There are several advantages of business consolidation for corporate firms. This article explains how important business consolidation is for companies
What is Business Consolidation
Business consolidation is considered is a very crucial factor in business and corporate consolidation is defined as the merging of several business units or several smallar companies in order to become a larger organization. In the US business community, corporate consolidation is very widespread like many countries in all around the world. Obviously, while being consolidated, the organizations have to face some changes. This paper will touch upon some points discussing why corporate consolidation is needed in the US business community and how the corporations take advantage of consolidation in the US business community.
Advantages of Business Consolidation
First of all, by the aid of consolidation, the corporations can decrease their expenditures. The expenditures of the corporations can be decreased in various ways by the aid of corporate consolidation. While explaining the decreasing of expenditures, we can consider the consolidation of companies in the white goods industry in order to become a bigger white good producer. It is a known fact that corporations are taken into a disadvantageous situation when buying in low amounts of raw materials. If anything is bought in low amounts, the price per unit increases. By the aid of consolidation, the companies who merge together to become a larger organization can increase their capacity of production and in this way they can buy more amount of raw materials for white goods in order to decrease the unit expenditure made per 1 product. In addition to this, if several organizations gather together in order to make a larger organization, the units or the departments in the organizations will be merged together and in this way the organization can go to a rearrangement and get rid of unneeded departments or employees who are laid-off. In this case, the organizations can decrease their expenditures too.
The Importance of Business Consolidation
In addition to the expenditures made by the corporations, who are consolidated into one larger organization, the income of these corporations can be increased by the aid of consolidation. First of all, the technology of the smaller corporations will be merged together and in this way the larger organization will be in a more advanced position in terms of the technological opportunities. Aside from the technological advancements, the companies will combine the research and design of their products. These two opportunities are very likely for the larger organization to produce a better product and in this way the products of the larger organization will possibly be more attractive to the consumers as they will be superior to the products of the smaller companies when they were working separately. This will increase the profits of the corporation. Secondly, the larger organization formed as a result of consolidation may have some targets that are hard to be reached by the small organizations such as selling their products overseas. As a result of this, the size of the market that the company is operating in will become so much bigger compared to the sizes of markets that the companies were operating separately.
Lastly, the opportunity of attract partnerships is another advantage of being consolidated for the companies. If the companies that go under consolidation in order to become a larger corporation continues working separately, it is a very low chance that they will eventually become the leader of the business. For the white good in US case, a small white good producer is not likely to become the business leader as there are big companies that will create some barriers for the smaller companies in the growth stage. If the companies merge together they may eventually become the business leaders and in this case the larger organization will have a greater purchasing power compared to small companies working separately. As the purchasing power of the corporation increase, they can buy other companies that are likely to be rivals with them and thus the number of the competitors will be reduced. In addition, the suppliers will have less customers to sell their products and if the company achieves to buy the rivals, they can negotiate with the suppliers in order to buy at lower prices as suppliers will not have enough customers to sell their products.
To conclude, business consolidation can be a very advantageous choice to small companies who want to become larger. Firstly, the companies can decrease their expenditures via various ways, secondly, the companies can make more profit by operating in a greater market and lastly the companies can increase their purchasing power and buy their rivals which will help them to buy goods at lower prices from suppliers as they will have negotiating power.