4.2.4 - Reasons For Global Mergers Or Joint Ventures Flashcards
What is a Joint Venture?
• 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
A Merger defined
A merger is where two businesses come together to become one, on a permanent basis e.g. Orange and T mobile became EE
Spreading Risk and Joint Ventures
• 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
Spreading risk and mergers
• Risk can also be reduced by entering into a more long term arrangement with a merger
• Ford wanted to sell Jaguar and Land Rover
• In 2008 Tata the Indian company bought the two companies from Ford
• They wanted the brands for different markets and different countries
• The purchase gave Tata the opportunity to expand its presence in the passenger car market beyond India and gave it the clout necessary to compete with international players.
Joint-ventures and the Chinese Car Market
• Renault-Nissan alliance became the latest car group to sign a joint venture to produce electric vehicles with long time
partner Dongfeng Motor Corporation, based in Wuhan
• This is a good way for Nissan to get into the Chinese car market and to bypass the expensive import tariffs
Joint ventures in Japan
- A joint venture with another company in Japan may be an excellent opportunity for a business to grow without the complexities of making an outright purchase of another company
- For example Dow Chemical went into a Joint Venture with Ube to produce batteries in Japan
Mergers and New Markets
• The Italian firm behind Ferrero Rocher chocolates and Nutella spread has agreed to buy British chocolate retailer Thorntons for £112 million, striking a rare deal to expand in Europe’s biggest confectionery market.
• Ferrero International said it was buying Thorntons to expand its business in the UK, where the Italian firm has operated for 60 years. It
Advantages of Joint Ventures
• 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
Disadvantages of Joint Ventures
• 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
Brand Name Acquisition
• 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.
Patent Acquisitions
• 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
Joint ventures to secure resources
• 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
• The Chinese company provide technology and know-how and in return secure 10 million tonnes of copper
Maintaining global competitiveness
• 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
