Reasons for global mergers and joint ventures (4.2.4) Flashcards
What is a global merger?
It is a permanent agreement between two businesses from two different countries to join together
What is a Joint venture?
When two businesses in different countries join together to share their knowledge, resources and skills to form a separate business entity for a limited period of time
What’s the difference between a Global Merger and a Joint Venture?
A Global Merger involves two companies combining to form a single new entity whereas a Joint Venture is a partnership where two or more companies come together to create a separate business entity.
Global Merger= Increase Market Share
Joint Venture=Share expertise, resources etcc…
What are the reasons for Mergers or Joint Ventures?
- Spreading Risk
- Entering new markets/Trade blocs
- Acquiring national/ international brand names and patents
- Securing resources/supplies
- Maintaining/increasing global competitiveness
Why is Spreading Risk a reason for a merger or a joint venture?
When businesses operate in different markets this spreads the risks associated with fluctuating economic conditions. e.g. if there is an economic downturn in one market they may still gain sales in another market that is less affected
Why is Entering new markets/trading blocs a reason for a merger or a joint venture?
Entering a new market is much easier with a merger or joint venture than using organic growth. Forming a joint venture with a local company allows joining business to gain knowledge and business of the local markets
What is a patent?
Legal right given by government to an individual or business to make, use or sell an invention and exclude others from doing so
Why is Acquiring national/international brand names/patents a reason for a merger or a joint venture?
Process of developing intellectual property can be a long and expensive process. Mergers and Ventures is a method of a business getting access to intellectual property or a business with a strong reputation
What is Intellectual Property?
Product that is a creation of the mind that the law protects from unauthorised use by others. Includes Patents, copyrights and trademarks
Why is Securing resources/supplies a reason for a merger or a joint venture?
Businesses can strategically merge or create joint ventures with another business which has access to resources e.g. land and raw materials which allows business to quickly gain access to resources which speeds up production process.
However, business has to be aware of any ethical issues concerning the resources as this can damage the reputation of the business
Why is Maintaining/increasing global competitiveness a reason for a merger or a joint venture?
Businesses can increase their global dominance by merging or joining with another business. By expanding a business can benefit from economies of scale which leads to lower costs, reduced prices, increased sales and then higher market share
What are the benefits of Global Mergers and Joint Ventures?
-Economies of scale- Gained from costs spread over larger output which can lead to increased profit margins
-Diversifying risk- Products being in several markets so if fall in sales of certain products, the business can still generate revenue from other products
-Opportunity to enter new markets- Could be otherwise closed to business
What are the drawbacks of Global Mergers and Joint Ventures?
-Initial Costs- Merging initial costs can be significantly high
-ROII-No guarantee of a Return On Initial Investment if not successful
-Diseconomies of Scale- Occur due to communication issues and lack of control as business expands
-Culture Clash- Between two businesses could affect quality of business, leading to poor sales
-Redundancies-Could occur when merging which can affect motivation of remaining workers
What are Diseconomies of Scale?
Occurs when an increase in the scale of output results in a higher cost per unit
What are redundancies?
Where a job role is no longer needed by a business and a worker is dismissed, usually with compensation
