QS Study

Vertical Combination

The organizations that are engaged in the successive stages of production or distribution come together to achieve some common end result then it is called vertical combination. The vertical business combination is the combination of such firms, which are interdependent for the supply of raw materials for processing. The firms operate at successive stages in the same industry. Under this business combination, all the stages right from the raw-materials stage to the distribution state are usually brought together. For example, if the units engage in spinning, weaving, calendaring, packing, transporting, and retailing respectively from a combine this combination is called vertical business combination. This example of the vertical business combination of spinning can be shown by a diagram:

S.S. Sarker and others said about vertical combination as- “It is the combination of such firms which are interdependent for the supply of raw materials for processing. The firms operate in the successive states of the same industry.”

Generally, the vertical combination may be of two types:

  1. Complete vertical combination.
  2. Partial combination.
  3. Backward combination.
  4. Forward combination.

From the discussion, we can say that the industries that are engaged in vertical combination are not same but they are interrelated. Their tasks are not same. The main objectives of forming such combination are to ensure regular supply of raw materials, to avoid bargaining and to maintain optional production level.

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