Students can read the important questions given below for Enterprise Growth Strategy Class 12 Entrepreneurship. All Enterprise Growth Strategy Class 12 Notes and questions with solutions have been prepared based on the latest syllabus and examination guidelines issued by CBSE, NCERT and KVS. You should read all notes provided by us and Class 12 Entrepreneurship Important Questions provided for all chapters to get better marks in examinations. Entrepreneurship Question Bank Class 12 is available on our website for free download in PDF.
Important Questions of Enterprise Growth Strategy Class 12 Entrepreneurship
VERY SHORT ANSWER TYPE QUESTIONS
Question. Who is a franchisor?
Answer: The owner or person offering the franchise is known as the franchisor.
Question. What is acquisition?
Answer: Acquisition or take over is enveloping in itself a range of acquisition transactions by a firm
SHORT ANSWER TYPE QUESTIONS-
Question. What is value addition? Explain by giving examples.
Answer: Value addition refers to creation of a competitive advantage by, combining, packaging features and benefits or through any other method that results in greater customer acceptance. Its examples are:
1. Offering one year of free support on a new computer would be a value-added feature.
2. Turning cotton into fabric. Here, fabric has more usefulness than cotton.
3. Turning milk into cheese. Cheese has got more specific uses than milk.
4. Packaging ready-to-use grated cheese into serving size packets.
5. Turning wood into paper. Utility of paper is more than wood.
Question. Name the two forms that merger can take place.
Answer:Two forms of merger are:
1. Amalgamation: Amalgamation is a union of two or more companies, made with an intention to form a new entity or company.
2. Absorption: It means an existing company taking over one or more company. In this case one or more company will close down their business and this business will be continued by the name of the existing company.
LONG ANSWER TYPE QUESTIONS
Question. What are the different types of value added?
Answer: The different types of value added are as follows:
1. Quality Added Value: It is adding convenience, ease of use, etc. that customers value. For example, turning a commodity into a branded product or design enhancements.
2. Environmental Added Value: It is value added which employs methods or systems that do not harm the environment. For example, using less fuel, using recycled material for packaging.
3. Cause-related Added Value: Here, the business contributes part of the revenue from a commodity to a cause. For example, a business may donate a percentage of revenue from each transaction to a orphanage.
4. Cultural Added Value: It uses methods or systems of production involving cultural aspects. For example, using a combination of English and the regional language in written communications.
VERY LONG ANSWER TYPE QUESTIONS
Question. Explain in detail Porter’s Generic Value Chain with the help of a diagram.
Answer: Michael Porter gave the value chain analysis concept in his 1985 book ‘The Competitive Advantage’. He suggested that activities within an organisation add value to the service and products that the organisation produces and all these activities should be run at optimum level if the organisation is to gain any real competitive advantage. If these activities are run efficiently, the value obtained exceed the costs of running them and customers return to the organisation and transact freely and willingly. He suggested that the organisation is split into ‘primary activities’ and ‘support activities’.
1. Primary activities include:
(a) Inbound logistics: Here, goods are obtained from the suppliers and are used for producing the end product.
(b) Operations: Here, raw materials and goods are manufactured into the final product.
(c) Outbound logistics: Distribution of finished goods is known as outbound logistics.
(d) Marketing and sales: Here, marketing mix is used to form an effective strategy to the target group through the promotional mix.
(e) Services: After the product/service has been sold, sales training, guarantees and warranties etc. play its part.
2. Support activities: These help the primary activities achieve competitive advantage. They include:
(a) Procurement: It is to obtain the best possible quality available in the market for their budget.
(b) Technological development: Technology can be used to obtain a competitive advantage. Technology can be used to reduce cost and thus adding value, research and development to develop new products on the internet so that customers can have all time access to the firm.
(c) Human resource management: Here, the organisation will have to recruit, train and develop the right people for the organisation to be successful. Staff will have to be motivated and paid the ‘market rate’, if they are to stay with the organisation and add value.
(d) Firm infrastructure: Organisation needs to ensure that their finances, legal structure and management structure work efficiently and help drive the organisation forward.
Question. What is meant by moving up the value chain? Explain with the help of an example.
1. Moving-up the value chain is a value chain in the whole series of activities that create and build value at every step. The total value delivered by the company is the sum total of the value built up gradually all throughout the company.
2. It is the primary and secondary facilitations offered by a company. Low facilitation to highest facilitation by a company then leads to movement from low level to highest level. For example, in a steel industry, if they make specialized steel for automobiles, rather than selling basic steel, which is taken by another company who makes specialized steels to automobiles. Since the company makes it directly now, they get more money for their product, and thus higher revenues. This will eventually lead to higher profits. The value chain concept separates useful from the wasteful activities which hinder the company from becoming a leader in the market. Focusing on the value-creating activities gives the company many advantages. It involves primary activities like Inbound logistics, Operations, Outbound logistics, Marketing, sales, Services, etc. and Support activities like Procurement, Technological development, Human resource management etc. Value chain management requires coordination and collaboration, Technology investment, Organizational process, Leadership, Employee/ Human resources and Organizational culture and attitudes. For example: The ability to charge higher prices; lower cost of manufacture; better brand image, faster response to threats or opportunities.
Outsourcing: The fragmentation of the production process across various countries has given rise to restructuring in firms including the outsourcing and off shoring of certain functions.
Outsourcing involves the purchase of intermediate goods and services from outside specialist providers, while off shoring refers to purchases by firms of intermediate goods and services from foreign providers, or to the transfer of particular tasks within the firm to a foreign location. Off shoring includes both international outsourcing where activities are contracted out to third parties abroad and international in-sourcing to foreign affiliates.
HIGHER ORDER THINKING SKILLS In
Question. A merger between firms that are involved in totally unrelated business activities.
Answer: It is Conglomerate merger.
Question. It takes place between two business organisations that deal in products that are related to each other and operate in the same market.
Answer: It is Product extension merger.
VERY SHORT ANSWER TYPE QUESTIONS
Question. ‘It is the process of entrepreneurship which involves the translation of a useful idea into an application which has commercial value.’ Identify the process.
Question. What is required by an entrepreneur to ensure the continued efficiency and profitable functioning and growth of enterprise?
Answer: To ensure the continued efficiency and profitable functioning and growth of enterprise, extra managerial ability is required.
Question. What constitutes direct competition?
Answer: Direct competition is found where many Each producer wants to capture maximum consumers using various techniques like persuasive advertising, schemes etc. each firm wants to enjoycompetitive edge over its competitors.
SHORT ANSWER TYPE QUESTIONS
Question. Give some examples of Financial synergy.
Answer: Hindustan Unilever Company acquired Lakme, it helped HUL to enter the cosmetics market though an established brand.
1. Glaxo an Smithkline Beecham merged, to gain market share and eliminate competition between each other.
2. Tata Tea acquired Tetley to leverage Tetley’s international marketing strengths.
Question. Give examples of consolidation.
Answer: In a consolidation, a new firm is created after the merger, and both the acquiring firm and the target firm stockholders receive stock in this firm. For example Citi Group, was created after the consolidation of Citicorp and Travelers Insurance Group.
Question. If merger of Hindustan Computers Ltd, Hindustan Instruments Ltd, Indian Software Company Ltd. and Indian Reprographics Ltd into an entirely new company called HCL Ltd. Identify the forms of merger and explain the same.
Answer: 1. Merger through Consolidation/ Amalgamation.
2. Meaning: A consolidation is a combination of two or more companies into a ‘new company’. In this form of merger, all companies are legally dissolved and a new entity is created. Here, the acquired company transfers its assets, liabilities and shares to the acquiring company for cash or exchange of shares.
Question. Growth and development of an enterprise is inevitable. Explain.
Answer: 1. Growth is always essential for the existence of a business.
2. A business firm is bound to die if it does not try to expand its activities.
3. Growth is the next challenge for a established firm.
4. Extension is a result of thoughtful consideration of various factors, including the financial, logistical, even his/her emotional readiness.
5. There may be a niche that firm wants to capture or a location not serviced even by your competitors.
Question. “If a baker in Delhi bakery in Indore”, or a producer of household detergents buys a producer of liquid bleach. Identity the type of conglomerate mergers.
Answer: It is called as product extension mergers, where a firm that produces one product that requires the application of similar type of manufacturing or marketing techniques strategies.
Question. Kotak Mahindra Bank Ltd., India’s fourth largest private bank, and ING Vysya, the Indian branch of the Netherlands ING Bank. Kotal Mahindra signed a Memorandum of Understanding with ING Bank, establishing both firms’ stake in the Indian firm.
Answer: 1.Merger through Absorption
2. Meaning: An absorption is a combination of two or more companies into an ‘existing company’. All companies except one lose their identity in such a merger.
Question.“A leading manufacturer of athletic shoes merges with a soft drink firm”. Identify the type of conglomerate merger the explain.Or Acquisition of General Foods, a diversified food products company, by Philip Morris, a Tobacco manufacturer. Identify the type of conglomerate merger and explain.
Answer: Pre conglomerate:1. Because it involve firms with nothing in common or conducted between unrelated companies.
2. They are not the competitors.
3. Buyers and sellers so not show much relationship or no evident relationship.
Question. Ron Sommer, former president, Sony Corporation of India: say “Where a company comes from is less important than where it is going, as boundaries are erased corporation birth certificate won’t count much.”
Answer: Successful entrepreneur will make sure there is a constant flow of new ideas and a commitment to try out at least some of these new ideas. An organization has to maintain its momentum through interplay of flexibility and change. This calls for growth and development which in essence is achieved through constant strife.
Question. “Merger depends of variety of factors” Enumerate.
Answer: The term merger depends on the:
1. economic function
2. purpose of the business transaction
3. and relationship between the merging companies.
Questio. Give an alternate name of financial synergy.
Answer: An alternate name of financial synergy is tax shield.
LONG ANSWER TYPE QUESTIONS
Question. Why big brands make head towards for franchising? Explain with an example.
Answer: 1. The big corporate houses that have opted for a franchise route consider franchising as an easy mode of expansion as per the requirement and commitment level of the franchisor and the franchisees.
2. It is a powerful and ideal way to expand business, for a company which does not have any capital, manpower or time to build the network of company-owned outlets. Example – Dabur is one of the big established brand that has taken up franchising for expansion.
Question. Explain the reasons for mergers and acquisitions. Or
Why do companies merge with or acquire other companies?
Answer: Reasons for mergers and acquisitions: Every company wants to achieve higher growth rate and diversification. Mergers can give the acquiring company an opportunity to grow market share without having to really earn it by doing the work themselves – instead, they buy a competitor’s business for a price. While one often hears CEOs saying that M & As are inspired by a desire to diversify or achieve higher growth rate, the reasons could be varied. Some of the commonly identified reasons are:
(a) It refers to the difference between the value of the combined firm and the value of the sum of the participants,
(b) Synergy accrues in the form of revenue enhancement and cost savings.
(c) For example, if firms A and B merge and the value of the combined entity—V(AB)—is expected to be greater than (VA+VB), the sum of the independent values of A and B, the combined entity is said to be benefitting through synergy.
2. Acquiring new technology: To remain competitive, companies need to constantly upgrade their technology and business applications. To upgrade technology, a company need not always acquire technology. By buying another company with unique technology, the buying company can maintain or develop a competitive edge. For example is a merger (a) Logistics company such as a land transport entity with an air-line cargo company. (b) Blackberry and Treo which can incorporate cell phone capability and e-mail connectivity in one device; palm pilots and tablet laptops can provide benefits to both the entities.
3. Improved profitability: Companies explore the possibilities of a merger when they anticipate that it will improve their profitability. For example, European Media Group Betelsmann, Pearson, and others have driven their growth by expanding into the US though M&As.
4. Acquiring a competency: Companies also opt for M&As to acquire acompetency or capability that they do not have and which the other firm does. For example, (a) the ICICI ITC alliance made the retailer network and depositor base available to the merging entity. (b) IBM merged with Daksh for acquiring competencies that the latter possessed.
5. Entry into new markets: Mergers are often looked upon as a tool for hassle-free entry into new markets. Under normal conditions, a company can enter a new market, but may have to face stiff competition from the existing companies and may have to battle out for a share in the existing market. However, if the merger route is adopted, one can enter the market with greater case and avoid too much competition. For example, the merger of Orange,Hutch, and Vodafone took place to achieve this objective.
6. Access to funds: If a company finds it difficult to access funds from the capital market. In such situation, a company may decide to merge with another company that is viewed as fund-rich. For example, TDPL (Tamil Nadu Dadha Pharmaceuticals) merged with Sun Pharma since TDPL did not have funds to launch new products.
7. Tax benefits: Mergers are also adopted to reduce tax liabilities. By merging with a loss-making entity, a company with a high tax liability can set off the accumulated losses of the target against its profits gaining tax benefits. For example, Ashok Leyland Information Technology (ALIT) was acquired by Hinduja Finance, a group company, so that it could set off the accumulated losses in ALITs books against its profits.
Question. What do you mean by acquisition? Give some examples.
Answer: Acquisition is a more general term, enveloping in itself a range of acquisition transactions. It could be leading to takeover of a company. Acquisition refers a corporate action in which a company buys almost, the target company’s ownership stakes in order to assume control of the target firm. It is often made as part of a company’s growth strategy whereby it is more beneficial to take over an existing firm’s operations . It is often paid in cash, it could be the acquisition of company’s stock, tangible assets, intangible assets, ‘ rights, acquisition of control, and other kinds of obligations. It is also known as a takeover, means the buying company takeover or acquire by another.
For Examples: Bharti Airtel acquired Zain Africa, February 2010
1. Bharti Airtel is the largest mobile network in India. It is also expanding its reaches throughout the globe, Bharti Airtel added 180 million new customers in its list by acquiring an African Mobile Network provider called Zain Africa.
2. Tata Steel acquired 100% stake in Corus Group on January 30, 2007. It was an all cash deal which cumulatively amounted to Rs 12.2 billion
Question. How growth of an enterprise is possible through Mergers and Acquisitions (M & A)? Or “Mergers and Acquisitions (M&As) is a potential strategy for ensuring the accelerated growth of a business.” Explain. Or What are the reasons that firms may choose to grow through M & A instead of expanding internally ?
Answer: The term ‘business growth’ is used to refer to various things such as:
1. increase in the total sales volume per annum,
2. an increase in the production capacity,
3. increase in employment,
4. an increase in production volume,
5. an increase in the use of raw material and power.But in actual way, business growth means an increase in the size or scale of operations of a firm usually accompanied by increase in its resources and output.
Mergers and Acquisitions (M&As) is a potential strategy for ensuring the accelerated growth of a business.” The various reasons are as follows:
1. It is often cheaper to acquire an existing unit than to set up a new one or less expensive.
2. New ways to generate ideas.
3. It provides economies of large-scale operations.
4. Easy and Better utilization of funds can be made to increase profits.
5. Gaining economic and marketing power.
6. More possibility of diversification.
7. More efficient use of resources can be made.
8. Sick firms can be rehabilitated by merging them with strong and efficient concerns.
9. It is possible to gain quick entry into new lines of business.
10. It can provide access to scarce raw materials and distribution network.
11. Supporting managerial expertise’.
12. Analysis client’s requirements
13. Valuing companies
14. Identifying potential partner’s.
Question. State some of the disadvantages to franchising to franchisor.
Answer: Some of the disadvantages to franchising to franchisor are as follows:
1. Difficulty in identifying quality franchisees:
(a) Sometimes the franchisor may find it difficult to identify quality franchisees.
(b) Even after extending all support towards training and providing capital, poor management may lead to the failure of the franchisee and in turn, which may affect adversely franchisor and the system as a whole.
2. Legal Regulation:
(a) Franchising is a regulated activity and requires follow with federal and state franchise laws.
(b) To successfully establish a franchise, franchisors are required to work with an experienced franchise lawyer to establish a solid blueprint for franchising.
3. Investment: Every one knows that franchising serves as a source for the capitalized expansion of your business (i.e., franchisees invest in your expansion), the establishment of a franchise system requires the investment of capital to cover legal fees and the cost of establishing a franchising infrastructure.
Question.‘Healthy Juice India Ltd.’ and ‘Asli Juice Ltd.’ are engaged in the production of fruit juice. Both the companies sell the juice in 1,000 ml tetra packs and are in direct competition. To avoid competition, the management of both the companies decided to merge and formed a new company ‘Asli Healthy Juice India Ltd.’. The new company decided to sell the fruit juice through the company owned outlets throughout the country.
1. Name and explain the ‘Enterprise Growth Strategy’.
2. Also identify the channel of distribution decided by ‘Asli Healthy Juice India . Ltd.’
Answer: 1.The Enterprise Growth Strategy involved is Horizontal merger. Horizontal merger: This merger is between companies in the same industry. It is a type of business consolidation that occurs between firms which are competitors and offering the same goods or service. It is in the condition where competition tends to be higher and the potential gains in market share are much greater for merging firms in such an industry. Example: A merger between Coca-Cola and the Pepsi beverage division, wquld create a new, larger organization with more market share.
2. There is Direct/zero level of distribution channel.
Question. “Quick expansion is the most obvious advantage of franchising for an entrepreneur.” Explain with the help of an example.
Answer: The most obvious advantage of franchising for an entrepreneur is that it allows the venture to expand quickly using little capital.
1. It involves low capital investment by the franchisor as the capital used to expand the network comes from franchisees.
2. By using the franchisees’ capital, the franchisor is able to establish a large number of outlets in a short period of time.
3. A franchisor can expand a business nationally and even internationally by authorizing and selling franchises in selected locations.
4. Quick expansion can be achieved without incurring the overheads and costs associated with opening company-owned outlets.
5. Operating a franchised business requires fewer employees, this allows the franchisor to maintain low payroll and minimizes personnel issues and problems. This brings benefit to both the franchisor and franchisee as it helps build consumer recognition quickly and establish the franchise. Example: Just think of the capital needed by DeLuca to build 8,300 Subway sandwich shops! The value of the franchise depends on the track record of the franchisor and on the services offered to the entrepreneur or franchisee. Subway’s low franchise fee has enhanced expansion opportunities, as more people can afford it.
VALUE BASED QUESTIONS
Question. Write short note on Legal Responsibility.
Answer: Every entrepreneur is expected to fulfil all its statutory and legal responsibilities. This is the duty of each entrepreneur. He must pay license fees, taxes, social security contributions, minimum were; interest on loans, dividends, etc. well in time. Moreover any recent changes in the laws must be taken care of. Enterprise comes under many laws like, Factories . Act, Minimum Wages Act. Payment of Wages Act etc. Fulfilment of legal aspects is the legal as well as moral duty. Violation of laws leads to punishment or fine. This leads to loss of goodwill, affects faith of shareholders and also results in loss of money, time and energy.
Question. “Synergy can be a positive or negative T outcome of combined efforts”. Explain with the help of an example.
Answer: According to the American Heritage Dictionary, the term ‘synergy’ is derived ; from the Greek word sunergos, meaning “working together.” When two or more people or organizations combine their efforts, they can accomplish more together than if you added their accomplishments achieved separately…” Positive synergy is sometimes called the 2A + 2B = 5AB effect. Individually each subsystem can produce two units of output. And if we combine their efforts and work together effectively, the two subsystems can produce five units of output. Mergers and acquisitions are corporate- level strategies designed to achieve positive synergy. The 2004 acquisition of AT&T Wireless by Cingular was an effort to create customer benefits and growth prospects that neither company could have achieved on its own— Values:
1. offering better coverage,
2. improved quality and reliability,
3. a wide array of innovative services for consumers,
4. broadening the firm’s product or market mix will result in a higher level of performance. When two or more people or organizations combine their efforts, and if they can produce less than. If added their accomplishments achieved separately. Negative synergy can be called the 2A + 2B = 3 AB effect. When an individuals operating alone can each produce two units of output. However, with negative synergy, the combination of their efforts results in less output than what they would have achieved if they had each worked alone.
Negative synergy can result from:
1. inefficient committees, business units that lack strategic planning,
2. poor functioning of joint efforts,
3. inefficient workers,
4. if one of the individual dominate and control the group decision or less effective group decisions.
Question. Write short note on discipline in dealing with competitors.
Answer: Each entrepreneur is expected to be a member of healthy competition. Unhealthy competition leads to downfall of the enterprise in the long run. Discipline in dealing with competitors, always leads to better quality products and more consumer satisfaction. Depending on illegal activities, malpractices etc. for getting major share of the attitude is undesirable. Every producer has the right, to sell. This right could not be taken away.
Question. Read the following case study of an Shri Jhunjhunwala and write down the values that can help him to bring a positive change and sustain growth in the enterprising world? Shri Jhunjhunwala is an Entrepreneur Shri Jhunjhunwala of Varanasi is a businessman engaged in the production of “Jhula Vanaspati”. He started his business career from a humble beginning. He had a small retail shop of oil and ghee. His earning was limited and not sufficient to meet the needs of his family. He started looking for an opportunity to earn more. One of his relatives owned an oil factory which was running at a loss. The relative was willing to sell it. Jhunjhunwala thought he can run the factory and earn profit out of it. He bought his relative’s factory. The factory took a new birth and today it is earning huge profit. “Jhula Vanaspati” is now a reputed brand of ghee in that part of the country. He says business is an opportunity, it involves risk and it is a challenge.
Answer: 1. Adaptability: It is the ability to adjust to new situations-and find creative solutions to problems.
2. Opportunity: It means a chance to do something new. When his problem is solved by him in a challenging way, he find opportunities.
3. Competitiveness: It also implies that competition is perceived as a challenge which motivates the entrepreneur to strive harder. The advertisements that we see in newspapers, journals and on TV will indicate the continuous competition among entrepreneurs and how they constantly strive to maintain their competitive edge. For a successful entrepreneur competition is a tonic for further growth.
4. Confidence: Self-belief is a very important trait of all successful entrepreneurs. They strongly believe that they can do what they set out to do.
5. Dedication: All successful entrepreneurs are consumed by a goal or purpose. As project champions they are dedicated to fulfillment of their vision.
6. Vision and Drive: The ability to see the end results of one’s goals while working to achieve them and the desire to work hard to accomplish one’s goals are other important traits of successful entrepreneurs.
7. Honesty: A successful entrepreneur is invariably honest. Contrary to popular beliefs all great entrepreneurs have always had the commitment to tell the truth and deal with people fairly. It is one trait that guarantees sustainable growth.