Define the term 'merger' and Explain why average costs of

Exam practice question

TALE OF TWO INDUSTRIES

The size of the average Indian steel plant compared to the size of the average Indian retail shop could not be more different.

Steel plants employ thousands of workers, have millions of dollars of capital invested in advanced equipment and produce annual output valued in the millions too. Tata, one of the largest steel makers in the world, has recently grown and become a truly multinational company by taking over European steel giant Corus and UK caretakers Jaguar and Land Rover. It has been able to do this because of easier capital flows, which are a sign of increased globalisation.

Contrast this company with typical Indian retail outlets. The small shopkeepers and street hawkers that presently account for over 95% of Indian retail sales often employ just a few workers with little investment in modern technology. But all this could be about to change. There is a growing trend of mergers and takeovers in the retail sector. Large retail groups, such as Reliance and Waimea, are becoming established. It is claimed that the market share of this organised sector will be 25% by 2015. A pressure group of small retailers, the National Movement for Retail Democracy, is organising demonstrations to demand that big corporations leave the retail industry.

1. Define the term 'merger'.

2. Explain why average costs of production might fall as a business increases its scale of operations.

3. Analyse one potential benefit and one potential drawback to consumers of steel, such as caretakers, from a takeover of Corus by Tata.

4. Evaluate whether Indian consumers would benefit from more shops owned by large retail corporations.


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