Characteristics of Vertical Combination

Characteristics of Vertical Combination

Characteristics of 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. Generally, the vertical combination is made for getting raw-materials easily, on to get facilities to sell the products. There are certain features that differentiate this combination from other business combination. These characteristics of features of the vertical combination are given below:

Ease of getting raw-materials: Whenever any industry uses other industrial products as their raw-materials then these two organizations can create a vertical combination for the proper supply of raw materials. For examples, cotton spinning and cotton swooning industries create a combination for a supply of raw-materials continuously.

Interdependent process: The organizations that are engaged in vertical combinations are inter-related among them. When first industry supply raw materials to the second industry can start its production and it goes on in this way. So it is an interdependent process of manufacturing goods.

Same management: The industries organization may or may not be under the same owner but the management of this combination is always same. Otherwise, this process cannot be continued properly.

Differential entity: Since the management of this combination is same but they have their own entity. Sometimes people think that the own entity of organizations of vertical combinations will be lost, but it is not true for this type of combination. They have the individual entity and tasks.

Several stages: When several stages are needed to produce the products or services where they can use this combination. If an individual organization try to do all steps then it will take a long time and labor to do it. So if they can use vertical combination they can save time, money and labor.

Classifications of vertical combination: Vertical combination may be two types;

(i) A complete combination may occur one combination is engaged in collecting raw-materials, production and distribution activities.

(ii) The partial combination may be two types- Backward vertical combination and forward vertical combination.

The economy of selling expenses: In case of vertical combination sales promotion measures such as advertising, display etc are done by one unit, which as previously done by each and every combining unit, in order to enjoy the economics of distribution and thus to get the maximum output.

These are the main characteristics of the vertical combination. When one combination matches with these features then we can call it vertical combination otherwise not.