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CA Intermediate · Financial Management and Strategic Management · Strategic Choices

Mehra Pharma, a Hyderabad firm, plans to grow in the generic medicines market. Its management is weighing a joint venture with a Japanese firm against buying a Japanese firm outright. The management's key concerns are: share financial and technical risk, access local knowledge quickly, but accept shared control and profits. Which choice best matches these priorities, and why?

A joint venture fits best. It lets Mehra Pharma share financial and technical risk and tap the partner's local knowledge, while accepting shared control and profits. Acquisition would give full control but place all the risk and cost on the buyer.

  1. AJoint venture, since risk and resources are shared at the cost of full controlCorrect
  2. BAcquisition, since it gives full control and shares risk with the seller
  3. CDivestment, since it frees resources by selling a unit
  4. DRetrenchment, since it reduces operations to cut costs

Explanation

The stated priorities of sharing risk and gaining local knowledge while accepting shared control describe a joint venture. An acquisition gives full control but the buyer bears all the risk and cost. Divestment and retrenchment are shrinking strategies, not growth entry modes.

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