Advantages of business combination

Advantages of business combinations to combining firms

1. Business combinations eliminates wasteful competition. Costs incurred for advertisement and sales promotion by different small firms can be saved if they combine together.

2. When firms combine together, they can achieve economies of scale. They derive advantages through bulk purchase of raw materials, and economies in production, marketing, finance etc. Their costs, therefore is low. Products can be sold at cheaper prices which increases their sales.

3. If firms combine together, they can explore new markets, tap new consumer segments, engage in research and develop new products. This results in increased sales and profits.

4. Firms which combine together create a large entity. Such a large entity would have substantial resources. The resources can be used to acquire the latest technology, employ experienced and qualified talent and adopt the best practices in the business.

5. Patents possessed by one of the firms can be used by all the combined firms and products can be produced on a larger scale.

6. A combined firm can control the market in terms of pricing, level of supplies and sometimes may even enjoy monopoly power.

7. Small firms would find it difficult to survive recession and depression. If small firms combine together, the combined firm because of its huge resources and scale of operations would be able to survive even in difficult times.

8. Firms combining together can pool their knowledge and experience. All the firms in the combination can benefit from a vast pool of such shared knowledge.

9. The value of the combined firm’s securities would be higher. It would help the firm to raise capital much easily.

10. Firms can plan their production according to market requirements. The risk of overproduction can be reduced to a great extent.

11. Common problems faced by firms can be tackled easily if they come together. They can represent their demands to the government in a unified manner.

11. Exporters generally prefer suppliers who can supply bulk quantities. Combined firms have large production capacity. Therefore they can meet the demand for exporters and increase their sales.

Advantages of business combinations to consumers

1. The combined firms have large financial resources. Utilizing these resources they would be able to produce better quality of products and services which benefit the consumers.

2. A combined firm would be able to invest resources in research to develop new and innovative products. Consumers would be able to upgrade themselves to better products which satisfy their needs in a better way.

3. Combinations result in large sized firms. Large scale firms enjoy economies of scale. Due to the benefits derived from economies of scale, they would be able to sell the products at cheaper prices benefiting the consumers.

4. A combined firm would be able to provide better quality of customer service, open more branches and produce different products to meet customer requirements.

Related Post

Share the Knowledge: