Conglomerate (company)

As a diversified and multi group or conglomerate called, a highly diversified company with subsidiaries is referred to, which have different value chains and not in competition with each other. Diversification is usually through business activities in different industries achieved (eg concurrent activities in the fields of power engineering, medical, telecommunications, financial services). The term conglomerate is next to colloquially also commonly used for highly nested, non-transparent investment structures.

Properties

Examples

A prominent example is called GE, formerly General Electric. GE has expanded alongside the traditional areas in electrical engineering ( both industrial equipment and household appliances) into various other industries. An example of a German conglomerate Siemens AG is. Often, for generations the founding family already holds a dominant position, such as in the Tata Group in India. In South Korea, family- controlled conglomerates called chaebol. (eg Hyundai, Hanjin ).

In Japan, developed after the Second World War with the Keiretsu another model after the zaibatsu ( family- controlled conglomerates ) were banned, in which there was still a powerful parent company with several subsidiaries. Until 1997, these holding companies were banned by the occupying power, therefore, the former zaibatsu daughters now bound by cross-shareholdings informally to one another, in the center stood a house bank.

Pros and Cons

The construct conglomerate is controversial. Proponents argue that can be avoided by spreading risk concentrations, that is, one-sided dependence on individual sectors. Due to the concentration of power equity could be invested quickly. Without lengthy debates with banks / investors ailing partial areas can rehabilitated, if necessary, sold or even just new business quickly be developed. Moreover, they can achieve a higher efficiency of corporate governance, as demonstrated, for example, General Electric with the introduction of Six Sigma methodology through the uniform application of professional management.

Critics accuse the somewhat derogatory term " general store" the conglomerates, cause by fragmentation of activities unnecessary friction between the individual business areas. In addition, conglomerates would achieve synergies insufficient, because a homogeneous group, which is active only in an industry can buy, for example, jointly outside services needed in large quantities and thus obtain better prices. In addition, would be taken due to the excessive concentration of power important operational decisions by people who have little knowledge of a particular industry. This avoids costly mistakes are programmed as in the case of Edzard Reuter. Minimizing the risk investors scattered over mutual funds is more efficient.

Successful conglomerates such as the Tata Group and General Electric to create this balancing act. They act under the umbrella of a central unit with cross- corporate identity rather like a mutual fund or an investment bank, so with less interference in daily operations.

Regional differences

While conglomerates, especially in the Asian region will continue to have great importance, prevails in the U.S. and European economic world since the 1990s, a strong tendency to break up the remaining conglomerates under the motto "Concentration on core competencies " and to preserve only those parts of the company, the serve the purpose of the company defined directly.

Typical of German conglomerates are cross-holdings with the financial sector, ie banks and insurance companies. For this purpose, the term was coined Germany AG. Until a few years ago, taxes were raised to a high altitude, when investments were sold. When the sale was tax-free, the unbundling of Germany AG began. Investments and subsidiaries were acquired to a great extent by private - equity firms, which then also means loss of jobs increased corporate earnings.

Examples

• Pfizer
• General Electric
• Hanjin
• Hyundai
• Mitsui Group
• Mitsubishi
• Samsung
• Siemens
• Tata Group
• Yamaha Corporation

Former Conglomerates:

• Gulf and Western Industries
• Steyr Daimler Puch
• Transamerica Corporation