Chapter 4 - Types of Business Organization
Lesson Objective: To understand franchises and joint-ventures
A very common business structure which you definitely heard before are Franchises which are nothing but a legal contracts between two firms (e.g. Tavan Bogd and KFC). This contract establishes that the franchisee has the rights to using the name, logo, and trading systems of an existing successful franchiser brand:
It is important to notice that although most large franchisers are included in the Public Limited Company structure, franchisees can choose whichever structure fits them best.
Joint-Ventures are yet another form of business structure. They come to happen when two or more businesses work together on a particular venture (project) by creating a third-party division for doing so. Here are some examples:
The alliance between Starbucks and TATA creating TATA Starbucks with the focus on manufacturing and distributing bottled coffee beverages.
The Joint-Venture between Sony and Ericsson was very successful for some time and the brand Sony Ericsson was well-known for its electronics, specifically audio/music gadgets.
Google, Intel, and Tag Heuer formed a Joint-Venture to create a luxury smart-watch.
Here are the reasons for and against the formation of a Joint-Venture:
Finally, let's discuss Public Sector Enterprises (a.k.a. Public Corporations). These are enterprises owned and controlled by the state.
They are nationalized businesses. These businesses oftentimes do not have profit as their main objective but the social well-being and access to services instead (e.g. public hospitals).
Other characteristics of Public Sector Businesses include:
Even if they are loss-making businesses they may be continued (government fund) if the social benefit is great enough (e.g. public hospitals, schools);
Their financing comes mainly from the government (taxes);
As they do not have profit-targets they may become very inefficient businesses - government funding leads to lack of efficiency;
Public Corporations may suffer political interference from the government.
To wrap it all up: there are many different business structures to choose from and the right choice depends on the nature, purpose, and even the level of economic activity the business is in (primary, secondary, or tertiary). Whether the business is in the Private or Public sector also influences the appropriate business structure. Selecting the best fit is a key factor of business success.
To-Do List:
Case Study - Jaguar Land Rover Agrees Joint Venture with Chery in China (p. 52)
Chapter 4 - Types of Business Organization
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