13 Interesting Pros and Cons of Amalgamation

Amalgamation is a process of combining more companies or businesses. It is mainly done to reduce competition in the market. Other reasons include: to achieve growth, to save on tax, to enjoy economies of large scale operation.

When companies amalgamate, there is the formation of a new company with a different set of rules. An example of amalgamation is between sears and Kmart.

Pros and Cons of Amalgamation

Pros of Amalgamation

  1. Reduction of competition

When businesses or companies that produce similar products combine than there will be a reduction in competition as only one company will be the one producing the product.

  1. There will be growth

The business will grow and will produce commodities in large amounts which in return will lead to high profit to the company.

  1. Great managerial skills

The managers between the former companies will sit down and discuss effective ways to improve the quality of the goods. They will also have different ways of solving a problem hence slight hitches may not affect the running of the company.

  1. Production of high-quality goods

The company will produce goods of high quality as there will be no competition in the market to better the production of the goods.

  1. Cost reduction on tax

The company will pay tax as one company as opposed to initially when each company was paying its own tax separately.

  1. Increase in the number of shares in the market

This will be brought about by having a lot of members in one company which will enable it to have a lot of shares in the market.

  1. Easy to achieve a monopoly in the market

As it will be the only company producing such a commodity in the market, it will enjoy the benefit of being a monopoly hence making a lot of sales which will result in high returns.

  1. Increase in the amount of capital

When two or more companies come together there will be an increase in the amount of capital as each company will have its own contribution towards the amalgamated company.

Read More: Pros and Cons of World Trade Organizations

Cons of Amalgamation

  1. Production of low-quality goods

When businesses combine, it may result in the production of low-quality goods as it will be alone in the market hence not facing any competition.

  1. Reduction in the number of employees

This may result because the company may only require a few people to do the work that was being done by people in each company. This will result in a lack of employment which may make people engage in antisocial activities such as theft.

  1. Loss of goodwill

The company that may have operated for long to gain its goodwill will lose it as a new company will be formed which will be required to make its own goodwill.

  1. Monopoly in the market

When companies merge there will be a monopoly that may affect the customers negatively. For instance, the company may produce less amount of commodities that may not be able to meet market demands.

  1. Difficulty in making decisions

Different managers may come together who have different managerial skills which will result in difficulty when it comes to the making of a decision.

Read More: Pros and Cons of Trade Promotion

Summary

Amalgamation has both positive and negative effects. Though people tend to think that when they amalgamate there are a lot of benefits.

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