Introduction to business - external growth

Question 1

what is a joint venture?

Answer 1

involves two or more businesses pooling their resources and expertise to achieve a particular goal
risks and rewards are shared

Question 2

what are the benefits of a joint venture?

Answer 2

• partners benefit from each other’s expertise and resources (market knowledge, customer base, distribution channels, R+D expertise)
• each partner might have the option to acquire, in the future, the JV business based on agreed terms if proved successful
• reduces the risk of a growth strategy - particularly if it involves entering a new market/diversification

Question 3

define synergy

Answer 3

the concept that the combined value and performance of two companies will be greater than the sum of the separate individual parts

Question 4

what is a strategic alliance?

Answer 4

• an arrangement between 2 companies that have decided to share resources to undertake a specific, mutually beneficial project

Question 5

what are the reasons behind a joint venture?

Answer 5

• business expansion
• development of new products
• moving into new markets (particularly overseas)

Question 6

what are the disadvantages of a joint venture?

Answer 6

• risk of a clash of organisational cultures
• the objectives of each JV partner may change, which could lead to conflict
• could turn out to be an imbalance in levels of expertise, investment or assets brought into the venture by partners

Question 7

what is the difference between a joint venture and a strategic alliance?

Answer 7

Strategic alliances are less involved and less permanent than a joint venture
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