Conglomerates

A conglomerate is a corporate group composed of a parent company and a number of subsidiary companies that operate in a range of industries, often with little or no direct business relationship between them. The parent company typically exercises control through majority ownership or a holding company structure, coordinating capital allocation, governance, and strategic oversight while allowing subsidiaries a degree of operational autonomy.

Conglomerates are commonly described as practicing unrelated diversification, where the subsidiaries’ products, services, and markets are distinct from one another. Some conglomerates pursue related diversification, where different businesses share common technology, distribution channels, or customer bases. The central management team often focuses on portfolio management—allocating capital, evaluating performance, and deciding on acquisitions or divestitures—while subsidiary managers run day-to-day operations.

Advantages associated with conglomerates include spread of risk across multiple industries, potential cross-subsidization of weaker units by stronger ones, centralized access to capital, and the ability to pursue large-scale strategic opportunities. Disadvantages include management complexity, reduced focus on core businesses, potential inefficiencies from size and bureaucracy, and the risk that acquisitions do not add sustained value, sometimes leading to a so-called conglomerate discount in equity markets.

Historically, conglomerates rose to prominence in the mid-20th century, with examples such as General Electric and Berkshire Hathaway. In some markets, increased disaggregation and a focus on core competencies led to divestitures of non-core units. Today, while the classic large-scale conglomerate is less common in developed economies, diversified holding companies and investment-focused conglomerates remain influential in various sectors and regions.