Industrial Conglomerates: Exhibiting Steady Growth Amidst Economic Downfall
INDUSTRIAL CONGLOMERATES INDUSTRY ABSTRACT
June 2008
The U.S. has seen three waves for rapid corporate expansion – the corporate expansions of 1890s, 1920s and 1960s. While the first two expansion waves resulted in the formation of vertically integrated companies, conglomerates were born out of the third wave of corporate expansion. Conglomerates have operations in diverse unrelated segments. As a result, they have exhibited appreciable resistance toward economic slowdowns and registered double digit revenue growth in the past few years despite their huge sizes. Moving away from the basic principle of a conglomerate to acquire firms in unrelated economies, conglomerates these days focus more on acquiring firms strategically and building a strong portfolio.
Diverse operations of conglomerates also give them an edge in the effective management of capital resources. Conglomerates have the capability to alter capital resource distribution depending on the dynamics of the marketplace and the long term objective of the parent firm. As a result, they can shift between the strategies of providing additional incentive to better performing business segments and the overall development of all business segments in the portfolio. Owing to their global operations, conglomerates are less susceptible to economic upswings and downturns in a particular country. U.S. conglomerates have a significant share of revenue coming from international operations. Though revenue from the U.S. is still higher, international revenue has shown better year-on-year growth. Emerging economies in Asia, Latin America and Europe have exhibited a growth rate almost four-times that of the U.S. economy. Conglomerates are now focusing extensively on emerging economies in order to tap these high-growth markets.
Owing to an overall growth in economies, the use of raw materials has increased enormously over the last few years. Similarly, concerns related to pollution of the environment have also mounted. At the same time, disposal of waste created due to manufacturing and other operations has also become a cause of concern. Most countries today deal strictly with any matter pertaining to the environment. Environmental regulations all over the world have grown stringent with time. Conglomerates, on account of their global operations, must constantly deal with a number of environment-related issues. As a result, conglomerates have increasingly focused on the development of "green" products and a few conglomerates have already developed a strong portfolio of such environment-friendly products.
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