DD: Emerging Trends in Business

Network Marketing aka Multilevel Marketing (MLM)

Direct marketing by the manufacturer by recruiting independent business persons who act as distributors of company’s products. Can reach potential customers that a company otherwise wouldn’t reach with traditional online or offline marketing methods. The distributors purchase products at wholesale prices and may either use discounted products themselves or retail the products to others for a profit. They receive a commission on their personal volume – the value of every product they personally buy or sell. Also receive a net commission on the total turnover they created from their group personal volume. The network grows continually. The distribution channel is at zero level where the firm is selling goods to distributors directly – reducing additional overheads of the firm. Lower overhead costs as no infrastructure is required.

However, sales forecasting is difficult, and distributors may also become the largest customers and take control of the company. High risk - 95% of new MLM entrepreneurs fall short within the initial three months.

Franchising

Franchise: The special right given by a manufacturer or parent organization to another individual or firm to sell the former’s product or service in a specified area(s).

Franchising: The business relationship between two organizations where a franchiser, who is the owner of a brand name, product or system of business, permits a franchisee to sue its brand, product or business process for a fee.

Combines a proven operating formula given by the franchiser with local knowledge and entrepreneurial initiative.
Difference between franchising vs. distributorship/ agency – higher degree of control given to franchiser

Features 1. Franchiser allows the franchisee to use his trademark under a license.
2. The franchise agreement requires the franchisee to follow the franchiser’s policies regarding mode of operation of business.
3. The franchiser provides marketing support and technology, and therefore virtually sets up the business.
4. Franchiser may also arrange for the training of personnel working in the franchisee organization.
5. Franchisee pays the franchiser a royalty for using his business know how and trademark
6. The right to use the know-how and trademark is for a limited period of time as defined in the franchise agreement, but may be renewed.

Advantages
1. To the franchiser
a. Can expand his distribution system in least amount of time
b. Expand business with little capital
c. Feedback about products
d. Increase goodwill and reputation
e. Wider acceptance of his brand name
f. Rights are protected through the license

2. To the franchisee

a. Business is based on a proven success
b. Assistance from franchiser in training, marketing and technology
c. High degree of quality control
d. Exclusive rights in his territory

Disadvantages
1. To the franchiser a. Franchisee may start an identical business with slight differences
b. Tarnishing of brand name and reputation if franchisee mishandles the product
c. Has to provide initial financial assistance and support
d. Risk of loss of trade secrets
e. Ongoing costs

2. To franchisee a. No freedom in running of business
b. Payment of royalty
c. Possibility of conflict
d. Cannot sell his business without approval from franchiser

Business Process Outsourcing (BPO)
- Popularly associated with IT Enabled Services (ITES)
- Knowledge process outsourcing (KPO) and legal process outsourcing (LPO) are subsets
- Subset of outsourcing that involves contracting of the operations and responsibilities of specific business functions or processes to a third party service provider.
- Reasons for India’s success:

• Supportive government policy
• Advanced technology 
• Reliable communication facilities 
• Huge skilled manpower with proficiency in English language 

- Need for BPO

• Specialized performance 
• Better results
• Economical 
• Ensuring smooth operations
• Expansion of business 

Classification
Back office outsourcing: Includes internal business functions such as human resources or finance and accounting
Front office outsourcing: customer related activities such as contact centre services
Offshore outsourcing: located outside company’s country
Near shore outsourcing: located in a neighboring country.

Advantages
1. Flexibility – transforms fixed costs into variable costs. A variable cost structure helps a company respond to changes in required capacity and doesn’t require investment in assets.
2. Cost effectiveness – saves 30% of company’s expenditure
3. Focus – on core competencies, without being weighed down by administrative or bureaucratic restraints.
4. Increases the speed of business processes, such as fragmentation of core-process and non-core process
5. Growth – maintain growth goals while avoiding standard business bottlenecks:
a. Premature internal transition from informal entrepreneurial phase to a more bureaucratic mode of operation
6. Skilled manpower – reduce large capital expenditure for people or equipment that may take years to amortize.

Amortize: gradually write off the initial cost of (an asset) over a period.

Disadvantages 1. Communication challenges and different standards
2. Time zone
3. Loss of control
4. Service provider wants to diversify and take on more projects – thus defeating the original point.
5. Miscellaneous practical problems:
a. Failure to meet service levels
b. Unclear contractual issues
c. Changing requirements and unforeseen charges
d. Dependence on the BPO reduces flexibility

E-Commerce
Refers to all forms of business transactions which are carried out through electronic processing and transmission of data including text, sound and visual images.
Comprehensive system of trading that uses networks of computers for buying and selling of goods, information and services.
Can be between
o Companies
o Companies and their customers
o Companies and government departments

Classification

1. Business to business (B2B)
2. Business to consumer (B2C)
3. Consumer to business (C2B)
4. Consumer to consumer (C2C)

Advantages
1. Global market
2. Lower transaction cost and higher margins
3. Quick delivery
4. Saving of time and effort
5. 24x7 working
6. Quick supplies – no need to maintain huge inventories
7. Wider choice
8. Customer convenience
9. Direct contact between business and consumer
10. Launching of new products – tool of sales promotion

Disadvantages

1. High start up costs
a. Connection costs (internet)
b. Hardware/ software
c. Set up
d. Maintenance

2. High risk e.g. dot com bubble
3. Training and maintenance
4. Fulfillment problems
5. Impersonal
6. Security
a. credit card details
b. system and data integrity – viruses

7. corporate vulnerability – web farming
8. peoples’ resistance – can’t see or handle goods before purchase

M-Commerce Buying and selling of goods and services through handheld devices such as mobile phones and PDAs.
Explosion of applications and services accessible from internet enabled devices
Key issues of interoperability, usability, security and privacy to be addressed
Future lies in time critical services

Advantages
1. A new distribution network for commerce
2. Ready convenient and secure way to do transactions
3. Large reach, effective target marketing and ability to offer location based services

Disadvantages
1. Existing technology isn’t suited to mobile data transfer
2. Slow acceptance
3. Lack of infrastructure, competing standards, poor input and display capabilities in cell phones and human fear of new things