Forms of Business

Combination

by :- AMIT SINGH
ASST. PROF.
HPIHE,BUDAUN
1. TRADE ASSOCIATION :-
It is a voluntary association of industrialists traders and merchants who
belong to the same nature of business. The trade association main
objective is to protect the economic interests of the members. It also
encourages the friendly relations among the members. Every trade
association elects its office bearers to look after the interest of the
members. This association also provides necessary information's to the
rubbers about the business. Wood merchants, iron merchants and
leather trading association are the examples of Trade Association. Trade
associations also establishes its common fund. Each member
contributes the fund. This fund is used to obtain the common objectives
2. CHAMBER OF COMMERCE :-
It is an association of industrialists traders and businessman who belongs to the
particular city or district. Its management is conducted by the elected office
bearers. Govt. has also right to appoint some members while preparing the
commercial and fiscal policy government considers the recommendations of
the chambers of commerce.

Advantages of Chamber of Commerce :-

1. It promotes the trade and commerce activities.
2. It protects the interest of the members.
3. It collects and provides the information's regarding trade and industry to the
members.
4. It settles the disputes among the members.
3. POOL :-
Pool is an agreement which is made by the members. Members of the pool produce similar product and they want to
regularize the price of the product. The management of the pool controls the price and product of the pool members. All the
member firms transfer their sources of rights to the pool. The pool eliminates the completion. It divides the market and
distributes profit among the members. Under this system firms do not loose their identity. Pool has three kinds :

1. Production pool or out put pool :- When quota of production is fixed for each of the member firm in order to avoid over
production it is called production pool.
2. Market pool :- According to this method market is divided among the member firms. Each firm sells its product only in the
allocated area. The pooling of market may be local national or international.
3. Income or profit pool :- The member of the pool fix the base price which is equal the cost of production. The members of
the pool are allowed to sell the product at higher price fixed by the central body of the pool. The difference between selling
price and cost is transferred to the account of the Central body of the pool. The pool divides the profit according to their
agreed share.
Advantages of Pool :-
1. It can be easily formed.
2. There is no fear of over production.
3. It reduces competition.
4. It saves the expenditures of the firms.
5. It increases the profit of the firms.
6. It controls the prices of the product.
4. CARTEL or SYNDICATE :-
It is formed by a number of producers engaged in the same industry. They make an agreement to sell their
product jointly through the joint stock company called cartel. The Cartel is responsible to dispose of the product
of the firms in the market. The Cartel secures monopoly and sells the product at different prices in different
countries. The Cartel sells the product on the behalf of the firms and distributes the profit according to their
supply. The Cartel only performs the duty of distribution of product it does not operate for earning of profit for
itself.

Note :- Cartel is an association of independent producers. Cartel can not interfere in the internal affairs of the
firms.

Advantages of Cartel :-
1. The members can earn monopoly profit.
2. The inefficient firm may save itself from competition.
3. The bargaining power of the Cartel is better as compared to others.
4. Selling of the product is economical.
5. The member do not lose their identity.
6. It is more stable than pool.
7. Publicity expenditure of the firms is saved.

Disadvantages of Cartel :-
1. Member of the firms can not maintain uniform standard of the goods.
2. The customers are charged higher prices.
3. Wealth goes in few hands.
4. Non members of the Cartel Compete with the Cartel.
5. New firms also enter into the market due ti high rate of profit.
OTHER FORMS
1. Vertical Business Combination :-
When various departments large industrial units combine together under single management is called vertical
combination. Under this combination from purchasing of raw material to selling of product all the stages are linked up by
the units.For examp0le, all the business units engaged in publishing books can make vertical combination as under :
2. Horizontal Business Combination :-
It is also voluntary association which two or more than two similar nature business units combined them selves
under the one management, it is called horizontal combination. For example, if four tea industrial units are at the
same stage of production. The are engaged in same activity. They sell wholesale. They sell the product in the

same market. Their combination will be called horizontal combination .

3. Circular or Mixed Business Combination :-
When different types of business units combine themselves under the one management it is called circular combination.

Example :- If a cloth industry combining with shoes industry and sugar industry is an example of mixed
4. Diagonal Business Combination :-
When two or more than two business units performs subsidiary services, if they combine themselves under the main
industry it is called diagonal combination.

Example :- If designing and tailoring business units are combined with the garments industry it is called diagonal
combination.
Demerits or Disadvantages of Combination or Business combination
Disadvantages of Business Combination :-
Following are important disadvantages of combination :

1. Creation of Monopoly :-
It creates monopoly which is harmful for the public.

2. Concentration of Wealth :-
It concentrates the wealth in few hands and divides the society into two classes rich and poor.

3. Not Acceptable :-
Combination is disliked by the people, it is not acceptable.

4. Changes of Friction :-
The chances of friction among directors and officers are bright. They quarrel with each other for their own interest.

5. No Personal Contact :-
It is not possible to maintain direct contact between employees, creditors and shareholders. Due to this business may suffer a loss.

6. Costly Management :-
A combination hires costly management, which increases the cost of production.

7. Over Capitalization :-
There is always a danger of over capitalization in the combination. It is harmful for the combination.

8. Misuse of Funds :-
The directors of the company enjoy unlimited power and misuse the capital.

9. National Interest Ignored :-

Generally the combinations ignore the national interest and they involved in such activities which are against the national interest.
Advantages or Merits of Combination or Business combination
Advantages of Business Combination :-
The advantages of combination are controversial because creation of monopoly and elimination of competition both are
considered the merits and demerits of the combination. Any how following are the important merits of combination :

1. Increase in Capital :-
The volume of capital may be increased by the formation of combination. The members combine their resources to conduct
large size business.

2. Elimination of Competition :-
By the formation of combination unnecessary competition is eliminated and member firms eran monopoly profit.

3. Saving in Expenses :-
Administrative production, and distribution expenses reduce due to combination.

4. Controls Over Production :-

Combination is very effective to control over production. It helps to adjust the supply according to the demand.

5. Large Scale Marketing :-

In the market competition position is strong in bargaining. So it sells the product at higher price.

6. Experts Services :-
A combination is able to acquire the services of experienced specialists. It increases the efficiency of the combination.
7. Research Work :-
A combination is able to spend money on research work which is very important for the business. This research work
reduces its cost and increases its [profit.

8. Use of Modern Technology :-

A combination is capable to use the latest inventions and new methods of production. It will increase its profit.

9. Stability :-
A combination is more stable form of business as compared to the individuals units. The chances of dissolution are
also less than others.

10. Division of Labour :-

The principle of division of labour is applied in combination which increases the production efficiency of
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.
CAUSES OF BUSINESS COMBINATION GROWTH
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.