Achieve economies of scale

The development of your company can be achieved through economies of scale.

Economies of scale are achieved when a merger reduces the average costs of your company, lowers selling prices, and increases profitability.

Among the different types of economies of scale, we can mention:

1. Technical economies: If the company has significant fixed costs, the combination with another company will generate lower average costs.
2. Bulk buying: An alliance or merger can provide better financial terms for the purchase of large quantities of raw materials, commodities, or services.
3. Financial: Larger companies can secure better interest rates.
4. Organizational: Consolidating headquarters results in increased efficiency.

It should be noted that a “vertical” merger (with a supplier or distributor) has fewer potential economies of scale than a horizontal merger (competitor).

For example, a “vertical” merger would not benefit from technical economies of scale. However, in a “vertical” merger, there could be financial and risk economies.

Some industries will realize more economies of scale than others. For example, a car manufacturer has high fixed costs and therefore achieves more economies of scale than two clothing retailers.