Many Big Companies Are Splitting, But Conglomerates Are Here To Stay

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Investors see more value if previously combined businesses work as independent entities

Exploiting this combined advantage of being an industrialist and a financier is not uniquely American. The Japanese conglomerates—keiretsu—are the true masters. A typical keiretsu is Mitsubishi. The Bank of Tokyo-Mitsubishi sits at the heart of this nexus of operations. It supports other Mitsubishi businesses like trading by Mitsubishi Shoji. It finances the industrial manufacturing of Mitsubishi Electric. Then there’s Meiji Mutual Life to insure all the other members of the conglomerate.

Instead, GE found magic in its management system. And they sold that story to Wall Street. The smart analysts at the headquarters can give a sprawling company a real advantage. The headquarters can provide real expertise in accounting control. They can force local operations to slash costs. Headquarters can fund moonshot projects in research and development. Those projects require the patience that a local manager often lacks.

Here is the thing. Data advantage always compounds exponentially. When Tesla knows people’s collective driving habits, it then knows where to put the charging stations. When Tesla knows how long people are willing to wait at the supercharger, it then knows what technologies to invest in. The more business that you engage, the more insights you can glean. As long as you have the data infrastructure that glues all these businesses together.

 

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it's just different string management of different business units from the same company to lower the risk of bankruptcy. It's proven that Berkshire Hathaway-style equity based conglomerate structure is far more resilient.

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