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Conglomerate - Definition & Advantages of Conglomerate | What is Conglomerate?

A conglomerate stands as a multi-faceted corporation that possesses business interests across a wide array of sectors. This is achieved by means of mergers, acquisitions, or through self-driven expansion. Its defining feature is the independence of its diverse subsidiaries. 

An In-depth Look at Conglomerates 

  1. Essentially, a conglomerate is a multifaceted enterprise, comprising of numerous, sometimes unrelated, firms.
  2. This complex business structure consists of a multitude of unique, self-sustaining businesses.
  3. Within a conglomerate, there exists a single corporation with stakes in multiple businesses, all operating autonomously.
  4. Development of conglomerates is typically facilitated through strategic mergers and acquisitions.
  5. A parent company operating as part of a conglomerate can insulate itself from risks associated with single markets, courtesy of its industry-diverse structure.
  6. Economists have posited that there is a risk of conglomerates becoming excessively large to operate efficiently.

Diversification Strategies in Conglomerates 

Companies operating as conglomerates often employ diversification strategies as a means of driving growth. Corporate strategists usually seek out businesses that meet certain criteria, such as: 

  1. Capability to meet its designated profit and ROI targets.
  2. Positioning in a growth-oriented industry and the potential need for substantial cash infusions.
  3. Sufficient size to have a significant impact on the parent company's financial standing.
  4. Potential for labor disputes, adverse government regulations, and industry threats such as recession, inflation, high interest rates, and policy changes.

How Conglomerates Are Formed 

The formation of conglomerates is facilitated through various means such as mergers and acquisitions, organic growth, joint ventures, spin-offs, and strategic partnerships. 

The Benefits of Operating as a Conglomerate 

Conglomerates offer a range of benefits including diversification, cross-selling opportunities, economies of scale, access to capital, and flexibility.