A conglomerate is a large corporation that has controlling interests in several smaller companies. Businesses in a conglomerate are often unrelated and very different from one another in terms of the products or services they offer.
The corporation is the parent company, while the business enterprises underneath are known as subsidiary companies. Subsidiaries run independent of one another, though each must still report to senior executives at the parent company.
Advantages
- Diversification helps in the reduction of investment risk:
- By having a wide array of companies in different industries, poorly performing companies or industries can be offset by other sectors.
- By participating in a number of unrelated businesses, the parent corporation is able to reduce costs by using fewer resources, and by diversifying business interests, the risks inherent in operating in a single market are reduced.
- Companies owned by conglomerates have access to internal capital markets, enabling more ability to grow. A conglomerate can allocate capital for one of their companies if external capital markets aren’t offering at terms the company wants.
Disadvantages
- The extra layers of management increases costs.
- The accounting disclosure of a conglomerate is complicated, since a lot of figures are released as a group, rather than separately for each business. This, therefore, makes it difficult for managers, investors, and regulators to analyse financial information.
- Innovation can be stifled due to bureaucracy and inertia.
Examples of Nigerian Conglomerates
Dangote Group
Dangote Group is the largest conglomerate in West Africa and one of the largest in the continent. It generated revenue in excess of $3 billion in 2015. It is one of the leading diversified business conglomerates in Africa, employing more than 26,000 people.
Products: cement, sugar, salt, flour, steel, oil & gas, and packaging materials.
Services: logistics and real estate.
Transnational Corporation of Nigeria Plc (Transcorp)
Transcorp is a diversified conglomerate with investments and core interest in the hospitality, agribusiness and energy sectors.
Products/Services: Petroleum, hotels, energy, power.
United Africa Company (UAC)
UAC is a conglomerate with its areas of operation including manufacturing, services, logistics and warehousing, agriculture and real estate.
John Holt Plc
John Holt is a conglomerate specialising in the assembling and distribution of power generators, leasing, distribution of fire-fighting equipment, logistics, boat building and fabrication of industrial and agricultural equipment.
