THIS WEEK’S TOPIC: Is the business model of a huge, diversified conglomerate on its way out?
There are certainly benefits of maintaining and growing a diversified conglomerate. One key advantage is the ability to maintain various income streams regardless of economic conditions. As an example, businesses focused on specific sectors such as travel, food and beverage (F&B) and events are the hardest hit during the current pandemic. A conglomerate of various business units would be able to hedge their risks and still ride out the storm.
That said, there are at least 2 reasons why conglomerates choose to break up. Firstly, it allows them to reduce inherent costs and inefficiencies. Secondly, separation of business units can allow each entity to drive more value without the risk of being pigeon-holed into any broad category vis-a-vis a conglomerate.
Ultimately, the decision on whether to grow or break up lies in how the future plans of the conglomerate dovetail with the macro trends of the global economy. There is no one-size-fits-all.
Mario Singh
Chief Executive Officer
Fullerton Markets
