Limitations of vertical combination

Limitations of vertical combination : Vertical combinations refers from the following limitations.

(i) Difficult of large scale production : Under vertical business combination, no combining units can enlarge its size of activity. Because every combining units is to produce as per requirement of another combining unit which will use its output as inputs. So, large scale economics can not be gained by the vertical business business combination.

(ii) Inelasticity: Large integrated units tend to become inelastic and they may it almost impossible to adopt to the changes in trends of production and marketing. It is said that once an organisation through integration is turned up to produce a given article, it is hard and burdensome to switch over to new lines and models of production.

(iii) Cut throt cempetition: Under vertical business combination only complentery units are combined. So, inspite of combination, competition can prevail in the market amongst substitute business units.

(iv) Devoid of co-operation: It is not easy to bring about co-ordination between activities of the integrated enterprises consisting of dissimilar units. The cost of achieving coordination may outflank the gains excepted of integration.

(v) Mutual Dependence: In case of vertical business combination, every next unit is depend on the first unit. If the production of any process stops, the production work of next process will also be affected.

(vi) Strain on management: Strain on management would be so servere that the combination may eventually crackdown.

(vii) Bad effect of change in modes or Tastes of consumers: The vertical business combination affects adversely on vertical combination if modes or tastes of consumers get changed.

(viii) Dependence on location of units: In case of vertical business combination, a sight dislocation in any stage of production within the integrated unit will throw the entire organization out of gear, which increases overhead costs of the business.

(ix) Limited scope: Vertical business combination has limited scope. It can be applied only in certain cases, where the production process passes through many stages. Inspite of this, it is possible if all units engaged in each and every stage agree to involve in such combination.


Popular Posts