4.2.4 Reasons for global mergers and joint ventures

• A global merger is a permanent agreement between two businesses from two different countries to join together.
• A joint venture is when two businesses join together to share their knowledge, resources and skills to form a separate business entity for a limited period of time.
• Reasons for M/JV - Spreading risk


  operating in different markets - spreads risk associated with fluctuating economic conditions.

  Economic downturn in one market means they can still gain sales from another market.
• Reasons for M/JV - Entering new markets / Tradeblocs


  Quicker than entering new markets through organic growth.

  Emerging economies - governments insist foreign businesses only operate as joint ventures, as this benefits domestic businesses.

  Joint venture with local company allows the joining business to gain knowledge and business of the local markets.
• Reasons for M/JV - Acquiring national/international brand names/patents

  The process of developing intellectual property can be a long and expensive process.

  Using a merger/acquisition is a method businesses can use to get access to intellectual property or a business with a strong reputation  
• • A patent is the legal right given by the government to an individual or business to make, use or sell an invention and exclude others from doing so
• Reasons for M/JV - Securing resources


   Strategically merge or create JV with another business which has access to resources, e.g.  land and raw materials.

   Allows business to quickly gain access to resources, which helps to speed up the production process
• Securing resources

  • Businesses have to be aware of any ethical issues concerning the resources, as this can damage the reputation of the business, e.g. perhaps being unaware that the company they are joining with uses child labour
• Reasons for M/JV - Maintaining/ increasing global competitiveness


  Business increase global dominance by merging or joining with another business.

  Business benefits from EOS - leads to lower costs.

  Business can reduce prices, which increase sales, leading to higher market share.
• Benefit of Merger/ Joint Venture

  • EOS gained from costs spread over larger output can lead to increased profit margins.
  • Diversifying risk due to having products in several markets = a fall in sales of certain products, the business can still generate revenue from other products.
  • Opportunity to enter new markets
• Drawbacks of Merger / Joint Venture

  • Initial costs of merging can be significantly high.
  • No guarantee business will gain return on their initial investment if not successful.
  • Diseconomies of scale can occur due to communication issues and a lack of control as the business expands.
  • Culture clash - affect the quality of the business, leading to poor sales.
  • Redundancies - affects the motivation of remaining workers.