Conglomerate Diversification

According to Business Dictionary “Conglomerate Diversification is a type of diversification whereby a firm enters, through acquisition or merger, an entirely different market that has little or no synergy with its core business or technology”.

Conglomerate diversification helps in strengthening the internal structure of a company and it is an essential form of diversification.

Based on the financial position,  conglomerate diversification helps in evaluating the company`s portfolio.  Here, the newly developed products are not directly related with existing  technologies, markets and the products.   This is more related to the financial condition and stability of the company.

When two or more than two corporations are involved in different set of business in a single corporation structure, it is termed as conglomerate.  These are large and huge companies.  As always there are advantages and disadvantages in conglomerate diversification.

Advantages:

• Growth and earnings improve substantially,
• There is a creation of internal capital markets,
• Investment risk is considerably reduced.

Disadvantages:

• Excessive burden on management leads to extra costs,
• Differences due to demographic variations lead to increased risks.
• There is a misbalance in focus.

The core area of conglomerate diversification is to analyze the present financial position, compare it with the past financial performance, and to generate effective future outcomes.  If  the financials are healthy, the outcomes will be potentially good.  Therefore, it is imperative to create a healthy and positive financials in order to create a better outcome.

So many firms or businesses follow different strategies or a set of diversifications to be stable and strong to cater to consumer needs and demands.

Conglomerate diversification is an opposite of concentric diversification, and its focus is on financials and keep them evaluating to improve the financial position of the company.

Philip Morris is a Conglomerate .  This is a well known company which is also known as the parent company of Altria group.

Questions:

• Define Conglomerate Diversification.
• What are the advantages and disadvantages of conglomerate diversification?