Reasoning (R) : There is evidence that internal development might be preferable to acquisition because of differences between culture and shared valued.
Evaluating Assertion (A): Acquisition vs. Startup
The assertion states that acquiring an existing firm might be strategically superior to starting a new venture in an industrial structure. This is often true because acquisitions can provide immediate market presence, established customer bases, operational infrastructure, and experienced personnel, thereby reducing the risks and time associated with organic growth.
Therefore, Assertion (A) is considered correct.
Evaluating Reasoning (R): Internal Development Factors
The reasoning suggests that internal development could be preferable to acquisition due to potential cultural clashes and differing shared values between the acquiring and target firms. Integrating distinct organizational cultures can be complex and may hinder the success of an acquisition. Prioritizing internal development helps maintain a consistent culture.
Therefore, Reasoning (R) is also considered correct as a valid strategic consideration.
Assessing the Explanation
Assertion (A) posits a potential advantage of acquisition over starting up. Reasoning (R), however, highlights a significant challenge of acquisition (cultural incompatibility) and suggests internal development as a potentially preferable alternative. Instead of explaining *why* acquisition might be better (as stated in A), Reasoning (R) provides a reason *against* acquisition and supports an alternative strategy.
Consequently, while both statements are individually correct within the context of business strategy, Reasoning (R) does not serve as a correct explanation for Assertion (A).
Conclusion
Both Assertion (A) and Reasoning (R) are factually correct statements regarding business strategy. However, Reasoning (R) presents arguments that favour internal development and highlight potential downsides of acquisition, rather than explaining the benefits mentioned in Assertion (A).
Thus, the correct option is that both are correct, but (R) is not the correct explanation of (A).
Important Questions from Mergers and ACquisitions - Teaching
- It is an act of acquiring effective control by one company over assets or management of another company without any combination of companies ?
- Which of the following is not the advantage of merger ?
Which of the following is a pre-offer takeover defence employed by target companies in hostile takeovers?
Match each transaction type in List I with its specific hypothetical description in List II:
List I: Transaction type List II: Description (a) Merger into a single surviving company (i) The buyer purchases specified business assets, but no shares in the seller. (b) Asset-only acquisition (ii) With the target board’s support, the buyer acquires voting control through a share purchase; the target remains a separate company. (c) Friendly controlling-share acquisition (iii) Two companies combine legally into one surviving company, rather than remaining separate companies linked only by share ownership. (d) Hostile takeover bid (iv) A bidder pursues an offer for voting control directly to shareholders despite opposition from the target board. Choose the correct option:
Match each multinational-company staffing policy in List I with the approach in List II.
List I: Staffing policy List II: Approach A. Key overseas subsidiary positions are filled by nationals of the parent company’s home country. I. Polycentric B. Host-country nationals manage each foreign subsidiary, while parent-country nationals hold key headquarters positions. II. Geocentric C. The best-qualified candidates are selected for key positions worldwide, regardless of nationality. III. Regiocentric D. Managers may move between countries within a designated geographical region, but the staffing pool and transfers remain regionally bounded. IV. Ethnocentric Choose the correct matching from the options below:
