4.2.4 - Reasons for global mergers or joint ventures

Question 1

What is a joint venture

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
• In other words two business come together to collaborate on one project, but will still remain separate businesses

Question 2

What is a merger

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

What is spreading risk and 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

What is spreading risk and mergers

Answer 4

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

Question 5

What are the 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

What are the disadvantages 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 brand name acquisition

Answer 7

• A business may look to merge with another business in order to acquire a lucrative brand name

Question 8

What is patent acquisition

Answer 8

• 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
• The joint venture could be with an overseas manufacturer who will make the product for a reduced price in exchange for overseas marketing rights ARTICLE

Question 9

What is a joint venture when securing resources

Answer 9

• 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

Question 10

How can a joint venture or merger be used for gaining global competitiveness

Answer 10

• 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