Business Combination Written Report
I. Introduction
Business combination seems pretty beneficial to corporations and business ventures out there;
however, like any other things in the world, this also entails some disadvantages that could affect not
only the businesses themselves but also the welfare of the society and industry at large.
This report entitled “Beneath the Tip” wants to take you to some of the most common to unknown
effects of business combination hiding underneath its advantages.
II.
a.
b.
c.
d.
e.
Contents
Creation of Monopoly
The Concentration of Wealth
Reluctant to be Accepted
Chances of Friction
No Personal Contact
f.
Costly Management
As the saying goes “Greater power comes with greater responsibilities”, this is also relevant when it
comes to business combination. From the combining process up to the maintenance of a bigger
combined business, the cost always makes its way. It is not free to combine businesses as we are
required to hire professionals that will guide as throughout the process of merging or consolidating,
such as lawyers and accountants whose fees are not cheap. And we are expected to expand our human
capital to maintain such bigger company.
Clinton M. Sandvick, JD, PhD, an expert in businesses processes showed the optimal manner in
efficiently combining businesses. He divided the process into four parts.
 Reviewing the financial information of the other company.
 Hiring and intermediary.
 Getting an attorney.
 Managing the integration.
Throughout the process, lots of time, effort, man-power, and capital is going to be consumed which
can cost the company a lot of money and resources. On top of that, that is just the beginning of
increasing cost of the newly combined or formed company.
With larger market share and bigger operations, the company will be required to hire more
employees, staffs, and needed to invest more in human capital which in turn increases the cost of
production. Moreover, maintaining a bigger business means paying bigger salaries, purchasing multiple
resources, and covering bigger utility costs.
It is no doubt that merging or consolidating with other companies is a crucial decision for the
business as it can bring the company into another level or destroy the business. With that being said
knowing the balance between the opportunities and cost of merging into another company is very
important.
g. Over Capitalization
h. Misuse of Funds
i. National Interest Ignored
j.
Other Disadvantages
Aside from those given disadvantages of merging or consolidating businesses, there are also other
downsides that are products of business combinations. According to accountlearning.com, these
disadvantages can be categorized based on the scope of effects to specific groups in the industry or
society itself. They can be:
 Disadvantages of business combination to Combining Firms
 Disadvantages of business combinations to Consumers
 Disadvantages of business combination to the economy
First, disadvantages of business combination to combining firms have common denominator with
one another. All of them tend to hamper the original and efficient flow of operations into a new system
that might cause the downfall of the newly merged or formed business if not properly addressed. These
disadvantages are following:
 Diseconomies of large scale operations
 Delayed decisions
 Conflicts
 Unfair practices
 Political corruption
 Inefficiency
 Less innovation
Moreover, business combination can also impose some disadvantages to the end users or
consumers of enterprise’s services or goods. In total, business combination leads market monopoly
which results to a controlled market. With that consumers’ freedom to choose at a reasonable price is
hindered and compromised. These disadvantages to customers are the following:
 Monopoly
 Unethical practices
 Act against consumer’s interest
 Leads to inefficiency
 Lack of customer choice
Finally, business combination could also make a huge impact to the economy if not properly conducted
and regulated. The following disadvantages to the economy portray how a business decision could affect
the entire economy or society itself. These are the following:
 Elimination of small business
 Concentration of economic and political power
 Economic development affected
III. Conclusion
With those details presented, we can now have a broader and clearer point of view in viewing
business combination as a great way of making businesses prosper in their respective industry; or how it
can monopolize and control the society we live in.
We can conclude then that it is not enough to look only on the tip of the iceberg. We must learn
how to dive deep and discover what is beneath the tip of certain thing to make sound conclusions.
IV. References