Conglomerates are corporations that engage in various business pursuits that are completely unrelated in nature. Sometimes referred to as a multi-industry corporation, the assets of a conglomerate will be used to set up business operations in two or more fields that have nothing to do with one another. The basic idea behind a conglomerate corporation is to ensure that there is enough generated revenue from all the business interests to allow for the continued operation of each business enterprise. This would be true even if one of the interests is currently experiencing a downturn in revenue.
The concept of a conglomerate or multi-industry corporation is not new. Since the 1960’s, the model has become increasingly common throughout the world. This approach has been a great benefit to many long time companies that found it necessary to redefine their purpose in light of changing technology. In some cases, becoming a conglomerate meant the ability to continue serving a shrinking traditional market, while establishing a presence in emerging markets.
At its best, the conglomerate is an excellent way to maximize profits while building protection against economic and other shifts that could weaken a given market. Since the business operations of the conglomerate will include several disparate directions, it is relatively easy for some operations within the company to make up for lost revenue when one arm of the corporation is undergoing a rough period. For example, if a conglomerate involved one arm that produced widgets and another that focused on Internet based retail sales, the online corporate interest would be in a position to offset a drop in revenue when the widgets business lost a large customer. Until the widgets business recovered and generated new clients to replace the lost customer, the online retail business would essentially carry the entire corporation.
However, this diversity in the conglomerate company can also be seen as involving business risks not associated with a single-industry company. One school of thought is that a conglomerate that seeks to operate in too many different business industries will be unable to focus enough resources to create a strong presence in any one market.
According to this understanding, the lack of a solid base in any one market leaves the conglomerate open to fierce competition that the corporation cannot overcome. As the same time, too much diversity can decrease the availability of resources from other arms when one arm is to realize a profit. When this is the case, the failure of one arm of the corporation may also lead to the failure of one or more other arms in the multi-industry company.