Mergers and joint ventures

Question 1

Merger

Answer 1

2 or more companies from different countries combined operations under a new name

Question 2

Joint venture

Answer 2

2 or more firms collaborate in a specific market, over a specific time frame

Question 3

Difference between merger and joint ventures

Answer 3

Mergers: a new firm is created, existing businesses merge. existing businesses are no longer operating
JV: firms acquire a split of another business, while still operating as the original business

Question 4

Reasons for mergers & JV

Answer 4

-Spread risk over different countries
-Acquire international brand names
-Increasing global competitiveness
-Enter new markets/trading blocs

Question 5

Benefits of mergers & JV

Answer 5

> Economies of scale-cost spread over more output, increase profit margins
Diversifying risk-having products in several markets
Enter new markets

Question 6

Disadvantages of mergers & JV

Answer 6

> High initial cost of merging
No guarantee of gaining a return on investment, if unsuccessful
Diseconomies of scale-communication issues, lack of control
Culture clash between businesses-affecting quality
Redundacies occur, decrease motivation