The volume of capital can be increased by forming a combination. Members pool their resources to do great business. Due to fierce competition between companies, the win rate decreases. Some businesses may also suffer a loss. Thus, manufacturers like to form a combination to avoid competition. Sometimes companies decide to merge into a single entity. The main objective of the business combination is to ensure the shared economic well-being of its members. All three laws apply to all industries and all types of combinations – from mergers in industrial sectors to software partnerships in the emerging Internet of Things. To see how laws work in practice – and what happens when combinations don`t comply with them – look at the consolidation strategies of Daimler and Renault in the early 2000s. It`s a well-known story, but we`re going to use a new lens to compare and dissect these offerings. Also called a voluntary merger, it is an association of two or more business units of the same type under a single directorate. The two business units involved in the combination carry out the same activity, and their combination is therefore called a horizontal combination.
The main objectives of this business combination are the same as for a vertical merger. Companies can have a loose type of combination that comes together to form a unit. In such a case, the merging companies lose their separate entities. Successful business combinations – those that prove to be profitable uses of resources – follow all three laws. These laws are not formulated as commandments or commandments, but are necessary prerequisites for success. All business combinations must have the potential to create shared value, must be managed in such a way that this value is realized, and they must share the value in such a way that each party`s investment is rewarded. Each law highlights a number of practical implications: it has accelerated economic activities. Now there is close contact with a businessman with others. So this also contributed to the growth of the combination. The advantages of a combination are controversial, since the creation of a monopoly and the elimination of competition are considered the advantages and disadvantages of the combination.
With these governance decisions, the cooperation between Renault and its partner has been much more fruitful than that between Daimler and its partners. Daimler`s relationship with Mitsubishi dissolved after a few years; The German company then sold its Chrysler property after injecting money into the U.S. automaker, with a significant loss on investment. Renault, on the other hand, managed to shake up Nissan, creating an integrated global company rooted in Europe and Japan. The second merger law helps explain Daimler`s failure and Renault`s success. The second principle of business combinations is that they must be implemented in such a way as to create common value in reality, and not just on paper. In other words, the combination must act as an integrated operation in the areas that matter for value creation. We could summarize this law as 1 + 1 = 1 and now refer to the unity in the management of the combination, and not to its economic justification. As explained earlier, the first law for a business combination is that remixing must have the potential to create more value than resources can generate when regulated separately, i.e.
without being combined. In everyday business language, the combination must create synergies. I hesitate to use this term because of its reputation as a buzzword in business. But the bad reputation comes from ignoring the complex processes associated with combining value creation. To truly create synergies and achieve real results, you must comply with all three laws. A product expansion merger takes place between two commercial organizations that market products related to each other and operate in the same market. Product expansion merger allows merging companies to consolidate their products and gain access to a larger group of consumers. This ensures that they make higher profits. A business combination can be structured in a variety of ways for legal, tax or other reasons, including: Mixed groupings are also called circular groupings. These are unrelated companies that merge into a new company called a mixed combination. The newly created company will obtain information from the management of both organizations that will help create an organizational and functional structure that creates the most efficient way to run the business. Within the framework of a professional association, business units operating in a particular trade usually meet and discuss issues aimed at promoting their economic and commercial interests.
It is a grouping of companies in which different departments of large industrial units meet under a single management. As part of this business combination, all phases, from the purchase to the sale of the product, are linked by units. The main goals of a vertical combination are as follows: A simultaneous parallel combination occurs when companies that manufacture multiple products but deliver to a regular user join forces with them. A business combination is a transaction in which the acquirer takes control of another company (the acquired company). Business combinations are a common way for companies to grow in size rather than grow through organic (internal) activities. Combinations can be used to quickly gain market share, fill product lines and access new markets. A holding company is a form of corporate organization created to combine industrial units by holding a controlling amount of its share capital. Changes in the distribution of profits over time are also common in acquisitions, although changes in these companies are expressed differently. In the case of a cash acquisition (or disposal), one party receives its share and the other receives the remaining returns, including upside down and down potential. If the former owners of the acquired resources retain some ownership of the new combination, perhaps because the acquisition is financed by shares, then they share something with the subsequent risk of the combination. In this case, each party can realize more (or less) value over time than originally expected. Enhancements to the product line help companies identify and maintain the needs of refined target markets.
When used correctly, their advantage in the expected market is endless. [3] A diagonal business combination consists of two or more companies providing subsidiary services that merge under one management. The main objective of this merger is to make the business unit large and self-sufficient. “Mountain Mist”, a manufacturer of packaged water, combined with a manufacturer of PET bottles “Beige Plasto”. This type of combination brings together two different processes under one direction. The inclusion of the bottle production unit under the same management leads to a reduction in unit costs. Product line extensions are a process in which companies with an established brand change the factors of one or more products to satisfy a refined segment of the market. [1] There are two types of product line extensions, horizontal and vertical. Horizontal extensions are about keeping price and quality constant, but changing factors such as taste or color to distinguish products. Vertical expansions are about increasing and decreasing quality and price to create inferior and luxurious products. These product line extensions are often closely related to existing products in a brand portfolio, but this approach is aimed at consumers of specific brands. [2] All entities pursue a single policy due to mergers.
It regulates the business activities of all units. A combination is able to use the latest inventions and new production methods as a result of technology transfer. This will increase profits. Daimler acquired Chrysler in the United States and then acquired a third of Mitsubishi`s shares in Japan. Later, it also acquired a minority stake in Hyundai Motors in Korea, established a three-way car engine joint venture with Hyundai and Mitsubishi, and added joint ventures in China. Overall, Daimler has created a complex network of alliances around the world, while working to integrate all of Chrysler`s businesses. Renault has been much more successful than Daimler with its combination strategy. And the benefits of the alliance with Nissan continue to trickle down today as the partners continue to manage their global business together.
Even Daimler has since invested in this combination and bought minority stakes in Renault and Nissan. A business is an integrated set of activities and assets that can provide investors with a return in the form of dividends, reduced costs, or other economic benefits. .
