Definition and Types of Business Combination with Example

What is combination? Explain its types

Definition:- 

It is a voluntary association of firms for the achievement of common objective. Various firms combine themselves to enjoy the advantages of the monopoly. The combination may be formed by a written OR oral agreement. Sometimes the small firms decide to merge themselves into one unit.

J. L. Hanson says, that combination is the association temporary OR permanent of two OR more firms.

Ralph Estes says, “Business combination is the joining of two OR more companies to form a single org. for the conduct of business activities.”

L. H. Haney says combination is merely a union of persons to make a whole OR group for the prosecution of some common purpose.

 

TYPES OF COMBINATION

There are many types of business combination but most important and those are in common practices are few. Following are the various types of combination.

1): Horizontal OR parallel combination:

The different business units doing the similar business can join together with some common objectives, such combination is called horizontal, trade, OR parallel combination.

The large and small firms combine their business in order to eliminate competition, fix price level and control the supply of product. They make common purchases, advertising, transport and research.

Examples:

various cotton mills, sugar mills and rice mills make agreement to follow common policies in running the business.

2): Vertical combination:-

When two OR more than two successive units or stages in production in an industry combine under single management, a vertical combination takes place.

Examples:

The cotton ginning, spinning, weaving, finishing and converting them into cloth are different processes of different firms but raw material remains the same.

3): circular combination:

When some business units of manufacturing and selling are combines their businesses together under one management.

Examples:

ghee, sugar, cotton, paper and steel mills owners can decide to work less than one managing director.

4): Diagonal combination:

Diagonal combination take place when a main business unit combines with the different firms which supply goods and services for making the final product.

Examples:

A steel mill can depend upon other companies for repair and maintenance, power supply and transport facilities. So the steel mills combine with these companies to receive the services in time so the business daily work will run smoothly without any break.

related links:
definition and characteristics of business
Business objectives in pdf.