If you do not know about business combinations then read this information carefully. After reading this, you will know all information about the business combination. So without wasting a time let’s know about the business combination.
The combination may be formed by a written agreement among firms, There may be an oral understanding among themselves to unite for enjoying the advantages of monopoly.
Causes of Business Combination
There are multiple causes that have led to the formation of business combinations. They, in brief, are as follow:
Elimination Of Competition:
The stiff competition among the producers has increased the capital risk and lowered the profits of the firms. Some firms do not survive the competition and finally, close the business. The overextension of plant and equipment and unrealistic pricing has forced the operating enterprises to unite and save themselves from the competition.
Economies Of Large Scale Production:
In order to get the benefits of large-scale production, the businessman attracted to form a business combination. They purchase raw material in bulk, produce standard goods with specialized knowledge, reduce the operational costs of business, and sell the products at a price that gives them maximum profit.
It is our common observation that small units are unable to hire the services of experts and experienced managers’ services of experts and experienced managers. Due to these small industrial units, they combine themselves to hire the service of experts and experienced managers.
Development Of Means Of Communication And Transport:
The development of means of communication and transport has enabled the businessman to have close contact with other businessmen. Due to these economic activities are very fast. Fast means of communication and transportation have contributed to the growth of business combinations.
To compete with the foreign firms save industrial units of the country combine themselves in order to protect the home industries from cut-throat competition. The government also provides protection and tariff facilities, In this regard, the Government imposes heavy duties to protect domestic products.
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To Face Crises:
Businessman or small units combine themselves to face the crises. It is very difficult in the modern era that small industrial units face inflation and deflation. So they combine themselves to overcome these problems. A number of industries in Pakistan are faces the power shortage and inflationary pressure and they combined themselves to face the crises.
Use of Technology:
The use of new technology is the result of a business combination because a single unit cannot use new technology.
Patent laws have also led to the growth of business combinations. It gives a monopoly position to concerns and also leads to the formation of cartels to resist competition of the outsiders.
Joint Stock Company:
The formation of joint-stock companies in the business has made it possible for various industrial units to form a combination.
Competing In International Market:
If a business is to stay and compete in the international market, then its size must be very large. The combination of successful enterprises reduces the risks involved in buying and selling of goods in the international markets.