Joint Ventures and Licensing (Cambridge International IGCSE Business)

Overcoming Problems of Entering Foreign Markets

Spec point — • Benefits and limitations of methods to overcome such problems, e.g. joint ventures, licensing

• Two common strategies used by businesses to try and overcome the problems of entering new markets are global mergers and joint ventures

  • A global merger is an agreement between two businesses from two different countries to join together

  • A joint venture occurs when two businesses join together to share their knowledge, resources and skills to form a separate business entity

    • E.g., The mobile network EE is a joint venture formed by the French mobile network, Orange and the German mobile network, T-Mobile

• These strategies may be more cost effective than exporting, licensing and franchising

*Key reasons for global mergers and joint ventures *

Reasons for mergers or joint ventures

1. Spreading Risk

• Operating in more than one market helps to reduce reliance on one geographical market

2. Entering new markets

• Entering a market or trade bloc 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 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

3. 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

4. Securing supplies

• A joint venture with a supplier can ensure that scarce resources used in manufacture are more likely to be available

5. Increasing global competitiveness

• Mergers and joint ventures can give businesses access to new technologies, expertise, and economies of scale, helping them operate more efficiently
• Partnering with local or international firms can improve innovation and product quality, enabling the business to compete more effectively on a global scale

6. Evaluating mergers and joint ventures