Reasons for Global Mergers & Joint Ventures (Edexcel A Level Business)

• 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
  • E.g. The mobile network EE is a joint venture formed by the French mobile network, Orange and the German mobile network, T-Mobile
     
• Businesses may choose these methods of reaching a new market as they may be more cost effective than exporting, licensing and franchising
   

Key reasons for global mergers and joint ventures 

Spreading Risk 

• Businesses operating in different markets spreads the risks associated with fluctuating economic conditions 
  
  • If there is an economic downturn in one market, they may still gain sales in another market that is less affected
     

Entering new markets/trading blocs

• Entering a market using a merger/joint venture is a quicker method than using organic growth
  
• In emerging economies, many governments inisist that foreign businesses can only operate as a joint venture as this can benefit domestic businesses 
  
• Forming a joint venture with a local company allows the joining business to gain knowledge and business 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
  
• 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  
    
    

Securing resources/supplies 

• Businesses can strategically merge or create a joint ventures with another business which has access to resources e.g  land and raw materials
  
  • This allows business to quickly gain access to resources which helps to speed up the production process
    
• 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
  
  

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
  • Businesses can reduce prices which can increase sales, leading to a higher market share

The Benefits and Drawbacks of Global Mergers & Joint Ventures

Benefits	Drawbacks
Economies of scale gained from costs spread over larger output can lead to increased profit margins	The initial costs of merging can be significantly high There is no guarantee a business will gain a return on their initial investment if it is not successful
Diversifying risk due to having products in several markets so if there is a fall in sales of certain products, the business can still generate revenue from other products	Diseconomies of scale can occur due to communication issues and a lack of control as the business expands
Opportunity to enter new markets which otherwise may be closed to the business	A culture clash between the two businesses can affect the quality of the business, leading to poor sales
	When two businesses join together, redundancies can occur This is likely to affect the morale of the remaining workers