4.2.4 - Reasons for Global Mergers and Joint Ventures

Question 1

What is a global merger?

Answer 1

Agreement between two businesses from two different countries to join together

Question 2

What is a joint venture?

Answer 2

When two businesses join together to share their knowledge, resources and skills to form a separate business entity (project)

Question 3

Key reasons for mergers or joint ventures?

Answer 3

1. Spreading risk
2. Entering new markets/trade blocs
3. Acquiring national/international brand names and patents
4. Securing resources and supplies
5. Maintaining/Increasing global competitiveness

Question 4

What is a patent?

Answer 4

Legal right given by the government to an individual or business to make, use
or sell an invention and exclude others from doing so

Question 5

Advantages of global mergers

Answer 5

• Economies of scale
• Spreading of risk means profit is maintained even with products not performing well
• Reduction in competition means more market power for prices etc
• New skills which can cause innovation etc

Question 6

Advantages of joint ventures

Answer 6

• Access to expertise without the need for more staff
• Using existing technologies or patents of other countries
• Presence in new markets

Question 7

Drawbacks of mergers

Answer 7

• Cost of buying business
• Dis economies of scale
• Culture clash
• Redundancy can affect motivation

Question 8

Drawbacks of joint ventures

Answer 8

• Unrealistic objectives may not be clear or aligned
• Culture clashes
• May be poor tactical decisions