Business Topic-Reasons why business combination or partnership is necessary

Focus of the week –Business
Topic- Reasons why business combination or partnership is necessary
Writer-Joy Iyere

Business combination occurs in several ways and for varied reason. Some of the reasons are to procure the financial resource needed to execute bankable project, to secure economics of scale, to subdue-rivals or eliminate competition.
Some combinations are partial or whole, others are total. In a partial combination the various group desirous of coming together retain some form of independence. Thus one entity may become a subsidiary of another. In a total combination the various entities merge together to form a new concern such as mergers, amalgamations syndicates, Reconstructions.

We also have short or temporary combinations and long term combination. Short term combination is a combination of convenience and members are free to pull out at any time. Short-term combination is riddled with failure arising from lack to trust of members or crises of confidence.

In a permanent or long term combination members covenant to honor their agreement for definite term of years. The rules governing such combination are strict and it will take a long time going through various processes before dissatisfied members can un tie the knot that blinds it to others.
Combinations essentially are designed to provide some benefit to members as stated above. How ever where the purpose or object of a combination is considered repugnant to public interest by the government, the combination will be void.

Reason for partnership or combination

Economics scale-Enterprise with differing deficiencies in scale of operation will resort to combination as a way of harnessing, in a most economical and effective way. The resources of the combining enterprise. When combined their output will increase while the cost of operation is reduced. For instant, a company may have excess demand but a short of production facilities while another company may have excess production capacity. Both companies can combine to remedy their respective deficiencies.

Ensure dependable source of supply and demand- oftentimes, companies combine to assure themselves of the dependability of supplies as well as demand. A paper mill operator may form combination with a newspaper publisher. Hides and skins producer may combine with a shoe making outfit. Under this arrangement there is assurance with a large measure that both the paper mill operator and hides producers will have market for their product. While at the same time there is guarantee that the publish and the shoe market will always have suppliers. Reduction in completions and elimination of waste are thereby ensured