Business Organisations – Franchises, Joint Ventures, & Public-Sector Enterprises

Other Private-Sector Business Organisations

Franchising

  • Concept

    • The franchisor owns a product/service idea but does not want to sell directly to consumers.

    • Grants a licence to a franchisee to use the brand name, system and products.

    • Well-known global franchises: McDonald’s, The Body Shop.

  • Contributions of Each Party

    • Franchisee supplies:

    • Capital

    • Day-to-day management & enterprise

    • Franchisor supplies:

    • Use of brand name & products

    • Original business concept

    • National advertising campaigns

    • Initial and on-going staff training

  • Advantages – to the franchisor

    • Rapid expansion without financing every outlet.

    • Franchisees run the outlets, reducing managerial burden.

    • Bulk purchasing power – all products supplied centrally.

  • Advantages – to the franchisee

    • Reduced chance of failure – proven product/brand.

    • Franchisor funds national advertising.

    • Fewer independent decisions required – price, layout and range are pre-set.

    • Easier to obtain bank loans due to lower perceived risk.

  • Disadvantages – to the franchisor

    • Poorly run outlets damage entire brand reputation.

    • Profits from individual outlets kept by franchisees.

  • Disadvantages – to the franchisee

    • Loss of independence; must follow franchisor rules.

    • Limited ability to adapt range to local tastes.

    • Ongoing costs: upfront licence fee plus possible percentage royalty on annual turnover.

  • Key Numerical Facts

    • McDonald’s franchise total start-up investment: \$1{-}\$2.2\,\text{million}.

    • The Body Shop (USA) start-up investment: \$775\,000.

  • Ethical / Practical Notes

    • Mutual dependence – long-term relationship requires quality standards on both sides.

    • Balance between global brand consistency and local responsiveness.

Joint Ventures

  • Definition

    • Two or more businesses create a new, jointly-owned project, sharing capital, risk and profit.

  • Core Advantages

    • Cost sharing – vital for expensive R&D (e.g. new aircraft).

    • Risk sharing – limits exposure of each firm.

    • Access to local knowledge when one partner is domestic.

  • Core Disadvantages

    • Profits must be shared.

    • Potential disagreements over strategic decisions.

    • Cultural clashes – differing management styles & objectives.

  • Case Study: Walmart × Bharti Enterprises (India)

    • Walmart lacked knowledge of Indian retail market & regulations.

    • Formed JV “BestPrice Modern Wholesale” (B2B – vegetables to hotels/restaurants/shops).

    • Long-term option: Walmart may later open fully branded stores once learning curve & regulatory climate improve.

  • Study-Tip Link

    • MNCs frequently combine strong global brand with local partner knowledge via franchising OR joint ventures for faster, safer entry into foreign markets.

Public-Sector Business Organisations

The Public Sector in Mixed Economies

  • Encompasses all organisations owned by central/state or local government, incl. hospitals, schools, fire services, government departments.

Public Corporations

  • Wholly state-owned; often nationalised private industries.

  • Example sectors: water supply, electricity generation, rail transport, public broadcasting.

  • Governance: Government appoints a Board of Directors to meet stipulated objectives.

  • Advantages

    • Essential industries kept under public control (strategic importance).

    • Natural monopolies avoid wasteful duplication (e.g. single rail line).

    • Rescue of failing but vital firms protects jobs & continuity of service.

    • Provision of socially desirable yet non-profitable services (educational TV, minority language radio).

  • Disadvantages

    • Absence of private shareholders may weaken profit/efficiency motive.

    • Government subsidies can breed inefficiency and competitive unfairness.

    • Limited competition reduces incentive for consumer choice, service quality, or innovation.

    • Political interference (e.g. job creation before elections) may skew business decisions.

Other Local-Government Enterprises

  • Municipalities run both free services (street lighting, schools) and fee-charging services (markets, pools, theatres).

  • Loss-making units are often subsidised from local taxation.

  • Trend: privatisation/out-sourcing to cut costs and ease taxpayer burden.

International Examples of Ownership Change

  • TD Power Systems (India)

    • Began as private limited (1999).

    • Needed capital to repay debt, expand factory ⇒ sold ≥25\% of shares, converting to a public limited company (plc).

  • Reva Medical (USA → Australia)

    • Required funds for heart-device R&D.

    • U.S. investors wary of long payback; company listed on Australian Stock Exchange (ASX) instead.

  • Lessons / Implications

    • ‘Going public’ raises large equity but introduces share-price volatility, loss of control, disclosure costs.

    • Young firms sometimes avoid plc status for these reasons.

  • Market Snapshot (ASX extract)

    • Daily share price fluctuations – e.g. ASX All Ordinaries on 4 June 2017 closed \,1.7\% lower at 4046.9.

    • Illustrates pressure public companies face from capital markets.

Key Definitions & Concepts (Quick-Reference)

  • Sole trader – business owned by one person.

  • Partnership – business jointly owned by \ge 2 people under a partnership agreement.

  • Unincorporated business – no separate legal identity; owners have unlimited liability.

  • Incorporated company – separate legal entity; shareholders’ liability limited to their investment (limited liability).

  • Private limited company (Ltd) – shares not sold to public.

  • Public limited company (plc) – shares can be sold to public & traded on Stock Exchange; must hold an Annual General Meeting (AGM); profits shared via dividends.

  • Franchise – licence purchased to use an established brand & business model.

  • Joint venture – co-owned project with shared capital, risk & profit.

  • Public corporation – state-owned enterprise run by appointed board.

Examination & Revision Pointers

  • Forms of organisation – know structure, liability, fund-raising ability, control, risk.

  • Franchise vs. independent growth – evaluate based on capital needs, brand strength, desired autonomy.

  • Partnership vs. Ltd Company – weigh additional capital & limited liability against disclosure requirements and loss of privacy.

  • Stakeholder objectives – anticipate conflicts (owners vs. workers, government vs. consumers, etc.).

  • Public vs. private objectives – public bodies prioritise service & access; private aim for profit & shareholder value.

Ethical, Philosophical & Practical Themes

  • Equity & access – public ownership ensures universal provision of critical goods (water, power).

  • Accountability – plc disclosure increases transparency; public corporations accountable via political process.

  • Cultural integration in JVs – success depends on respecting local norms while maintaining global standards.

  • Sustainability – large franchises can standardise eco-friendly practices across all outlets.

Numerical & Statistical Highlights (Use LaTeX for clarity)

  • McDonald’s franchise set-up: 1 \le \text{Investment} \le 2.2\,\text{million USD}.

  • The Body Shop (US) franchise: \text{Investment} \approx 775\,000\,\text{USD}.

  • JV profit split (illustrative): \text{Each partner’s profit} = \frac{\text{Total profit}}{n} where n = number of partners.

  • TD Power equity sale: \ge 25\% of shares issued to public.

  • ASX All Ordinaries daily movement example: \Delta = -70.02\,( -1.7\% ) on 4 June 2017.

Connections to Previous / Future Topics

  • Links to Chapter 5: Business & stakeholder objectives – ownership structure influences whose objectives dominate.

  • Builds upon Chapter 2’s discussion of privatisation and natural monopoly concepts.

  • Provides groundwork for later chapters on growth strategies, international expansion and financing.

Study Checklist

  • Contrast unincorporated vs. incorporated structures.

  • Memorise advantages/disadvantages of sole trader, partnership, Ltd, plc, franchise, joint venture, public corporation.

  • Practise data-response analysis (e.g., Jameel, A & N Partnership scenarios).

  • Review key terms with precise definitions and numerical data.

  • Prepare to justify recommendations using balanced arguments (benefits + drawbacks).