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Franchising and Joint Venture Strategy
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Entrepreneurs who seek innovative growth strategies should consider franchising and Joint Venture strategy which hold the top most position in recording success (Lee, Lee, Yoo & Choi, M 2015). Companies that have embraced these strategies have rapidly found themselves trending on the road to career satisfaction and success in various dimensions of business such as financial and social. It would be wise to have a preliminary thought concerning the two strategies.
Franchising is a well developed and established business expansion strategy that gives a guarantee of the rapid growth of businesses in an arguably reduced operational risk. Typically a franchisor offers licenses all its trademarks and copyright and establishes a business model to the franchisees. This model changes into a supportive model rather than the operational model (Lee, Lee, Yoo & Choi, M 2015). The franchising strategy establishes a long term business relationship between business partners with the franchisees having various responsibilities towards the franchisor. They must pay the annual fee, license fee and the percentage of profits made. The franchisees receive the initial training, manual of operation and support as a return of their benefits. Among the various companies that have embraced the franchising strategy, I would like to focus on coca cola Company, which has realized greatsuccess due to this strategy (Lee, Lee, Yoo & Choi, M 2015).
The Joint Venture strategy, on the other hand, is a strategy that allows two or more companies to join hands to form a mega company. This is accompanied by the need to pursue greater business opportunities and gaining the optimum competitive advantage in a particular market. The joint venture creates room for expansion of the company, allows them to lower the costs of their products as well as increasing the customer base as well as the enhancing the product distribution (Hoffman, Munemo & Watson, 2016). A joint venture allows the collaborating companies to reach goals that could not be achieved individualy. Various companies have formed the Joint Venture and embracing the strategy for global expansion. In July 2011 for instance, the Dow Chemical formed a joint venture with the Japanese firm Ube that will establish a factory that will be producing high-quality batteries called the high-tech battery (The Dow Chemical Company’ 2015. The collaboration is named Advanced Electrolyte Technologies (AET). The joint venture between the two companies will be assessed, and its progress of success figured out.
The Coca-Cola Company has recently announced how fast it is accelerating the pace of their markets about their bottler refreshing efforts. It also highlighted its plan of franchising all the companies in North America that deal with bottling by the end of 2017 (Ribeiro & Akehurst, 2014). The franchising strategy must be motivating if such a big company can plan and achieve success using the strategy. The company considers the franchising system as its cornerstone which has been an important strategic process which gives The Coca-Cola Company a secured great future.
Narrowing down the discussion to how far the franchising strategy has taken the Coca-Cola Company, tremendous success and progress have been realized. According to a speech delivered by Muhtar Kent, the CEO of this company, the franchising initiatives have led the international market to grow especially in the North America. The company has 45 coca cola plants in China with massive investments in the market since 1979 (ZURKUHLEN & MEEKER, 1987). The company has come to definitive agreements of franchising bottler territories with much of it being in the United States. Among the other successful aspects of The Coca-Cola Company, the franchising strategy of market expansion has placed it in its flagship market which guarantees a brilliant future. The coca cola company chose the franchising strategy of marketing due to various reasons that are attached to the benefits of the enterprise. Some of the advantages of the franchising strategy are detailed below. First, franchising allows the companies to influence off the assets of their franchisees. This is because the franchisees use their capital which means that the franchisor has no obligation to make a capital investment at the unit level. The strategy also makes it easy for the international expansion of the global market (Ribeiro & Akehurst, 2014). This explains why the coca cola company has extended its branches almost in all countries in the world with the stronghold being North America. The expansion is very first and rapid considering the strategy bears very few risks of the operation. The approach is also cost-effective in various ways. First, the advertising cost is low because the franchisees will always contribute to the promotion and advertising funds. The franchisor is, therefore, able to promote the brand of the company through the directions it gives of effective marketing strategies (Ribeiro & Akehurst, 2014).
The coca cola company has been able to control the quality o their beverages considering that it is very easy for franchisees to keep a better operational shape as opposed to unit managers. The franchisees best promote the international brands at a local level. The franchisee groups are performing so marvelously to a point of outperforming the individually owned companies (Mantecon, Song & Luo, 2016). The franchising strategy has also brought an advantage of high motivation for the management. The managers at different levels and units can treat their depots as their own hence motivating them (Suzuki, 1980). Franchising strategy also creates a platform where great talents can be realized. This enabled The Coca-Cola Company to filter out the less performing workers and substituting them with highly qualified and talented human resource. Typically, the Coca-Cola Company had prefigured all these benefits that come along with the franchising marketing strategy (ZURKUHLEN & MEEKER, 1987). It aimed at increasing the value of its brand, minimizing the risks that come about during expansion and accelerating the dominance of the market against the local competitors. The company had also aimed at increasing the brand recognition at a global level and utilizing the advantage of collective buyer power among an extensive list of benefits that accompany the franchising strategy. Franchising strategy is indeed fruitful (Chen, King & Wen, 2015).
The going of Coca-Cola Company has however faced ups and downs considering that the franchising strategy is not 100% safe and secure. This comes as a result of some disadvantages that come along with the franchising strategy. First, it lacks flexibility in both the location of the franchisee firms as well as the methodology of trading. The chain is connected in a way that if one branch collapses, the franchisor is at a risk of losing the brand’s reputation. Franchisees often lack the required support from some franchisors hence making their move to get a bit harsh. The franchisors are rarely concerned about the welfare of their franchisees. Once they offer their brand, they withdraw their support. Some franchisors lose the control over their franchisees which attracts the risk of slow growth and poor reputation compared to other strategies like mergers and acquisitions. However, the coca cola company is well notified of these demerits and therefore it has put all the strategic measures that smoothen its path o success.
Switching the discussion into the Advanced Electrolyte Technologies (AET) which is a joint venture strategic company, the strategy has also proven its worthiness as much as business success matters are concerned. Considering the short period since the annunciation of the joint venture, the company has also made tremendous progress. Gregory Baldwin speaks speech; the Dow spokesperson shows that AET has manufactured 10, 000 tons of formulated electrolytes which is a huge number that can saturate half of the global market (Chen, King, TD, & Wen, 2015). The joint venture has been the marking point for the Dow’s commitment to developing an innovative technology in science. The joint venture has placed the two companies to a height that would be incredibly hard to reach their individual levels. The venture is glowingly structured in that it had prefigured the growing demand for other alternative energy storage in various systems of technology. From the recent updates concerning the AET joint venture, the company has strengthened its global supply network (Chen, King, TD, & Wen, 2015). This has helped to gain a competitive advantage that opens up a platform on which it can become a world class company. The combination of resources from the two independent companies has given the joint venture a global footprint and strength that will help it to exploit every opportunity in the market field. From the angle of development, the AET venture is progressing very well including the construction and purchasing all the facilities that they require. Supply of raw materials, technical team support as well as skills get saturated in the venture more than it was in the previous state of the individual companies.
Focusing on how successful the AET Company has been, the company has been able to enhance the quality of the lithium-ion batteries. This has been achieved by adding formulated electrolytes to the product to form a super-luminous source of energy. The advanced and expanded power cells are proving their effectiveness in the electrolyte technology such that they are well functioning in hybrid vehicles and other electric motors. The diverse application of the advanced batteries has enabled them to generate power at every center of the global mega-trends. Typically, the cells are satisfying the demands of the top most markets because their performance meets the desired standard. The company’s fast growth from a technological point of view has affected the overall development of the energy industry. The AET is also committed to supply the right and exact battery characteristics to their customers that can provide solutions to all the power and energy issues that are encountered.
From the recent news concerning the AET, production facilities have been added whereby a new plant as been established in Midland (Xiaoyun, Xin & Zheng, 2014). Other plans of expanding the constructions into Europe and China are still not ruled out because the management is focused on first sustaining the stable foundation it has laid. The joint venture is also making an improvement of the already available resources such as separators, cathodes, and anodes which have been manufactured in Midland as the central depot. So far the company has stabilized its supply chain capability as well as the industry expertise that ensure reliability, efficiency, and availability of their services (Xiaoyun, Xin & Zheng, 2014). This has given the company a competitive advantage in the global market.
It would also be wise to consider the reasons that drove the two companies to embrace the joint venture strategy since its impact on various companies including the AET is worth analyzing. The AET venture must have considered some of these benefits that come along with embracing this kind of strategy. First, joint ventures usually enable growth and expansion of a company without necessarily having to borrow funds from external investors. This is possible because the two or more companies can combine forces in making investments such a research and purchasing of operational facilities (Xiaoyun, Xin & Zheng, 2014).
It is evident that all the benefits and privileges realized from a joint venture are shared among the two collaborating companies. This means that any risks that are encountered as well as the costs of maintenance are shared among the companies (KLOCK, 2004). This reduces the risk of shutting down due to lack of funds when a hick-up is encountered (The Dow Chemical Company SWOT Analysis’, 2014).
Joint venture strategy also allows flexibility of the involved companies (Fisch & Zschoche, 2012). Unlike the other business strategies like a merger, a joint venture is a temporary contract that can easily be dissolved ones the goal of completion of a certain task is achieved. In this case, the individual companies are not required to establish or create a new business entity and therefore it gives them a room of diversifying their operations (FRANCHISING: MARKETING STRATEGY TO PREVENT “INVESTMENT CYCLE TYRE FROM PUNCTURING”‘ 2006). Other tasks can also be undertaken at individual company level such that companies joining the venture are no required to give up everything concerning their enterprises. They are allowed to maintain their business identity (HILL & JONES, 2012).
Joint ventures allow businesses to expand and grow drastically with reduced growth risks. The AET joint venture took this advantage that provides a safe strategic expansion in very new markets with entirely new customers (Mantecon, Song & Luo, 2016). Joint ventures make it easy for the exploration of new markets because it gets support from the local dealers as well. Room for creativity and innovation is created in this strategy whereby advanced mechanisms, expertise knowledge, as well as combined forces, encourage innovation. The EAT joint venture has utilized this advantage by improving their batteries (Chang, Xuan & Li, 2015). The quality of products and the services offered by a joint venture are far much ahead compared to those produced by individual companies.
Despite the joint ventures having a thousand benefits, companies such as the AET have to fight various demerits that come along with the joint venture strategy. The companies must encounter difficulties in handling the different business cultures as well as the various management styles (Metzner & de Vivanco, 2014). This is just but a minor hiccup that has been taken care of by the AET joint venture by finding a common ground between the conduct of the involved companies. The different levels of expertise from the different partners may cause skill imbalance. The AET venture had prefigured this challenge and therefore corrective measures were put in place at the first juncture to prevent any future inconvenience (Fisch & Zschoche, 2012).
Joint venture strategy is growth oriented. This means that international expansion of the companies comes along with the risk of nationalization. This comes when the foreign government might reject the business based on their laws. They end up not making a fair compensation hence making the venture ti suffer loss (KLOCK, 2004). However, this is a minor factor that cannot hinder the growth of investment companies. For the AET joint venture, this factor has a negligible effect because it deals with batteries whose demand is so high to be rejected.Other challenges include risks of the operation, troubles in leadership and other internal issues (The Dow Chemical Company SWOT Analysis, 2014). However, joint venture companies are expected to be under the control of a thorough research to survive or counteract these challenges that come along.
In conclusion, both the franchising and the joint venture strategy demand well-organized plan for them to succeed. The coca cola company is among the most successful companies in the world and has proven how beneficial the franchising strategy is as much as international business expansion is required (Chen, King & Wen, 2015. It has made significant moves of expanding markets to every country in the world with much of its market located in North America. Franchising is a strategy that provides a long term business relationship as opposed to joint venture strategy which is a temporary contract (Ortiz, DA, & Miles, 2014). The franchising strategy has benefits over other approaches however it contains some drawbacks that limit is efficiency compared to other procedures. Joint venture plan, on the other hand, is also beneficial in establishing a collaborative business relationship between two minor companies. It is very flexible compared to the franchising strategy as well as stable and cost effective (Chang, Xuan & Li, 2015). The AET joint venture has progressed very well from 2012 with more expansion strategies getting planned for a bright future. The company has been able to utilize the available resource to innovate the new lithium-ion batteries that have a variety of application. The joint venture strategy creates room for innovation, expansion and growth of the combined companies to a level that could not be reached by the individual companies (HAYS, 2005).
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