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What Is a Conglomerate?

A conglomerate is a business entity which is made up of at least two corporations. One defining characteristic of a conglomerate is that the corporations involved in it deal with businesses that are of totally different natures from each other; that is, the corporations are in industries that have nothing to do with each other. A conglomerate may also be known as a multi-industry company. More so, conglomerates are often composed of companies from different countries.

One main advantage of forming a conglomerate is that the risk is lowered. This is due to the fact that diversification is a corollary of conglomerates. With the corporations dealing in unique markets, the conglomerate will face lower risks in case a market collapses. Let’s say that a conglomerate has companies in the telecommunications industry, the insurance industry, and the travel and hospitality industry. If the insurance industry suffers a huge loss but the two other industries experience a boost, the boost can offset the loss, still resulting in an overall profit.

On the other hand, the very same factor can be a source of disadvantage. If a conglomerate is involved in too many industries, the over diversification may result in a loss of focus. With too many industries to deal with, it might just happen that the conglomerate will not be able to allocate resources properly - something that is necessary to establish dominance in specific markets. This concept, however, is not adhered to by everyone and is actually just one school of thought.

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