Theme 4 - 4.2.4 - Reasons For Global Mergers Or Joint Ventures Flashcards
What is a joint venture ?
A joint ventures is a commercial enterprise undertaken jointly by tow or more parties which otherwise retain their distinct identities, this is only a temporary arrangement
In other words two business come together to collaborate on one project, but will still remain separate businesses
What is a Merger ?
A Merger is where two businesses come together to become one, on a permanent basis e.g. Orange and T mobile became EE
Why might a company decide to do a joint venture ?
Moving production or sales into another country can be very complex and risky for a single business to go alone therefore a often a business might decide to enter a 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
How else can risk be reduced if moving production or sales into another country ?
Risk can also be reduced by entering a more long term arrangement with a merger
So for example if you merge horizontally - meaning that you merge with a company from another sector - then you would have a wider portfolio and this means that you have a smaller risk because if you have one product that fails then this doesn’t mean that all the other products will fail because you have a wide portfolio
How do joint ventures help with bypassing expensive tariffs ?
Nissan and Renault did a joint venture to produce electric vehicles and this is a good way for Nissan to get into the Chinese car market and top bypass the expensive import tariffs
How can a takeover help with expanding into a new market ?
Because if you want to expand into the English market for example and you operate in Africa - you can takeover the company in England and this would allow you to obviously operate in that market
What are the advantages and disadvantages of Joint ventures ?
Advantages:
• 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
Disadvantages:
• 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
Why would merging be good for acquiring national brand acquisitions ?
A business may look to merge with another business in order to aquire a lucrative brand name
An example of this is Disney and Pixar merging as both of their brands produce very similar content and it became one of the most successful mergers of all time
Whats the point of doing a joint venture with a company that has a patent ?
Because if you join venture a company that has a patent on like a badge and this badge is selling very well then you can also sell this product and make a lot of money with them as no one else can produce this product as its patented.
Whats the point of doing a joint venture 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
Why might a joint venture or a merger help to maintain/ increase 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
