Advantages of Holding Company
The capital volume may be increased by the formation of combination. The constituent members combine together their financial resources in order to conduct large size business. Moreover improve method of production may be applied, scientific inventions may be adopted, new formula, latest technique and specialization within industry may be introduced due to sufficient amount of capital.
Combination pools the services of efficient personal, qualified technicians and outstanding talents in the board of directors. Thus its resources can be utilized to the maximum for productive purposes.
Overproduction is harmful for the smooth progress of the industry. But it is possible for the management of the combination to check overproduction of its constituent units. It greatly helps to adjust supply to demand and it thus mitigates the price fluctuation.
Economy in Transportation
The authority of combination purchase the raw material at a large scale and supply the product to the market in large quantity. So they make a valid contract with various persons for transportation of goods in bulk which reduce the transport cost to a great extent.
Reducing the Advertising Expenses
As competition are eliminated by forming combination, all distribution and advertising expenses are incurred by central department. It helps to reduce advertisement expenses.
It is possible for combination to enjoy innovations, technological development and modern inventions for the object of maximum utilization of its financial and capital resources in profitable sector.
Interchange of Research Work
The combination has enabled its constituent units to interchange the research result in method of production, marketing and management.
Increasing Sales Volume
Combination achieves economies in various sectors which lower the cost per unit. It can thus reduce the sale price in the market for the object of increasing sales volume.
Elimination of Competition
Unnecessary competition among various business units is a wasting of its financial resources. So competing units combine together in order to avoid cut throat competition among themselves and to enjoy monopolistic gains
Economy in Administrative Expenses
Administrative and secretarial work may be centralized as a result of combination. It thus secures economy in the field of administration.
Uniform policy may be adopted in all sectors by the combination for its constituent units. It thus helps to regulate the business activities for the industrial combination as a whole
Disadvantages of Combination
Creation of Monopoly
Combination tries to have monopolistic control over the market. It misuses its power to establish its terms and conditions in order withhold supplies. It creates an artificial shortage which is always regarded against the welfare of the public.
Concentration of Wealth
Growth of combination has concentrated the wealth into few hands. It has split up the society into two groups i.e. rich and poor. The rich have become richer and the poor have become poorer.
The risk of overcapitalization is always present in the combination. The consequences of the state of overcapitalization are most unpleasant and it is harmful for the successful result of the combination and its constituent units.
Management of the combination becomes complicated as it increases in size unduly. Moreover, there is scarcity of abilities in management, administration and production for running the large concern.
As combination gets control over the market and creates the problems, it is objected by general public and press.
Lack of Personal Contact
In big organization it is not possible to maintain direct relation with employees, creditors, share holders and consumers. So business may suffer loss due to absence of personal contacts.
Problems for Small Firm
The existence of business combination is harmful for the operation of small firms. It may suffer from the bad effects of monopolistic enterprises. So they cannot continue to live side by side with the large business enterprise which results in dissolution of the small firm.
Big industrialists create corruption in the political life of the country. They bribe political parties for accomplishment of their selfish ends. Sometimes they against the national interest, security and prestige.
Chances of Friction
There are several persons in the management of combination who have different minds, policies and opinions. This disparity of thinking creates the conflict of interest which becomes the cause of misunderstanding and friction among the constituent units of combination. As a result of which the combination may come to an end without the whims of other members.