Reasons for global mergers or joint ventures

• Global merger

  permanent agreement between two businesses from two different countries to join together
• Joint venture

  when two businesses join together to share their knowledge, resources and skills to form a separate business entity for a limited period of time
• why they use these two methods to reach new market

  more cost effective than exporting, licensing and franchising
• Reasons

  spreading risk

  entering new markets/ trade blocs

  acquiring national/ international brand names/ patents

  securing resources/ supplies

  maintaining/ increasing global competitiveness
• Spreading risk

  operating in lots of different markets spreads the risks associated with fluctuating economic conditions

  if economic failure/downturn in one of the markets business will still gain sales in other markets that aren't affected
• Entering new markets/trading blocs

  entering a market by using either of these is quicker than using organic growth

  emerging economies insist foreign businesses operate as joint ventures because it benefits their domestic businesses

  also then allows the business to gain knowledge of the local markets
• Acquiring national/international brand names/patents

  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
• Securing resources/ supplies

  businesses can strategically merge or create joint ventures with businesses that have access to resources ie raw materials

  allows quick access to resources so sped up production process

  businesses have to be aware of ethical issues concerning the resources to avoid possible damaging reputation
• Maintaining/increasing global competitiveness

  businesses can increase their global dominance by merging or joining with another business

  by expanding a business can benefit from economies of scale which leads to lower costs

  they can reduce prices which can increase sales, leading to higher market share
• Benefits of global mergers and joint ventures

  economies of scale gained from costs spread over larger output can lead to increased profit margins

  diversify risks due to having products in several markets so if fall in some products business can still gain revenue from others

  opportunity to enter new markets may be the only opportunity given
• Drawbacks of global mergers and joint revenues

  initial costs of merging can be significantly high

  no guarantee business will gain a return on initial investment if it is not successful

  diseconomies of scale can occur due to communication issues and lack of control as the business expands

  culture clash between the two can affect the quality of the business leading to poor sales

  when join redundancies can occur which can affect motivation of remaining workers