TYPES OF BUSINESS COMBINATIONs

Business combinattons are of following types:

1. Horizontal combination
It is the process of a company increasing its production. expansion
It is expansi.
through acquisition or merger ie.. one company acquiring another company
two or
companies merging together. Here, the companies are
engaged in the
production of the same type of products or are engaged in the same trade, for
example, two cement companies merging together. Such combinations are formed
to reduce
competition or to reap benefits of scale or to restrict output or to fir
prices of their products.
Aduantages of horizontal combinations. The economic advantages that
from horizontal accrue
integration are quite important. The advantages of centralised
purchasing in large quantity, and of centralised expert services, such as
and engineering, and of
consolidated advertising are obvious. The research
of plants by consolidation is re-arrangement
likely to result in the production of the greatest
quantity of the product at one place, as also the
suited to each giving of the line of work best
plant. The greatest advantage is stronger competitive
because the consolidation can control market power
prices more
2. Vertical
effectively.
Combination (or process integration)
In vertical
combination, businesses operating in successes
same stages in the
industry come together. It is a combination of firms which are
on each other, for dependent
example, spinning
combining mill
with
factory or an
iron and steel ready-made garment
company combining with iron ore
combinations finished product of one
company. In these
company is the raw material for another
company.
Backward and forward types of Vertical Combination: Backward
implies going to the source of raw material.
combination
Forward combination
implles getting closer to
manufacturer acquires retail outlets the Consumner.
consumer. If a
to market its
it is as
Ia
integration. products known torward
3. Lateral or Allied
Comblnations
It is a
combination of firms which
products, they may be relatedthose
in some manufacture different kinds
way.
Two kinds of lateral combinatlon
Lateral combinations may be of
two types
combination and (1) Divergent lateral combination. (1) Convergent latera
1) Convergent lateral comblnatlon: In
this
dndustrial units which suPply raw
kind of combinations
difiere
materlal to major firms may combine wiu
 BUSINESS COMBINATION 151
firm using their products. For example, units engaged in the supply of
paper.
ink, cardboard, printing machinery etc. may combine with a
printing press.
(ii) Divergent lateral combination: It takes
place when a major firm supplies
its product
other combining firms which use it as raw material. For
to
a steel mill which
example,
supplies steel to a number of allied concerns for the
manufacture of a variety of products like steel tubes, wires,
nalls. machinery
locomotives etc. if combine with them, it will be called
combination. divergent lateral
4.
Diagonal (or service) combination : This type of combination takes
when a unit
place
providing essential auxiliary goods or services to an industry is
combined with units operating in the main line of
industrial unit combines with a repair
production. For example, if an
workshop for maintaining its tools and
machines it will be
diagonal combination.
5. Circular (or mixed) combination When
: fìrms engaged in the manufacture
of different types of products join
together, it is known as circular or mixed
combination. For example, if a cloth mill combines with a sugar mill and a steel
factory, it will be called circular or mixed combination.