Financial Glossary: Conglomerate


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Conglomerate

Conglomerate

A Corporation that is made up of a number of different, seemingly unrelated businesses.

In a conglomerate, one company owns a controlling Stake in a number of smaller companies, which conduct business separately. Each of a conglomerate's Subsidiary businesses runs independently of the other business divisions, but the subsidiaries' management reports to senior management at the parent company. The largest conglomerates diversify business Risk by participating in a number of different markets, although some conglomerates elect to participate in a single industry - for example, mining.

The two philosophies guiding many conglomerates are :

a) By participating in a number of unrelated businesses, the parent Corporation is able to reduce costs by using fewer resources.

b) By diversifying business interests, the risks inherent in operating in a single market are mitigated.

History has shown that conglomerates can become so diversified and complicated that they are too difficult to manage efficiently. Since the height of their popularity in the period between the 1960s and the 1980s, many conglomerates have reduced the number of businesses under their management to a few choice subsidiaries through divestiture and spin-offs.

Posted by Opal Financial Group

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