4.2.4 Reasons for joint ventures and mergers Flashcards

1
Q

Joint venture

A
  • A joint venture is a separate business entity created by two or more parties, involving shared ownership, returns and risks
  • Two independent businesses collaborating on a specific project
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2
Q

Merger

A

-A merger is a combination of two previously separate firms which is achieved by forming a completely new firm into which two original businesses are integrated

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3
Q

Takeover

A

-When one business purchases another business

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4
Q

Outsourcing

A

-When a firm pays another business or third party to complete some its business processes

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5
Q

Horizontal growth

A

-When two businesses join together in the same industry from the same stage of production

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6
Q

Vertical growth

A

-When two businesses join in the same industry but from different stages of production

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7
Q

Diversification

A

-When two businesses join together from completely different industries

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8
Q

Reasons for JV or mergers

A
  • Spreading risk
  • Ability to enter new markets/trade blocs
  • Acquiring national and international brand names or patents
  • Securing resources/ supplies
  • Maintaining/increasing global competitiveness
  • Synergy
  • Economies of scale are shared from being a bigger business
  • Greater market share as you are joining a competitor
  • Quick method of growth as control is clear
  • Easier to raise finance jointly as a larger business
  • increased skills, market knowledge and distribution networks
  • access to established brand
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9
Q

Risks/negatives of JV and mergers

A
  • Cultural clash risks at management level – could be hostile and therefore very hard to bring existing staff on board
  • Objective of partners may evolve and conflict
  • Often imbalances level of expertise, investment, asset purchase between partners
  • JV may fail – if brands are too different and don’t integrate well
  • The acquiring company can create a competitive offer especially if the purchase company is struggling
  • reputation is at risk
  • diseconomies of scale
  • joint venture’s are time constraint
  • job insecurity
  • risk - cost
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10
Q

Reasons for joint ventures and mergers - spread risk

A

-Spreading risk over different countries
If production is based in several countries, you’ll be less affected by fluctuating economies occurring
Important for sales – the product life cycle

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11
Q

Reasons for joint ventures and mergers - Ability to enter new markets/trade blocs

A

-Ability to enter new markets/trade blocs

Locally based joint venture - Can access local expertise without any loss of control

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12
Q

Reasons for joint ventures and mergers - Acquiring national and international brand names or patents

A

Acquiring national and international brand names or patents
Can give you global credibility and make global awareness – increase market share
Pharmaceuticals and technology patents so you can extend product life cycles

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13
Q

Reasons for joint ventures and mergers -Securing resources/ supplies

A

-Securing resources/ supplies
Increase the supply chain pricing power
Access to economies of scale

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14
Q

Reasons for joint ventures and mergers - Maintaining/increasing global competitiveness

A

-Maintaining/increasing global competitiveness
Scale is important for long term survival
Small market shares will suffer a decline in profitability due to not having access to economies of scale

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15
Q

Reasons for joint ventures and mergers - Synergy

A

Synergy - realise that together they are stronger as one unit rather than standing alone - strategy for market development
Diversification of a business can give it a competitive advantage

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