business combination

What is Business Combination? Business combination is voluntary

association of firms for the achievements of common objective.

Causes of Business Combination

Elimination of Competition• Some firms do not survive the competition and

finally close the business due to large number of firms produce a particular type of commodity.

Elimination of Competition• Some firms do not survive the competition and

finally close the business due to large number of firms produce a particular type of commodity.

Causes of Business Combination

Economies of Large scale production

The rival unit combine together to reap the benefit of large scale production. They purchase raw material in bulk, produce standard goods, reduce the operational costs of business and sell the product at a price which gives them maximum profit.

Economies of Large scale production

The rival unit combine together to reap the benefit of large scale production. They purchase raw material in bulk, produce standard goods, reduce the operational costs of business and sell the product at a price which gives them maximum profit.

Causes of Business Combination Capital Problem

Lack of Capital is great hindrance for the progress of a firm. So, Business Combination is formed to overcome this problem.

Capital Problem Lack of Capital is great hindrance for the progress

of a firm. So, Business Combination is formed to overcome this problem.

Causes of Business Combination Transportation Developments;

The development of fast means of transport has also led to the growth of industrial combinations.

Transportation Developments;

The development of fast means of transport has also led to the growth of industrial combinations.

Causes of Business Combination

Tariff facilities• The imposition of custom and duties on the

imported goods is also an important factor in the formation of combination.

Tariff facilities• The imposition of custom and duties on the

imported goods is also an important factor in the formation of combination.

Causes of Business Combination

Effective Management• Small units are unable to hire the services of

experts.

Causes of Business Combination

Rapid changes of Economic Policy

Causes of Business Combination

Use of Technology• A single unit cannot use the new technology.

Causes of Business Combination

Economic Instability• There is fear of loss always so Business

combination is formed.

Causes of Business Combination

Respect for bigness• The business units of bigger size command

more respect than of smaller units.

Forms of Business Combination

When ownership is the basis of combination, it is known as forms of combination.

Various form of combination are grouped under

two main heads Simple Combination Compound Combination It includes

Partnership and companies.

Forms of Business Combination

Combined Combination is the Combination of associations.

1- Simple Association• Trade Associations

• Chamber of Commerce

• Gentlemen’s Agreement

Forms of Business Combination

Simple Association• Trade Association

A trade association is a voluntary association of merchants, industrialist, traders, engaged in the same kind of trade.

Examples of these trades are;Grain market Association, FAISALABADCloth merchants Association, SHAH ALMI LAHORECotton Textile mills Association, PAKISTAN

Forms of Business Combination

Chamber of CommerceChamber of commerce is a voluntary association of traders, businessmen, merchants, industrialists, financier, who work for the benefit of business community generally at a regional level.Following chamber of commerce are working in Pakistan;

• Federal chamber of commerce of Pakistan.• Federal chamber of commerce at Karachi.

Forms of Business Combination

Gentlemen’s AgreementsThe gentlemen’s agreement is the simplest and most informal type of business combination among competing enterprises.

Forms of Business Combination

Federation• Pool

The pool is an agreement made by members producing and dealing in similar products. The aim of the pool is to eliminate competition among the producers by regulating prices.

Forms of Business Combination

Pool

THE POOL

Co. A Co. B

Co. G Co. C

Co. F Co. E

Co. D

Co. H

Poolin

g

Mem

ber

Pooling

Mem

ber

Forms of Business Combination

Types of Pool• Production Pool

• Market Pool

• Income or Profit Pool

Forms of Business Combination

Cartel or Syndicate

Cartel New

Company

CompanyAC

ompa

nyD

Com

pany

B

Com

pany

C

Forms of Business Combination

Consolidation• Partial Consolidation

• Trust• Community of interest• Holding Company

• Complete consolidation• Amalgamation• Merger

Business combination is about to start;

Types of Business CombinationTypes of Business CombinationTypes of Business CombinationTypes of Business Combination

Types of Business CombinationTypes of Business Combination

There are four main divisions of Business Combination.

Horizontal CombinationVertical CombinationCircular CombinationDiagonal Combination

Types of Business CombinationTypes of Business Combination

Horizontal Combination In Horizontal combination, two or more than two

same nature business units combined themselves under the one management. For example, if four cement industrial units are at the same stage of production, they are engaged in same activity. They sell wholesale.

Types of Business CombinationTypes of Business Combination

Horizontal Combination

Management

A

Cement

Factory

B

Cement

Factory

C

Cement

Factory

D

Cement

Factory

Types of Business CombinationTypes of Business Combination

Vertical Combination

Vertical integration is the combination of firms in successive stage of the same industry.

Cotton Ginning

Cotton Spinning

Cotton Wearing

Cotton Processing

Wholesale Selling

Types of CombinationTypes of Combination

Circular Combination

Management Of

Circular Combination

ChemicalIndustry

CementIndustry

ShoesIndustry

ClothIndustry

Types of CombinationTypes of Combination

Diagonal CombinationDiagonal combination takes place when two or more than two business units rendering subsidiary services unite under main industry or under a single management a diagonal combination is formed.

Tailoring Units Garments Industry Designing Units

Advantages & Disadvantages of Advantages & Disadvantages of Business CombinationBusiness Combination

Advantages of Business CombinationAdvantages of Business Combination

Increase in Capital Elimination of

Competition Saving is expense Controls

overproduction Large Scale

Marketing Experts Services

Reduction per unit cost

Closing down inefficient firms

Use of Modern technology

Stability Division of Labor

Disadvantages of Business CombinationDisadvantages of Business Combination

MonopolyConcentration of wealthIncreased riskCostly managementOvercapitalizationMisuse of funds No Personal contracts

COOPERATIVE SOCITIES

Meaning of Cooperative

• Cooperative is a special form of organization. It differs from other major forms of organizations in set up not to earn profit but to render services to its members.

Characteristics of Co-operative undertaking

• Body Corporate• Voluntary Association• One man one vote• Service motive• Distribution of profits• Control and management• Cash transaction only• Religious and political neutrality• Liability

Principal of Cooperative

• Voluntary membership• Equality• Decision democratic• Spirit of co-operation• Welfare objective• Honesty• Mutual confidence• Economy• Payment of dividend• Sales on cash• Market prices of the Commodities.

Classification of Co-operative societies

• Types of Cooperatives• Producer Cooperative societies;

• It is successful when;

Business is on small scaleNeed special skill of doing a workWork is labor intensiveManagement is honest and efficient

• Types of Cooperatives• Producer Cooperative societies;

• It is successful when;

Business is on small scaleNeed special skill of doing a workWork is labor intensiveManagement is honest and efficient

Classification of Co-operative societies

• Types of Cooperatives• Consumer cooperatives• Cooperative market societies• Cooperative credit societies• Co-operative Insurance• Co-operative Housing societies• Co-operative Farming societies• Miscellaneous societies

Advantages of Co-operatives

• Merits of Cooperatives• Easy Formation• Open membership• Relief by Government• Elimination of Middlemen• Minimum Inventories• Distribution of wealth• Limited Capital• Long life• Employment

opportunities• Economic development.

• Merits of Cooperatives• Easy Formation• Open membership• Relief by Government• Elimination of Middlemen• Minimum Inventories• Distribution of wealth• Limited Capital• Long life• Employment

opportunities• Economic development.

Disadvantage ofCo-operatives

• Difficulty in cooperation.• Inefficient management.• Inefficient Employees.• Mismanagement.• Limited liability.• Lack of secrecy.• Rigid Government rules and regulations,

Cooperative SocietiesCooperative Societies

• A cooperative society is a form of organization wherein persons voluntarily associate together as human beings on basis of equality for the promotion of economic interest of themselves.

Forming of Cooperative societyin Pakistan

• Application for Registration• Minimum members

• A society is registered if there are at least 10 members above the age of 18 years.

• Rights and liabilities of members• Dues

• One man one vote

• Death

• Application for Registration• Minimum members

• A society is registered if there are at least 10 members above the age of 18 years.

• Rights and liabilities of members• Dues

• One man one vote

• Death

Forming of Cooperative society in Pakistan

• Property and Funds of a registered society• Loan

• Rules and regulations

• Investments

• Net profit

• Property and Funds of a registered society• Loan

• Rules and regulations

• Investments

• Net profit

L i p to n Break`