1. Destructive Competition: destructive competition may
result into the stoppage of many firms. In order to remove the fear
created by strong competition, the competing firms arrive at some
sort of understanding to regulate prices and eliminate
overproduction. In other words, combination may be created as a
means of furthering self interest by common action.
Economies of Large Scale: A large number of economies are
achieved if a business is carried on a large scale. These economies
relate to production, management, financing and marketing. Small
business units may combine together to reap the benefits of large
scale operations and organisation. This will reduce the cost of
production and increase the profits of the business.
Joint Stock Enterprise: The evolution of company form of
organisation has also facilitated the combination of various units by
acquiring shares of various companies to control their affairs. The
companies under the common control through the system of
inter-locking directorship can be easily combined to get many
benefits of combination.
4. Control of Market:
Combinations are created to secure steady market. Sometimes,
combinations are created to control the entire market and create a
monopoly which is detrimental to the interest of the consumers. By
controlling the market, they can sell their products at higher prices
and earn huge profits.
5. Individual Ability:
According to Shield, ' ' Great organising ability, strategic
genius, or personal ambition on the part of one or a number of men
may account in part for the rise of certain business combinations.
The scarcity of business talent became one of the causes of
centralisation of power in a few hands, endowed with business
insight, business talent and business courage.' ' Many a time,
business combination a are created due to the initiative and
organising ability of an individual or a number of individuals.
6. Lust for power: Some businessmen have a
lust for economic power which can be satisfied by creating industrial
empires. Desires to bring up industrial regime lies at the back of
many combinations. Individual ambition of becoming the pioneer
member or coordinator of a huge combine is also on of the factors
7. Business Cycles: In
uncontrolled economies, there are trade cycles. During books, firms
expand to take advantage of rising demand, and during depressions,
inefficient and weak firms find it difficult to survive because of
lower demand. Business ups and downs generally lead to business
combinations. Particularly in industries, where huge capital is
employed and where demand is subject to cyclical changes,
combinations occur as a revulsion against risk of burdensome overhead
cost, glut, low turnover and lower process during depression.
Protective tariffs: Protective tariffs are used to encourage
home industries. When the Government imposes import duty on certain
items, the home manufacturers of such items are encouraged to form
combination to develop their business and exploit the domestic market
fully. Sometimes, national level combinations are formed to provide
a united front to perpetuate protection.
Government Pressure: The Government policy may compel the weaker
units to amalgamate with the stronger units so as to improve the
overall efficiency of the industry. Even the Government may take over
the sick units and combine them to form a viable unit and introduce rationalization in it.
10. Miscellaneous Factors:
(a) Dearth of managerial talents may lead to
managerial integration of business units. Many companies have common
directors which in fact means their common control.
If an enterprise wants to be self sufficient, it may combine with
other units. Vertical integration is the result of desire for
self-sufficiency. Under this, various units producing the related
raw materials and semi-finished products are combined together so
that they produce the finished products at economical prices.
Growth of transport an communication has increased the intensity
of completion not only in the national market but also in the
international market. This has resulted in the formation of
multinational enterprises having subsidiaries in different countries.
(d) Sometimes, firms in an industry join to avail
of the benefits of patent rights of one firm.
has divided the above factors or forces into three categories which
are as follows:
(i) Driving or impelling forces
consisting of cut-throat competition and decrease in the opportunity
for speculative gains
(ii) Beckoning forces which
include opportunity for profits, protective tariffs and gains of over
(iii) Facilitating forces
comprising of joint stock enterprises and other forces.