reasons for global mergers or joint ventures 2

Question 1

spread risk over different countries

Answer 1

• Costs are shared
• expertise is shared to reduce the risk of failure
• Growth is rapid (inorganic), key in developing markets

Question 2

entering new markets/trade blocs

Answer 2

Options:
- Organic – grow yourself, slow
- Inorganic – buy a rival, fast but expensive
- Joint venture – work alongside a local business

• China – won’t allow foreign takeovers of Chinese business so joint venture the only option
• Gain knowledge and experience of local partner by entering into a joint venture
• Production is already set up, access to materials already established
• Avoids tariffs / initial expensive R&D if the product is beyond the existing portfolio

Question 3

acquiring national/international brand names and patents

Answer 3

• Provides instant market share
• Strength of brand makes accessing new markets easier
• Acquiring patents give access to technology without having to develop it
• Useful strategy if your cash cow is about to become a dog (find a new Star)

Question 4

securing resources/supplies

Answer 4

• Such as land and raw materials
• E.g. Chinese businesses buying into African economies to secure iron ore, copper etc.
• A backwards vertical process
• Beneficial if suppliers have been acting unethically, i.e. child labour, environmental issues
• You now control this process
• Ensures protection of brand name

Question 5

maintaining/increasing global competitiveness

Answer 5

• Competitiveness - the ability to compete with other businesses
• Dynamic markets – stand still and get overtaken
• Mergers/JVs can keep businesses ahead of the competition – size is key to gaining economies of scale
• Can reduce competition in the market rapidly