Podcast
Questions and Answers
Explain why a firm in an established industry, like telecoms, might choose to grow through mergers or acquisitions rather than organic growth.
Explain why a firm in an established industry, like telecoms, might choose to grow through mergers or acquisitions rather than organic growth.
In established industries with limited growth potential, merging with or acquiring firms in other markets can provide access to new customers, technologies, or geographies that would be difficult or time-consuming to achieve through organic growth.
Describe the main strategic reason why Volkswagen (VW) and General Motors (GM) entered into a joint venture with Shanghai Automotive Industry Corporation (SAIC) in China.
Describe the main strategic reason why Volkswagen (VW) and General Motors (GM) entered into a joint venture with Shanghai Automotive Industry Corporation (SAIC) in China.
VW and GM entered into a joint venture with SAIC primarily to gain access to the Chinese market. The Chinese government imposed restrictions on foreign firms entering the market, making a joint venture a necessary condition for accessing the large consumer base.
What is a potential drawback for a company like SAIC when relying heavily on joint ventures with foreign firms, according to some commentators?
What is a potential drawback for a company like SAIC when relying heavily on joint ventures with foreign firms, according to some commentators?
A potential drawback is that SAIC might not develop its own technology and capabilities as fully as it could if it were operating independently. Reliance on joint ventures can sometimes hinder the development of indigenous innovation and expertise.
How might cross-border mergers, like the proposed Orange and Bouygues merger in France, impact the competitive landscape of the telecommunications industry?
How might cross-border mergers, like the proposed Orange and Bouygues merger in France, impact the competitive landscape of the telecommunications industry?
Explain the likely strategic goal behind Tata Motors' acquisition of Jaguar Land Rover from Ford, considering Tata Motors is an Indian company.
Explain the likely strategic goal behind Tata Motors' acquisition of Jaguar Land Rover from Ford, considering Tata Motors is an Indian company.
Flashcards
Mergers and Acquisitions (M&A)
Mergers and Acquisitions (M&A)
A method for international expansion where companies combine or one company purchases another.
Joint Venture
Joint Venture
An agreement between two or more parties to pursue a common goal (often market access).
Organic Growth
Organic Growth
When a business grows by expanding its operations internally.
Trading Blocs
Trading Blocs
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Entering New Markets
Entering New Markets
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Study Notes
- Businesses can pursue international growth quickly via mergers and acquisitions, instead of growing organically.
- Tata Motors® of India purchased Jaguar Land Rover@ from the Ford Motor Company.
- Merging with or acquiring firms in other markets may be the only way for firms in established industries to grow.
- A number of cross-border mergers have been proposed in Europe in the telecoms industry where growth has been limited.
- Orange®, France's leading operator, considered buying Bouygues@ for an estimated €10 billion ($11.3 billion) starting in January 2016.
- In 2015, CK Hutchison, which runs the brand Three®, agreed to pay £10.25 billion ($15 billion) for O2®, which is owned by Telefónica of Spain.
- In Italy, another merger involving Hutchison was proposed.
- The number of operators would be reduced to just three in each of those cases.
- Firms may find it difficult to enter growing markets
- Shanghai Automotive Industry Corporation (SAIC), a Chinese auto firm, runs factories in collaboration with both Volkswagen (VW) and General Motors (GM).
- The long-standing joint venture was started solely because of restrictions imposed by the Chinese government on foreign firms entering the Chinese market.
- VW and GM had to collaborate with SAIC through a joint-venture arrangement in order to reach the billions of Chinese consumers.
- VW and GM deem the agreement a success.
- SAIC's profits are largely derived from the joint venture.
- According to some observers, SAIC would gain from further developing their own technology and capabilities.
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Description
Businesses often opt for mergers and acquisitions for rapid international growth, rather than organic expansion. Examples include Tata Motors' acquisition of Jaguar Land Rover. Cross-border mergers, like those in the European telecoms industry, are becoming a common growth strategy.
