Theme Four - Chapter Nine - Reasons for Global Mergers or Joint Ventures

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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
    • 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
    • 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
    • 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
    • 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

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