Business combination implies the coming together of firms, under common control. This association of business with one another is either temporary or permanent and is meant for pooling production, finance, marketing, and profit. The objective was to pool their production, marketing, finance, and profits. Firms by merging together as one unit are able to enjoy a monopoly position in the market.
Objectives of Business Combinations
Business communication refers to the combination of two or more independent businesses for attaining the same objective. The basic objective of combinations is the sustained profitable growth of the combining enterprises. It helps firms in eliminating the competition and maximizing their profit. This basic objective is realized by achieving economies of scale, reducing competition, preventing the entry of new firms, and controlling the market.
The objectives of the combinations are:
- Achieving sustained growth and profits. It helps in overcoming the capital problems.
- Reduction in competition. It helps in eliminating the tough competition among firms in the market.
- Preventing the entry of new firms by creating entry barriers.
- It leads to proper management of all business units that merged together into one unit.
- Achieving a monopoly status. Acquiring market dominance is another major objective of the business combination.
- Undertaking large scale production and benefiting from economies of scale. Small business units lack funds for growing their activities.
- Investing in common facilities and infrastructure.
- Avoiding cut-throat competition and the evils associated with it.
- Achieving greater financial strength and stability. Combination of business imparts them greater health to face a crisis.
- Investing in research and development to innovate new products. It leads to enhance the quality of products and level of production by firms.
- The pooling of material and manpower to ensure efficiency in operations.
- Sharing knowledge of best practices for mutual benefit. By joining as one unit they can easily overcome times of political and economic instability.
- Maintaining stability in prices. By combining the efforts they come up with new and advanced products in the market.
- To withstand the effects of business cycles. This brings down their cost of operations and increases their profit level.
- The Government may compel the weaker units to amalgamate with the stronger units so as to improve the overall efficiency of the industry.
A business combination is formed when two or more business undertaking units combine to carry on business together for achieving the economic benefits. It enables them in sharing knowledge and ideas with one other which helps in achieving better efficiency. This imparts greater health and stability to firms for surviving during tough business cycles.
