This document discusses different types of business combinations including horizontal, vertical, diagonal, circular, and lateral combinations. It provides examples and definitions of each type. Horizontal combinations involve firms producing similar products, vertical combinations involve firms in successive stages of production, diagonal combinations combine auxiliary service firms, and circular combinations combine unrelated firms under common management. The document also discusses the advantages and disadvantages of business combinations. Advantages include eliminating competition, solving capital problems, achieving economies of scale, and effective management. Disadvantages include creating monopolies, concentrating wealth, and costly management. Finally, it discusses mergers and acquisitions, defining them as the combination of two or more firms through asset or security exchanges, and noting their

1. Dr. Sunita Sukhija
Assistant Professor in Commerce
Govt. National College, Sirsa(HRY)
Industrial Combination

2.  Business combination is a voluntary association of firms for
the achievement of a common objective. 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 an oral understanding among them to
unite for enjoying the advantages of a monopoly. Ownership
and the nature of the business are the two basic factors that
determine the type of the combination.
 A business combination can be aptly defined as amalgamation
of the assets of two or more business entities for their
consolidation as a single entity under single ownership. A
business combination can be managed easily through the way
of a voluntary acquisition, a merger, or a hostile takeover. In
many cases, a preferred means of managing a business
combination might be acquiring a controlling amount of stock.

3. Different types of Business
Combinations
 1. Horizontal Combination
 2. Vertical Combination
 3. Diagonal Combination
 4. Circular Combination
 5. Lateral Combination

4. 1. HORIZONTAL COMBINATION
 Horizontal combination refers to the combination of the
firms producing the same or similar type of products,
engaged in the same or similar process of production.
Combination of two or more jute mills, textile mills, and
factories is examples for this type of combination. It is also
known as parallel combination. Associated Cement
Company in India constitutes a beautiful example of this
type of combination. The following chart illustrates this type
of combination.
 Horizontal Combination
 A horizontal combination comes into being when units
carrying on the same trade or pursuing the same
productive activity join together with a common end in
view.
 Example of horizontal combinations are;
 Disney’s 2006 acquisition of Pixar.
 Facebook’s 2012 acquisition of Instagram.

5. MERITS OF THE HORIZONTAL
COMBINATION
 1. Eradication of wasteful competition among the
various units of the same industry.
 2. Larger and effective control over the market.
 3. Avoidance of the risks of undue price
fluctuations in the market.
 4. Reduction in the cost of production by securing
external economies.
 5. Control and adjustmen

6. 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;
 Elimination of wasteful competition
 Elimination of middlemen
 Gaining control over the quantity and quality of goods
 Availability of raw material at cheaper rates
 Reducing advertising and transport charges
 Gaining control over marketing of products
 Reducing cost per unit.
 The main difficulties of a vertical combination are that it leads to an unwieldy
organization, huge investment, and greater risk.

7.  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 , 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
 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.

8.  Lateral Combination
 Lateral integration refers to the combination of those firms
which manufacture different kinds of products though they
are ‘allied in some way.’
 It can be of two kinds;
 convergent lateral integration, and
 divergent lateral integration.
 The convergent lateral combination comes into existence
when different forms join together to supply goods and
services to help the functioning of major undertakings.
 Example: For instance, a book publishing may join with
other units producing paper, doing printing work, and
providing bookbinding services.

9. Causes/Advantages of Business
Combination
 Elimination of Competition
 Due to hard competition among the firms’ rate of profit decreases. Some firms may suffer a loss
also. So the industrialists feel pleasure in setting up a combination to avoid the competition.
 To Solve Capital Problem
 Small units of production face the problem of capital shortage. They cannot expand their businesses. As a
result, small units may form a combination to overcome this problem.
 To Achieve Economies
 Some small units combine themselves to achieve the economies of large scale production advantage. It
helps to purchase the raw materials at low prices and sell more product which would increase the profit
 Effective Management
 Generally, small units are unable to hire the services of experts and experienced managers. So small
industrial units combine themselves to hire the services of effective management
 Tariff Facilities
 To compete with external firms, some industrial units combine themselves. The government also imposes
heavy duties to protect domestic producers.
 Uniform Policy
 All the units adopt uniform policy due to business combinations. It regularizes the business activities of all
the units.
 Use of Technology
 The business combination can use the latest technology and new methods of production because its
sources are sufficient. In contrast, a single unit cannot do so.
 To Face Crises
 It is very difficult for the small industrial units to face crises in the days of inflation and deflation. So the small
units combine themselves to face these problems easily.

10. Disadvantages of Business
Combination
 Creation of Monopoly
 It creates a monopoly that is harmful to the people in the long run.
 The concentration of wealth
 It concentrates the wealth in a few hands and divides society into few classes, such as
rich, middle, and poor.
 Reluctant to be Accepted
 The combination is disliked by the people, and it is not acceptable.
 Changes in Friction
 The chances of friction among directors and officers are bright. They quarrel with, each
other for their interest
 No Personal Contact
 It is not possible to maintain direct contact between employees, creditors, and
shareholders, due to this business may suffer a loss.
 Costly Management
 combination hires costly management, which increases the cost of production.
 Over Capitalization
 There is always a danger of over-capitalization in the combination. It is harmful to the
combination.
 Misuse of Funds
 The directors of the company enjoy unlimited power and misuse the capital.
 National Interest Ignored

11. Merger & Acquisition
 The main idea behind mergers and acquisition is one plus one makes
three. The two companies together are more worth full than two
classified companies at least that’s the concluding behind mergers.
Merger is the combination of two or more firms, generally by offering the
shareholders of one firm’s securities in the acquiring firm in exchange for
the acquiescence of their shares. It is defined as a form of business
organization which is established by the outright purchase of the
properties of the constituent organizations and the merging of such
properties into single business units.
 Merger
 A merger takes place when; two or more organizations merge, and their
operations are absorbed by a news organization.
 Acquisition
 Acquisition refers to the process of acquiring a company at a price called
the acquisition price or acquisition premium. The price is paid in terms of
cash or acquiring the company’s shares or both.
 Amalgamation
 When two or more companies consolidate their business to form a new
firm or become subsidiary of any of the companies.

12. Advantages
 The most common reason for firms to enter into merger and
acquisition is to merge their power and control over the markets.
 Another advantage is Synergy that is the magic power that allow for
increased value efficiencies of the new entity and it takes the shape of
returns enrichment and cost savings.
 Economies of scale is formed by sharing the resources and services
(Richard et al, 2007). Union of 2 firm’s leads in overall cost reduction
giving a competitive advantage, that is feasible as a result of raised
buying power and longer production runs.
 Decrease of risk using innovative techniques of managing financial
risk.
 To become competitive, firms have to be compelled to be peak of
technological developments and their dealing applications. By M&A of
a small business with unique technologies, a large company will retain
or grow a competitive edge.
 The biggest advantage is tax benefits. Financial advantages might
instigate mergers and corporations will fully build use of tax- shields,
increase monetary leverage and utilize alternative tax benefits

13. Disadvantages
 Loss of experienced workers aside from workers in leadership
positions. This kind of loss inevitably involves loss of business
understand and on the other hand that will be worrying to exchange or
will exclusively get replaced at nice value.
 As a result of M&A, employees of the small merging firm may require
exhaustive re-skilling.
 Company will face major difficulties thanks to frictions and internal
competition that may occur among the staff of the united companies.
There is conjointly risk of getting surplus employees in some
departments.
 Merging two firms that are doing similar activities may mean
duplication and over capability within the company that may need
retrenchments.
 Increase in costs might result if the right management of modification
and also the implementation of the merger and acquisition dealing are
delayed.
 The uncertainty with respect to the approval of the merger by proper
assurances.
 In many events, the return of the share of the company that caused

14. Thanks