Advantages and Disadvantages of Business Combination

Business Combination

Business combination is voluntary association of firms for the achievement of common objectives. The combination among the firms may be temporary or permanent. The combination may be formed by a written agreement between the firms, or there may be verbal indulgent among them to unite for enjoying the reward of monopoly There are many advantages and disadvantages of business combination some of them are as under:

Capital Raising

A combination can easily raise large capital both short and long term for the expansion of business, replacement of machinery, introduction of improved methods of production etc.

Service of Specialists

A combination is able to acquire the services of talented technicians and of those who are specialists in the management of the company.

Division of Labor

The division of works among directors, managers, officers and labor increases the productive efficiency of combination.

Labor Saving Devices

As the combination is capital intensive, it can, therefore, save expenses of the labor and thus can reduce the cost per unit of the commodity.

Production Research

A combination can incur expenditure on production research. It can thus produce a variety of goods of standard quality with minimum of cost.

Use of by –Products

The growth of combination has made it possible to profitably utilize the by product which in small concerns usually go waste.

Spread of Administrative Expenses

Due to greater volume of production by all the units of combination, expenses per unit of the commodity are greatly reduced.

Large Scale Purchasing

The combination purchases goods in bulk. There are economics in buying and transportation costs per unit of purchases.

Large Scale Marketing

The combination is in a better position in the marketing of products at the national and international level. There are also reductions of advertisement expenses per unit of production.

Elimination of Competition

Due to the growth of combination, there is no price cutting by the competing firms. There is also reduction of cress freight.

Saving from Dissolution

There are some companies in the market which are on the verge of dissolution. The combination absorbs those companies and saves them from collapse.

Disadvantages of Combination

Evils of Monopoly

A business concern is a profit making concern. When there is a combination it leads to fixation of price of the commodities higher than the market price. The consumers have no option but to purchase the artificial high priced goods. The producers of raw material have to accept the price offered by the combination. The workers are paid low wages. The quality of the produce is also substandard due to absences of completion.

Bad Effects of over Capitalization

The combination often raises more capital than what is required by them. The unutilized capital leads to wastage of resources. Due to fall in profits, the credit standing of the combination is adversely affected. There is, decline in the value of securities etc.

The Existence of Small Firms

Due to the growth of combination, the small firms are not able to compete with the large scale combines. They, therefore, are compelled to close down the business which creates unemployment in the country.

Exploitation of Investors

The combination has a bad name in frauds and manipulations of the minority stock holders.

Public Opinion

The public opinion is always against the growth of combination. The monopolists always exploit the consumers and inflate their profit at the cost of helpless buyers.

National Interest

The combinations due to their own selfish interests overlook the national interest. They bribe and pollute the political atmosphere or satisfy their own selfish ends.

Unequal Distribution of Wealth

The combines lead to unequal distribute of wealth in society. The class rift among the rich and poor widens.

Legislative Acts

For combating the antisocial influences of combination, legislative acts are passed. Government fixes prices, provides subsidies etc.