An important and essential form of diversification that helps in building the internal structure of any firm or business is termed as conglomerate diversification. Conglomerate diversification helps in evaluating and preparing the business unit portfolio based on the financial position of the firm. This type of diversification is entirely different from concentric diversification. In this form, the new developed products are not directly related with the existing technologies, market as well as products. This is somehow interrelated with the financial position as well as stability of any firm or business.
Conglomerate is a term that is used for tow or more than two corporations that are involved in different set of businesses in one single corporate structure. They are generally large and huge companies. There are various advantages as well as disadvantages of conglomerate diversification.[sky]
1. It helps in increasing the growth earning rates
2. Helps in creating internal capital markets
3. Helps in reducing the investment risk
1. The overburden management create extra costs
2. Various demographics based differences can increase the risks
3. Focus can be misbalanced
Analyzing the current financial position, comparing it with the past financials and generating effective future outcomes are the core areas of conglomerate diversification. If the financials are string enough, the outcomes will be for sure the potential one. Therefore, it is important to create a healthy and positive financial position of any firm or business in order to create better and fruitful outcomes.
Numerous firms or businesses adopt various strategies as well as set of diversifications in order to make them stable enough and strong to be the first one catering consumer’s needs and demands. Conglomerate diversification is somehow an opposite to concentric diversification and thus it focus on financials and keep them evaluating in order to improve the financial position of the firm or businesses.
An example related to the company that is termed as conglomerates is:
Philip Morris. This is one of the famous company who is also known as a parent company of Altria group.
Stephen Michael Rosenkranz (1960), "Conglomerate diversification", Harvard University