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What is Lateral or Allied Combinations

It is the expansion of firms in the direction of combining with firms dealing in different or but allied activities. Lateral combination take place when firms manufacturing different types of products, but allied in some ways come together. In other words, where different sorts of articles, but none the less allied, are produce by one organisation lateral integration takes place. That is to say, instead of a number of different firms making different articles after the analytical stage has been reached, they all come together and produce all these articles as one concern.

    Example : Pig iron is used in so many ways and so many processes of fabricating iron and steel products after the analytical stage smelting, so that, one firm may make needless, another scissors, third pins and the fourth fish tackles and so on. When they come together, smelting is done at one place and all these articles and many others allied to them are manufactured by the same firm. Likewise, after leather has been tanned, saddles, harnesses, suit cases, bags, and another fancy goods instead of being made by separate firms are after lateral integration, made by one firm.
     
   Kinds of lateral combination: There are two kinds of lateral combination. These are as follows :
  
(i) convergent Lateral combination: It refers to combination of business units whose product from the allied components of a mainline of product. It takes place where different product combine to make one product. In other words, it is divergent where from one material are manufactured a number of articles or different materials converge on the same product or service.
       Example: Building construction company may integrate with stone supplies, brick manufacturers, steel concerns, cement supply unit, woo supplies etc. This way in case of steel manufacture, coal iron ore, lime stone or manganese are needed to produce steel ingots, Units producing these raw materials may combine to produce finished steel, which is shown by the following diagram.



(ii) Divergent lateral combination: It occurs when firms producing different commodities but using the same raw material combine together. Simply it can be defined as products integration where different products diverge from the same material.
    Example: Bakeries, hotels, flour mills, biscuit factories, sweet meat marts etc. require common material that is wheat and their combination will be an instance of divergent lateral integration. Another example Tata Steel supplies different type of raw materials to TELCO for the manufacture of trucks and to Indian Tube company for the manufacture of steel tubes, which is shown by the following diagram.




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