BUSINESS DESIGN: OPTIONS FOR ORGANIZING BUSINESS

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BUSINESS DESIGN OPTIONS FOR ORGANIZING BUSINESS
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FILM BEN JERRYS
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QUESTIONS

• What would have been the advantages and
  disadvantages of a partnership if Greenfield and
  Cohen had decided to use this form of business
  organization?
• What are the advantages of corporate ownership
  for Ben Jerrys and its shareholders?
• What are the disadvantages of corporate ownership
  for Ben Jerrys and its owners?
• Evaluate Greenfields and Cohens decision to
  offer stock initially to Vermont residents only.
  What impact could having one out every 100
  families in Vermont owning stock have on Ben
  Jerrys?

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The Three Forms of Business Ownership

• Sole Proprietorship
• Partnership
• Corporation

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Advantages and Disadvantages ofSole
Proprietorships
Advantages
Disadvantages

• Unlimited liability.
• Limited financial resources.
• Difficulty in management
• Overwhelming time commitment.
• Few fringe benefits
• Limited growth.
• Limited life span.

• Ease of starting and ending the business.
• Being your own boss pride of ownership
• Retention of profit.
• No special taxes.
• Secrecy
• More freedom from government regulation

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How to Form a Partnership

• Partnership Agreement in writing
• Types of Partners
• General - unlimited liability involved in
  company business
• Limited - limited liability not involved in
  company business
• Joint venture often identified with
  international partnerships

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Advantages and Disadvantages ofPartnerships
Advantages
Disadvantages

• Unlimited liability.
• Division of profits.
• Disagreements among partners.
• Difficult to terminate.

• More financial resources
• Shared management.
• Longer survival
• Ease of organization
• Combined knowledge skills

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HOW TO FORM A PARTNERSHIP

• Choose the right partner
• Decide the type of partner you want to have
  general partner or limited partner
• Make a partnership agreement in writing that
  spells out everything you have agreed to

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JOINT VENTURES INITIAL INTERNATIONAL EXPANSION

• Common for medium- or small-sized companies
  lacking international experience
• Research cost-benefit analysis.
• Decreased costs government incentives
  subsidies given to cooperative ventures only
• Increased costs increased coordination
  governance cost difficulties in optimization
• Difficulties possible language difficulties,
  cultural differences, style incompatibilities,
  differences in values norms political climate
  in within partners organization

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STRATEGIC CONTRIBUTIONS OF JOINT VENTURES

• RISK REDUCTION
• ECONOMIES OF SCALE /OR RATIONALIZATION
• COMPLEMENTARY TECHNOLOGIES PATENTS
• COOPTING OR BLOCKING COMPETITION

• OVERCOMING GOVERNMENT-MANDATED INVESTMENT OR
  TRADE BARRIER
• INITIAL INTERNATION EXPANSION
• VERTICAL QUASI INTEGRATION

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PLANNING FOR JVS

• Careful planning very important - need to
  identify evaluate interests options for both
  prospective participants
• JV needs to foster a maximum mutuality of
  interests among the partners.
• JV contract negotiation - consider long term
  benefits of all parties make sure that the
  skills resources of each partner will be
  utilized more effectively.
• Clearly define managerial authority
  responsibilities over day-to-day operations

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DETERMINANTS OF SUCCESS OF INTERNATIONAL JVS

• Two key variables partner need joint venture
  commitment
• High performing firms executives looked to local
  partners for greater contributions
• More unsuccessful jvs - in developing countries
• Importance of trust, mutual respect, and
  willingness to negotiate disputes
• Problems of dissimilar cultures dissimilar jv
  experience better if related

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Cooperatives

• Owned by the members
• Pay no income taxes
• Profits are shared amongst the members
• Co-workers, farmers, fishermen, consumers, etc.
  band together to form co-ops

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Corporations

• Private Corporation - shares cannot be sold to
  the public
• Public Corporation - shares are sold to the
  public and often listed on a stock exchange

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OTHER VARIETIES OF CORPORATIONS

• Subsidiary Corporation -- the majority of the
  stock is owned by another corporation known as
  the parent company
• Holding Corporation company that controls one
  or more companies through ownership of their
  common stock.
• Crown Corporations -- owned and operated by a
  federal, provincial, or local government.
• Non-profit Corporation -- focuses on providing
  service rather than earning a profit.

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Advantages and Disadvantages ofCorporations
Advantages
Disadvantages

• Initial cost.
• Paperwork.
• Two tax returns.
• Termination difficult.
• Double taxation.

• More investment.
• Limited liability.
• Size
• Perpetual life.
• Ease of ownership.
• Separation of ownership from management.

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The Worlds Largest Employers - All Public
Corporations
General Motors
750,000
Wal-Mart
490,000
Siemans
413,000
Pepsi Co
409,000
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SOLVE THE DILEMMA

• What are some of the advantages and disadvantages
  of Thomas and Bryan forming a corporation?
• What are the advantages and disadvantages of
  their forming a partnership?
• Which organizational form do you think would be
  best for Thomas and Bryans company and why?

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GROUP WORK SELECTING A FORM OF BUSINESS
OPPORTUNITY

• Assignment Using what you have learned in this
  chapter, decide which form of business ownership
  is most appropriate (use the tables to assist you
  in evaluating the advantages disadvantages of
  each decision).

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EXPANSIONARY STRATEGIES
Expansion, 1995
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TYPES OF EXPANSION

• Stay in single business expansion in markets
  (can be done internally or by acquisition or
  joint ventures) or enlarging company vertically
• Diversification into related or unrelated
  businesses

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Corporate Expansion - Mergers and Acquisitions

• Mergers - two or more companies join to form one
  company
• Vertical merger - firms merge that are involved
  at different levels of the same business, i.e.,
  Chrysler and a steel company
• Horizontal merger - firms at the same level of
  the business merge, i.e., Chrysler and Daimler
  Benz

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Mergers in Various Industries
5-11
Source The Urge to Merge, Business Week,March
22, 1999, p. 8.
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CASE STUDY DAIMLER-CHRYSLER MERGER

• 1998 announced as a merger of equals
• Cultural differences evident from the beginning
• Organizational changes totally German
• Financial story 1999 (good performance)
• 2000 profit fell by 49
• 2001 - Restructuring charges created net loss of
  589 million
• 2002 results better than 2001 but the company
  is still not out of the woods
• 2000 bought 34 of Mitsubishi Motors
• Went from 3rd in US auto market pre-merger to 5th
  in 2002

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CLASH OF CULTURES

• Decision making DB characterized by methodical
  decision-making, Chrysler by creative
  decision-making
• Pay structure Americans used to large pay
  disparities, Germans disliked them
• Different working styles Germans used to
  lengthy reports extended discussions Americans
  did little paper work liked short meetings
• Chrysler executives used to spotting
  opportunities going for them the Germans liked
  to plan (no surprises)
• DB had a top-down management approach Chrysler
  humble collection of colorful consensus
  managers.

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FAILURE OF THE MERGER?

• Strategically the merger made good business sense
• Opposing cultures management styles proved to
  be a hindrance to the realization of the
  synergies
• DB attempted to run Chrysler USA operations in
  the same way as it would run its German
  operations.
• Is it a success?

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INITIAL THOUGHTS ON REASONS

• Good reasons under some circumstances.
• But, the advantages of corporate diversification
  are neither as numerous nor compelling as one
  might at first suppose.
• Diversification can also impose new costs on
  companies
• Examples more corporate bureaucracy, overhead, a
  blurring of strategic focus, diminished internal
  control, slower corporate decision making, etc.

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RESTRUCTURING OFTEN A FAILED MERGER

• 50 of mergers fail
• Types of restructuring downsizing (reduction in
  number of employees sometimes number of
  operating units)
• Downscoping divestiture, spin-off or some other
  means of eliminating businesses unrelated to
  firms core businesses.
• LBOs (leveraged buyouts) correct for managerial
  mistakes a party buys all of the firms assets
  and often immediately sells part of it.

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ASSIGNMENT FOR 8/2/2006

• TOPIC Small Business, Entrepreneurship
  Franchising
• Guest Speaker Samuel Stack, Policy Planning
  Research Analyst, Getting the Message Out, Dept.
  of Innovation, Trade Rural Development,
  Province of Newfoundland and Labrador

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ASSIGNMENT FOR 13/2/2006

• Assessment Quiz
• One Hour
• Format
• True False
• Multiple Choice
• Short Answer (Mini-Essay)