Theme Four - Chapter Nine - Reasons for Global Mergers or Joint Ventures
- Created by: xpoppywilliams
- Created on: 27-03-18 17:35
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- Reasons for Global Mergers or Joint Ventures
- Organic Growth
- Grows using internal resources
- Invests and expands output and sales
- Doesn't involve other businesses
- Inorganic Growth
- Businesses grow by joining with another firm
- Usually by a merger or a takeover
- Reasons to grow organically
- Increase market share
- Removes competition
- Increases profit
- Increases the companies portfolio of brand names
- Increase market share
- Businesses grow by joining with another firm
- Merger
- Involves the mutual decision of two companies to combine and become one entity
- Decision is made by two equals
- Takeover
- The purchase of a smaller company by a larger one
- May not be a mutual decision
- May be hostile - resistance between the companies
- Joint Venture
- Can be a one-off, temporary or lasting collaboration in a market or an economy
- No change of ownership
- Controlled by a legal agreement drawn up between the two businesses
- Doesn't affect the operations of either businesses elsewhere
- Benefits of a Joint Venture
- Businesses may be unfamiliar with the language or culture
- Can recruit skilled people who understand and know the market
- How can global merger or takeovers reduce risk?
- Operations in many countries spreads risk
- Downturns in one country's economy is not as serious if other markets are doing well
- Uncertainty is reduced
- Operations in many countries spreads risk
- Why is taking over a business better for entering new markets and trade blocs?
- Reduces uncertainty
- Supply chains and distribution networks are already in place
- Consumers are familiar with existing brands
- Enable to keep up with dynamic markets
- Established domestic markets may be saturated or in decline
- Access trading blocs without trade restrictions
- Patents
- Legal rights to a monopoly on a new product or process
- Holder can manufacture the product or license other businesses to produce it
- Businesses who copy the patent illegally can be challenged in the courts
- Exist to encourage innovation
- Businesses may take over other businesses which have valuable patents
- Price of the takeover deal - affected by the effort and expenses involved in the innovation process
- Legal rights to a monopoly on a new product or process
- Securing Resources and Suppliers
- Relying on other businesses for supplies that are necessary for inputs can be an issue
- Strong competition may be an issue
- Businesses may takeover their suppliers
- Ensures that they will be able to obtain resources at a reasonable cost
- Backwards Vertical Integration
- Synergy
- An added something that can be gained when two businesses join
- 2 + 2 = 5
- Performance of a combined enterprise will exceed that of previously separate parts
- An added something that can be gained when two businesses join
- Re-Structuring
- When two companies come together = duplication of resources
- Disposing of surplus resources
- Savings can be made
- Efficiency increases
- Market Share
- Mergers increase competitiveness
- Expands rapidly through mergers and takeovers
- More sales = greater revenue = increased profit
- Reduces average costs - can gain economies of scale
- Organic Growth
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