A conglomerate is a type of complex company which operates under several industries. It is also the combination of two or more corporations. Conglomerates are often used to manage several different companies as a means of diversification across industries. Great examples of conglomerate companies include General Electric (GE) or Berkshire Hathaway.
A conglomerate means a company has a majority interest or ownership in several different corporations or other companies. A conglomerate can also be known as a holding company in some cases. The conglomerate was a means of diversifying larger companies and growing earnings. A conglomerate often holds several smaller and faster growing companies so that earnings can grow as the core business of the conglomerate has likely matured or declined.
Conglomerate advantages include the ability to gain financing at a cheaper cost. Conglomerates are very large and their ability to gain cheap financing is good. Conglomerate diversification means that a conglomerate can maintain stability no matter which way the market is making a push.
Conglomerate disadvantages are that synergies may not be readily recognizable because a conglomerate operates in several industries rather than specializing in a particular one. Another disadvantage is that there is an increased need for management at the top conglomerate level as well as for each one of the companies. It is likely that many of the members of the conglomerate have little experience in several of the industries or companies in which it holds. The culture clash among companies can also be problematic as what works for one company and industry may not be so for another.
The key to conglomeration is knowing which companies to pick out and maintaining stability and support for all of the companies held within the conglomerate.