Concept of Business Combinations:

Business combinations may be defined as follows:

Business combinations are combinations formed by two or more business units, with a
view to achieving certain common objective (specially elimination of competition); such
combinations ranging from loosest combination through associations to fastest
combinations through complete consolidations.
L.H. Haney defines a combination as follows:
“To combine is simply to become one of the parts of a whole; and a combination is
merely a union of persons, to make a whole or group for the prosecution of some
common purposes.”
Causes of Business Combinations:
Some of the outstanding causes leading to the formation of business combinations are
described below:
(i) Wasteful Competition:
Competition, which is said to be the ‘salt of trade’, by going too far, becomes a very
powerful instrument for the inception and growth of business combinations. In fact,
competition, according to Haney, is the major driving force, leading to the emergence of
combinations, in industry.

(ii) Economies of Large-Scale Organization:

Organisation of production on a large scale brings a large number of well-known
advantages in its wake – like technical economies, managerial economies, financial
economies, marketing economies and economies vis-a-vis greater resistance to risks
and fluctuations in economic activities. Economies of large scale operations, thus
become, a powerful force causing increased race for combinations.

(iii) Desire for Monopoly Power:

Monopoly, a natural outcome of combination, leads to the control of market and
generally means larger profits for business concerns. The desire to secure monopolistic
position certainly prompts producers to join together less than one banner.

(iv) Business Cycles:
Trade cycles, the alternate periods of boom and depression, lead to business
combinations. Boom period i.e. prosperity period leading to an unusual growth of firms
to reap rich harvest of profits results in intense competition; and becomes a ground for
forming combinations.

Depression, the times of economic crisis-with many firms having to only option to close
down-prompts business units to combine to ensure their survival.

(v) Joint Stock Companies:

The corporate form of business organization is a facilitating force leading to emergence
of business combinations. In joint stock companies, control and management of various
corporate enterprises can be concentrated, in a ‘small group of powerful persons
through acquiring a controlling amount of shares of different companies.

(vi) Influence of Tariffs:
Tariffs have been referred to as “the mother of all trusts”. (A trust is a form of
business combinations). Tariffs do not directly result in combinations; they prepare the
necessary ground for it. In fact, imposition of tariffs restricts foreign competition; but
increases competition among domestic producers. Home producers resort to
combinations, to protect their survival.
(vii) Cult of the Colossal (or Respect for Bigness):
In the present-day-world, business units of bigger size are more respected than units of
small size. Those who believe in the philosophy of power and ambition, compel small
units to combine; and are instrumental in forming powerful business combinations, in a
craze for achieving bigness.

(viii) Individual Organising Ability:

The scarcity of organizing talent has also induced the formation of combinations, in the
business world. Many-a-times, therefore, combinations are formed due to the ambition
of individuals who are gifted with organising ability. The number of business units is far
larger than the skilled business magnates; and many units have to combine to take
advantage of the organising ability of these business brains.

The objectives of combinations are:

a. Achieving sustained growth and profits.

b. Reduction in competition.
c. Preventing the entry of new firms by creating entry barriers.
d. Achieving monopoly status.
e. Undertaking large scale production and benefiting from economies of scale.
f. Investing in common facilities and infrastructure.
g. Avoiding cut-throat competition and the evils associated with it.
h. Achieving greater financial strength and stability.
i. Investing in research and development to innovate new products.
j. Pooling of material and manpower to ensure efficiency in operations.
k. Sharing knowledge of best practices for mutual benefit.
l. Maintaining stability in prices.
m. To withstand the effects of business cycles.

Types of Business Combinations:

Business combinations are of the following types:
(i) Horizontal Combinations.

(ii) Vertical Combinations.

(iii) Lateral or Allied Combinations:

Lateral combination refers to the combination of those firms which manufacture different
kinds of products; though they are allied in some way.

Lateral combination may be:

(a) Convergent lateral combination:
In convergent lateral combination, different industrial units which supply raw-materials to
a major firm, combine together with the major firm. The best illustration is found in a
printing press, which may combine with units engaged in supply of paper, ink, types,
cardboard, printing machinery etc.

(b) Divergent lateral combination:

Divergent lateral integration takes place when a major firm supplies its product to other
combing firms, which use it as their raw material. The best example of such combination
may be found in a steel mill which supplies steel to a number of allied concerns for the
manufacture of a variety of products like tubing, wires, nails, machinery, locomotives
etc.

(iv) Diagonal (or Service) Combinations:

This type of combination takes place when a unit providing essential auxiliary goods /
services to an industry is combined with a unit operating in the main line of production.
Thus, if an industrial enterprise combines with a repairs workshop for maintaining tools
and machines in good order; it will be effecting diagonal combination.

(v) Circular (or Mixed) Combinations:

When firms engaged in the manufacture of different types of products join together; it is
known as circular or mixed combination. For example, if a sugar mill combines with a
steel works and a cement factory; the result is a mixed combination.

Forms of Business Combinations:

By the phrase ‘forms of combinations’ means the degree of combination, among the
combining business units.

According to Haney, combinations may take the following forms, depending on

the degree or fusion among combining firms:
(I) Associations:
(i) Trade associations

(ii) Chambers of commerce

(iii) Informal agreements

(II) Federations:
(i) Pools

(ii) Cartels

(III) Consolidations – Partial and Complete:

(а) Partial Consolidations:
(i) Combination trusts

(ii) Community of interest

(iii) Holding company

(b) Complete Consolidations:

(i) Merger

(ii) Amalgamation

Following a brief account of the above forms of business combinations:

(I) Associations:
Forms of Combinations, in this Category are:
(i) Trade Associations:
A trade association comes into being when business units engaged in a particular trade
or industry or in closely related trades come together for the promotion of their
economic and business interests. Such an association is organized on a non-profit
basis and its meetings are used largely for a discussion of matters affecting the
common interests of members such as problems of raw- materials, labour, tax-laws etc.

Most of the trade associations are organised on a local or territorial basis. A trade
association is the loosest form of combination and it does not interfere with the internal
management of a member unit.

(ii) Chambers of Commerce:
Chambers of commerce is voluntary associations of persons connected with commerce
and industry. Their membership consists of merchants, brokers, bankers, industrialists,
financiers etc.
Chambers of commerce is formed in the same way as associations, with the ultimate
objective of promoting and protecting the interests of business community. But they
differ from trade associations in that they do not confine their interests only to a
particular trade or industry; but stand for the business community in a particular region,
country, or even the world, as a whole.

Chambers of commerce act as spokesmen of business community and make

suggestions to the government regarding legislations that will foster trade and industry.
The constitution and composition of chambers of commerce vary from country to
country. In most of the countries, they are voluntarily organised by businessmen; though
the government maintains close contacts with them.

(iii) Informal Agreements:

Informal agreements are types of business combinations which may be formed for the
purpose of regulating production or for dividing the markets or for fixation of prices etc.
Such agreements require the surrender of some freedom by the combining business
units; though ownership and control of combining units is not affected.

Informal agreements among business magnates are often concluded secretly at social
functions like dinners or at meetings of trade associations etc. These agreements are
merely understanding among the parties and no written documents are prepared. As
they depend mainly on the honour and sincerity of members; they are referred to as
Gentlemen’s agreements.
(II) Federations:
Forms of Business Combinations in this Category are:
(i) Pools:
Under the pool form of business combination, the members of a pooling agreement join
together to regulate the demand or supply of a product without surrendering their
separate entities, in order to control price.

Important Types of Pools are:

(a) Output Pools:
Under these pools, the current demand for the product of the industry is estimated; and
quotas of output for various member units are fixed. Member units are expected to
produce only up-to the quota, and sell their products at a price determined by the
pooling association.

(b) Traffic Pools:

Such pools are formed by shipping companies, airlines, railway companies and road
transport agencies; with the basic objective to limit competition through a division of the
area of operation.

(c) Market Pools:

These pools are formed with the objective of ensuring a certain demand to each
member. For this purpose, the entire market is divided among the members in any of
these three ways by customers, or by products or by territories.

(d) Income and Profit Pools:

In these pools, members of the pooling association are required to deposit a very high
percentage (say 80%) of the gross receipts in the common pool for re-distribution
among members on an agreed basis.

(ii) Cartels (Kartells):
Basically cartel is the European name for the American pools. According to Von
Beckereth, “A cartel is a voluntary agreement of capitalistic enterprises of the
same branch for a regulation of the sales market with a view to improving the
profitableness of its members’ business.”
Von Beckereth mentions the following broad types of cartels:

(a) Price-Fixing Cartels:
In this type, prices are fixed for goods and members cannot sell below those prices.

(b) Term-Fixing Cartels:
In this type, terms regarding sales e.g. rate of discount, period of credit; terms of
payment etc. are prescribed.

(c) Customer Assigning Cartels:

In this type, each member unit is allotted certain customers.

(d) Zonal Cartels:
In this type, division of market among units takes place; but generally these cartels are
formed for dividing the world market.

(e) Quota-Fixing Cartels:
In this type, production quotas are fixed for each member; and no member would
produce more than the allotted quota.

(f) Syndicates (or Cartels Proper):

This type of cartel is brought into existence, through an agreement among a number of
competing producers to establish a joint selling agency (called syndicate) for the
exclusive sales of their products. Member units sell their products to the syndicate at a
price called the accounting price.

The syndicate sells to consumers at a price higher than the accounting price; and the
profits earned are distributed among members on an agreed basis.

(III) Consolidations:
As a Form of Business Combinations, Consolidations may be:
(a) Partial Consolidations:
Under partial consolidations, the combining units surrender their freedom for all practical
purposes to the combination organisation; but retain respective individual entities
nominally.

Popular Types of Partial Consolidation are the following:

(i) Combination Trusts:
A combination trusts is an arrangement by which the business control is entrusted to the
care of trustees, by a number of business concerns. It consists in the transfer to
trustees of the voting rights arising from the possession of shares.

The trust has a separate legal existence. The control and administration of the
combining units are consolidated; and they have to forgo a large measure of their
independence and autonomy in directing their affairs. The shareholders of combining
companies get trust certificates from the Board of Trustees; which show their equitable
interest in the income of the combination.

(ii) Community of Interest:
When trusts were declared illegal in the U.S.A.; the business leaders devised a new
form of combination ‘Community of interest’, for keeping a number of companies under
some kind of common control.

A community of interest may be defined as form of business combination in which,

without any central administration, the business policy of several companies is
controlled, by a group of common shareholders or directors.

(iii) Holding Company:

A holding company is a concept recognized by law in India and most other countries. A
holding company is any company which holds more than half of the equity share capital
of other companies or controls the composition of the board of directors of other
companies (called the subsidiary companies).

Further, a company which is a subsidiary of another subsidiary company will be the

subsidiary of that other holding company too. If e.g. C is a subsidiary of B; and B is a
subsidiary of A; then C will be deemed to be a subsidiary of A through the medium of B.

(b) Complete Consolidations:

Complete consolidation is that form of business combination under which there is a
complete fusion of the combining units and the separate entities of these units are
surrendered in favour of the consolidated unit.

There are Two Forms of Complete Consolidation:

(i) Merger:
In merger, one or more companies merge with another existing company. The
absorbing company retains its entity and enlarges its size through merger. The
company which is absorbed, on the other hand, loses its entity in the absorbing
company.

(ii) Amalgamation:
An amalgamation implies the creation of a new company by a complete consolidation of
two or more combining units. Under amalgamation none of the existing companies
retains its entity. There is a complete fusion of various existing companies, leading to
the formation of an altogether new company.

FICCI: The Federation of Indian Chambers of Commerce and Industry (FICCI) is an

association of business organisations in India. It came in existence in 1927, by GD
Birla and Purushottam Das Thakurdas, on the advice of Mahatma Gandhi. It is the largest,
oldest and the apex business organisation in India It is a non-government, not-for-profit
organisation. FICCI has its membership from the corporate sector, both private and public,
including SMEs and MNCs. The chamber has an indirect membership of over 2,500,000
companies from various regional chambers of commerce. Its head quarter is in New
Delhi and has presence in 12 states in India and 8 countries across the world. Its current
President is Mr. Pankaj Patel.

There are certain allied organization of FICCI to execute its various programs.

Confederation of Indian Food Trade and Industry

Confederation of Indian Food Trade and Industry (CIFTI) caters to Indian food Industry.
It deals with policies, trade affairs and capacity building. CIFTI provides institutional
support and partners with the Government and the Indian private sector in promotion
and development of Indian food processing industry. CIFTI was established by FICCI in
1985. It is currently lead by Mr. Sanjay Khajuria who serves as its President.
Arbitration and Conciliation Tribunal
FICCI Arbitration and Conciliation Tribunal (FACT) provides arbitration services for
settling commercial disputes. FACT was established in 1952 and aims at settling
business disputes outside the traditional framework offered by courts of law through
arbitration and conciliation, as the case may be.
Alliance for Consumer Care
FICCI Alliance for Consumer Care (FACC) is a dedicated centre set up by FICCI along
with Department of Consumer Affairs, Government of India to enhance consumer care
practices and facilitate stakeholder interaction. It facilitates prompt redressal of
consumer grievances, a dialogue between the business and consumers and promotion
of responsible business practices.
Ladies Organisation
FICCI Ladies Organisation was established in 1983 to promote entrepreneurship and
professional excellence among women in India.
Aditya Birla CSR Centre for Excellence
Aditya Birla CSR Centre for Excellence is a joint initiative of FICCI and the Aditya Birla
Group. The centre aims at development of inclusive and holistic CSR practices. This
centre also organises the Business world FICCI CSR Award, an annual award aimed at
identifying & recognising remarkable CSR initiatives.
Confederation of Micro, Small and Medium Enterprises (CMSME)
Confederation of Micro, Small and Medium Enterprises is an affiliate body of FICCI. It
was established in December 2013. It aims to connect MSMEs with mentors, incubators
& accelerators and assist them through capacity building programs & services;
deliberate of policy concerns of the sector; and provide regular interface between
Industry, Government and regulators. In terms of the scope of work CMSME is similar to
FICCI with the only differentiation being the exclusive focus on Micro, Small and Media
enterprises in India.
FICCI Committee Against Smuggling and Counterfeiting Activities Destroying
Economy (CASCADE)
FICCI Committee Against Smuggling and Counterfeiting Activities Destroying Economy
(CASCADE) was launched on 18 January 2011 and aims to run consumer sensitisation
drives on the impact of using smuggled, contraband and counterfeit products across
India. The body is also engaged in capacity building of law enforcement agencies and
research.

ASSOCHAM:

The Associated Chambers of Commerce and Industry of India (ASSOCHAM) is

one of the apex trade associations of India. The organisation represents the interests of
trade and commerce in India, and acts as an interface between industry, government
and other relevant stakeholders on policy issues and initiatives. The goal of this
organisation is to promote both domestic and international trade, and reduce trade
barriers while fostering conducive environment for the growth of trade and industry of
India. ASSOCHAM was established in 1920 by promoter chambers, representing all
regions of India. The Association's head office is located in New Delhi and regional
offices are located in the cities of Ahmedabad, Bengaluru, and Kolkata. , ASSOCHAM
covers a membership of over 4.5 lakh companies and professionals across the country
from the sectorslikeTrade (national and international), Industry (domestic and international),
Professionals (E.g.: CAs, lawyers, consultants)
ASSOCHAM operates 59 Expert Committees that provide an interactive platform to
members for interaction and aid formulating policy recommendations to facilitate
economic, industrial and social growth. The association has a special role in promoting
international trade, and often hosts international trade delegates to India, along with
sending delegations of Indian business groups to foreign locations. It also interacts with
counterpart international organisations to promote bilateral economic issues.
ASSOCHAM is a member of the International Chamber of Commerce, the World
Business Organisation, through ICC, India.
ASSOCHAM is authorised by the Government of India to issue Certificates of Origin,
certify commercial invoices, and recommend business visa.
Presently Mr Sanjeev Jajodia is president and Mr.D.S. Rawat is Secretary General of
ASSOCHAM

CONFEDERATION OF INDIAN INDUSTRIES:

The Confederation of Indian Industry (CII) is a business association in India. CII is a
non-government, not-for-profit, industry-led and industry-managed organization.
Founded in 1895, it has over 8,300 members, from the private as well as public sectors,
including SMEs and MNCs, and an indirect membership of over 200,000 enterprises
from around 250 national and regional sectoral industry bodies.
CII works with the Government on policy issues.CII has 67 offices, including 9 Centres
of Excellence, in India, and 11 overseas offices in as well as institutional partnerships
with 344 counterpart organizations in 129 countries, CII serves as a reference point for
Indian industry and the international business community.
The CII Theme for 2017–18 is ‘India Together: Inclusive. Ahead. Responsible.
Ms. Shobana Kamineni, Executive Vice-Chairperson, Apollo Hospitals Enterprises
Limited (AHEL) is the President of CII for the year 2017-18. Rakesh Bharti Mittal, Bharti
Enterprises is President-Designate and Uday Kotak, Executive Vice Chairman and
Managing Director, Kotak Mahindra Bank Limited is the Vice President. Chandrajit
Banerjee is the Director General.
CII has over 500 ‘Intellectual Groups’ – Councils, Committees, Task Forces, Working
Groups, among others – working at the national and regional levels, across industry
sectors. These Groups give shape to and articulate Member concerns to Government policy
makers, Regulators, Think Tanks etc. They work pro-actively with Government to formulate
policies that would empower businesses.
CII correlates with Government, NGOs, and civil society to help industry flourish effective
programs for social development.[24] It provides numerous stances through which
representatives can undertake on various issues, such as gender equality, microfinance,
development of backward districts, HIV/AIDS and public health. Through focused
interventions, CII endure to mainstream economically and socially challenged entities and
bring them into a phase of growth, development and empowerment. All these interventions
are launched under CII’s broad canvas of "Development Initiatives".
CII has direct membership of over 8000 organisations and indirect membership of over
200,000, from around 240 national and regional sectoral associations.
The membership is open to any company or firm in India engaged in manufacturing activity
or providing consultancy services. India Liaison Offices operating with the approval of
Reserve Bank of India, without any Sales Turnover in India, are eligible for the "Associate
Membership". There is no Individual membership in CII. Companies from the same group
can take up membership separately, since there is no group membership.

AIMO
AIMO was founded by Bharat Ratna Sir. M. Visvesvaraya over 75 years ago. The
Organisation has established itself as a body committed to Industrial progress with the
motto "Prosperity through Industry". It has been recognized by Government as an apex
Organisation of industry and given representation on most of the policy making bodies
of the Central and State Governments. The Tamil Nadu State Board continues to be
represented on number of Government / Quasi Government Bodies.

● Central Excise Regional Advisory Committee, Chennai II and III

● State Labour Advisory Committee
● Minimum Wages Advisory Committee
● Good Industrial Relations Advisory Committee
● Regional Workers Education Advisory Committee
● SISI Advisory Committee
● Regional Testing Centre Advisory Committee
● State Consumer Protection Council

● Anna University Planning & Monitoring Board

● EPF Advisory Committee
● ESI Regional Council
● ESI Medical Council
● State Employees Welfare Association
● Labour Welfare Board
● Service Tax Regional Advisory Committee

Members of AIMO are drawn from Small, Medium and Large scale industries from all
over the country with diverse interests such as engineering, chemicals,
pharmaceuticals, food processing and services. With headquarters in Mumbai, AIMO
has State/Regional level boards elected annually, supported by Secretariats at
headquarters and State Boards. The Tamil Nadu State Board operates from Chennai.
AIMO has been instrumental in creating an environment for co-operation between
Government and Industry, in promoting and co-coordinating industrial and economic
growth, and has worked for servicing trade and industry and the community. In order to
effectively represent industry, AIMO actively participates in over 150 National and State
level Government and quasi Government bodies.
OPERATION : Over 20 Councils/Committees with experienced senior executives of
member companies study and analyze various legislative and other matters of concern
to industry and provide expert guidance to the National Working Committee of AIMO.
Periodic workshops/training programme are organized to help members keep abreast of
developments in industry. Particular stress is made of the significant role of the small
industry in national development. AIMO has been focusing attention on several areas to
avoid sickness in industry.