Business combination is voluntary association of firms for the achievement of common objectives. So the combination among the firms may be temporary or permanent. The combination may be formed by a written agreement between the firms, or there may be verbal indulgent among them to unite for enjoying the reward of monopoly There are many advantages and disadvantages of business combination some of them are as under:
A combination can easily raise large capital both short and long term for the expansion of business, replacement of machinery, introduction of improved methods of production etc.
Service of Specialists
A combination is able to acquire the services of talented technicians and of those who are specialists in the management of the company.
Division of Labor
The division of works among directors, managers, officers and labor increases the productive efficiency of combination.
Labor Saving Devices
As the combination is capital intensive, it can, therefore, save expenses of the labor and thus can reduce the cost per unit of the commodity.
A combination can incur expenditure on production research. It can thus produce a variety of goods of standard quality with minimum of cost.
Use of by Products
The growth of combination has made it possible to profitably utilize the by product which in small concerns usually go waste.
Spread of Administrative Expenses
Due to greater volume of production by all the units of combination, expenses per unit of the commodity greatly reduced.
Large Scale Purchasing
The combination purchases goods in bulk. So there are economics in buying and transportation costs per unit of purchases.
Large Scale Marketing
The combination is in a better position in the marketing of products at the national and international level. There are also reductions of advertisement expenses per unit of production.
Elimination of Competition
Due to the growth of combination, there is no price cutting by the competing firms. There is also reduction of cress freight.
Saving from Dissolution
There are some companies in the market which are on the verge of dissolution. So the combination absorbs those companies and saves them from collapse.