Reasons for global mergers or joint ventures

Question 1

Define a GLOBAL MERGER

Answer 1

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.
EXAMPLE: BA and Iberia joined to form the IAG

Question 2

Define a TAKEOVER/ACQUISITION

Answer 2

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.
EXAMPLES: Cadbury/Kraft (hostile takeover)
Heineken/Femsa Cerveza (friendly takeover).

Question 3

Define a JOINT VENTURE

Answer 3

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.
EXAMPLE: Jaguar Land Rover/ Chery.

Question 4

What are the reasons for joint ventures/global mergers?

Answer 4

• Spreads risk over different countries/regions
• Helps a business enter new markets/trading blocs
• Helps to acquire national/international brand names
• Secures resources/supplies
• Maintains or increases global competitiveness

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

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

Answer 6

A merger/joint venture is a relatively quick and potentially less risky way of entering overseas markets.
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 7

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

Answer 7

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 8

Explain how joint ventures/global mergers secure resources/supplies

Answer 8

Backward vertical integration ensures reasonable costs and reliable sourcing as the business owns the manufacturer. There is no intermediary, which reduces costs.
EXAMPLE: Starbucks and coffee farms

Question 9

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

Answer 9

It increases the scale of production 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.
Cross border mergers can help to improve tax position by moving the headquarters to a new tax location.

Question 10

Define BRAND NAMES

Answer 10

A brand name is a recognised name given to a product or range of products by the manufacturer to distinguish it from the products of competitors.

Question 11

Define PATENTS

Answer 11

Patents are a form of intellectual property that grants the holder, an individual or business, the sole right to use unique features of a new product or process.

Question 12

Define GLOBAL COMPETITIVENESS

Answer 12

Global competitiveness is the ability of a business to compete in international markets to become a leader in a given industry across the world.