Kamal Ltd. are manufacturers of textiles, having their plant in Surat, a city of Gujarat. Vastra Ltd. are the manufacturers of readymade garments and sell their products throughout the country. They also export their products in America and European countries. Vastra Ltd. source their textiles from Kamal Ltd. The management of the two companies decided to merge to have economies of large-scale production. (a) Identify the type of merger entered into by Kamal Ltd. and Vastra Ltd. (b) Also, explain the type of merger other than the one identified in (a) above.

Question

Accepted Answer

(a) The type of merger entered into by Kamal Ltd. and Vastra Ltd. is a **Vertical Merger**. A vertical merger takes place between two companies producing different goods or services for one specific finished product, operating at different stages of the supply chain.

In this case, Kamal Ltd. manufactures textiles (raw material/input), while Vastra Ltd. manufactures readymade garments (finished product) and sources its textiles from Kamal Ltd. Since they operate at different stages of the same supply chain — one supplying raw materials to the other — their merger is a vertical merger. The merger allows Kamal Ltd. to have a guaranteed buyer, while Vastra Ltd. ensures seamless raw material sourcing.

(b) A **Horizontal Merger** is a merger between companies in the same industry, often competitors offering the same goods or services. The goal is usually increased market share and potential cost reduction through joined operations. For example, if two textile manufacturing companies merged, it would be a horizontal merger as they deal in the same products and are competitors.