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As a business develops to a certain stage, it is very necessary for considering expanding the business in the segment it operates. To expand the business is one important step in company's life which is fraught with both opportunities and perils. It is easy to propose the idea of expansion within the company, but to make the decision of whether to really take actions for expansion or not is very hard to determine, as growth may cause changes in many aspects, such as company's scale, organization structure, employee number, financial status etc. Once a company is determined to expand its business, it is essential to decide the route for growing as there are several expansion methodologies. In the Beer Factory case, the manager is evaluating two expansion methods, one is expansion by a corporate model, and the other is by franchising model. Therefore, as far as the business expansion is concerned, this report will further discuss the expansion methods which mentioned in this case.
Corporate model and franchising model expansion
By expanding your business, you can consider both corporate model or franchise model. Corporate model expansion means to grow the business with all the efforts made by the company itself. To be specific, it means to develop the company into large-scale by solely financed by the company itself. Corporate model expansion can also be referred as organic growth which means expanding the company's business through the use of its own resources and assets. By using corporate model to grow the business, company should prepare enough cash flow and make preparations regarding the organization expansion, such as more employees, organization structure changes, promotion work etc. Corporate model expansion requires Company more capital and more efforts.
While franchising model is practical and successful expansion method adopted by company for searching growth in the competitive market. It is very different from the organic growth model. Franchise is defined as an agreement between franchisor and franchisee. Franchisor is obliged to provide the business operation knacks and related training etc to franchisee and allow franchisee to use its trademark, trade name, and operation method etc. based on the agreement. And franchisee pays franchisor in return according to the amount specified in the agreement.
Franchising may be regarded the most cost-effective way for business expansion. For franchisor, franchising can create another source of income which is especially very good for those small businesses that is short of finance and wants to expand market. It will reduce many costs for the franchisor in terms of operation, distribution and advertising costs. In addition, it is easy for franchisor to manage the organization. Franchising enables the franchisee to produce and sell products by themselves, from this aspect; franchisor does not have to control and manage a large organization and also reduces managing cost. Advantages of franchising are not listed all here, as disadvantages should be more focused as to the Beer Factory case. From the website of the Beer Factory, we can see the Company is looking for franchisees. Therefore, the Beer Factory is considering applying franchising model to expand its business. Thus besides recognizing the advantages of franchising, to identify the possible disadvantages of franchising is more important for Beer Factory. The main disadvantages from franchisor's point of view are listed as below.
At the very beginning, franchisor shall allocate considerable capital in order to establish the franchise infrastructure and pilot operation. Franchisor needs to have sufficient resources to support franchisees.
There is a risk for the properties of franchisor, such as trade mark, trade name and so on to be spoiled by misfits at the beginning of the franchise program.
Since franchisor has to disclose the confidential information with respect to the production process, and other related information to franchisees, this may constitute further risk to the business.
Therefore, before the Beer Factory enters into a franchise program, it should highly weigh its profits and risks as result of this franchising action.
Factors to restrict the growth of the business
To correctly identify the factors which may restrict the business' growth is very important for the development of a company. As the Beer Factory is considering the expansion of its business, the company should also evaluate the factors to restrict the growth of the business. As this brew-on-premise beer brewing business is a relatively new industry, it has attracted many beer lovers to experience in the manufacturing process personally and enables them to have the freshest beer to drink. Despite the Beer Factory is preparing for business expansion, there is some factors to restrict its business growth. Firstly, the characteristic of this business is to brew your beer by yourself which requires the consumers personally involves in it. Although it is interesting, the number of visitors is extremely restricted for consumers will drive all their way to reach to the factory and it is not possible for some remote consumers to visit the factory. Secondly, as freshness is the most distinguish feature of the BOP beer, it also becomes the factor which may restrict the growth of the business. It is more troublesome compared to the traditional canned beer. Thirdly, now to BOP beer is also popular in some beer clubs/bars which will compete for the market.
Questions which potential franchisees may have with respect to the product knowledge
As the Beer Factory is looking for dedicated, enthusiastic and outgoing people as franchisees for expanding the business, it is a good chance for people who are interested in the business. However, before concluding franchising program agreement with the franchisor, the potential franchisees should have to conduct a deep investigation over the business to have an overall understanding of the related product knowledge. As a potential franchisee, you should start with a visit as a consumer to have a basic knowledge about how the BOP beer is processed and what the quality of the final product is and how it tastes. If the potential franchisee is satisfied with final product in terms of its quality and taste and is looking forward to joining the business, he/she should make an in-depth questions list about the business. The questions are concluded as below.
How many customers come to the factory every day?
If the franchising program gets serious, where should the franchisees get the beer ingredients and equipment?
What is the capacity of the experts?
What is the confidential and important beer processes?
Are there going to be a handbook or manual for guiding the exact operation for every stage?
How the franchisees are going to train its employees? And whether the franchisor will assist franchisees in terms of training, location-selection and so on?
What are the strengths of the business compared with the other similar businesses?
To be concluded, this article is focused on the expansion methods which are applied by company for sake of business growth in the segment. The organic growth and franchising model are discussed. Based on the Beer Factory case, franchising model expansion is explored deeply in terms of the advantages and disadvantages etc. The potential factors affecting the business growth of the Beer Factory is also addressed. And some normal questions which potential franchisees would probably ask are listed. In a word, when a company is planning its business expansion, it should choose the most suitable ones considering its internal environment and other factors.