Business Combinations Discussed
“Business combination is a way of economic association where in a common control is exercised over many firms, which are operating either in competition or are running independently. ”
In today’s world, business combination has become a part and parcel of the contemporary industrial system. This concept is the result of the growth of capitalism. Business combination is a way of economic association where in a common control is exercised over many firms, which are operating either in competition or are running independently.Business combination is the result of combination of productive activities. The integration may be vertical, horizontal, lateral, circular or diagonal.
The horizontal business combination takes place when the unit carrying on identical business activities combine with each other with a view to eliminate the amount of competition and to drive the economies of the large scale business.
Vertical business combination takes place in those kinds of companies that are interdependent in the supply of raw materials for processing. After combination the different companies function at successive stages in the same industry. It is also called as sequence or process combination. This type of business combination takes place in the industry where a product passes through a number of processes. It is the result of integration of processes.
Circular business combination is the integration of those units, which are producing and marketing different types of goods and services and they want to have common administration. It is also known as mixed or complementary business combination. In this type of combination the industries involved are different but the management is united.
Inter-locked directorates who provide administrative integration realize this type of combination. The main cause for the growth of such combinations may be that a firm having surplus funds cannot grow in a particular line and so it may take the advantage of existing investment openings in other lines.
Lateral business combination is the combination of firms that manufacture different types of commodities but are allied in one way or the other. The main cause of the allied business combination is to make certain the regular supply of raw materials and also to make sure a standard market for the products.
Author - DeeKay
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