QS Study

Causes of Forming Business Combination

There are many economic and non-economic circumstances which accelerated the development of business combination all over the world. Many of this combination is new due to the adverse economic conditions. It is also true that some of the combines thrived just due to the fact that they were patronized by the government. Some of the important caused leading to the formation of a combination one follows:

The causes of forming business combination are discussed below:

Reducing production and marketing cost: By forming business combination businessmen can gain advantages from large-scale production and marketing activities. As a result purchasing raw-materials production of goods and services and transportation facilities, advertisement advantages, conducting business will be easy. In a word to reduce the production marketing won’t business combination is formed.

Excessive Competition: The adverse competition sometimes becomes complex for the business enterprises to form combination. The wasteful competition leads to, the incensed volume of production and lowering of prices there to this involves serious problems in the economy of the individual firm to grow. The formation of business combination appears to be best means. This is especially true for those firms whose financial standing is not very strong and their products one homogenous and standardized. In fact, the more, intensive the competition the more is likely to be the tendency to form business combination.

Industrial Organizing Ability: Many business combinations were formed by the direct initiative of some people having extra-ordinary leadership. “Great organizing ability, strategic genius or personal ambition on the part of one or a numbers of men”, suggest shield, “may account in part for the rise of certain business combination”.

Governmental Pressure: Business combination may be formed by the desire of government or pressure of government. If the government thinks that business combination will increase the efficiency of the industries or the productivity rate of the industries then they can give pressure to the business people to combine themselves.

Economic Condition: Business combination very after form at the time of economic crisis of a particular country- of inflation and deflation are the most contributory factors to the growth of business combination. At the time of deflation, small business unit finds it much difficult to continue their business operations, for the purchasing power of the people is low during the time of deflation. Such people cannot offer a reasonable price. Very often the prices of the products do no cover the cost of production. Secondly, their financial resources one shunts. Thus small units finding no other alternatives get to combine with the unit or form a combination.

Achieving Power: The desire of human beings is always toward being large. The desire of having domination over the economic circle often leads industrialists to form a combination, which would facilitate to control raw-materials, to control the market and avail themselves of the economics of large-scale production and distribution. It seemed to be one of the major factors in the formation of the combination of businesses.

Need for Rationalization: Rationalization means the materialization and reconstruction of industrial sector’s technical, managerial, and academic matters. The success rationalization of one industry depends upon collective efforts of different sectors of that industry. So for rationalization business combination is essential.

The growth of Joint Stock Company: The growth of Joint Stock Company favored the development of different forms of business combinations. Before the enactment of the Companies Act, the lows of the country were not enough to safeguard the interest of the combining business units. Most of the business combination thrived only after the legal inactive was provided under the joint stock company system.

Government’s Tariff and Commercial Policy: In most of the developing nations. The newly developed industries have been given protection by the government. The policy of tariff is adopted with the idea that they would attain governmental way.