Outsourcing
Outsourcing is using a company or external resource to help perform business functions. “Outsourcing is a practice used by different companies to reduce costs by transferring portions of work to outside suppliers rather than completing it internally. [1]” Not to be mistaken from ‘offshoring’, which is a company’s own employees in different locations around the world. Hop-2-it can choose to outsource their business functions for a number of reasons such as;
A big company that is known for outsourcing their business functions is the tech giants, Apple. On the back of every Apple product made, it says, “Designed by Apple in California,” but it says, “Assembled in China.” Apple outsources hundreds of thousands of manufacturing jobs to countries like Mongolia and China. The reason for this is outstanding, “Steve Jobs once said, that the iPhone jobs won’t be coming back to America not because of cheap labour, but because Asian factories produce fast, really fast, and at a much LARGER scale and FLEXIBILITY. [2]”
- Cheap Labour- in locations such as China, India and Malaysia
- Time- companies don’t have the time to do all everything, so businesses outsource to continue to focus on their core business processes
- Skills-the business may not have the complete set of skills to maintain their company and outsourcing provides the chance for an organisation to find someone else outside the business who can provide the specific skillsets needed
- They can access the local knowledge and expertise by outsourcing legal functions in the target country
A big company that is known for outsourcing their business functions is the tech giants, Apple. On the back of every Apple product made, it says, “Designed by Apple in California,” but it says, “Assembled in China.” Apple outsources hundreds of thousands of manufacturing jobs to countries like Mongolia and China. The reason for this is outstanding, “Steve Jobs once said, that the iPhone jobs won’t be coming back to America not because of cheap labour, but because Asian factories produce fast, really fast, and at a much LARGER scale and FLEXIBILITY. [2]”
Acquisition
An acquisition is when a company buys another company that has been operating to provide and take advantage of a quicker start into the market. This approach is often used as a growth strategy to create a bigger, more competitive company that has resulted from combined skills, expertise, technology, capital and market share. “An acquisition is a corporate action in which a company buys most, if not all, of the target company's ownership stakes in order to assume control of the target firm. [3]” There are two ways that Hop-2-it can approach an acquisition, there is a ‘Friendly Acquisition’ and a ‘Hostile Acquisition’.
Friendly Acquisition
This is when the negotiation process of the target firm has the consent from the board of directors to purchase the majority of the shares and the full disclosure of the existing shareholders. “Friendly acquisitions occur when the target firm expresses its agreement to be acquired. [4]” This acquisition is more likely to be agreed on compared to the Hostile acquisition. But the danger to this strategic alliance is that, a company may be purchasing the target company at a high rate or paying too much. An important aspect of this acquisition it that it will only be successful if both parties bring something to the table whether it may be, management, technology, expertise or market share. The Partners must have a strong base that can be built on. For instance, if Hop-2-it acquire another company and they just rely on them totally, and then expect business and trading to improve and increase, this will most likely lead to a failure. Both Hop-2-it and the company they purchase must work together so they both improve and succeed in the long run. (Case Study)
Hostile Acquisition
This type of acquisition or sometimes called, hostile takeover, is nearly the complete opposite of a friendly acquisition. This is when a company directly goes to the shareholders of the target company and simply tries to buy out the company without the consent or approval of the management or the directors. This is why it is considered, hostile. “hostile acquisitions don't have the same agreement from the target firm and the acquiring firm needs to actively purchase large stakes of the target company in order to have a majority stake. [5]” A hostile acquisition can be approached in three different ways;
A perfect example, is the hostile takeover of Cadbury by Kraft. The initial offer that was made by Kraft ($14- $16 per share) was rejected by the chairman of Cadbury, Sir Roger Carr, saying that the offer was “unattractive” and “fundamentally undervaluing the company”. But later on, the deal was struck between the two chairmen (Cadbury and Kraft) which was approved by about 72% of the Cadbury shareholders. [6]
Friendly Acquisition
This is when the negotiation process of the target firm has the consent from the board of directors to purchase the majority of the shares and the full disclosure of the existing shareholders. “Friendly acquisitions occur when the target firm expresses its agreement to be acquired. [4]” This acquisition is more likely to be agreed on compared to the Hostile acquisition. But the danger to this strategic alliance is that, a company may be purchasing the target company at a high rate or paying too much. An important aspect of this acquisition it that it will only be successful if both parties bring something to the table whether it may be, management, technology, expertise or market share. The Partners must have a strong base that can be built on. For instance, if Hop-2-it acquire another company and they just rely on them totally, and then expect business and trading to improve and increase, this will most likely lead to a failure. Both Hop-2-it and the company they purchase must work together so they both improve and succeed in the long run. (Case Study)
Hostile Acquisition
This type of acquisition or sometimes called, hostile takeover, is nearly the complete opposite of a friendly acquisition. This is when a company directly goes to the shareholders of the target company and simply tries to buy out the company without the consent or approval of the management or the directors. This is why it is considered, hostile. “hostile acquisitions don't have the same agreement from the target firm and the acquiring firm needs to actively purchase large stakes of the target company in order to have a majority stake. [5]” A hostile acquisition can be approached in three different ways;
- Tender Offer: propose to purchase a majority of the shares at a higher fixed rate than the current market price which is used to motivate the shareholders to sell their shares to them
- Buy shares on the open market: this is when the acquiring business buys as much shares through the stock exchange in the hope of controlling the target company
- Use a Proxy Fight: is when, the acquiring business persuades enough shareholders to vote out and replace the management of the company to people who will be willing to sell the business to the purchaser
A perfect example, is the hostile takeover of Cadbury by Kraft. The initial offer that was made by Kraft ($14- $16 per share) was rejected by the chairman of Cadbury, Sir Roger Carr, saying that the offer was “unattractive” and “fundamentally undervaluing the company”. But later on, the deal was struck between the two chairmen (Cadbury and Kraft) which was approved by about 72% of the Cadbury shareholders. [6]
Mergers
A merger is when the shareholders of two companies, that are similar in size, come to the agreement of forming a new merged business. “Basically, when two companies become one. [7]” It may involve a new brand name, logo and slogan to identify themselves as a new company. Due to the fact that the two companies being similar, it may result in job losses because of employees having the same position in the companies. If Hop-2-it considers becoming a merged business, with another company, then it may result in loss of jobs for some employees. Maybe for the Research and Development team or the Marketing Team. Also, a merger may result in having a number of the same assets or double-ups, this could lead to asset sales which is hoped to reduce costs and increase profits.
A fantastic example of a merger is the merging of Disney and Pixar. They are one of the most successful merging companies ever with the releases of WALL-E, UP, Brave and Inside Out. And also, becoming the fifth highest grossing movie ever, Frozen. There are three types of mergers, Horizontal, Vertical and Conglomerate Mergers.
Horizontal Merger
This merger occurs between two companies that are in the same industry. “A horizontal merger is a merger occurring between companies in the same industry. [8]” For example, Hop-2-it could merge with Woolworths so they can sell their products in Woolworths stores and Woolworths could sell some of their products in the Hop-2-it stores. This will provide an extra space in which income could be received from.
Vertical Merger
A vertical merger occurs when a business merges with one of its suppliers. “A vertical merger is a merger between two companies producing different goods or services for one specific finished product. [9]” For example, if Hop-2-it mergers with the farm in which they purchase their fruits from, this will be considered as a Vertical Merger.
Conglomerate Merger
This occurs between two unconnected businesses. “A conglomerate merger is a merger between firms that are involved in totally unrelated business activities.[10]” The reason for this is that some businesses may want to branch out into other industries. Another reason why businesses may want to branch out into different industries is that the company can maintain its profits when seasonal and economic highs and lows occur. This could be very ideal for Hop-2-it because in the seasons of Winter and Autumn, when the veraison of grapes is at its least, it could still be able to make income from its merged company.
The advantages for acquisitions and mergers include;
A fantastic example of a merger is the merging of Disney and Pixar. They are one of the most successful merging companies ever with the releases of WALL-E, UP, Brave and Inside Out. And also, becoming the fifth highest grossing movie ever, Frozen. There are three types of mergers, Horizontal, Vertical and Conglomerate Mergers.
Horizontal Merger
This merger occurs between two companies that are in the same industry. “A horizontal merger is a merger occurring between companies in the same industry. [8]” For example, Hop-2-it could merge with Woolworths so they can sell their products in Woolworths stores and Woolworths could sell some of their products in the Hop-2-it stores. This will provide an extra space in which income could be received from.
Vertical Merger
A vertical merger occurs when a business merges with one of its suppliers. “A vertical merger is a merger between two companies producing different goods or services for one specific finished product. [9]” For example, if Hop-2-it mergers with the farm in which they purchase their fruits from, this will be considered as a Vertical Merger.
Conglomerate Merger
This occurs between two unconnected businesses. “A conglomerate merger is a merger between firms that are involved in totally unrelated business activities.[10]” The reason for this is that some businesses may want to branch out into other industries. Another reason why businesses may want to branch out into different industries is that the company can maintain its profits when seasonal and economic highs and lows occur. This could be very ideal for Hop-2-it because in the seasons of Winter and Autumn, when the veraison of grapes is at its least, it could still be able to make income from its merged company.
The advantages for acquisitions and mergers include;
- Additional skills, knowledge and high quality staff
- Increase in market share and accessing a wider customer base
- It diversifies products and services
- Reduces competition by purchasing competitors
Joint Ventures
This strategic alliance is when two or more parties use their resources to create a new company in which they each own a percentage of the joint venture company. With this, the individual companies can still focus on their own core business while the new company focuses on the new joint venture project. “A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. [11]” It would only be advised for Hop-2-it to form a joint venture with a local business that is in the target country. This is for a number of reasons;
Many joint ventures seem to fail because of one particular reason. This reason is the lack of communication and the resistance to change between the employees of the joint venture companies. Both set of employees must be committed to the changes so the venture grows to become successful in which they have to understand the difficulties it comes with but also the benefits they can gain. Another major issue with joint venture is that the employees of the separate companies feel like they are still in competition with each other and the other company is a threat to their own. When the employees feel this, vital information such as key knowledge and expertise is not shared. Meeting, committee’s joint business social events are some ways in which to overcome this issue.
This will hopefully get them to see the truth behind the joint venture and they become committed to securing a brighter and more successful future for the joint venture. “An example of a joint venture is the contract to build the LNG infrastructure on Barrow Island, off the North coast of WA worth over $2 Billion. Chevron awarded the Gorgon Project contract to a joint venture between CB&I and Kentz (CBJK). CB&I have a long history of design, fabrication and construction and Kentz brings engineering project management expertise. [12]”
- Local partner will have inside knowledge towards the consumer preferences and culture
- They will have established distribution networks and experience with the local media and financial institutions and
- They will have an active knowledge of the laws and regulations
Many joint ventures seem to fail because of one particular reason. This reason is the lack of communication and the resistance to change between the employees of the joint venture companies. Both set of employees must be committed to the changes so the venture grows to become successful in which they have to understand the difficulties it comes with but also the benefits they can gain. Another major issue with joint venture is that the employees of the separate companies feel like they are still in competition with each other and the other company is a threat to their own. When the employees feel this, vital information such as key knowledge and expertise is not shared. Meeting, committee’s joint business social events are some ways in which to overcome this issue.
This will hopefully get them to see the truth behind the joint venture and they become committed to securing a brighter and more successful future for the joint venture. “An example of a joint venture is the contract to build the LNG infrastructure on Barrow Island, off the North coast of WA worth over $2 Billion. Chevron awarded the Gorgon Project contract to a joint venture between CB&I and Kentz (CBJK). CB&I have a long history of design, fabrication and construction and Kentz brings engineering project management expertise. [12]”
Franchising
The International Franchise Association defines franchising as a, “A continuing relationship in which a franchisor provides a licensed privilege to the franchisee to do business, plus offers assistance in organising, training, merchandising and management in return for a consideration from the franchisee. [13]” It is basically expanding into other location around the world and into the global market. Although the franchiser does not have to invest its own capital, it can gain it through an established, proven business model with brand awareness which makes it a lower risk business venture. Some of the business models aspects include;
- “Products and services
- Trademark
- Business concept
- Marketing strategies and plans
- Operational standards and systems training
- Quality control [14]”
References:
- http://www.investopedia.com/terms/o/outsourcing.asp#
- http://www.entrepreneur.com/article/228315
- http://www.investopedia.com/terms/a/acquisition.asp
- http://www.investopedia.com/terms/a/acquisition.asp
- http://www.investopedia.com/terms/a/acquisition.asp
- http://www.ft.com/intl/cms/s/0/1cb06d30-332f-11e1-a51e-00144feabdc0.html#axzz44HYfaVsq
- http://www.investopedia.com/terms/m/merger.asp
- http://www.investopedia.com/terms/h/horizontalmerger.asp
- http://www.investopedia.com/terms/c/conlgomeratemerger.asp
- http://www.investopedia.com/terms/j/jointventure.asp
- http://www.investopedia.com/terms/j/jointventure.asp
- Business Management and Enterprise (Pg-48)
- Business Management and Enterprise (Pg-48)
- Business Management and Enterprise (Pg-48)
