Reasons for global mergers or joint ventures Flashcards
Define the term joint venture.
A joint venture is a commercial enterprise undertaken jointly by two or more parties which otherwise retain their distinct identities, this is only a temporary arrangement.
Define the term merger.
A merger is where two businesses come together to become one, on a permanent basis
Explain spreading risk and joint ventures.
Moving production or sales into another country can be very complex and risky for a single business to go it alone
Often a business might decide to enter into a joint venture to share the risk, perhaps with a business already trading in that country – which can help them navigate the paperwork and cultural differences
Explain spreading risk and mergers.
Risk can also be reduced by entering into a more long term arrangement with a merger
Ford wanted to sell Jaguar and Land Rover
In 2008 Tata the Indian company bought the two companies from Ford
They wanted the brands for different markets and different countries
The purchase gave Tata the opportunity to expand its presence in the passenger car market beyond India and gave it the clout necessary to compete with international players.
Explain entering new markets / trading blocs.
A joint venture can help a company get into a new market and bypass expensive import tariffs imposed by trading blocs. It may also be a good opportunity to grow without the complexities of making an outright purchase of another company.
Explain mergers and new markets.
A merger can allow companies to expand business into new markets and avoid rising corporation taxes by manufacturing in said country.
What are the advantages of joint ventures?
Access to knowledge and resources such as capital, staff and technology
Access to new opportunities such as new markets or greater distribution reach
Shared exposure to risks, financial responsibility and workload
What are the disadvantages of joint ventures?
A large number of joint ventures fail because of the many risks involved and the complexity of integrating operations and work culture of two different companies
Coping with differing cultures, management styles, and working relationships that are in each company
50% of all joint ventures fail
Explain brand name acquisition.
A business may look to merge with another business in order to acquire a lucrative brand name.
For example Ben and Jerrys sold their company to the Anglo-Dutch company Unilever in 1999.
Explain patent acquisition.
A joint venture allows inventors to move their products to market quickly with much less financial risk
Inventors can team up with manufacturing companies who will help them; design, build and make the prototypes necessary to help get the product to market
The joint venture could be with an overseas manufacturer who will make the product for a reduced price in exchange for overseas marketing rights
Explain using joint ventures to secure resources.
A business in one country may need resources that are only found in another country and so they may enter into a joint venture to secure access to these resources
For example Chinese Railway and electric co went into a joint venture with the Gecamines in the Congo which mine nickel, cobalt and copper
The Chinese company provide technology and know-how and in return secure 10 million tonnes of copper
Explain maintaining global competitiveness.
A joint venture or merger may be essential to ensure that the business remains competitive in a dynamic global market
The local partner may be able to provide critical market data, local knowledge on the domestic market and information on customers, tastes and trends which will help the parent business to maintain competitive advantage
