Business structure

by Business Case Studies on Monday 28th March, 2011

In his 'Budget for Growth' on 23rd March, the Chancellor of the Exchequer announced a number of measures designed to encourage business activity and the recovery of the economy. Mr Osborne stated that he wanted to make the UK one of the best places in Europe to start, finance and grow a business. These measures include a cut in corporation tax of 2%, followed by a 1% cut in each of the following three years. A reduction in corporation tax, eventually down to 23%, should mean that businesses are in a better position to reinvest, grow and create more jobs. In addition to the tax cuts, 21 Enterprise Zones are to be created, more than double those originally planned. These will be in some of the country's most deprived areas where businesses will benefit from reduced business rates, simplified planning regulations and up to 100% tax relief, in an attempt to stimulate the economy in the areas that need it most. (BBC, 24th March 2011)

The unique partnership approach adopted by the well-known optical retailer Specsavers already offers a way for people to become business owners whilst reducing the risk normally associated with business start-ups. The Specsavers model is similar to a franchise model of ownership. Usually two business owners pay a fee to trade under the Specsavers name. They are provided with products, training and other support by the business. Often one of the business owners is a qualified Optometrist and the other is a Retail Director. In this way, both the clinical and business elements of an optical retail store are represented. This structure supports a wide range of both professional and commercial roles, from Optical Assistants to Dispensing Opticians.By operating within this joint venture, business owners benefit from the support provided by Specsavers and the huge buying power it enjoys for frames and lenses. More than this, however, the owners are able to trade under this well-known and trusted brand name.

Questions
1.Define 'franchise'.
2.Using this article and the Specsavers case study, explain how business owners benefit from the partnership approach offered by the organisation.
3.Analyse how the centralisation and decentralisation aspects of the joint venture structure provides benefits.

Answers

1.Define 'franchise'.
A franchise is a business that takes the name and business formula of another whose products it is authorised to sell for a fee or percentage of turnover.

2.Using this article and the Specsavers case study, explain how business owners benefit from the partnership approach offered by the organisation.
Benefits include:

  • training and other support is offered by Head Office
  • business owners can trade under a well-known and trusted name, thereby reducing risk
  • centralised activities reduce costs for the business owners.

3. Analyse how the centralisation and decentralisation aspects of the joint venture structure provide benefits.

  • Centralisation – head office provides IT, legal, finance and marketing support for all the branches. This can reduce costs through economies of scale and these cost savings can then be passed on to customers. Frames and lenses are bought by Specsavers on behalf of the business owners so discounts can be achieved.
  • Decentralisation – business owners can make decisions about the stores based on their knowledge of the local area and their target markets.

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