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Assess the likely impact on a business such as Pfizer, of a global merger with a business such as Allergan. - Edexcel - A-Level Business - Question 2 - 2017 - Paper 1
Question 2
Assess the likely impact on a business such as Pfizer, of a global merger with a business such as Allergan.
Worked Solution & Example Answer:Assess the likely impact on a business such as Pfizer, of a global merger with a business such as Allergan. - Edexcel - A-Level Business - Question 2 - 2017 - Paper 1
Step 1
Global merger implications
Answer
A global merger occurs when companies from different countries combine assets and operations. In this case, Pfizer, based in the USA, initiated a merger with Allergan, which is based in Ireland, a member of the European Union (EU). This merger can have several implications for Pfizer's operations and strategy.
One significant reason for the merger is to take advantage of lower corporation tax rates in Ireland compared to those in the USA. This can lead to increased available profits for Pfizer, as taxes form a considerable cost in business operations.
Moreover, the merger can grant Pfizer access to approximately 70 new markets for some of its products, helping to expand its reach and spread risk over new markets or extend existing product life cycles.
Step 2
Market advantages within the EU
Answer
By establishing its business operations in Ireland, Pfizer will benefit from the EU’s single market framework. This allows for free trade among member states, which would enhance the company's ability to capitalize on trade opportunities without the constraints typically present when dealing with countries outside of the EU. This setup could mitigate the potential losses Pfizer might experience if it remained solely in the USA.
Step 3
Global market dynamics
Answer
The merger potentially strengthens Pfizer's global competitiveness. The brand recognition and resource sharing with Allergan might help Pfizer tap into international markets more easily, particularly by leveraging Allergan's expertise in areas such as cosmetic products. This could diversify Pfizer's offerings beyond pharmaceuticals.
However, there is a risk that merging these distinct business cultures could create internal conflict, affecting operational effectiveness and marketing strategies.
Step 4
Counterbalance considerations
Answer
Despite the benefits, potential counterbalances need to be considered. Allergan is an established business with its own workforce and organizational culture. This can lead to issues such as job redundancies, as it is unclear how many jobs will be lost due to the merger. The complexities of aligning corporate strategies and goals could also pose challenges.
Additionally, should Pfizer's reputation suffer as a result of the merger, this could have long-term impacts on its brand and market position. In particular, if the focus shifts to securing a low tax bill rather than maintaining high-quality pharmaceutical standards, the company could face backlash that could overshadow the immediate financial benefits of the merger.
Step 5
Long-term implications and final thoughts
Answer
In conclusion, while a merger between Pfizer and Allergan may offer short-term benefits such as access to reduced corporation tax and expanded markets, it carries inherent risks including cultural clashes, potential job losses, and the need for strategic integration. Long-term success will depend on effective management of the new business dynamics and maintaining the integrity and reputation of Pfizer's core pharmaceutical business.