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The Advantages of Business Consolidation

Proponents assert that consolidation helps to promote efficiency by streamlining businesses that would otherwise duplicate each other's services. In many cases, bigger businesses will merge with smaller counterparts to add a product or service that complements their existing offerings.

Business consolidation occurs when one company buys most or all of the shares of a second company, thus making it a subsidiary of the first company. The subsidiary is now almost completely beholden to the management and general activity whims of the larger parent company. Overall, there are numerous economic, legal, and social advantages to business consolidation.

Economic Advantages

Business consolidation creates economic advantages in a couple ways. First, the business as a whole will operate more efficiently without the former disputes between the parent and subsidiary companies (e.g. it is easier to deliver a product if a company owns all of the companies that provide the basic inputs of that product). Second, because the parent and subsidiary no longer compete business costs in general decrease (e.g. management, manufacturing costs, etc.), allowing more resources to be put into expansion and providing new products and services.

Legal Advantages

Business consolidation clarifies legal obligations and processes. For example, it is easier for company management to meet its legal obligation to maximize shareholder profit if it has full vertical control of its product or service (e.g. no longer needs to broker with the subsidiary for its services). Moreover, once a business officially consolidates (e.g. officially purchases another company), it is easier for the government to apply trust-busting legislation now that the full size and scope of the parent company can be outlined.

Social Advantages

The economic benefits of business consolidation are also likely to help society. The quality of a business's product or service increases and the cost of that same product or service decreases (except in the case of a monopoly). For example, when an entertainment company purchases a production studio, the production quality of its movies increases. Similarly, when Apple purchases companies that own the technologies of its products, the cost of those products decrease.