Reasons Why Conglomerates Are Successful Using Saudi Arabian Examples.

[Brooke Arlene]

While it is difficult to achieve conglomerate status, there are many benefits if a business manages to become one.

The business world is filled with danger. Every possible company decision can either end in profit or loss, with some effective businesses meeting their demise due to one bad choice. Even being cautious is a danger, as it can certainly lead to the company being left behind. The size of conglomerates enables them to truly have a certain shield against investment danger. By diversifying into various sectors, a subsidiary that experiences a downturn could be supported by way of a subsidiary that is prosperous. It's very hard for a big conglomerate to have widespread failure if they have diversified sufficiently. This could easily cause conglomerates being very long lasting. Even organisations being technically not conglomerates but are independent organisations under the same brand, such as those headed by Mohammed Abdul Latif Jameel, experience a form of this as the brand is less likely to die out if it's contained in numerous companies.

Lots of conglomerates will always be looking for their next big investment, acquisition, or expansion. This is when money will become necessary. When most organisations need to raise capital in order to expand, they could need to turn to measures like getting outside investment or selling assets. However, conglomerates don't ordinarily have this dilemma. The reason being various conglomerate subsidiaries can each generate capital, which when combined can be more than enough to fund their next venture. If the business headed by Abdulaziz Abdul Rahman Rashed Al-Rashed, as an example, wants to expand in to a brand new industry then their present subsidiaries might have enough resources to complete it. This could cause greater control, because the business need not sell shares to someone else who may look to take the business in to a different way.

Conglomerates might seem like they are too large and ineffective. But the size of the business does lead to some efficiencies. These are available in the type of economies of scale and scope. Big companies reduce relative costs while they develop, and they gain benefits from complementary services within all the subsidiaries. This could imply that conglomerates are able to benefit from new business ventures in manners that smaller organisations aren't. Companies like that of the family of Hutham Olayan, for instance, have been able to expand so big exactly simply because they have done so constantly and diversely, as opposed to being careful and restrictive. This then causes a cycle of growth and investment, as each subsequent expansion makes the following one easier, and so on. Usually truly the only barriers at this time are in the event that expansion they would like to make is simply too large, like an purchase or merger that risks the competition of an industry.