Explain various Types Of Combinations
Explain various Types Of Combinations.
Types Of Combinations
1. Horizontal Combinations
Horizontal Combinations involve the merging of enterprises or firms with identical level of production process, with substitute goods and are competitors. The horizontal combination is primarily a friendly merger between companies, although it can be a takeout of one by the other. Of course the synergy formed by this combination enhances the business performance, financial gains and shareholder value in the long run. The cost efficiency with the staff cut-offs leads to the increased margins of the company. However this tends to pave way for reduced competition as a monopolist agenda emerges from the combinations of powerful enterprises, along with the unemployment that follows which has a very drastic and adverse effect on the economy of the country. It is also bad for the consumers as the reduced competition gives the companies a “higher pricing power.” Therefore these merges are the chief focus and are often scrutinised by the Competition Law Authority for the above given reasons.
2. Non-Horizontal Combinations
The non-horizontal combinations are of two types: Vertical and Conglomerate combinations.
Vertical Combinations
Vertical merging is “combining of business firms engaged in different phases of the manufacture and distribution of a product into an interacting whole”. This leads to increased competitiveness, a greater process control, wider market share, a better supply chain co-ordination and decline in cost as this sort of integration is the structuring of supply chain of companies under a particular company..
Conglomerate Combinations
Conglomerate combinations involve firms or enterprises in unrelated business fields. Such combination happens when two companies that provide different services and goods or are integrated into varying sectors of business merge together. This sort of merger happens when the companies achieve a stronger stand in the market both in products and services and profit management unlike when they are individual enterprises.
Conglomerate merges can lead to an ascend in “market share, synergy and cross selling”. Here diversification takes a major roll and thereby reduces the “risk exposure” factor. The cons of this particular combination
can be the monopolization of a company over a certain market and the over expansion of the conglomerate can seriously affect the quality of functioning of the company and result in the collapse of the system. Such coalescence can be detrimental as it restricts business options for newly formed enterprises in the market. However it is to be note that Non Horizontal Conglomerations do not promote loss of direct competition and are therefore not anti-competitive within an overall framework.
IMPORTANT LINK
- What is Meaning of Analysis of Financial Statement? Its objectives and importance
- IMPORTANCE AND LIMITATIONS OF FINANCIAL STATEMENTS
- Meaning and Definitions of Financial Statement | Nature of Financial Statements | Characteristics of an Ideal Financial Statement
- What is the scope of management accounting?
- Procedure of Financial Statements Analysis
- Comparative Financial statement Analysis | Advantages of Comparative Financial Statements | Limitations of Comparative Financial Statements
- IMPORTANCE AND LIMITATIONS OF TREND ANALYSIS IN HINDI
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