Global mergers joint ventures

Question 1

Define a TAKEOVER/ACQUISITION

Answer 1

A takeover occurs when one business gains control of another and becomes the owner, which can be achieved by buying 51% or more of the shares.

Question 2

Explain how joint ventures/global mergers help to maintain/increase global competitiveness

Answer 2

It increases the scale of production (economies of scale) and therefore reduces unit costs. The business can then lower their price to gain a competitive advantage and market share.
Important where the threat of entrants are high or where customer are price sensitive.

Removes partner firm from market

Gives firm access to new tech, skilled labour - leads to increased innovation - increase comp

Question 3

Explain how joint ventures/global mergers help with acquiring national/international brand names

Answer 3

Taking over a variety of brand names allows a business to market its products in many different countries and a global brand essentially removes the need for local variation.
A business taking control of lots of patents will be able to produce in low cost locations but charge high prices due to global monopoly power.

Question 4

Explain how joint ventures/global mergers may help businesses enter new markets

Answer 4

A merger/joint venture is a relatively quick and potentially less risky way of entering overseas markets. (partner could have local market knowledge)
This is also true for businesses entering new trading blocs.
A joint venture is a good way for businesses to target markets where knowledge of the local area is key for success.

Question 5

Explain how joint ventures/global mergers may spread risk

Answer 5

All countries will be at different stages of the business cycle - one country may be in recession but another may be experiencing economic growth which counters this.

Question 6

What are the reasons for joint ventures/global mergers?

Answer 6

• Spreads risk over different countries/regions (if one country fails there is still a revenue stream from other countries)
• Helps a business enter new markets/trading blocs
• Helps to acquire national/international brand names
• Secures resources/supplies
• Maintains or increases global competitiveness

Question 7

Define a JOINT VENTURE

Answer 7

A joint venture is a business arrangement in which two or more parties agree to pool their resources for the purposes of accomplishing a specific task.

Question 8

Define a GLOBAL MERGER

Answer 8

A global merger occurs when two businesses agree to join together under one management beyond the boundaries of one specific country. The management may include individuals from both companies.

Question 9

Inorganic growth cons

Answer 9

Pros:

Cons: 1) Businesses involved may have different objectives - lead to clashes in important issues and inefficiency - can result in diseconomies of scale

2) Causes duplicate roles - staff made redundant - adds redundancy costs - reduce profitability
3) Lead to overtrading - lead to diseconomies of scale - higher cost per unit - decreased profit