MEANING OF TRADE ASSOCIATION
Trade association is an association of traders or producers engaged in the same line of trade, whose major aim is to protect and safeguard the interest of their members as well as their businesses. It is a group of firms in the same trade.
Trade association is regionally based to provide services for their members and to advance their interest. It is financed from the subscription paid by the members. Membership of trade association is voluntary. Trade association can be found in different towns, cities etc. Some examples of trade associations include: garri sellers association, tailors association, yam sellers association, Idumota spare part dealers association, association of butchers, taxi drivers association.
AIMS AND OBJECTIVES OF TRADE ASSOCIATIONS
The aims and objectives of trade associations are mostly:
- To ensure that members provide good quality services.
- To ensure that members charge uniform price.
- To maintain professional ethics of their line of trade.
- To supply members with information about developments in their line of trade.
- To create uniformity in the way their members deal with people.
- To promote trade in a particular line of business.
- To act as pressure groups in order to influence some government policies.
- To defend and advance the interest of members.
- To assist members who are in need.
FUNCTIONS OF TRADE ASSOCIATIONS
The functions of trade associations are as follows:
- They disseminate information to members.
- They fix prices for their services or products.
- They put political pressure on government for the interest of their members.
- They settle disputes among members.
- They provide credit facilities and assistance to members.
- They negotiate with other trade associations on collective basis.
- They educate members on trade activities etc.
- They draw up standard for the practice of their trade.
- They carry out research and publish the report for members use.
CHAMBER OF COMMERCE
Chamber of commerce is an association of merchants, manufacturers and businessmen from different commercial fields or various line of businesses who agree to come together in a town or city with the aim of representing and protecting their business interest. This is not restricted to a particular trade. The members come together to have trade connections as well as to further their business interest. There are national and international chambers of commerce such as:
- London Chamber of Commerce.
- International Chamber of Commerce.
- Lagos Chamber of Commerce.
- Ijebu Chamber of Commerce.
- Ibadan Chamber of Commerce.
- Oyo Chamber of Commerce.
- Nigerian-American Chamber of Commerce.
- Owerri Chamber of Commerce.
Aims and Objectives of Chamber of Commerce
A chamber of commerce is set up:
- To promote commercial activities in a community, country or town.
- To liase with other chambers of commerce in relation to their business interest.
- To influence the policy of the government relating to commercial activities in an area.
- To further business interest of the area.
Functions of Chamber of Commerce
- To Organise Trade Fairs and Exhibitions: One of the functions of the chamber of commerce is to organise trade fairs in order to promote their businesses to the customers.
- To Promote Home and Foreign Trade: They develop trade with other towns outside the country or other towns within its territory.
- To Co-operate with Other Chambers of Commerce: They can co-operate with other chambers of commerce in the country and outside the country.
- To Collect and Disseminate Information to Members: They supply all relevant information to members in their areas of interest as well as the latest development in the world of commerce.
- Settlement of Disputes Among Members: They can act as arbitrators in the settlement of disputes among its members.
- They Act as Watchdogs in the Administration of Government Laws: Chambers of commerce are set up to watch how government laws are administered so as to prevent anything injurious to their commercial interest.
- To Educate Members on Government Legislations: Chambers of commerce do educate their members on government policies on matters relating to customs’ regulations and tariff of other countries.
- To Educate Members on Conditions of Trade and Industry: Chambers of commerce can educate members on the conditions of trade and industry in a country.
Differences between Chamber of Commerce and Trade Association
Chamber of Commerce
- It is not restricted to a particular business or trade.
- They have national and inter-national outlook.
- It is restricted to members who are engaged in the same line of business or trade.
- They are regionally based.
Manufacturing Association is an association of business executives or entrepreneurs in a city, town or country that have common interest in the manufacturing of goods and other commodities e.g. the Manufacturer’s Association of Nigeria (MAN).
Functions of Manufacturing Association
- It provides for manufacturers, the means of formulating and influencing policies on industrial matters, i.e. it acts as a pressure group.
- It encourages manufacturers to contribute towards the management of the national economy by being represented on all organisations whose work affect the interest of manufacturers.
- It encourages a high standard of quality of members’ products through the collection and circulation of useful information to members.
- It gives advice on the use of products and on the safety and precaution on the use of the products.
- It establishes effective communication channels with other similar bodies in order to attain the objectives of the association on matters of common interests.
- It finances research into the development of raw materials and production techniques.
- It settles disputes among its members.
A Cartel is a monopolistic type of organisation established originally by producers of similar product for the main purpose of restricting output of members in order to keep up the price of their product. It is an association of independent producers, formed mainly for the main purpose of regulating prices by controlling output. Members of a cartel retain their separate identity and are independent.
Cartel has its origin in Germany. The producers are given certain quotas of the commodities to produce, and this can be increased or reduced depending on the market situation. Prices can be increased by cutting output while an increase in output will force the price down, e.g. Organisation of Petroleum Exporting Countries’ (OPEC) regulation of oil prices.
Features of a Cartel
- Cartel is monopolistic in nature.
- It is established by independent producers of similar product.
- They allocate quotas to members.
- They restrict output so as to force the price
- Competition is removed.
Reasons for Forming a Cartel
- To keep up the price of their products.
- To ensure higher profit for members.
- To reduce waste by eliminating competition.
- To regulate output.
This is an amalgamation of different competing firms in different lines of businesses under a single control. In Trust, the firm will retain their identity but the trustee will take over the management and control. It is vertically integrated in nature and the amalgamated firms are brought under a central control. Certificate will be issued to all members. Trust has its origin in America.
Differences between Cartel and Trust
- Members will lose their independence.
- Trust is a complete merger.
- It has a vertical structure.
- Certificates are issued.
- There is no quota system.
- Members will still maintain their independence.
- It is voluntary and members can withdraw.
- It is horizontal in structure.
- No certificate is issued.
- Producers are given quotas.
A consortium is a group of independent firms formed to work on a particular project which requires large resources and is too complex for a single firm to undertake. A consortium is an association of firms that pool their resources together to finance a project they cannot embark upon individually, because of its complexity or the capital outlay. A very good example is a consortium of banks that gave loan to African Independent Television (AIT).
Reasons for Forming a Consortium
- To finance a project which requires large capital outlay.
- When the project is complex in nature.
OTHER FORMS OF INDUSTRIAL COMBINATIONS
In holding, one company acquires the whole or a large proportion of the issued share capital of other companies with the objective of actively controlling such companies. A holding company is purely a financial concern which uses its capital to acquire controlling interest of over 51% in other firms. The parent company is called holding company while others whose shares are being acquired are its subsidiaries. The subsidiary companies will retain their identities and names.
Price rings is an association of a number of competing firms who have agreed to operate a common price policy for their competing products. Price rings advocates uniform price but allows competition among the firms. The firms are loosely associated together.
Syndicate is an association of organisations who work together for a common aim while retaining their independence. It is voluntary, e.g. underwriters at Lloyds work in syndicates.
Merger / Amalgamation
Merger is the combination or coming together of two or more previously independent firms to form one large firm. It is the unification of two or more organisations to form a new one. The old firms will lose their identity in the new organisation while the new firm can take a new name or adopt a combination of names of the old firms. Merger may arise from the desire to diversify or to buy out a competitor.
A merger is defined as an amalgamation of the undertakings, interest in undertakings or any part of the undertakings of one or more companies.
Reasons for Merger
- For Larger market share: To obtain a larger share of the total market
- Advantage of economies of scale: To enjoy economies associated with large scale production which will reduce unit costs and increase profit
- Efficiency: To increase efficiency of management where the acquired company is poorly managed
- Diversification: To diversify the activities of the firms into other areas
- Elimination of competition: Firms may merge in order to check or eliminate competition.
- Financial stability: To ensure greater financial stability through internal growth
- To reduce cost: To reduce the overhead cost by eliminating duplication of facilities
- To obtain raw materials: Firms may merge in order to obtain raw materials from direct source.
Disadvantages of Merger (Argument Against)
- Monopoly: It can lead to monopolistic situation.
- Unemployment: Merger can lead to unemployment as some employees can be laid off.
- Discourage specialisation: It does not encourage specialisation in the production processes.
- Low quality: Since there is no competition, the quality of their products may be reduced.
Forms of Merger
Merger can be vertical or horizontal. Vertical amalgamation is the coming together of firms at different stages of the production process. It is therefore a method of linking the various stages of production from the raw material stage to the finished product, e.g. an amalgamation of firm producing cotton with a textile firm, whereas horizontal amalgamation is the coming together of different firms at the same stage of the production process. It occurs when firms producing similar goods come together at the same stage of production process. This shows the extent to which firms in the same stage of production in an industry come under some unified control, e.g. merger of two pharmaceutical firms or banks.
TERMS FREQUENTLY USED IN TRADE ASSOCIATIONS
- Group: An association of companies that are linked by some degree of common ownership. This is composed of one holding company and several subsidiary companies.
- Subsidiary: This is a company in which a holding firm has controlling interest by acquiring more than 51% of its share. It is a company of which another company is a member and has control over the composition of the board of directors or hold more than half of its equity.
- Parent Company: This is a holding company which has control over a number of firms known as subsidiaries. It is a company which controls several subsidiary companies.
- Forward Integration: This is the coming together of a manufacturing business with a firm that markets its products. This occurs when a firm producing a product joins with a retail firm selling its product.
- Backward Integration: This is a form of integration in which a business merges with the firm supplying it with its raw materials.