Corporate America dominated by Conglomerates

[DominusNovus]

Ever since the 1980s, US business have tended to focus on core competencies, spinning off unrelated segments or those that the parent company cannot best run. US businesses have generally not trended toward extreme conglomeration anyway, aside from efforts at vertical integration.

Contrast this with countries like Korea and Japan, where conglomeration is often the norm, and not just vertically integrated businesses, or even horizontal integration, but quite varied industries.

So, how might corporate America follow a similar path and what might corporate America look like in such a scenario?

 

[RousseauX]

Well, if Google/Amazon is anything to go by , we'll probably find out.

 

[DominusNovus]

Well, if Google/Amazon is anything to go by , we'll probably find out.

Even as sprawling as they are, they are both focused on tech or their immediate core industries (such as transportation for Amazon).

Also, both companies are quite monopolistic in their core industries (plural for both), which invites further scrutiny in a way conglomerates may not.

 

[Thomas Jefferson]

There was a wave of conglomerate formation during the 1960s, but most of these conglomerates were financially unsuccessful and forced to shed assets in the 1970s. A stronger economy in the early 1970s might allow conglomerates such as Ling-Temco-Vought to hold onto their purchases and remain a powerful economic force into the 20th century.

 

[DominusNovus]

There was a wave of conglomerate formation during the 1960s, but most of these conglomerates were financially unsuccessful and forced to shed assets in the 1970s. A stronger economy in the early 1970s might allow conglomerates such as Ling-Temco-Vought to hold onto their purchases and remain a powerful economic force into the 20th century.

I’m not sure that would be enough - conglomerates tend to be more cumbersome and less efficient. They might survive longer, but they’d still be outcompeted by more nimble companies.

Some regulatory assistance might be needed. Perhaps, for example, megacorps might embrace conglomeration as a way to grow without attracting too much anti-trust attention? They could try to take out their chief competitor, but Washington takes a dim view of that, so they expand into another industry instead. Have a few anti-trust precedents to that effect, and corporate America could get the message.

 

[Hugh Third of Five]

GE had NBC, appliance, aircraft engines, power plants, and healthcare (PCR kits and imaging systems). Maybe the healthcare division expands to include pharmaceuticals or even supplements. Or perhaps the biotech part of healthcare somehow expands to include agricultural GMOs. You could have them buy a chip manufacturer or some other key component of the computer market.

 

[Thomas Jefferson]

I’m not sure that would be enough - conglomerates tend to be more cumbersome and less efficient. They might survive longer, but they’d still be outcompeted by more nimble companies.

Some regulatory assistance might be needed. Perhaps, for example, megacorps might embrace conglomeration as a way to grow without attracting too much anti-trust attention? They could try to take out their chief competitor, but Washington takes a dim view of that, so they expand into another industry instead. Have a few anti-trust precedents to that effect, and corporate America could get the message.

A change in regulatory policy that made hostile takeovers more difficult could allow underperforming conglomerates to limp along indefinitely so long as they didn't lose enough money to actually risk bankruptcy. You could end up with a situation analagous to Japan's zombie firms of the 1990s, where big conglomerates make enough profits to pay the interest on their debts, but noth enough for new investments.

 

[DominusNovus]

GE had NBC, appliance, aircraft engines, power plants, and healthcare (PCR kits and imaging systems). Maybe the healthcare division expands to include pharmaceuticals or even supplements. Or perhaps the biotech part of healthcare somehow expands to include agricultural GMOs. You could have them buy a chip manufacturer or some other key component of the computer market.

Certainly a possibility, though GE is the poster child of conglomerates divesting themselves of less profitable segments. I don't know if merely having better luck with various segments would be enough to reverse that trend.

A change in regulatory policy that made hostile takeovers more difficult could allow underperforming conglomerates to limp along indefinitely so long as they didn't lose enough money to actually risk bankruptcy. You could end up with a situation analagous to Japan's zombie firms of the 1990s, where big conglomerates make enough profits to pay the interest on their debts, but noth enough for new investments.

That could possibly work. Though for an economy as large as the US's, I have to think these zombie firms wouldn't be able to maintain their position without being able to tank the US economy as a whole.