4.2.4 Reasons for Joint Ventures and Mergers

Question 1

Joint Venture

Answer 1

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

Question 2

Rationale for joint ventures

Answer 2

1. Risks are shared.
2. Expertise and resources are shared.
3. Strategy for market development.

Question 3

Problems with joint ventures

Answer 3

1. Culture clash.
2. Objectives of each partner may evolve and conflict.
3. Imbalanced level of expertise, investment and asset purchase between partners.
   4 What happens if it fails.

Question 4

Merger

Answer 4

A combination of two previously separate firms which is achieved by forming a completely new firm into which two original businesses are integrated.

Question 5

Common reasons for Joint Ventures and Mergers

Answer 5

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