Conglomerate Meaning

A conglomerate in business terminology is a company that owns a group of subsidiaries conducting business separately, often in distinct industries. It reflects diversification of operations, product line and market to allow business expansion.

For example, tech giant Samsung is a globally renowned South Korean conglomerate that offers many electronic goods. However, Samsung is also efficiently conducting business across unrelated sectors such as heavy industry, construction, insurance, advertising, etc.

Understanding Conglomerates

Conglomerate 1

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Conglomerates imply business expansion by diversification to avoid relying on a single product for income. For example, suppose a company started as a cement provider and gradually expanded into sectors such as home décor, electronics and education industry. Inevitably, it became a conglomerate by diversifying from its core business of cement generation towards many unrelated businesses. Some companies expand within the same industry.

Each business functions independently with separate CEOs who are responsible for profits. It allows specialization of business operationsBusiness OperationsBusiness operations refer to all those activities that the employees undertake within an organizational setup daily to produce goods and services for accomplishing the company’s goals like profit more by employing a specialized workforce and knowledge. Usually, subsidiariesSubsidiariesA subsidiary company is controlled by another company, better known as a parent or holding company. The control is exerted through ownership of more than 50% of the voting stock of the subsidiary. Subsidiaries are either set up or acquired by the controlling more report to the parent company that owns them all. Subsidiaries must act in line with the parent company’s reputation. Some business empires hold over 50 companies, many of which are listed separately. Their individual earning reports are consolidated with the parent company’s SEC filingsSEC FilingsSEC filings are formal documents submitted to the Securities and Exchange Commission in the United States that contain financial information about the company as well as any other relevant information about recent or upcoming more.

How Does a Company Expand?

MergerMergerMerger refers to a strategic process whereby two or more companies mutually form a new single legal venture. For example, in 2015, ketchup maker H.J. Heinz Co and Kraft Foods Group Inc merged their business to become Kraft Heinz Company, a leading global food and beverage more or acquisitionAcquisitionAcquisition refers to the strategic move of one company buying another company by acquiring major stakes of the firm. Usually, companies acquire an existing business to share its customer base, operations and market presence. It is one of the popular ways of business more is perhaps the most widely used methodology to become a conglomerate. It will take years for a firm if it starts from scratch. As such, established entities often acquire smaller businesses with a considerable customer base to enter a new market or industry for a strong footing.

Many multinational companiesMultinational CompaniesA multinational company (MNC) is defined as a business entity that operates in its country of origin and also has a branch abroad. The headquarter usually remains in one country, controlling and coordinating all the international branches.
read more are conglomerates. Acquisitions brought them new markets, lower risks and joined profits. Additionally, a company can also become a conglomerate by splitting itself to diversify seperate business plans. It allows a company to launch itself into distinct industries by establishing new businesses without any mergers/acquisitions.

In simple terms, this can be understood as splitting the company into various divisions based on distinct business lines with independent CEOs. Many family businesses have expanded their empire using a combination of organic expansion, mergers and acquisitionsMergers And AcquisitionsMergers and acquisitions (M&A) are collaborations between two or more firms. In a merger, two or more companies functioning at the same level combine to create a new business entity. In an acquisition, a larger organization buys a smaller business entity for more.

Example of Conglomerates in Business

  1. Expansion by Acquisition

Berkshire Hathaway, America’s one of the oldest conglomerates, was originally a part of a textile business. Then, in 1965, legendary investor Warren Buffet overtook its reins by acquiring major stocks of the firm. Today, it is a $632 billion company after Buffet invested heavily in many stocks under Hathaway.

The company owns more than 60 companies. Its subsidiaries are prospering in unrelated businesses across sectors such as insurance, energy, utility, manufacturing, freight rail transportation, retailing, etc. In addition, Berkshire holds substantial stakes in Apple, Coca Cola, American Express, Bank of America, etc.

2. Organic expansion

Google’s corporate restructuring made it a part of a conglomerate not by integration but when it split itself from its other businesses. In 2015, Google’s co-founder Larry Page announced that Google would become a subsidiary of Alphabet.

The move was intended to separate Google’s core business of search, YouTube, advertising and Android from other business aspirations undertaken by Google. The separation was rooted in the idea of dedicating focused attention to Google’s core business and other initiatives.

As part of other projects under Other Bets, Alphabet has been working towards several ambitious projects such as venture capitalVenture CapitalVenture capital (VC) refers to a type of long-term finance extended to startups with high-growth potential to help them succeed exponentially. read more, self-driving cars, healthcare plans, etc. Google’s business and revenueRevenueRevenue is the amount of money that a business can earn in its normal course of business by selling its goods and services. In the case of the federal government, it refers to the total amount of income generated from taxes, which remains unfiltered from any more expanded over the years. In 2020, Alphabet hit $1 trillion in market capitalization.

3. Expansion of a Family Business

A household name in India is that of the Tata Group. Jamsetji Tata founded it in 1868 as a trading company. The company slowly built itself by establishing new industries and through acquisitions.

For example, in 1945, the Tata group established Tata Motors as Tata Engineering and Locomotive Co. Limited, which is amongst India’s largest automobile firms. It was introduced to manufacture locomotives and many engineering products. In 2002, Tata Group acquired the beloved England beverage brand Tetley which was founded in 1837.

Today, Tata Groups owns 100s of companies in over 100 countries. Many of them are listed with Tata Sons Ltd as the principal holding company of the Tata Group. Some of the subsidiaries and joint ventures of the Tata group, which gives it the stature of a conglomerate, are listed as under.

Sector NameInsuranceTata AIGFinanceTata CapitalE-commerceTata CliqCommunicationsTata CommunicationsITTata Consultancy ServicesConsumerTata Global BeveragesA subsidiary of Tata Global BeveragesTetleyAutomobileTata MotorsAutomobileJaguar Land RoverConsumerTata StarbucksJewelleryTanishqWatch MakingTitanRetailTrentAirlineVistaraHospitalityTaj Hotels Resorts and Palaces

Fall and Rise of Conglomerates

Conglomerate structures dominated the United States for several years, from roughly the 1950s. It became easier to multiply profits by buying firms from unrelated businesses. Although, from the 1980s, troubles ensued when investors showed discontent. Companies lacked focused control over subsidiaries, with many falling into a loss.  

As per a study by American Sociological Association, antitrust laws eliminated monopoly coming through expansion. Monopoly restricts the entry of new players. As a result, the popularity of conglomerates fell in favor of less diversified focused businesses. Multidivisional structures took over to manage multiple businesses. Only reputed names survived, such as Berkshire Hathaway, General Electric, Disney, etc., by adapting themselves to the changes.

People started to assume business groups were a thing of the past until the world of tech giants unfolded itself. Amazon, Apple, Facebook are referred to as conglomerates by many owing to their diversified business. For example, Amazon has come a long way from delivering books. Apart from an exponential widening of the online delivery business, it offers streaming services, cloud computing, gadgets and payment medium, among others. Moreover, it has acquired many companies to expand its business, with the recent name being MGM Studios.

Asian Dominance

In Asian countries such as South Korea, India, China, Japan, etc., conglomerates have been thriving for several years. As per a McKinsey Study, in 2013, the sales of these business giants rose to 23% in China and India and 11% in South Korea. Popular names include Tata Group, Mitsubishi, Doosan and Jardine Matheson.

Several pieces of research have been conducted to identify the reason behind their survival. As per Harvard Business Review, diversification, greater involvement of ownership and management, and hiring professionals for managing the family business have helped in the survival of business groups in Asian countries.


What is an example of a conglomerate?

German company Siemens AG which was founded in 1847, is one of the largest conglomerates owning several subsidiaries in separate businesses such as healthcare, infrastructure, power generation, chemical industry, digitization, etc., all functioning independently. For example, Siemens Corporation, the US subsidiary of Siemens, employed 50,000 people in 2018 across the state and reported $23.7 billion.

What is meant by a conglomerate in business?

Conglomerate in business is defined as a company that comprises several subsidiaries doing business in often unrelated industries. Usually, subsidiaries are a result of acquisitions or mergers. They are headed by separate CEOs and conduct business independently. It allows specialization due to the specialized workforce and expertise centric to the business. Although, subsidiaries hold answerability to the parent company and act in line with its expectations.

Is Amazon a conglomerate?

In a way, Amazon, Apple, Facebook, etc., are called a conglomerate by many due to their large-scale diversification from core business. For example, Amazon has come a long way from delivering books.

Apart from an exponential widening of online delivery business, it offers streaming services, cloud computing, gadgets and payment medium, etc. Moreover, it has acquired many companies to expand its business, with the recent name being MGM Studios.

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