Introduction to Business
Types of Combination The following are the four major types of business combination:
1.Vertical Combination:
Vertical combination is the combination of firms engaged in successive phases of the process of manufacture or sales under an effective control of top management.
Robinson says
“Vertical integration is the combination of firms in successive stages of the same industry.
Advantages/Objectives:
• Quality Assurance.
- Availability of raw material at cheaper rate.
- To avoid excessive production.
- Control the over production
- To reduce transportation charges.
- Elimination of wasteful competition.
- To minimize the cost per unit.
- To increase the efficiency of production.
- To avoid competition.
Disadvantages:
- Dependency on each others.
- Creation of monopoly.
- Business can’t change the line of production.
- Large investment is required due to chain of business units.
- Specialization is not possible.
- Mutual dependence of process.
Suitability:
The vertical combination is suitable and profitable where the sources of raw material are not widely scattered and output of one unit becomes the input of another.
2.Horizontal Combination:
When two or more similar nature of business units combines under one management is called Horizontal combination. It is also known as parallel combination. For example, if number of Sugar mills combined under single management it is called horizontal combination. We can explain parallel combination with the help of diagram.
Advantages/Objectives:
- To organize common advertising campaign. To achieve benefits of large scale production
- To increase the efficiency of constituent units
- To avoid competition
- To hire the service of outstanding talented persons.
- To avoid over production.
- To regulate the prices of product. To introduce the improved method of production
- To obtain economy in management and production.
- To supply the goods at possible lowest prices.
- To secure the market of the product.
- To earn maximum profit.
Disadvantages:
- Evil of monopoly.
- Reduce the quality of product.
Suitability:
This kind of business combination is normally suitable where price competition is very high, demand of product is inelastic and surplus capacity exists
Circular Combination/Mixed Combination:
When different nature of industrial and business units combine
large company one managing authority, it is called circular combination.
Advantages/Objectives:
- For better management of business.
- For saving in advertising expense.
- For better research system.
- For better credit facility.
- To increase the efficiency of business.
- To establish relation between industrial and business units.
- To achieve the economics in different sectors of production.
Diagonal Combination:
Diagonal combination takes place when two or more business units rendering subsidiary services unite under main industry Suppose if repairing Dfa Ho and distributing units are combined with textile industrial unit, it is called diagonal combination.
- To promote the efficiency of business.
- To maintain the quality of product.
- To achieve the economy in various overheads.
- To reduce the cost per unit.
