4.2.4 Reasons for global mergers or joint ventures

Question 1

What are the methods of organic growth?

Answer 1

franchise, new stores, product development (innovation). market development, e-commerce, recruitment

Question 2

What are the methods of inorganic growth?

Answer 2

mergers (board of directors from both companies), takeovers and acquisitions

Question 3

What are acquisitions?

Answer 3

acquisitions are a form of inorganic growth can be when firms purchase rights to IP/brands, subsidiaries, property or CELL factors (Capital, enterprise, land, labour)

Question 4

What is a joint venture?

Answer 4

a separate business entity created by two or more parties, involving shared ownership and risks and rewards.

Question 5

Why do joint ventures have less risk?

Answer 5

since business joining together will have less risk of failure due to cost and revenue synergies.

Question 6

What is the rationale behind a global joint venture?

Answer 6

• Risks and returns are shared providing expertise and resources
• a possible method of future growth with options to fully acquire
• strategy for market development due to stagnant domestic growth

Question 7

What is an example of a joint venture?

Answer 7

Jaguar land rover and Cherry
- allowed JLR to access China as a market
- rising middle classes
- increased demand for inelastic luxury goods
- widens product portfolio
(Caused by a push factor (Saturated domestic market))

Question 8

What are some challenges for joint ventures?

Answer 8

• varying motives = conflicts over objectives and strategies
• risk of takeover
• diseconomies of scale (coordination/communication)
• clashing cultures resulting in toxic cultures and internal politics
• issues about maintaining control over resources
• failure resulting in sunk costs and negative PR

Question 9

What are sunk costs?

Answer 9

costs that have been incurred because of past actions resulting which cannot be recovered.

Question 10

What the benefits of global mergers and takeovers?

Answer 10

+ greater knowledge and market experience
+ being able to utilise established distribution channels
+ increased market share
+ easier to raise finance
+ less risk
- clashes of culture
- DEOS
- clashing brands
- job duplication resulting in structural unemployment

Question 11

How do business know which people to hire after a merger/takeover when there is job duplication?

Answer 11

Businesses can re-interview or make staff re-apply for a job if it is being contested for.

Question 12

What is the rationale behind global mergers?

Answer 12

• spread risk
• enter a new market as a form of market development or diversification
• acquiring international brands
• securing resources and finance
• maintaining global competitiveness
• response to push factors.