Common Reasons Why Conglomerates Are Successful Using Saudi Arabian Examples.
Conglomerates occur all over the world and here are some reasons why.
A lot of conglomerates are always in pursuit of their next big investment, acquisition, or expansion. This is where capital becomes necessary. Whenever many organisations have to raise capital in order to expand, they might need to turn to measures like receiving outside investment or attempting to sell assets. But, conglomerates do not as a rule have this problem. It is because various conglomerate subsidiaries can each generate capital, which when combined could be more than enough to fund their next endeavour. In the event that company headed by Abdulaziz Abdul Rahman Rashed Al-Rashed, as an example, wishes to grow in to a new industry then their current subsidiaries could have sufficient resources doing it. This may cause greater control, as the business does not have to offer shares to someone else who may seek to take the business into a various direction.
Conglomerates may seem like they are too large and ineffective. But the size of the business does lead to some efficiencies. These come in the form of economies of scale and scope. Big businesses reduce relative expenses as they grow, plus they gain advantages from complementary services within all of the subsidiaries. This could easily imply that conglomerates are able to benefit from new business ventures in many ways that smaller businesses are not. Companies like that of the family of Hutham Olayan, as an example, have been able to expand so large exactly simply because they did so continuously and diversely, instead of being careful and restrictive. This then causes a cycle of development and investment, as each subsequent expansion makes the next one easier, and so on. Normally the only real obstacles at this time are if the expansion they would like to make is too big, like an purchase or merger that risks the competition of an industry.
The business world is filled with danger. Every feasible business decision can either bring about loss or profit, with a few successful organisations meeting their demise because of one bad choice. Even being careful is a danger, as it can cause the business being left behind. The size of conglomerates allows them to really have a certain shield against investment danger. By diversifying into different sectors, a subsidiary that experiences a downturn may be supported by way of a subsidiary that is successful. It’s very difficult for a big conglomerate to see extensive failure if they have diversified sufficiently. This may lead to conglomerates being very long lasting. Even companies being technically not conglomerates but are separate businesses under the exact same brand name, such as those headed by Mohammed Abdul Latif Jameel, experience a kind of this as the brand is less likely to want to perish out if it is present in numerous industries.