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

Factors Driving Global Mergers & 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

  • 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 insist that foreign businesses can only operate as joint ventures, 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 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