Business combination | Meaning | Objectives


Prior to the Industrial Revolution, production was carried out in a small scale and the number of organizations operating in a single industry was less. The world economy was characterized by scarcity. But the industrial revolution changed the entire business landscape. Aided by mechanization, production began to be carried out in a large scale basis and many new firms were set up.

Large scale production and entry of new firms led to increased production levels. The situation of scarcity was converted into a situation of surplus. The entry of new firms led to increased competition. Many times the competition degenerated into unhealthy and wasteful competition. Firms resorted to selling their products very cheaply just to overthrow their rivals. This behavior of firms led to reduced profits and also losses. Industrialists began to understand the importance of cooperation. Business organizations, mainly joint-stock companies began to associate together by forming combinations.

Meaning of Business combination

Business combination implies the coming together of firms, under common control. The objective was to pool their production, marketing, finance and profits. Combinations are formed both nationally as well as on global levels for any of the following reasons:

  1. Fixation of prices.
  2. Regulation of output.
  3. Eliminating competition.
  4. Creating entry barriers to prevent entry of new competitors.
  5. To establish monopolies.
  6. Undertake joint research and development.
  7. Utilization of resources.

Objectives of Business Combinations

The basic objective of combinations is the sustained profitable growth of the combining enterprises. 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 combinations are:

  1. Achieving sustained growth and profits.
  2. Reduction in competition.
  3. Preventing the entry of new firms by creating entry barriers.
  4. Achieving monopoly status.
  5. Undertaking large scale production and benefiting from economies of scale.
  6. Investing in common facilities and infrastructure.
  7. Avoiding cut-throat competition and the evils associated with it.
  8. Achieving greater financial strength and stability.
  9. Investing in research and development to innovate new products.
  10. Pooling of material and manpower to ensure efficiency in operations.
  11. Sharing knowledge of best practices for mutual benefit.
  12. Maintaining stability in prices.
  13. To withstand the effects of business cycles.

Leave a Reply

This site uses Akismet to reduce spam. .

Recent Posts

Related pages

caste system in indian societyautocratic advantagesdefinition of authoritarian leadershipdisadvantages of newspaper advertisingcluster and stratified samplingwhat is abc costingwhat is the difference between fob and cifreceivables turnover ratio examplenegotiator role in managementfunctions of icici banktotal enumeration sampling definitiondefinition of consumer by philip kotlerwhat is operating cycle in accountingwto functionwho is a depository participantabsorption costing statementaccidental sampling examplestock velocity formulaconvertible preference shareabsoption costingdividend warrant definitioncoporate veilinter connected stock exchange of indiadecentralisation advantages and disadvantagescaste characteristicscompany prospectus definitiondefine dishonourgatt meaningadvantages of petty cash bookconvenience sampling definition statisticsmercantile law pptvaishyas caste systemlimitation of sovereigntycpc salarycontractee meaningdefinition impersonalratio analysis advantagesadvantages and disadvantages of merit payretailing meaning and definitioncharacteristic of perfect competitionadvantages and disadvantages of underwritingrbi and monetary policywhat does drawer mean on a chequepresentment of negotiable instrumentdays cogs in inventorywho is the maker of a promissory notefactory overheadautocratic leadership examplesdisadvantage of autocratic leadershipfeatures of perfectly competitive marketdeductive or inductiveexamples of sales promotionsexamples of capital expensesdefine gattdifference between process costing and job costingadvantages and disadvantages capitalismdupont ratiossole proprietorship definition advantages and disadvantagesaverage collection period ratio formulapayback period problemsformula paybacksampling methods advantages and disadvantagesadvantages of direct exportingdisadvantage of science essayfactor price determinationrole of international monetary fund in developing countriescash payback period calculatorself liquidating premiumsrbi monetary policycalculate quick ratio formulaprocess costing and job costingimportance of petty cash book