Chapter 74- Reasons for Global Mergers and Joint Ventures Flashcards
Joint venture
Is a separate business entity created by two or more parties, involving shared ownership, returns and risks. E.g. Google and GSK to develop bioelectronics medicines (pooled resources and expertise to enable innovation and leadership in an emerging global market opportunity) or Jaguar Land Rover enable them to make cars in China for the first time (overcoming protectionism).
Benefits/Disadvantages of a Joint Venture
A:
•JV partners benefit from each other’s expertise and resources (e.g. market knowledge, customer base, distribution channels, R&D).
- Each JV partner might have the option to acquire in the future the JV business based on agreed terms if it proves successful.
- Reduces the risk of growth strategy – particularly if it involves entering a new market or diversification.
D:
•Takes time and effort to build right relationship and partnership
Reasons why businesses join together:
- Licensing – a contract with another firm to use its intellectual property or to produce its product or service in return for a fee.
- Franchising – establishing a long-term co-operative relationship whereby one party, the franchisor, contracts with another, the franchisee to run its business e.g. McDonalds.
- Spreading risk over different countries or regions, Spread risk so economic downturn may happen at different times or spread to where it is unlikely to occur. E.g. Pingo Doce diversified into Poland successfully.
Benefits of merger, takeover or JV:
• Strong brand recognition
• Brand loyalty
• Limits competition for product
• Business will not face high risk, cost and uncertainty of
launching new product
• Gaining access to intellectual property
Intellectual property
A product that is a creation of the mind, such as an invention, literary work or artwork, which the law protects from unauthorised use by others. Types include patents, copyrights and trademarks.
