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ACCA Strategic Professional · Advanced Financial Management · Acquisitions and mergers versus other growth strategies

A manufacturer wants to enter a foreign market where it lacks local knowledge, and the host government requires local ownership participation. It wants to limit capital outlay and share risk, but retain control over its technology through a separate entity. Which growth strategy best fits?

An equity joint venture with a local partner fits best. It creates a separate jointly owned entity, shares capital and risk, supplies local knowledge, meets local ownership rules and lets technology be ring-fenced, which acquisition, wholly owned greenfield or a loose alliance would not achieve together.

  1. AEquity joint venture with a local partnerCorrect
  2. BFull acquisition of a local competitor
  3. COrganic greenfield development wholly owned
  4. DLoose strategic alliance with no shared entity or equity

Explanation

An equity joint venture creates a separate entity jointly owned with a local partner, sharing cost, risk and local knowledge and satisfying local ownership rules. Full acquisition and wholly owned greenfield require higher capital and breach the local ownership requirement. A loose alliance gives no separate entity through which technology can be ring-fenced.

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