The company first started in the Indian market in the year 2005, urine this year all of their outlets had been situated in the Delhi and NCR regions. In the Initial years of Its life the company had started earning good profits and so they now took the step to expand their business In order to reap the benefits of the various economies of scale. There has been a rise in the number of franchise based business in India in the last decade. This might have been so due to the increasing demand for foreign foods, the owners of Short foods Pit Ltd having seen this gap must have decided to invest into this venture to gain a competitive advantage.
I have hoses to write this commentary on the decision of expansion of Short Foods Pit Ltd using either franchising or by takeover. The company wants to expand Its reach within the Indian market in order to increase its customer base. Using the supporting documents, I will analyze which method of expansion the company should opt for. I have based my commentary on the following supporting documents: * Balance Sheet of the company * Profit and Loss Account An Interview with the director of the company Survey on the demand for hot n juicy using , random customers Section 1- Ratio Analysis of the company
Based on the supporting documents given to me by Short foods limited along with that I used some of my other documents. I used all these to create Net profit and gearing ratios of the company. (1084580. 56/(26331813. 02+9821437. 36)) x 100 = for the latest year. This net profit is not that great because the company has to make at least a net profit of 10% or more in order for them to be successful however this is not the only determinant off company’s ability to expand.
This figure only tells us about the company’s current state and does not take Into account the sources of available enhance present for the company. These could be the company’s retained profits or the owner’s savings. The Gross Profit Ratio: The gross profit margin in this case would be: This Is for the Initial year that Is the year 2009 , In the year 2010 the company’s gross The gross profit margin shows that the company has become more efficient with the period of time. GYM also shows that all the expenses are being met and still they have some ability to save revenue.
The rise in gross profit margin of the company shows that Short Foods Pit Ltd is becoming more efficient. The gross profit margin loud also help in indicating the type of expansion that the firm should use out of the two options available to it , those options being that of going for a takeover of another company or franchising your company’s production. A high gross profit margin could also mean that Short Foods is producing Nina very efficient and affluent manner along with that using the gross profit margin potential investors can predict that Crook’s stock prices and value shall go up.
The numerical figures used above have been picked up from Section 2 Based on the information found in the supporting documents,as well as some additional resources, I compiled a SOOT analysis of Short. I have done the swat analysis of using the takeover method of expansion and that of Short Strengths: * Well-established customer base and brand recognition in the NCR region. * The company’s market share would increase rapidly and this would also help in increasing the profit made by them. I Weaknesses: * Product may not get accepted by the potential customers in other states of the country.
Due to differences in the taste and preferences of the country * There may be a clash in the working habits of the workers in Short and the company being over taken. I Threats: * Indian fast foods are still high in demand and so there may be chances of failure * The company’s reputation may get hampered due to illicit actions by the company being taken over I Opportunities: * Increased chances of gaining more customers * Higher chances of having an increased market share in a short period of time due the other firm’s market share. * Increase in customer base in a short period of time because of the popularity of the business being taken over.
I The table above represents the soot analysis of the company if it decides to choose the takeover teeth of expansion. According to the analysis the company until the late 2010 the company only had the contract of franchising only in the NCR region however with the rise in sales revenue Hot n Juicy finally gave their franchise for all of India to Short foods limited, this enabled the company to The SOOT Analysis if the company uses the franchising method of expansion : Strengths: * Well-established customer base and brand recognition in the NCR region and strong market share. The company’s market share would increase rapidly and this would also help in increasing the profit made by them. I Weakness: * The company may get mismanaged by the various different owners of the franchises * The other brand image of the company may get hampered due to the bad service of one franchise. * If there is any problem in the supply of materials from Short there are chances of problems in the entire franchises.
I Threats: * There may not be enough people who are willing to buy the franchise at the price at which it is being sold * Also there are chances of failure and thus they would loose a lot of money however not much of it would be Short I of having an increased market share in a short period of time due the other firm’s arrest share. * Higher profits as there is would be less of daily expenses for Short. The table above represents a SOOT analysis for the company if it decides to choose the franchising option of expansion.
This has been based loosely upon the customer surveys collected and also on the owner’s interview. Section 3: Force-field Analysis of both the decisions that I used some of my other documents. To create the force field analysis of the company’s decision. The first force field analysis is for when the firm uses the method of a takeover. Short wants to increase its market share Short would have to pay from their own pockets Short is in a equilibrium state while its selling the products in the NCR region as where it started. As it is this market which it knows about thoroughly.
Also the current profits its earning also would help in keeping it stable. The survival of the company may depend upon expansion The takeover may not be feasible if the company’s existing profits are not enough. Then there are high chances of failure firms can generate greater values through the retention of knowledge-based resources which they generate and integrate. Extracting technological benefits urine and after acquisition is ever challenging issue because of organizational differences This is the force field analysis of the decision of using the franchising method of expansion.
The company’s direct relationship with buyers is gone so it doesn’t have to deal with the various problems associated with after sales service Less risk factor as all the money is being given by the franchisee Short wont have to pay a lot of money for the expansion instead it will get money Chances of failure still exist as if one part of the franchise fails it would affect the sales of the entire company. Lack of incentive for innovation as the same product The Force field analysis is an influential development in the field of social science.
It provides a framework for looking at the factors (forces) that influence a situation, originally social situations, these help in making the right decision. The force field analysis in this depicts the driving and restraining forces while taking a decision in this being the decision to chose either the takeover method of expansion and/or using the franchising method. The ideas of this segment of the reports have been taken using the interview of the company’s director. A copy of which can be seen in the appendix no. . In the supporting documents attached to this Conclusion: The method of franchising a business would be a better one to opt for in this case because of the following reasons: * It is an inexpensive way to expand. This basically means that the business won’t have to pay for the daily running cost of the franchises instead they will only gain the money as showed in the force field analysis, the company’s responsibilities would only be limited to supplying the basic raw materials to the franchisee.
In comparison to this the takeover method of expansion would be that it would be very expensive because the company would have to use almost all of its existing savings and even more from the owners in order to takeover another company and looking at the company’s balance sheet a takeover would be very difficult for the company to do as they already have existing liabilities such as loans etc. The company would also benefit as the company would receive an upfront fees ; royalties.
Royalties are the payments given to a firm on the basis of the uses and upfront fee is fee form the franchisee. * Also franchising is a quick way to expand because franchising would include selling the rights of selling the product to another person, and for which the time taken would be less as many people would want to be a owner of such a famous franchise ,on the other hand if the company were to take over another business they would have to first of all find the perfect business.
Then after doing so they would also have to find information about the business to know if it is good also to know if it is a legally permitted. * Short foods pit Ltd would easily benefit from national advertising ; economies of scale. Economies of scale are the advantages that a firm has of being large in size by using ranching the expansion of the firm will easily be possible, and also it would help in increasing the awareness about the product’s existence to the general public in order to generate demand for the product as more shops would now be present for the potential customers.