It is voluntary association firm for the achievement of common objectives. So the business combination may be formed by a written agreement among the firms. So they write themselves for enjoining the benefit of monopoly. In such case of combination the different organization rules their separate entity.
Causes of Business Combination
Elimination of Competition
The main object of farming business is to avoid competition among the firms. Every business is unable to secure full control over the market due to modern technique of production marketing stiff competition among the produces and lowered the profit market.
Through the combination the organization can benefits of large scale production. Therefore the raw material purchased is bulk, standard goods with specialized reduce the operational cost and sell the product and maximum possible profit.
Change in the Economic Policy
If there is political instability in the country, However the govt. policies are subject to frequent charges, it promotes businessmen to combine and chalk out policies which reduce risk in business.
The development mode of transportation has also led to the growth of industrial combination. The transportation development has made it possible to build up large business in various parts of the country.So these big industrial units, being small in number, easily form industrial combination.
The business units may combine for standardization of products, planned utilization of resources and also introduction of automation in industry.
Completing International Market
The combination of successful into prices reduces the risk involved in beginning and also selling in the international market
Under utilization natural resources is also a cause of business combination.
There is up and down in the business.So the changing market condition makes the business unstable. The demand for product is flexible due to trade cycle, the boom period. The business works at highest level. There is too making increase in the business unit. During desperation all business works at lowest level. The firm joint together reduces the risk of trade cycle.
The changing economic policy of the govt. Increase the risk of business frailer through business combination. People combine different types of business, so that the loss of one business can be off set against the other business.
The small firm cannot carry out for the research knowledge. So the large capital is helpful to meet research expenses. In order to benefit of the research one business, is combining with other having the research facility. It is highly valuable in case of business combination.