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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 benefits
Answer
A global merger allows companies like Pfizer to combine assets and operations across different countries, leading to various advantages. One primary benefit of Pfizer's merger with Allergan is the reduction in corporate tax rates due to Ireland's significantly lower rates compared to the United States. This could result in increased available profits for Pfizer.
Furthermore, the merger opens new markets for some of Allergan's products, thus spreading Pfizer's reach and broadening its product lifecycle management. By being located within the European Union, Pfizer could trade freely among member states without the complexities of trade restrictions, enhancing its opportunities for growth.
Step 2
Impacts on global operations
Answer
The merger also expands Pfizer's global footprint, allowing easier entry into new international markets. This will enable the company to leverage Allergan's existing infrastructure, which could facilitate a smoother integration and operation of the new business. The access to knowledge and experiences that Allergan has in cosmetic treatments could diversify Pfizer’s pharmaceutical offerings and open avenues that were previously unavailable.
Step 3
Potential challenges
Answer
Despite the advantages, there are inherent challenges associated with such mergers. Allergan is an established entity with different operational methodologies and market understanding that Pfizer may not fully grasp. Conducting comprehensive market research can incur significant costs.
Additionally, the merger may lead to human resource complications, such as redundancies or job losses, which could impact employee morale and productivity. Cultural clashes between the two organizations might arise, potentially leading to conflicting objectives that could hinder effective management and execution of marketing strategies.
Step 4
Long-term considerations
Answer
In the long term, there are significant considerations Pfizer must take into account. The focus on securing a favorable tax position through the merger may cloud the reputational risks associated with Allergan's business practices, which could affect Pfizer’s standing in the pharmaceutical industry. Moreover, understanding the dynamics of the new business structure and ensuring that economies of scale are managed properly will be crucial for sustaining profitability in the face of potential drawbacks associated with large mergers.