Industrial Combination

Meaning of Industrial Combination

When two or more business units join to work together, ending all competition between them, it is called Industrial Combination. In other words, combining various units attaining their objectives economically; keeping in mind the welfare of the people is called Combination. For combining, it is not necessary for both the units to have the same kind of business. Units of two different industries can also combine.

Definition of Industrial Combination

Prof J. L. Haney

According to Prof. L. H. Haney,

When two or more units put an end to their mutual competition, to develop the atmosphere of brotherhood, to earn more profits, or to attain any other ordinary objective, it is called Combination.

Types of Industrial Combinations

Based on the kinds of business, combinations can be divided into many forms; out of which there are five main divisions:

    1. Horizontal Combination
    2. Vertical Combination
    3. Lateral or Allied Combination
    4. Circular Combination
    5. Diagonal Combination

Horizontal Combination

When two or more units engaged in the same kind of business join or combine under single management, the combination is called Horizontal Combination. The quality of such combined units is that they carry on the same trade before the combination. Such kind of combination is undertaken mostly when too much competition is existent in the market. In India, such combinations are found in the cement industry. Hit by cut-throat competition, two companies The Indian Cement Manufacturing Association and the Associate Cement Company Limited which were established in 1926 and 1930 respectively, combined afterward to form a single company with the name of ACC, now it is known as one of the leading cement companies not only in India but also in the world.

Vertical Combination

When two or more units, performing different sequential activities in the same industry are combined, it is called Vertical Combination. In this kind of combination, the work of combined units is not competitive but is complementary to each other, that is, the finished product of one unit is the raw material for the other unit. For example, a combination of a unit engaged in producing cotton thread, with a unit producing cloth, is a form of Vertical Combination. Vertical Combination is of two types:

  • Forward Integration
  • Backward Integration

Which Combination is Superior?

If profits of large scale monopolistic production have to be achieved by the elimination of mutual competition, then Horizontal Combination is suitable but there should not be any exploitation of the consumers. Contrary to this, if a business unit wants to combine all the activities of production to become self sufficient, so that it does not have to depend on other units, then Vertical Combination is suitable.

Which of the two combinations is superior, depends on the nature of business and the objective of combination. To call any one of these as superior would be unjust for the other kind of combination.

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