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Evaluate whether it would be better for pharmaceutical firms, such as Celgene, to become conglomerates rather than remaining narrowly focused on selling pharmaceutical products€9,24
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Unit 3 - Business behaviour and the labour market (WEC03)
Essay
Evaluate whether it would be better for pharmaceutical firms, such as Celgene, to become conglomerates rather than remaining narrowly focused on selling pharmaceutical products
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Unit 3 - Business behaviour and the labour market (WEC03)
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A 20 mark essay on whether it would be better for firms to become conglomerates rather than remaining narrowly focused on selling specific products that I got 20 out of 20 on
Unit 3 - Business behaviour and the labour market (WEC03)
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Andreas Savva 6A
Evaluate whether it would be better for pharmaceutical firms, such as Celgene, to become
conglomerates rather than remaining narrowly focused on selling pharmaceutical products.
A conglomerate merger is the joining together of two or more companies into one firm that have no
common interest and make unrelated products. It is debatable whether pharmaceutical firms, such as
Celgene, should become conglomerates.
One the one hand, becoming a conglomerate can be beneficial. One advantage of becoming a
conglomerate is that there is a reduction in the risk experienced by the firm. Since the firm now belongs
to more than one industry and makes more than one product, the firm is not dependent on the ups and
downs of one market. Each section within the firms relies on each other and creates a sense of
interdependency within the firm as there is more than just one product produced. Ultimately, this would
increase the survival rate of the merged firm. This shows that conglomerate mergers are advantageous
since Celgene would experience a higher rate of survival due to risk reduction. Secondly, another benefit
of conglomerates is the ease at which they can expand. Since the merge would lead to an increase in the
size of the firm, this gives the company more finance options to expand the business. This can be seen in
the fact that since the firm is larger, it can more easily access certain services such as getting loans as
they are more reliable now that they are bigger. Adding onto that, successful senior managers can be
transferred from company to company depending on their need. Thus, this showcases how
conglomerates are indeed beneficial due to the ease of expansion they can enjoy. A third and final
advantage is the opportunity of asset stripping. Asset stripping is the practise of buying a company
cheaply and then selling all its possessions for a quick profit. This can help a company that might be
facing financial problems and could sell the assets of another firm to resolve these issues. Examples
include the British fashion chain, BHS, that was found asset-stripping for quick profit due to the financial
collapse they were experiencing. This highlights the positive aspects of conglomerates as Celgene can
use this as an opportunity to asset-strip. Therefore, conglomerates merges have several advantages that
would benefit pharmaceutical companies in the likes of Celgene.
On the other hand, conglomerate mergers may be disadvantageous for pharmaceutical companies
such as Celgene. An initial drawback of conglomerates is expertise issues that may occur. The firm may
not be familiar to the specific industry. In this case, Celgene, a pharmaceutical company, may struggle to
manage a firm that belongs in a completely different industry such as agriculture. Such a lack of
experience and expertise within other industries could make the firm inefficient and lead to more
problems, emphasizing that conglomerates are disadvantageous and firms such as Celgene would not
benefit. Furthermore, integration costs are another negative aspect of conglomerate merges.
Companies pay high costs in order to integrate, causing the share price to fall. For example, since there
could be instability and a lack of coordination within the firm when the merge occurs, more managers
would be needed to resolve this issue until the firm is fully integrated. These additional costs would
make the share price of the firm to drop. Hence, Celegne may not benefit due to the integration costs
they might face. A final disadvantage is asset stripping. Even though asset stripping is also a benefit, it
can also be a drawback. It can benefit the firm as it provides quick profit for the firm but does not
benefit the workers as they may lose their jobs. Like in the case of BHS, thousands of jobs were put at
risk due to their asset stripping practices. This indicates that the conglomerate merger would not be a
good idea for pharmaceutical companies such as Celgene due to the negative apsects of asset stripping.
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