system is towards development of mass production, growth
of specialization, use of automatic mechinery and electronic
computers. there is also stiff competition among the competition
among producers has given place to business combinations.
What is business combinations?
business combinations is voluntary association of firms
for the achievement of common objectives. the combination
among the firms may be temporary or permanent. the combination
may be formed by a written agreement among the firms, or there
may be oral understanding among themselves to unite for enjoying
the advantages of monopoly. the firms may have a loose type of
combniation having control in the internal administration or they
may decide to completely merge themselves into one unit. In such a case,
the uniting firms lose their separate entities.
Causes of business combinations: There are multiple causes which have led the formation of business combinations. they, in brief, are as follow.
1. Elimination of competition: Nowadays, a large number of firms produce a particular type of commodity. The competition among the rival firms lead to goods being sold at cut throat prices. the stiff competition among the producers has increased the capital risk and lowered the profits of the firms. some firms do not survive the competition and finally close the business. the over extension of plant and equipment and unrealistic pricing has forced the operating enterprises to unite and save themselves from the competition.
2. Economies of large scale production: The rival units combine together to reap the benefits of large scale production. they purchase raw material in bulk, produce standard goods with specialized knowledge, reduce the operational costs of business and sell produce at a price which gives them maximum profit.
3. Changes in economic policy: if there is political instability in the country and the economic policies of the govt. are subject to frequent changes, it promotes businessmen to combine and chalk out policies which reduce risk in business
4. Fluctuations in business activity. if the economy is passing through a phase of low production, low prices, low employment, low capital, the firms then make efforts to combine together to save themselves from the bad effects of depression. similarly, if the prices are rising and the margin of profit is high, it gives incentive to the firms to combine and enjoy the benefits of monopoly.
5. Influence of Tariffs: The imposition of custom duties on the imported goods is also an important fector in the formation of combination. the protected industries having no fear of the competition of foreign goods combine together and are able to sell the goods at a price higher then the competitive market.
6. Formation of joint stock companies: The small scale industries lay scattered and cannot combine easily. the big concerns operated through joint stock companies. they can easily contact each other by direct telephone, telegrams and can also call a joint meeting at a very short notice. they formulate policies of protecting their economic interests and carry them effectively through combinations.
7. Transportation Developments: the development of fast means of transport has made it possible to build up large business in various parts of the country. these big industrial units, being small in number, easily form industrial combinations.
8. Patent Laws: patent laws have also led to the growth of business combination. patent laws give monopoly position to concerns and also lead to the formation of cartels to resist competition of the outsiders.
9. Rationalization: the business units may combine for standard of products, planned utilization of resources and introduction of automation in industry.
10. Respect for bigness. The business units of bigger size command more respect than of smaller units. the business units therefore, aspire to combine to have respect for bigness.
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