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paraphrase the following :-

Types of business combination

  1. Horizontal Combination:

It is a voluntary association of two or more than two business units activity at the same distribution level and serving the same geographical market.

For example:

If three sugar industries which are at the same stage of production integrate, and are brought under one management it will be named horizontal combination. Here all the three business units sell sugar. They are engaged in a same activity. They all sell wholesale. They sell the product inside the country and thus cover the same geographical market.

The main motives or objective of a horizontal combination are summarized as under.

  1. Elimination of competition
  2. Availing of benefits of large scale production
  3. Using improved methods of production
  4. Better use of skilled persons
  5. Better services to customers at reduced rates

The horizontal combination is associated with evils of monopoly. It is, therefore, anti-social in operation.

2. Vertical combination:

The vertical combination is another type of business combination. the combination of a firm engaged in successive phases of the process of manufacture or sale under an effective control of top management.

In the words of prof Robinson’s, “vertical integration is the combination of firms in successive stages of the same industry”,

For example: If the business units engaged in cotton wearing, cotton calendaring , cotton bleaching and cotton marketing combine together , it will be a case of a vertical combination.

In this combination, all the successive processes from the raw material stage to marketing of the product are brought under the control of one organization.

The motives of forming vertical line of combination is;

  1. Elimination of wasteful competition
  2. Elimination of middlemen
  3. Gaining control over the quantity and quality of goods
  4. Availability of raw material at cheaper rates

The main difficulties of a vertical combination are that it leads to an unwieldy organization, huge investment, and greater risk.

3. Diagonal Combination:

Another type is Diagonal combination is also named as service combination. it is brought about by combining two or more than two business units providing auxiliary (helping) services in the main line of production .

For Example, cigarette makers may combine with firms making cartons, packets , nd a transport unit. The main advantage of service combination is that it makes bigger business unit self-sufficient. It has not to depend on outside sources for services like provision of cartons, transport etc

4. Circular combination:

Circular combination is also called mixed combination , it is a merger of firms producing altogether different commodities under the banner of central agency.

For Example: a cotton mill combining with plastic factory and a sugar industry is an example of circular or mixed combination.

The main object of circular combination to secure the benefits of administrative integration through common management.

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