Business Combination

Business combinations are combinations formed by two or more business units, with a view to achieving
certain common objective (specially elimination of competition); such combinations ranging from loosest
combination through associations to fastest combinations through complete consolidations.

L.H. Haney defines a combination as follows:

To combine is simply to become one of the parts of a whole; and a combination is merely
a union of persons, to make a whole or group for the prosecution of some common
purposes.
Objectives of business combination
There are following objectives of business combination
1) To develop mutual co-operation
2) To utilize the resources of production in the optimum ways
3) To reduce the wastages
4) To avail large economies of scale
5) To reduce competition
6) To obtain optimum return on capital
7) To avail best products at a reasonable price
8) To implement the rationalization and modernization
9) To avail the facility of large resources
Factors Encouraging Business Combinations/ Causes of the Business Combinations
There are following factors encouraging business combinations
1) Cut throat Competition: Cut throat competition is a danger for many feeble business and industrial
units. To provide security against cut throat competition the firms take such steps.
2) Technological causes: Industrial and technological causes also inspire combinations. These are
adopted to improve the product quality and to bring variety in production.
3) Trade Cycle: When the economy is moving towards progress, the establishment of many managerial
units becomes beneficial. But in situation of depression most of these get useless. So combinations
become necessity.
4)Lack of Appropriate Government Policy: When protection is not provided by the government
toescape industries from international competition. Industries make combination to increase their
competitive power.
5) Economies of Large Scale: At large scale production we get economies of large scale of purchase,use
of machines, finance facility, transport facility, improved production system etc.
6) Desire to achieve Monopoly: The desire of industrialists to achieve monopoly on extensive
marketand to hold maximum control over industrial power also encourages combinations.
7) Development as a joint stock company: In joint stock company form, due to centralization of
management and limited responsibility of shareholders, combinations have become easier.9)
8) Government Pressure: The Government may compel the weaker units to amalgamate with
thestronger units so as to improve the overall efficiency of the industry. Even the Government may
takeover the sick units and combine them of form a viable unit and introduce rationalization in it.

Benefits of Combinations:
There are following advantages of Business combinations.
1) End of Cut-Throat Competition: By combinations undue and unhealthy competition iseliminated
which removes the fear of loss from the mind of producers.