment you'd
like to work in (fast food, home repair, pet care, etc.), it's time to determine what you
can afford. Your "budget" will limit your choices.

The cost of entry varies greatly, by both the segment you choose and the franchise
brand you select within that segment. While costs range from less than $10,000 to
upwards of $5 million, the majority of franchises run from about $50,000 or $75,000
to about $200,000 to get started.

Knowing how much you have to invest at the front end for the franchise fee and to set
up your operation - whether a retail store with inventory and staff, or a home-based or
mobile business with just one employee (you) - allows you to focus realistically on
which industries and which brands to consider.

At the low end, you can get into a home-based or mobile concept for $10,000 or less.
At the high end are hotels, which can cost more than $5 million, including the land.
Full-service restaurants run from about $750,000 to $3 million or more. Fast food
restaurants cost from about $250,000 to $1 million and up. Auto repair and
maintenance facilities run between $200,000 and $300,000. Note these are average
ranges, and the cost of entry will vary from brand to brand.

Even before you sign a franchise agreement, you will incur costs such as professional
fees (an attorney to review the contract and an accountant to work the numbers). And
before you open, depending on the type of business you choose there will be costs for
building out your store or office, inventory, equipment, insurance, employee training,
business licenses, rent, landscaping, signage, etc. Buying your own real estate can be
a significant, separate expense. Also be prepared for grand opening and initial
advertising and promotional expenses. After you open there ongoing expenses such as
interest (if you have a loan), supplies, salaries, professional fees, rent, utilities,
maintenance, uniforms, and more.

Then, of course, there is the franchise fee - the one-time entry price to use the
franchisor's brand, operating system, and to receive ongoing support in management,
training, marketing, and more. Franchise fees generally run in the $20,000 to $30,000
range, though they can top $100,000 for higher-end, more established brands. Once
open, there are ongoing royalties to pay, which typically range from 4 percent to 8
percent of gross revenues and include an ongoing assessment for a joint marketing
and advertising fund.

Franchisors usually have minimum financial requirements before seriously

considering a candidate:

 Liquidity - Unless you're printing money, your franchise business will take
time to turn a profit (your franchisor should be able to tell you how long).
Franchisors know this and usually require new franchisees to have a minimum
amount of liquidity in order to keep the business afloat during its first year or
more, until your bottom line turns from red to black.
 Net worth - Franchisors also usually set a minimum level of net worth before
they consider someone a true candidate for their brand.

For example, a Burger King will cost about $2.2 million for a typical restaurant--if
you meet the minimum financial requirements of $1.5 million in net worth and
$500,000 in liquid assets.

Entry cost also will vary based on the size (population) of the territory awarded and
the level of services and support. For example, TSS Photography offers four different
plans to potential franchisees, based on population and on the services, equipment,
and training provided (territory cost ranges from $35,000 to $56,500). Another
photography franchise, Clix!, offers two options: 1) a full studio version, from
$218,725 to $381,040 (est.); and 2) an on-location (no studio) version from $36,235
to $77,510 (est.).
The franchise fee at Computer Medics of America is $5,000 for a population up to
150,000, and $20,000 for population of 850,000 to 1 million; after 5 years, a franchise
fee of 25 percent of the initial fee is required to renew for 10 more years. At Nerd
Force, which has a franchise fee of $12,000 for the first territory and $8,000 for each
additional territory, total startup costs range from $25,100 to $54,000 for a territory
with an approximate population of 120,000.

An increasing number of franchisors offer discounts to veterans, minorities, and

women. Incentives for vets, minorities, and women can include lower initial franchise
fees and/or reduced royalty payments. At Nerd Force, for example, veterans receive a
$4,000 discount off the initial $12,000 franchise fee; other franchisors offer discounts
of 50 percent or more. Franchisors usually promote these incentives on their website.
The IFA (International Franchise Association) website is a good place to learn more
about these discounts and programs.

As the economy tightened in late 2008 and 2009, many franchisors began offering
limited-time deals on franchise fees and royalties, deferred payments, money-back
guarantees, and other promotional incentives.

Licensing

The word license simply means permission: one company grants permission to
another to do something. In an IP license, one company grants permission to another
to use its IP, to which it has exclusive rights. In a licensing agreement there are at least
two essential parties: the licensor or the party who owns the intellectual property
rights (i.e. patents, trademarks, designs, copyright or trade secrets), and the licensee or
the party who receives rights to use the IP under agreed conditions and in exchange
for payment. The payment may take the form of a flat fee or a running royalty – often
a percentage or share of the revenues gained from use of the IP right(s) in question.

While an IP license grants the licensee certain rights over the IP, it does not transfer
ownership of the rights: these remain in the hands of the licensor. You can license
companies in your domestic market, but the focus of this article is on licensing as a
strategy for international expansion.

Four basic conditions

For an IP license to be effective, four basic conditions must be met:

• The licensor must have ownership of the relevant IP (or authority from the owner to
grant a license);

• The IP must be protected by law or at least eligible for protection;

• The license must specify what rights with respect to IP it grants to the licensee; and

• The payment or other assets to be given in exchange for the license must be clearly
stated.

A key decision in any licensing agreement is whether it will be exclusive or non-

exclusive. If it is exclusive, only one other company will be entitled to exploit the
licensed IP right for a given territory; if it is non-exclusive, more than one company
will be licensed. In case of an exclusive license, it mus be clear in the licensing
agreement whether the licensor will be entitled to exploit the IP right in any way in
the territory for which the license is being granted.

There are many different types of IP licenses: technology licenses, trademark licenses
(often included in franchising agreements), publishing and entertainment licenses,
merchandising licenses and more. Which type is relevant for you, depends on the
sector in which you’re operating.

What constitutes a licence?

For an agreement to be regarded as a licence, the relevant factor for consideration is

whether it provides for the exercise of quality control over the licensee.

Previously there was much debate as to what constituted a licensing agreement, with
the relevant factors cited ranging from recorder of the licence with the Trademark
.Office as a registered user agreement to the transactional nature of the agreement.
This debate was finally resolved by a landmark decision of the Apex Court of India,
which confirmed the modern trend of recognising common law licences as long as
there is de facto quality control. Thus, what is relevant is whether quality control
exists, and not the extent of such control. If there is no quality control and other
checks, the courts may consider the agreement to be a “naked licence”. This is a
licence which grants permission to use the mark without other provisions pertaining to
quality and other forms of control. A naked licence may be regarded as an inference of
abandonment, as the lack of checks could result in the public being misled, in which
case the trademark will have ceased to function as an informational device.

The quantum of quality control has not been defined or prescribed in guidelines or
through legal decisions. Based on interpretations of agreements and judicial findings,
however, it may be inferred through diverse factors such as an effective audit
mechanism, the training of personnel, the provisions of samples, a right of inspection,
financial and managerial controls, and the nature of the relationship between licensor
and licensee (eg, subsidiary/affiliate/group company). Further, many licensing
agreements contain specific quality requirements that are either included in the
agreement or attached to the schedule. These quality requirements are usually
technical in nature and not only specify the licensor’s control over activities under the
agreement, but can also spill over to cover other activities such as manufacturing
processes, marketing and advertising, sales, discounts, exchange policies and after-
sales guarantees. Pre-licensing preparations At the negotiation stage, it is advisable for
the licensor to protect its know-how, including trademarks, trade secrets and other
proprietary information, by entering into a non-disclosure agreement or memorandum
of understanding with the prospective licensee. When drafting such agreements, it is
imperative to ensure their enforceability under Indian contract law and the relevant
intellectual property statutes, and to ensure they are watertight. It may also be wise to
seek to enter into such agreements with employees and other third parties or
consultants of the licensee who might also come across the protected information.

Applicable legislation