Multinational Corporation, Transnational Corporations
A conglomerate is a corporate organization in which divergent enterprises retain separate organizational and legal structures but are joined together by the controlling ownership of a corporate holding company. English East India Company was the first conglomerate which initially started a trade enterprise established to ship goods from the Far East. The East India Company grew into a powerful vast conglomerate with economic ventures in commerce and manufacturing. A different model of conglomerate, called the keiretsu, evolved in Japan. Mitsubishi is one of Japan's best known keiretsu. The companies in a keiretsu conglomerate are linked by interlocking shareholdings with a central role given to a bank.
Chaebol is a type of conglomerate owned and operated by a family in South Korea. Examples of Korean Chaebols are Samsung and LG. Chaebol is also an inheritable conglomerate.
A Concept of Conglomerate Diversification
- Raphael Amit, Northwestern University, Joshua Livnat, New York University, Journal of
Management, Vol. 14, No. 4, 593-604 (1988)
This study develops and tests a new concept of conglomerate diversification that reflects afirm's sensitivity to the cyclical behavior and differential amplitude of economic sectors throughout the business cycle.
The measure is shown to describe unique aspects of conglomerate diversification that are not captured by other commonly used SIC-based diversification measures or by the Rumelt categorization scheme. The measure is also used to evaluate the association between conglomerate diversification and the reduction of operating risk. The results indicate that conglomerates that diversify the effects of the business cycle through the proper selection of business segments are characterized by lower operating risk than otherfirms.
Project Execution Capability, Organizational
Know-how and Conglomerate Corporate Growth in Late Industrialization - ALICE H.
AMSDEN and TAKASHI HIKINO
Abstract: In many successful late-industrializing countries in the 20th century, business groups with operating units in technologically unrelated industries have acted as the microeco-nomic agent of growth. This paper explores why this business form has characterized countries which industrialized late, and why this form succeeded in the early phases of catching up whereas the advanced-country conglomerate has had an undistinguished performance. The first two parts of the paper briefly survey diversified industrial groups in historical contexts and then across a broad array of late-industrializing countries. Then the paper considers why diversification was not prevalent among firms attempting to catch up in earlier historical periods, why the strategy of leading late industrializing firms was one of diversification rather than specialization and why their chosen diversification path was one involving technologically unrelated industries. This is followed by the core argument of the paper about the transformation of technology acquisition into a competitive asset and illustrated with evidence from South Korea. The paper analyzes why the behavior of the late industrializing group differs from that of the American conglomerate.
The impact of firm conglomeration on market structure: evidence for the US food retailing industry. Cotterill R, Mueller W F
Abstract: Examining the impact of conglomerate power on market structure in US grocery retailing is particularly timely because market concentration is increasing in the industry and because current policy initiatives toward the industry largely ignore the potential impact of conglomerate power on the industry's structure. The efficacy of various public policies designed to cope with market extension acquisitions and its effects on market concentration, are evaluated, using statistical models which examine the change in four-firm SMSA concentration. A cross-sectional sample of local retail food markets is used. Hypotheses concerning the significance of firm conglomeration are developed, and the conglomerate structure of the food retailing industry described. Two case studies illustrate the process of conglomerate induced market restructuring. A series of variables is presented, and a multiple regression model formally specified to test the hypotheses. The findings of the study provide strong confirmation of the hypothesis that large conglomerate firms not only possess the power to restructure markets but that during the period examined they succeeded in doing so. Acquisition by conglomerates increases concentration.
Conglomerate Firms and Internal Capital Markets
Vojislav Maksimovic, University of Maryland - Robert H. Smith School of Business
Gordon M. Phillips, University of Maryland - National Bureau of Economic Research (NBER)
Abstract: The large literature on conglomerate firms began with the documentation of the conglomerate discount. Given conglomerate firm production represents more than 50 percent of production in the United States, this discount has represented a large economically important puzzle for the U.S. economy. For corporate finance, the primary question about diversification is "When does corporate diversification affect firm value?" And, "When it does, how does it do so?" Early literature came to the conclusion that the conglomerate discount was the result of problems with resource allocation and internal capital markets. Recent empirical literature has found that self-selection by firms with different investment opportunities can explain the conglomerate discount. Additional theoretical and empirical research has shown how a model of profit-maximizing firms with different abilities and investment opportunities can explain resource allocation by conglomerate firms.
LVMH : managing the multibrand conglomerate - A. Som
LVMH Moet Hennessy Louis Vuitton, based in France, is one of the world's leading luxury goods companies. It operates in wines, spirits, fashion goods, leather goods, perfumes, cosmetics, watches, jewelry and retailing. The company employs approximately 56,000 employees. Its global distribution network grew from 828 stores in 1998 to 1,592 stores in 2004. It has built over time one of the strongest brand portfolios in the sector, counting 60 top brands amongst its five divisions and other operations. At the core of the fashion and leather business is the Louis Vuitton brand itself. This 'star of star brands' is estimated to generate over 80% of earnings in the segment. Critical challenges for LVMH: (1) sustaining its organic growth strategy; (2) competition strategy; (3) managing multi-brand strategy with star brands; (4) managing a decentralised conglomerate; (5) leadership and charisma of Bernard Arnault in creating, maintaining and managing a global conglomerate; and (6) people issues in the luxury industry.