Advantages of Business Combination
Generally, some business organizations form business combinations which are same in criteria. When two or more business units combine for same economic benefits, combination comes into existence. Business organizations are forming a combination to maximize profits in one way or other ways. Business organizations get some significant advantages from the business combination. These advantages one benefit discussed below:
The advantages are as follow:
A small business organization usually suffers from an inadequacy of finance. In forming a combination of these types of business organization financial resources of firms are pooled together. Combination type of organization has the advantages of procuring finance from outside on favorable terms as financial institutions have more faith in the sound resources such organization. It is possible to strain high speed-automatic machine low-cost standardized quantity production which would help the manufactures to manufacture products of best quality.
Efficient administration and Management
Management and administration of the business combination are usually centralized relating to a great extent. In addition to, in view of its sound financial position such an organization can accommodate personnel of talent, skill, and initiative on higher payment. Skilled managers having enough of experience also get the pleasure of working in such a big business organization.
The business combination is blessed with enough of financial resources and the scope of its operation is wider than the individual small unit. Some favor forming such a big unit to take advantages of these with a view to pooling renowned researchers to find out ways and means of lowering cost of production and marketing and finding out new areas of markets. In addition to each constituent unit prior to forming a combination had to ensure heavy expenses of advertising and other Promotional measures in order to maintain its competitive position in the market.
Reduction of cost: The business organizations which form business combination can properly be utilized the raw materials because they produce large. The scale of production so large then their unnecessary cost will be reduced, increase the production rate and reduce the cost per unit. Moreover, the cost of marketing like advertising, publicity and personal sales will be reduced. So as a whole cost of production of an organization will be reduced for the formation of the business combination.
Balancing between demand and supply
For forming business combination they do not produce excess production, they produce goods and services according to the demand of customers of their target market. So composition will be made between demand and supply by business combination.
Reduction of Price of Goods and Services: In case of business combination sales promotion reduce such as advertising, display etc are done by one unit, which was previously done by each and every combining of distribution and thus to get the maximum gain from the combination.
Elimination of Competition: For forming business combination adverse competition will be reduced. Because then every competitor reaches a contract to produce goods and services the demand of the market and brings the stability of products. As a result, the adverse competition of business will be reduced.
Benefits of Finance
Generally along with the merger or combination, total working capital of the combining units is more than the requirement fund from the main source to any of its branches in time of’ need with a view to facilitating the weak one to carry on smoothly and very speedily.
The larger the organization, inure stable is likely to be the form of business organization. For small firm stability is less for the existence. But this does not happen in a business combination because there are many persons employed in that organization.
Advantages of large-scale business
By forming business combination organizations get privileges from the production of goods to distribute the goods as a large organization. They enjoy some facilities such as production, distribution, publicity, and advertising, transportation, technology, Innovation of new products, market control as a large organization.
Economy in Administrative Expenses
Another important advantage of a combination is to reduce the administrative expenses. It is very often un-economic or impossible to appoint a skilled and experienced manager on the part of a small firm, who prefers forming a business combination.
From above discussion, we can say that business combination is an essential small organization that plays their role as a large organization. Because they can compete with the large organization and exist in the market and they get strength economically.