The business combination is a method of economic organization by which a common control of greater or lesser completers is exercised over a number of firms which either one operating in competition or independently.
Classification of Business Combination on the basis of nature of enterprises
According to the nature of enterprises may be divided into six major classes. These ones:
Horizontal combination: the Horizontal combination is the association or merger of business units doing exactly the same type of business or trade. Suppose for example that PEPSI were to buy Coca-Cola. This would be a horizontal merger. A horizontal combination often increases the degree of concentration. The main object of forming such a combination is to eliminate competition and in some cases, to achieve economies of large-scale production and distribution.
Vertical combination: A vertical combination occurs when a supplier buys a retailer or vice-versa. The key point is that the two companies have a buyer-seller relationship suppose that a pharmaceutical company acquires a drugstore chain. Under this combination, all the stages right from the raw-materials stage to the distribution stage one usually brought together. The main objects of such a combination are to ensure a regular supply of raw materials, to avoid bargaining and to maintain optimum production.
Lateral or allied combination: Lateral combination means that the combination where two or more business combines not for the achievement of the main objectives of the business. Suppose, Rail Company can make a combination with Steamer Company to cross the river then it is called lateral combination.
Circular combination: Circular combinations means that combine whereby two or more allied units are brought together so that a member unit may achieve maximum economic gain. Moreover, the “association of different types of companies in allied lines is a circular combination.”
Diagonal combination: It means that combine which brings all ancillary services together in order to achieve the objector of maximizing the benefits and avoiding am dislocation in the wonk here two or more business operations that may seem diverse are also brought under one management. Suppose coca-cola company may form a combination with the Gas Company or vice versa. He is called Diagonal combination.
Regional combination: To capture the market, to reduce transportation cost of, products, to expand the market of the same products, producers may combine themselves in a region. This type of combination is called regional combination. Suppose Bata Shoe Company make a combination with a local shoe company. Then it is called regional combination.