A joint venture is a common way of combining the resources and expertise of two otherwise unrelated companies. There are many benefits to this type of partnership, but it is not without risks - arrangements of this sort can be highly complex. Show
Advantages of joint ventureOne of the most important joint venture advantages is that it can help your business grow faster, increase productivity and generate greater profits. Other benefits of joint ventures include:
Joint ventures often enable growth without having to borrow funds or look for outside investors. You may be able to:
Another benefit of a joint venture is its flexibility. For example, a joint venture can have a limited lifespan and only cover part of what you do, thus limiting the commitment for both parties and the business' exposure. Joint ventures are especially popular with businesses operating in different countries, eg within the transport and travel industries. Read about the different types of joint venture. Disadvantages of joint ventureJoint ventures can pose significant risks relating to liabilities and the potential for conflicts and disputes between partners. Problems are likely to arise if:
Partnering with another business can be complex. It takes time and effort to build the right business relationship and, even then, it can be difficult to completely avoid all the issues. Success depends on good communication, a carefully planned joint venture relationship and a clear joint venture agreement. A corporate strategy to combine with another company and operate as a single legal entity What is a Merger?A merger is a corporate strategy to combine with another company and operate as a single legal entity. The companies agreeing to mergers are typically equal in terms of size and scale of operations. Summary
Why do Mergers Happen?
Types of Merger1. Congeneric/Product extension mergerSuch mergers happen between companies operating in the same market. The merger results in the addition of a new product to the existing product line of one company. As a result of the union, companies can access a larger customer base and increase their market share. 2. Conglomerate mergerConglomerate merger is a union of companies operating in unrelated activities. The union will take place only if it increases the wealth of the shareholders. 3. Market extension mergerCompanies operating in different markets, but selling the same products, combine in order to access a larger market and larger customer base. 4. Horizontal mergerCompanies operating in markets with fewer such businesses merge to gain a larger market. A horizontal merger is a type of consolidation of companies selling similar products or services. It results in the elimination of competition; hence, economies of scale can be achieved. 5. Vertical mergerA vertical merger occurs when companies operating in the same industry, but at different levels in the supply chain, merge. Such mergers happen to increase synergies, supply chain control, and efficiency. Advantages of a Merger1. Increases market shareWhen companies merge, the new company gains a larger market share and gets ahead in the competition. 2. Reduces the cost of operationsCompanies can achieve economies of scale, such as bulk buying of raw materials, which can result in cost reductions. The investments on assets are now spread out over a larger output, which leads to technical economies. 3. Avoids replicationSome companies producing similar products may merge to avoid duplication and eliminate competition. It also results in reduced prices for the customers. 4. Expands business into new geographic areasA company seeking to expand its business in a certain geographical area may merge with another similar company operating in the same area to get the business started. 5. Prevents closure of an unprofitable businessMergers can save a company from going bankrupt and also save many jobs. Disadvantages of a Merger1. Raises prices of products or servicesA merger results in reduced competition and a larger market share. Thus, the new company can gain a monopoly and increase the prices of its products or services. 2. Creates gaps in communicationThe companies that have agreed to merge may have different cultures. It may result in a gap in communication and affect the performance of the employees. 3. Creates unemploymentIn an aggressive merger, a company may opt to eliminate the underperforming assets of the other company. It may result in employees losing their jobs. 4. Prevents economies of scaleIn cases where there is little in common between the companies, it may be difficult to gain synergies. Also, a bigger company may be unable to motivate employees and achieve the same degree of control. Thus, the new company may not be able to achieve economies of scale. More ResourcesThank you for reading CFI’s guide to Mergers. To keep advancing your career, the additional resources below will be useful:
When a firm tries to place its products and services in as many outlets as possible it is known as ?An intensive distribution strategy involves selling a product in as many outlets as possible. Selective distribution involves selling a product at select outlets in specific locations. Exclusive distribution involves selling a product through one or very few outlets.
When the manufacturer establishes two or more channels catering to the same market then occurs?Finally, multichannel conflict occurs when a manufacturer has established two or more channels that compete against each other in selling to the same market.
What is the hybrid marketing channel?Multichannel distribution system in which a single firm sets up two or more marketing channels to reach one or more customer segments. +2 -1.
What are the benefits of marketing channels?Marketing channels are an effective way of ensuring that products reach their intended customers.. Help to save more money. ... . Save time. ... . Convenience. ... . Reduced costs. ... . More customers. ... . Rapid distribution of products. ... . Increased effectiveness.. |