A conglomerate is an organizational form of enterprise integration, uniting a network of diverse companies under a single financial control. When combining firms, the vertical and horizontal integration, as well as the production community, do not matter. A conglomerate is a direct result of the merger of various firms.
Conglomerates and concerns: what is the difference?
A concern is a financial conglomerate that emerged in a very short time as a result of the absorption of a number of functionally independent firms.
Currently, transnational concerns are increasingly being formed, but only in developed countries. Their main goal is to accumulate less profit in countries with high taxes and get good profits in countries with low taxes. Transnational concerns are controlled by entrepreneurs in one country, while multinational concerns imply international distribution of capital.
Features
The merged companies do not have targeted and technological unity with the main field of activity of the integrator.
The core production in such associations either takes on an indistinct outline or completely disappears. A conglomerate is a combined company that maintains production and economic and legal independence, but financially completely dependent on the parent company. Compared to similar structural divisions of diversified concerns, conglomerate branches enjoy greater autonomy and freedom in all aspects of their activities. The financial and economic methods used by the parent holding company indirectly regulate the activities of units. The conglomerate structure is formed on the basis of a specific financial core, which, in addition to the main holding, includes investment and financial companies.
Motives for conglomerate mergers
The main reasons for the acquisition of companies and conglomerate mergers:
- providing a spacious economic basis;
- high-quality forecasting of changes in the structures of industries and markets;
- access to important new technologies and resources;
- the possibility of cheap buying and expensive selling;
- a chance to increase the image of the organization’s management;
- the desire of management to increase their own income;
- get a synergistic effect.
Forty companies are currently officially classified as conglomerates among the companies listed on the New York Stock Exchange .
Famous Examples
Currently, a successful conglomerate is, for example, BTR, Mitsubishi, Hanson, Raytheon.
For example, Hanson's core business focus is the acquisition of technologically simple enterprises in stable sectors of the market. This holding company in the absorbed organization achieves a significant reduction in production costs and monitors the work of management personnel, making sure that they do not go beyond the planned budget. Thanks exclusively to strict
control methods and saving measures, the conglomerate achieves excellent results from once unprofitable enterprises.