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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 involves combining assets and operations of companies from different countries. In this case, Pfizer is based in the USA and Allergan is based in Ireland, which is part of the European Union (EU). This merger could help Pfizer reduce its corporation tax bill, as Ireland's rates are significantly lower than those in the United States, thereby increasing available profits.
Furthermore, being located in the EU enables Pfizer to access new markets, spreading its product reach and potentially extending the life cycles of established drugs. Once the new business is within the EU, Pfizer can trade freely among member states, enhancing its growth prospects.
Step 2
Market Expansion and Opportunities
Answer
The merger would allow Pfizer to tap into new international markets, leveraging Allergan's existing infrastructure and support systems. Additionally, acquisitions like this can significantly enhance Pfizer's global competitiveness by integrating Allergan's product lines and knowledge. This could lead to greater innovation and improvement in pharmaceutical solutions.
Step 3
Potential Challenges and Risks
Answer
However, challenges also accompany the merger. Allergan is an established business in a different market, and Pfizer may face hurdles in fully understanding Allergan’s operational dynamics. The merger could result in high costs related to market research and potential redundancies, as it was unclear how many jobs would be lost post-merger.
Cultural differences between Pfizer and Allergan might also create management conflicts, affecting operational efficiency. Also, the focus on lowering tax liabilities could detract from the reputation of Pfizer and impact the future sales of pharmaceutical products.
Step 4
Judgment on Long-term Effects
Answer
In the short term, the merger may provide immediate benefits such as reduced corporation tax rates and access to new EU markets. However, if integration is not managed effectively, Pfizer might encounter difficulties that could hinder the benefits of the merger. The success will ultimately depend on the ability to leverage combined resources while managing the complexities and potential dis-economies of scale that can occur in global mergers.