Conglomerate
Conglomerate is a monopolistic association, a diversified corporation that appeared as a result of the merger of heterogeneous, unrelated by industry or technological characteristics enterprises, firms, credit institutions under common control.
As a form of monopolistic association, conglomerates appeared in the early 70s of the 20th century. They are most widespread in the form of transnational corporations.
Conglomerates emerged as a result of mergers and acquisitions of firms of heterogeneous production orientation through the acquisition of assets or controlling interest in different companies by the financial center of the company.
The main purpose of such financial operations is to provide a quick transfer of capital from less profitable to more profitable production and to maximize the profit volume of the conglomerate. Therefore the internal structure of the conglomerate is very unstable. Conglomerates quite often disintegrate into diversified concerns. However, some conglomerates have proved their viability by widely manipulating funds and quickly adapting to changing market conditions.
Appearance of Conglomerates
They first appeared in the 1960s. Prior to that, the unification of efforts took the form of the production of homogeneous products, technologically related productions. Now simple structures for the production and sale of technologically unrelated products began to unite, i.e. it is a question of expanding the range of economic activity, or diversification of production.
The advantages of diversification are well known. They include the possibility of reorienting funds from industries experiencing a decline to those that are on the rise (and vice versa) on the basis of the difference in the turnover of capital in various industries, and the mitigation of seasonal fluctuations in sales, cost reductions, and so on.
In recent years, transnational concerns have been formed in developed countries. Their aim is to make high profits in countries with low tax rates, and to accumulate lower profits in countries where taxes are high.
Transnational concerns are owned or controlled by entrepreneurs in one country, while multinational concerns have an international distribution of capital.
Features of Conglomerates
Conglomerates have a number of features that we’ll list below. The main advantage of concerns is to increase profits and reduce risks. This is facilitated by diversification - the introduction of investments in different spheres of economic activity.
If a conglomerate's production ceases to be profitable and becomes unprofitable, it is shut down. Financing is transferred to the sphere, which is on the rise of development. As a result, the merger will help prevent losses.
Integration within the framework of this organizational form of enterprises of different industries without the presence of production commonality. The merged companies have neither technological nor target unity with the main sphere of activity of the integrating firm. The core production in conglomerate-type associations takes vague outlines or disappears at all.
Moreover, merged companies usually retain legal and operational independence, but are fully financially dependent on the parent company.
Significant decentralization of management. branches of conglomerates enjoy considerably more freedom and autonomy in all aspects of their activities than similar structural subdivisions of traditional diversified concerns.
The main levers of managing conglomerates are financial and economic methods; the activities of divisions are indirectly regulated by the holding company at the head of the conglomerate.
As a rule, a special financial core is formed in the structure of the conglomerate, which includes large financial and investment companies in addition to the holding company (pure holding company).
