4.2.4 Reasons for global mergers or joint ventures

Question 1

Joint venture defined

Answer 1

A joint venture is a commercial enterprise undertaken jointly by two or more parties which otherwise retain their distinct identities, this is only a temporary arrangement

Question 2

Merger defined

Answer 2

• A merger is where two businesses come together to become one, on a permanent basis e.g. Orange and T mobile became EE

Question 3

How does risk affect joint ventures

Answer 3

• Moving production or sales into another country can be very complex and risky for a single business to go it alone
• Often a business might decide to enter into a joint venture to share the risk, perhaps with a business already trading in that country – which can help them navigate the paperwork and cultural differences

Question 4

How does Spreading risk affect mergers

Answer 4

• Risk can also be reduced by entering into a more long term arrangement with a merger

Question 5

Advantages of joint ventures

Answer 5

• Access to knowledge and resources such as capital, staff and technology
• Access to new opportunities such as new markets or greater distribution reach
• Shared exposure to risks, financial responsibility and workload

Question 6

Disadvantages (risks) of joint ventures?

Answer 6

• A large number of joint ventures fail because of the many risks involved and the complexity of integrating operations and work culture of two different companies
• Coping with differing cultures, management styles, and working relationships that are in each company
• 50% of all joint ventures fail

Question 7

What is a Brand name acquisition?

Answer 7

• A business may look to merge with another business in order to acquire a lucrative brand name
• For example Ben and Jerrys sold their company to the Anglo-Dutch company Unilever in 1999.
• They loved Ben & Jerry’s but never wanted to sell it, but Unilever offered so much money that, in the end, responsibility to the shareholders won out.

Question 8

What does patent mean?

Answer 8

A government authority or license conferring, a right or title for a set period

Question 9

Patent acquisition

Answer 9

• A joint venture allows inventors to move their products to market quickly with much less financial risk
• Inventors can team up with manufacturing companies who will help them; design, build and make the prototypes necessary to help get the product to market

Question 10

How can you use a Joint ventures to secure resources

Answer 10

• A business in one country may need resources that are only found in another country and so they may enter into a joint venture to secure access to these resources
• For example Chinese Railway and electric co went into a joint venture with the Gecamines in the Congo which mine nickel, cobalt and copper

Question 11

Maintaining global competitiveness

Answer 11

• A joint venture or merger may be essential to ensure that the business remains competitive in a dynamic global market
• The local partner may be able to provide critical market data, local knowledge on the domestic market and information on customers, tastes and trends which will help the parent business to maintain competitive advantage

Question 12

Franchising

Answer 12

Establishing a long-term cooperative relationship, whereby one passing the franchiser contract with another. The franchisee to run its business. McDonald’s is well-known example of a franchise

Question 13

Intellectual property

Answer 13

A product that is a creation of the mind such as an invention, literary work or artwork that the law protects from unauthorised use by others. Types include patents , copyright and trademarks

Question 14

Licensing

Answer 14

A contract with another firm to use is intellectual property or to produce its products or service in return for a fee.

Question 15

Advantages of Franchising?

Answer 15

1.Established Brand Recognition: Franchising allows franchisees to benefit from the established brand recognition of the franchisor, giving them a competitive advantage and a head start in establishing their own customer base.

2. Proven Business Model: Franchisors typically have a well-developed business model that has been tested and refined over time. By using this model, franchisees can avoid many of the risks and pitfalls of starting a new business from scratch.

3.Support and Training: Franchisors often provide ongoing training, support, and guidance to their franchisees. This can include assistance with site selection, marketing, and operations, helping franchisees to succeed and grow their business.

Question 16

Disadvantages of Franchising

Answer 16

1.Costs: Franchising can be expensive for franchisees, as they must pay an initial franchise fee, ongoing royalty fees, and other expenses related to operating the business.

2.Limited Autonomy: Franchisees must follow the rules and guidelines set by the franchisor, limiting their ability to make independent decisions about their business.

3.Reputation Risk: The actions of one franchisee can affect the reputation of the entire franchise system. Franchisees must be careful to uphold the brand’s standards and avoid damaging the brand’s reputation through their own actions.