What Is a Conglomerate Business? 6 Global Conglomerates

A conglomerate is a business model in which many companies are collected into a single large corporation owned by a parent company. A conglomerate can be made up of many businesses within the same industry or from different industries in order to diversify the business and mitigate financial risk. Some conglomerates own a series of companies that make up the entire labor and supply chain for a single product.

In a conglomerate, a parent company owns the controlling stakes of a series of smaller unrelated businesses which all operate independently. Conglomeration is sometimes enacted by a holding company that specializes in mergers and acquisitions. The holding company exists specifically to buy out smaller companies and collect business interests to create a conglomerate.

Conglomerate companies can have a series of potential economic advantages for entities that run them. Here are some of the advantages of conglomerates.

1. 1. Diversified conglomerates carry less financial risk. Conglomerates can mitigate financial risk by spreading their financial stakes across many smaller businesses in different industries.
2. 2. They have internal capital markets. Conglomerates benefit from internal capital markets, which can be allocated across its companies. If one business in a conglomerate performs poorly in the financial markets or with revenue, this loss can possibly be offset by the other businesses which may be performing better.
3. 3. Companies within the conglomerate can establish synergy. The costs of running the many businesses that make up a conglomerate can be reduced through consolidation, where businesses share inputs or resources across the conglomerate's subsidiaries. For example, many conglomerates are vertically integrated, meaning that the conglomerate owns goods and service companies in every step of the product supply chain. This means that each business within a conglomerate can support the other businesses and the conglomerate profits from every step of the production process.

Conglomerates are often scrutinized by investors and government regulators for their potential disadvantages. Here are a few of those potential disadvantages.

1. 1. Stock value can easily plummet: If a conglomerate becomes too large, its collective stock value can drop lower than the stock value of its individual companies. This is called conglomerate discount.
2. 2. Difficult to manage: If a conglomerate becomes too diversified, this can affect the ability of management to efficiently oversee the entire business, adding to management costs.
3. 3. Lack of transparency: Conglomerates can announce their financial outcomes as a lump sum, making it difficult for investors and analysts to discern the specifics of how the individual businesses within the conglomerate are performing.

Here are six examples of conglomerates from around the world.

1. 1. Alphabet: This California-based conglomerate was created in 2015 as a restructuring of Google.
2. 2. Berkshire Hathaway: Warren Buffett's conglomerate Berkshire Hathaway is one of the most successful and diversified conglomerates in the world. It comprises over 50 different businesses in a diverse array of industries, including plane manufacturing, jewelry, real estate, and insurance.
3. 3. General Electric: General Electric was initially founded by Thomas Edison in 1892 as an electronics company. It has since expanded into a conglomerate several of different branches working independently, covering industries including real estate, media, financial services, and energy.
4. 4. The Walt Disney Company: Disney is the world's largest media conglomerate. In the past twenty years, under the direction of the former CEO Bob Iger, Disney has grown by acquiring other large media companies including Marvel, 20th Century Fox, Pixar, and Lucasfilm.
5. 5. Mitsubishi: In Japan, conglomerates are known as keiretsu, with the bank acting as the parent company investing small shares in a series of companies under one umbrella. Mitsubishi is an example of this model, made up of the Bank of Tokyo, Mitsubishi Motors, Mitsubishi Trust and Banking, and the trading company Mistubishi Shoji.
6. 6. Samsung: The Korean conglomerate model is called a chaebol, which is a family-owned company in which the company presidency is passed down through a family controlling all subsidiaries. Samsung, a telecommunications conglomerate, is South Korea's largest chaebol, controlling 17 percent of South Korea's entire economy.

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