Sunday, 19 June 2011

Business Combination and what circumstances contribute the formation of Business Combination

Business Combination :-
It is a voluntary association of firms for the achievement of common objectives to enjoy the monopoly advantages various firms combine themselves. The combination may be formed by a written or oral agreement among the firms. Sometimes firms decide to merge themselves into one unit. The main object of the business combination is to achieve common economic welfare for its members. But it is considerd to be unlawful if any of its objective is against the public interest. Business combination may be permanent or temporary.


1. Elimination of Competition :-
Due to hard competition among the firms rate of profit decreases. Some firms may suffer a loss also. So the industrialists feels pleasure to set up combination to avoid the competition. It increases the rate of profit.

2. To Solve Capital Problem :-
Small units of production face the problem of capital shortage. These can not expand the business. So small units may form a combination to over come this problem.

3. To Achieve Economies :-
Some small units cmbine themselves to achieve the economies of large scale. They purchase the raw material on loqw prices and sell the product on large scale cost of production falls and profit increases.

4. Effective Management :-
Generally small units are unable to hire the services of experts and experiancd managers. So small industrial units combine themselves to hire the services of effective management.

5. Tariff Facilities :-
To compete with external firms some industrial units combine themselves. Government also provide protection and tarrif facilities. Government also imposes heavy duties to protect the domestic producers.

6. Uniform Policy :-
All the units adopt uniform policy due to business combination. It regularizes the business avtivities of all the units.

7. Use of Technology :-
The business combination can use the latest technology and new methods of production because its sources are sufficient. While a single unit can not do so.

8. To Face Crises :-
It is very difficult for the small industrial units to face crises in the days of inflation and deflation. So the small units combine themselves to face these problems easily.

9. Growth of Joint Stock Companies :-
The growth of joint stock companies has also made possible for various industrial units to form combination.

10. Status in Market :-
A big firm enjoys higher status and respect then the smaller. So small business units prefer to combine themselves for higher status.

11. Demand and Supply Balance :-
Business combination is very useful in controlling the over production. It adjust the supply according to the demand of the market. So over production can not take place and prices remain stable.

12. Transport and Communication Development Activities :-
It has made economic activities fast. Now there is a close contact of businessman with the others. So it has also contributed to the growth of combination.

13. Research Facilities :-
A small firm can not set up the research department, while through business combination these facilities can be enjoyed.

14. Economic Instability :-
In case of economic and political instability there is chance of loss in every moment. To reduce the risk small industrial units combine themselves.


farhat khan 11 December 2012 at 03:11  

thanx alot for such a valuable website blogspot keep it up....

farhat khan 11 December 2012 at 03:12  

thnx for such a valuable website keep it up

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