Within the field of business, a business conglomerate is a company that comprises multiple different corporations. The most common type of conglomerate is a parent organization with at least one subsidiary, which is a partially or fully owned organization.
Explaining it in another way, a conglomerate of companies is a large corporation with a majority intervention in other smaller companies. The companies in a conglomerate are often unrelated and very different from each other in terms of the products or services they offer.
The corporation is the parent company, and the trading companies below are known as subsidiary companies. The subsidiaries are independent of each other, although each must inform the parent company’s senior executives.
However, in a business conglomerate, business diversification in companies is normal practice, and generally, these companies represent a corporate structure of multiple industries. These organizational structures are often multinational.
Associations structure aggregates for a variety of reasons, including:
Advantages and disadvantages of a business conglomerate
There are several advantages and disadvantages to a conglomerate company. For example: -
Diversification results in reduced investment risk. A recession suffered by a subsidiary, for example, can be offset by stability, or even expansion, in another division.
A conglomerate can save corporation money by operating more than one company under the parent company. The main purpose of having controlling interests in different companies is to diversify the risks to lessen the impact of the main financial setbacks.
Successful conglomerates generally focus on geographic, market, and product diversity. Foreign markets offer growth opportunities, but with potentially higher risk, especially in less developed national economies.
Business Conglomerates also offer the advantage of reducing the cost of a company by optimizing company resources and administration.
The main disadvantage is that an additional layer of management increases costs and sometimes cultural clashes can destroy value. On the other hand, conglomerates tend to face many accounting-related problems. An example could be group disclosures, consolidation, etc.
Other disadvantages could be: You lose focus, and it is challenging to manage unrelated and well-diversified businesses effectively. There is no development of innovation due to inertia.
Examples of a business conglomerate
When a business conglomerate owns less than the controlling percentage of another company’s voting shares, the second company is known as an associate or affiliate. For example, we have:
Walt Disney Corporation owns a 40% interest in the History Channel, an 80% interest in ESPN, and a 100% interest in the Disney Channel. In this case, the History Channel is an affiliated company, ESPN is a subsidiary, and the Disney Channel is a wholly-owned subsidiary company.
What are the leading conglomerates in the world?
Within the fabulous business world, there are many mergers, associations, and companies that buy other companies.
It can be challenging to keep track of the big and small in the business world. Furthermore, some brands may be their own entities, when a larger and more powerful corporation actually owns them.
The main conglomerates of companies in the world are the following:
Procter & Gamble
The company has been building its brand for more than a century, with no plans to slow down. Stop by any aisle at your local grocery store or pharmacy, and you’ll find plenty of their products, including paper towels, hair care lines, and laundry detergent. The multi-billion dollar company operates in more than 180 countries and features 80 unique brands that are highly appreciated by consumers. Its cleaning products are found in kitchen and bathroom cabinets in almost every home in the world.
Its subsidiaries are:
As we discussed in the previous example, Walt Disney is another of the world’s largest and most important conglomerates, not to mention that it also recently became Marvel’s owner, the studio that exceeds limits, and that is obtaining significant box office sales for its films.
In fact, Marvel’s Avengers is among the top five highest-grossing movies of all time. Together with other films such as Black Panther, Iron Man 3, and Captain America Civil War, which are on the top 20 list. These films only generate a lot of income for the company, but as we know, Disneyland and Disney World are popular tourist attractions that receive millions of visitors every year.
Its subsidiaries are:
This huge company has a variety of popular drinks and snacks. In the United States alone for 2017, 7.03 million Americans consumed eight or more Cheetos bags for each of them. However, the other popular brands aren’t taken into account yet, including Gatorade, Doritos, Ruffles, to name a few.
Its main subsidiaries are:
Facebook is a technology company that owns the largest and most popular social network of all, with more than 2.6 billion users.
However, it is also a conglomerate, as it owns three other great brands that have made its CEO and Facebook founder Mark Zuckerberg one of the most successful young entrepreneurs of all time.