Reasons to Consider Different Types of Business Combinations
Company mergers are a rather common occurrence in the contemporary realm of the global economy. The concept of a merger implies that two organizations join to create a single entity (Hill, n.d.). The specified phenomenon has several explanations, the opportunities for increasing the corporate profit margins being the key one. A business combination may offer a stronger competitive advantage, a larger customer base, and better market prospects. Therefore, a merger needs to be regarded as an important strategic decision opening significant prospects for both partners. Because of these opportunities, it needs to be seen as a legitimate business strategy.
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Apart from the enhanced strength, a merger also gives companies an opportunity to expand into the existing market and take a specific niche. As a result, organizations not only survive but also thrive even in a setting that is characterized by intense competition and high-quality standards. Furthermore, expansion-related options provide business corporations with a chance to gain the attention of new audiences and target a new type of buyers (“When retailers make strange bedfellows,” 2012). The combined experience of two merging organizations and the increase in diversity levels serve as the platform for building sustainable competitive advantage.
Moreover, a corporation created with a merger will be subjected to a lower level of risks that are characteristic of the selected market. When shared, corporate liabilities become more manageable and easier to address. Therefore, mergers should be seen as not only a popular business solution but also the source of an improved corporate strategy. Although mergers involve a certain risk due to possible cultural clashes between members of the companies, the overall range of advantages that it provides makes it worthy of consideration.
Different Ways to Structure Business Combinations
There are several approaches toward creating mergers in the realm of the global market. The area in which companies operate is a traditional way of classifying mergers. For instance, two firms functioning in different industries may merge, creating a conglomerate (Minority Business Development Agency, 2012). A fusion of firms working in the same area would be a horizontal merger (Minority Business Development Agency, 2012). Claiming that either of the structures is superior would be a mistake since each would be appropriate for a particular environment. For example, conglomerates are typically preferred by firms that seek further expansion into a larger market.
A horizontal merger, in turn, is more suitable for the companies that are trying to survive in their current environment, which they deem to be too competitive (Minority Business Development Agency, 2012). Therefore, the choice of a particular structure hinges on the goals of partners and the number of assets that they have. A vertical merger is another component of the nomenclature described above. The specified phenomenon occurs when two companies located at different levels of the same supply chain decide to join their efforts and become a single entity (Minority Business Development Agency, 2012). As a rule, the firms that choose the identified type of merger pursue the goal of increasing their performance levels and expanding their profit margins.
Finally, one may classify mergers based on the areas in which they are willing to expand. For instance, targeting new markets is defined as building market extension mergers, whereas introducing new items into the product line is regarded as a product extension merger (Minority Business Development Agency, 2012). In either case, both partners are willing to cement the loyalty of their customers and promote their products more actively.
Minority Business Development Agency. (2012). 5 types of company mergers [Blog post]. Web.
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Hill, B. (n.d.). The advantages of business combinations. Web.
When retailers make strange bedfellows. (2012). Web.