Please refer to Enterprise Growth Strategies Class 12 Entrepreneurship Important Questions with solutions provided below. These questions and answers have been provided for Class 12 Entrepreneurship based on the latest syllabus and examination guidelines issued by CBSE, NCERT, and KVS. Students should learn these problem solutions as it will help them to gain more marks in examinations. We have provided Important Questions for Class 12 Entrepreneurship for all chapters in your book. These Board exam questions have been designed by expert teachers of Standard 12.
Class 12 Entrepreneurship Important Questions Enterprise Growth Strategies
Very Short Answer Type Questions
Question. What are the two ways in which an organization can expand?
Answer : An organization can expand either through
a. Internal expansion or
b. External expansion
Question. Who is a franchisee?
Answer : Franchise is the person who buys the franchise to take advantage of an already successful business.
Question. Which is the most popular form of franchising?
Answer : Business format franchise opportunity is most widely used in the franchising world.
Short Answer Type Questions
Question. Enumerate the importance of franchising.
Answer : The following is the significance of franchising.
a. It helps individuals to take advantage of of an already established business model and derive success from that. They do not have to start from scratch.
b. The success rate is more in opening a franchise than starting a new business.
c. The products, services and business processes are well in place and need not be worked upon from the start.
d. It helps the businesses to expand quickly without any need of additional investment while ensuring a guaranteed return while reducing the maintenance.
e. The franchisor businesses get the right personnel who are really interested to grow the business. The helps in achieving accelerated growth.
Question. Name the two forms that merger can take place.
Answer : You can refer to the video for the question Give an elaborated overview of the different types of mergers
The mergers are classified based on
◆economic function
◆purpose of the business transaction
◆and relationship among the merging companies They are
1. Conglomerate: When two companies which are in entirely different businesses merge, it is called as conglomerate. It is further classified as
◆Pure conglomerate: In this the two firms have nothing in common.
◆Mixed conglomerate: In this the two firms are looking for product or market extensions.
2. Horizontal merger: When two companies which are in the same industry merge, it is called as horizontal merger. It occurs between companies that are competitors in the same industry and are offering the same goods or services. This type of merger usually occurs in the industries where there are few competitors and the competition is high.
When these industries merge they’ll have much bigger synergies and potential gains.
3. Market extension merger: This occurs between two firms that are offering the same products but in different market regions. The motive behind this type of merger is to make sure that the merging companies will be able to operate in a bigger market and here by getting huge number of clients.
4. Product extension merger: This type of merger occurs between two companies that offer the products that are related to each other and operating in the same market. The merger helps to group the products together and reach a huge client base. It increases the profit margins too.
5. Vertical merger: This occurs between two companies which are producing different goods or services for one specific finished product. It occurs when two or more firms that offer products which are part of an industry’s supply chain merge their operations.
The purpose of merger is to increase synergies created by the merging entities and operate more efficiently as a single business unit.
Question. What is value addition? Explain by giving examples.
Answer : Definition: Value addition refers to value added to the goods and services through different means so as to create a new product that has greater value to customers.
Examples:
a. Bread made out of wheat
b. food fortified with additional nutrients
c. Fabric is made out of cotton
d. Plain houses turned into modern homes after interior decoration.
e. Incorporating video project capabilities in a mobile phone
Long Answer Type Questions
Question. Explain the types of franchising.
Answer : The following are the different types of franchising
1. Product franchise business opportunity:
a. The manufacturer authorizes a store owner to distribute their products.
b. The store owner can also use the name and trade mark of the manufacturer.
c. The store owner has to pay certain fee and buy certain minimum stock from the manufacturer.
d. Example: Tire franchises
2. Manufacturing franchise opportunity:
a. The franchisor authorizes a manufacturer to manufacture and sell their products.
b. Mostly found in food and beverage industry.
c. The bottles and other ingredients are supplied by the franchisor.
d. The franchise will produce, bottle and distribute soft drinks
3. Business franchise opportunity ventures:
a. A business should purchase and distribute products for one specific company.
b. The company will provide customers or accounts to the business owner.
c. The business owner pays a fee or other consideration to the company.
d. Examples are vending machine routes and distributorships
4. Business format franchise opportunity:
a. The company provides a business owner with a proven method of running a business.
The company will provide all the assistance to set up and run the business.
b. The business owner can use the company name and trademark.
c. The company collects a fee or royalty in return from the business owner.
d. At times, the business owner has to purchase the inventory from the company.
E. This is the most popular form of franchising.
f. Examples are KFC, McDonalds and Dominos.
Question. What is synergy? In what forms can it take place?
Answer : Synergy refers to the difference between the value of the resulting entity formed by the merger of two firms and the sum of the individual values of the merging firms.
Synergy accrues as revenue increase and cost savings. In other-words
V (AB) > V (A) + V(B)
Where V (AB) = Value of the big entity formed by merging entity A and entity B.
V (A) = Value of the entity A taken alone.
V (B) = Value of the entity B taken alone.
Thus when the combined value of the merged entity is more than the individual values of the business entities A and B before merger, then only it can be said that the merger is benefiting through the synergies.
Synergy can take place in the following forms.
1. Operating synergy: This is the cost savings that resulted from the economies of scale or increased sales and profits. It results in overall development of the firm.
2. Financial Synergy: This due to financial factor like
a. Lower tax
b. Higher debt capacity
c. Better use of surplus cash
When a firm is running in loss or it has un-absorbed depreciation, it can benefit by merging into a profitable firm. The merger can overcome the losses through its profits.
This results in a financial synergy known as tax shield.
Very Long Answer Type Questions
Question. Explain the advantages of franchising, both for the franchisor and franchisee
Answer : The following are the benefits for the franchisee through franchising.
1. Product Acceptance: As the business franchised already is established in the market and well known to customers, the franchisor inherits these merits and do not have put additional effort in building the credibility right from the scratch. They have a readily available accepted name.
2. Management expertise: A well established business will have management expertise in it. The franchisor can immediately take advantage of this management expertise to set up and operate the franchise. The training is provided by the franchisor and sometimes the franchisee gets an opportunity to work in the real time environment and gain the necessary management expertise to operate the franchise. In addition to the initial training there will be ongoing support to resolve the issues faced while running the franchise.
3. Capital requirements: The cost for setting up the franchise is less that what it would have been if the entrepreneur is establishing their own venture. Significant market analysis is done by the franchisor before permitting the allocation of the franchise. So, the entrepreneurs have a business that is far more likely to perform well.
Sometimes the initial capital requirements are born by the franchisor only. In addition there will be significant savings in the running of the business too as the entrepreneur is starting up an already established business model.
4. Knowledge of the market: The expertise of an already established business is readily available. All the necessary help is provided by the franchisor. Continuous market analysis is taken care of by the franchisor and the franchise can take advantage of this.
5. Operating and structural control: Total assistance is provided in maintaining the quality, evaluation of the suppliers and in day to day operations of the franchise.
The following are the benefits for the franchisor.
1. Quick expansion: Through franchising, the business can expand quickly with less capital. It takes significant effort if the business wants expand it-self. A business can start multiple franchisee in multiple cities simultaneously.
2. Cost advantages: The franchisor can purchases the supplies in bulk at wholesale prices. If the business is producing the necessary supplies they can take advantage of mass production and reduce costs. Even the expenses like the costs incurred in advertisement etc are born by all the franchises and hence this reduces the overall cost burden on the business.
Question. What do you think are the reasons for failure of merger and acquisition?
Answer : The following are the various possible reasons that cause failure of mergers and acquisitions.
1. Unrealistic price paid for the target: Before the merger or acquisition take place, the target company is thoroughly valuated. When this valuation is over-estimated, it results in the company acquiring to bear the additional burden of the overpricing. This is not visible immediately. The losses surface up over the later years.
2. Difficulties in cultural integration: There may be cultural differences in both the companies and these need to be dealt with in a very sensitive manner. If not done tactically, this might result in a disaster. This effect is more prevalent when both the companies are from different countries. The differences will become dominant over the years and can even result in the failure of the merger.
3. Overstated synergies: The purpose of mergers and acquisitions is to create synergies through
a. increased revenues
b. reduced costs
c. reduction in networking capital
d. improvement in the investment intensity
If these factors are overestimated, it leads to failure of the mergers.
4. Integration difficulties: During integration, new challenges come up. To tackle these, the company prepares the plans. When the issues have inadequate or inaccurate information, the integration will be difficult.
5. Poor business fit: When the products are services of the merging business do not fit into the acquiring business’s overall business plan, the effective and efficient integration is delayed and subsequently fails.
6. Inadequate due diligence: Due diligence is very critical for the merger and acquisitions. When sufficient information is not available to detect financial and acquisitions it leads to failure.
7. High leverage: When the finance for acquiring is borrowed from market, it creates high leveraged structure and increases the amount of interest to be born by the company. This increased interest might be so huge that it eats up the profits and defeats the intention of acquisition.
8. Boardroom split: When there is re-alignment of power among the members of the board room, few members from both the business units might have differences of opinion. This leads to clashes and may delay or prevent the integration.
9. Regulatory issues: When the merger is against the consent of any of the stakeholders, they might create legal obstacles that might result in regulatory delay and in such cases there is more risk of deterioration of the business.
10. Human resources issues: The mergers might cause job losses, restructuring and implement a new corporate culture and identity. This might affect the employees psychologically in a negative manner. When the companies are more busy with the legal and financial considerations and neglect HR issues, it will impact the employees morale and productivity.
Question. Explain in detail Porter’s Generic Value Chain with the help of a diagram.
Answer : Value Chain refers to all the activities that create and build value at every step.
Thus the total value added to the final product or service is the sum of the individual value added at every step. As per Michael Porter value chain refers to the higher level model of
a. How the business procures the raw materials
b. Add value to the raw-materials through various processes
c. Sell the finished products or services to the end users.
Thus value chain analysis is performed at every step of the business with one goal of delivering maximum value, from getting raw-materials to end users.
Michael Porter suggested that the activities in an organization should add value to the products and services. And all these activities should be run optimum level.
Then only the organization can achieve true competitive advantage. When these processes are run efficiently, the value delivered far exceeds the cost incurred in adding the value. This leads to customer satisfaction and encourage customers to do the business with the organization again and again.
As per Michael Porter, the activities within an organization should be split into primary and support activities as follows.
1. Primary Activities:
a. Inbound Logistics: Procure the goods from suppliers and use them in producing the end products.
b. Operations: Raw materials and goods are manufactured into the final product.
Value is added as the product moves through the production line during this process.
c. Outbound Logistics: It deals with the distribution of the finished goods to
◆Customers
◆Distribution centers
◆Retailers
◆Wholesalers
d. Marketing and Sales: Establish an effective strategy using marketing mix to target the product to the appropriate customer group. The competitive strategy is clearly communicated to the target group through the promotional mix.
e. Services: Post sales, there will be support services in the form of
◆Sales Training
◆Guarantees
◆Warranties
2. Support Activities:
a. Procurement: Sourcing the best quality raw materials at the best price within budget.
b. Technological Development: Using the technology to gain competitive advantage. The technology is used in
◆ Availability of the products on the internet so that the customers can access the firm 24/7.
◆ Cost reduction to create value addition
◆ Develop new products through research and development
◆ Production
c. Human Resource Management: Recruit, train and develop suitable personnel to run the business successfully. The employees should stay motivated and compensated as per the market value if they should continue with the organization and add value.
d. Firm Infrastructure: The infrastructure such as finance, legal structure and management should be efficient to help the organization realize its goals. If the infrastructure is inefficient it will lead to bad reputation, fines and sanctions.
