Conglomerate

A conglomerate is a large corporation that consists of multiple subsidiaries operating in different industries or business sectors, which may be unrelated to each other. The subsidiaries of a conglomerate are often separate legal entities, but controlled by a single parent company.it can

The major advantage of being a conglomerate is that the company gets to reduce risk by participating in different markets. This is referred to as "diversification".

However, it could get to a point where the conglomerate becomes too big, losses efficiency and becomes expensive to maintain. This is referred to as the "curse of bigness"

There are three ways a conglomerate is formed, these are through;

Mergers and Acquisitions - big companies can acquire other smaller companies (vertically) in the supply chain to become a conglomerate. In this case, the parent company controls the other smaller acquired companies.

Alternatively, two companies could merge together to become a conglomerate by combining talents and resources. In this case, both companies should have nothing in common with each other. That is, there operate in different market sectors.

Expansion/Extension - a conglomerate can also be formed when a company decides to expand into a different market. Unlike mergers and acquisitions, the newly formed arm of an original company did not exist before. That is, it wasn't a company.

Examples:

Facebook restructuring its organization and acquiring new companies to pursue its interest in virtual reality. The company changed its name from Facebook to Meta as it transitioned into a conglomerate. Other big tech companies that have done something similar are Google and Microsoft.

Note: A conglomerate is different from a corporation in that corporations do not necessarily have subsidiaries but a conglomerate does.

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