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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 impact
Answer
A global merger occurs when companies from different countries combine assets and operations. Pfizer, based in the USA, has merged with Allergan, which operates in Ireland, part of the European Union (EU). This merger can lead to reduced corporation tax obligations for Pfizer, as Ireland's tax rates are significantly lower than those in the USA, effectively increasing available profits.
Additionally, being part of the EU extends Pfizer's market reach, allowing them to trade freely within EU member states without trade restrictions. This advantageous position can enhance Pfizer’s growth opportunities and reduce costs associated with international trade.
Step 2
Market expansion and operational benefits
Answer
The merger with Allergan opens new markets for Pfizer’s products. This can lead to either increased market share by spreading risk over new customers or extending the lifecycle of established drugs. With access to new distribution channels and market insights from Allergan, Pfizer can effectively increase sales of its pharmaceutical products, particularly in the cosmetics sector that Allergan specializes in.
Step 3
Potential challenges
Answer
Despite the benefits, there are potential challenges that Pfizer faces. Allergan, being an established business, may have different operational protocols, which could result in costly duplicate processes. Employee redundancies resulting from the merger might also led to potential job losses, although this was not quantified in the merger proposal.
Cultural differences between the two organizations might lead to misaligned objectives and could conflict with marketing strategies. Additionally, focusing primarily on tax savings could harm Pfizer’s reputation in the pharmaceuticals sector, which could deter future partnerships or mergers.
Step 4
Long-term considerations
Answer
In the long run, while immediate benefits from the merger with Allergan are evident, Pfizer must carefully manage the integration process to mitigate the risks. Issues such as effective resource allocation and harmonizing corporate cultures will be crucial. Successfully leveraging Allergan's expertise could be beneficial, but Pfizer needs to ensure that the merger does not result in detrimental inefficiencies, which often accompany global mergers.