N1589 Introduction to Entrepreneurship

SECTION A

You must attempt both questions in this section.

Each question carries twenty five (25) marks

Question 1:

Define the term intellectual property. What distinguishes it from other type of properties such as buildings and machinaries? Explain the four key forms of intellectual properties and critically discuss the significance of intellectual properties in helping an entrepreneurial firm establish a competitive advantage in the marketplace. Use examples if necessary (Your answer is expected to be around 400 words)

[25 marks]

Question 2:

What is an entrepreneurial business model and what are the main parts of it? Critically discuss franchising and the advantages and disadvantages of this model for entrepreneurs. (Your answer is expected to be around 400 words)

[25 Marks]

SECTION B

Read the case “The Body Shop” in Appendix A below and answer questions 3 and 4.

Each Question carries twenty five (25) marks

Question 3:

What are the main sources of funding to entrepreneurs? Discuss the advantage and disadvantages of each method. Critically analyse Roddicks’ funding decisions and their impact on the operation of Body Shop. In your opinin what alternative methdods of funding could Anitta and her husband use to avoid investors’ pressure. (Your answer is expected to be around 400 words)

[25 marks]

Question 4:

Discuss social and commercial entrepreneurship. In what ways are these types of entrepreneurship different. In your opinion, is Roddicks’ Body Shop a commercial or social entrepreneurship? Explain your reasons in details.

[25 marks]

Appendix A- Read this case to answer questions three and four above.

Case: The Body Shop

Anita Roddick, the founder of the globally successful retail chain The Body Shop, was one of four children of Italian immigrants who spent her childhood working in her parent's café in Littlehampton, UK. While employed by the United Nations she visited various countries and was fascinated to discover how local people in countries such as Sri Lanka used vegetables and fruits as skin care products. Upon returning to the UK she married, and with her husband, opened a restaurant. Her husband then developed a wanderlust and went off on a horse-back ride from South America to New York that would take him two years. Anita did not feel she could manage the restaurant on her own, so she decided to open a shop. Anita's eco-orientation caused her to believe that women wanted products made from natural, organic ingredients and that whilst being developed by suppliers, none of the products should be tested on animals. She opened the first Body Shop store with a bank loan of £4,000.

In the early years, although committed to her idea of eco-friendly cosmetics and skin care products, her primary business aim was survival in what was at that time, a very undercapitalised business. When Gordon Roddick's horse died he returned to assist in managing the administrative side of the business. Having proved that there was a growing demand from eco-orientated women, the Roddicks persuaded a friend to invest in their business expansion plans. Even with this injection of capital, the company lacked the financial resources to rely on opening new shops as the way to grow the business. So the decision was made to offer people the opportunity to buy a Body Shop franchise. This proved an exceptionally effective mechanism through which to build the business not just in the UK but in numerous other countries around the world.

In developing a global business, Anita placed emphasis on ensuring that The Body Shop remained loyal to her personal values of seeking to assist less-advantaged people. To fulfil this aim she travelled tirelessly, finding new sources of product in developing nations. Where necessary, The Body Shop provided financial assistance to local people in these countries to support the expanded production of ingredients and the manufacture of skin care products. Eventually the need for further capital to support business growth led the Roddicks to float the business on the UK stock market in 1984. The injection of additional cash sustained the further expansion of the business and by 1988, The Body Shop had 1,200 stores spread across the world, of which 90 per cent were franchise operations.

However, by going public, Anita Roddick was exposed to pressure from major shareholders such as pension funds to make what, in their eyes, was a more conservative, properly run, professionally managed business. These investors attempted to apply pressure for a change in business philosophy, especially during periods when sales were affected by economic downturns in key markets such as America and the UK. Anita's reaction was to remain unaffected by such demands. She continued to travel the world seeking new ways of helping people in developing nations and assisting in the creation of community support programmes for the unemployed. These activities and her decision to become a corporate member of environmental protest organisations such as Greenpeace and Friends of the Earth made the financial community extremely nervous.

By the mid-1990s it was apparent that Anita Roddick was increasingly frustrated by the constraints and criticisms of major investors, which had the potential to frustrate her desire to ensure that the core values upon which The Body Shop business philosophy had been built, remained unchanged. Although she remained involved in developing new product ideas and sources of production overseas, her level of participation in the day-to-day management of the business significantly declined. Instead she committed more of her time to social issues, such as promoting ideas concerned with the new ways of educating and developing the next generation of young managers in the UK. In 2006 she sprang one last business surprise on the world when she sold The Body Shop to the French cosmetics firm L'Oreal for £100 million. Her supporters in the environmental movement accused her of selling out to a large multi-national which was involved in animal testing and was not perceived as being environmentally responsible. Anita Roddick defended her actions, pointing out that she negotiated a deal in which L'Oreal undertook to become more environmentally aware and to cease participation in testing new products on animals. Only time, however, will tell whether these promises prove to be fulfilled.