Business Combinations | Lateral | Diagonal | Voluntary | Compulsory

What is Lateral Combination?

Lateral combination in business refers to combination of firms engaged in the manufacture of allied products. It is the combination of firms producing products which are connected in some way.

Business Combinations - Lateral, Diagonal, Voluntary, Compulsory

Image: Business Combinations – Lateral, Diagonal, Voluntary, Compulsory

Forms of Lateral Combination

Lateral combination is of the following two forms:

  1. Convergent lateral integration.
  2. Divergent lateral integration.

Convergent Lateral Integration

Convergent lateral integration implies a combination of different industrial units whose finished product is the raw material for one major firm. In other words, the finished goods of many units is the raw material of one unit. For e.g. all the component manufacturers of a particular automobile joining together or all the component manufacturers of a computer joining together, a paper producer, ink producer and printing blocks producer joining to set up a printing press.

Divergent Lateral Integration

In the case of divergent integration, the different combining units get their raw materials from a major finti. The product of one firm becomes the raw material of the other firms which have combined with it. For e.g. Both HP (Hewlett Packard) and Compaq which were buying computer chips from Intel have merged together.

What is Diagonal Combination?

It takes place when an industrial unit combines with related service industries. For e.g. a machinery manufacturer combining with a repair workshop, an electronic goods manufacturer combining with a retailers showroom or with a firm providing repairs and maintenance service, an automobile company combining with a transport company which transports its automobiles In such cases, the services required for the main process of production is provided within the organization itself. It is also known as services combination.

Benefits of Diagonal Combination

1. It helps in achieving self sufficiency in operations.

2. It ensures regular and uninterrupted service to the manufacturing industry.

3. Wastage of time due to breakdowns is reduced to a great extent.

4. It ensures services of the required quality and standards.

5. Costs of services is maintained at a stable rate without undue increase.

6. The main organization need not depend on outside suppliers.

What are Voluntary Combinations?

When the different units join together voluntarily out of their own free will it is known as voluntary combination. Combination of different cement firms to form the Associated Cement Company Ltd., (ACC Ltd.,) is an example of voluntary combination.

What is Compulsory Combination?

When combination takes place because of Government direction or intervention, it is known as compulsory combination. The government directs the combination of firms to protect national interests, save sick firms, avoid loss of jobs and for the benefit of the society.

The following are the examples of compulsory combination:

  • The amalgamation of several banks into the Union Bank of India.
  • The takeover of Nedungadi Bank by the Punjab National Bank etc.