the role of mergers & acquisitions 3.3.5 HARRIET BENNETT
- Created by: Harriet
- Created on: 10-04-15 09:21
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- the role of mergers & acquisitions (inorganic growth) 3.3.5
- Ways of diversifying
- Investing in a distribution system in the target market, possibly by setting up retail outlets
- Setting up production in the target market, building factories or collaborating in a joint venture
- Expansion by mergers & takeovers that will build up a portfolio of businesses. they may be similar or different from the parent company
- Integration
- Horizontal integration means buying or merging with competitors to achieve a larger market share.
- Vertical integration means a business may buy one of its suppliers or a distribution network. a fully integrated business would take care of all aspects of production from sourcing raw materials to selling to final customers
- Business expansion
- entering new markets
- entering new markets can be difficult & have many problems. so taking over an existing business reduces uncertainty (horizontal integration)
- Supply chains & distribution networks are already in place (vertical integration)
- Consumers are familiar with existing brands
- This all saves times & expense
- increased turnover & profitability
- For most global industries the driving force is profit
- increased market share means more sales, greater revenue & hopefully more profit
- some businesses may have difficulty in keeping pace with global competition. they may merge with (or be taken over by) others that are successful
- expansion in a new market can be a defensive measure in order to increase or maintain competitive-ness
- economies of scale
- falling average costs can lead to reduced prices & a competitive advantage or higher profits
- these can be re-invested for more growth, which can be important in competitive global markets
- when 2 companies come together, there is often duplication of resources. they may no longer need 2 head offices or 2 distribution depots & these can be rationalised
- by disposing of surplus resources savings can be made
- synergy
- synergy can be gained when 2 businesses join together
- Combining forces can produce a better product or business
- entering new markets
- Reducing risk
- balancing investments across a range of countries
- when a business wants to diversify into new markets, the simplest way may be to acquire businesses that are already established in the target markets
- Growth in an emerging market van balance a decline in a mature or saturated market
- investments across a range of different countries can spread risk
- inorganic growth helps to increase the product range without having to develop new products
- acquiring brand names & patents
- brands can be very important for a global company
- they already have loyal customers & market presence
- new patents & processes can be acquired which can be transferred into existing products
- balancing investments across a range of countries
- Ways of diversifying
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