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Define and compare mergers, conglomerates, and multinationals.  How does each of these...

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kristenmarieb... | Student, Grade 10

Posted June 6, 2013 at 12:43 AM via web

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Define and compare mergers, conglomerates, and multinationals.  How does each of these business forms benefit the consumer? 

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kipling2448 | (Level 2) Educator Emeritus

Posted June 6, 2013 at 1:22 AM (Answer #1)

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"Mergers," "conglomerates" and "multinationals" are three different business concepts.

Mergers involve the joining together of two previously independnent companies.  Sometimes the merging of two companies is the result of a friendly agreement between both companies, and sometimes it is "hostile," meaning a large company is taking over a smaller company by "force."  "Force" in this context means that the larger or more profitable company is buying up all available shares of the smaller or less-profitable company's stock, or is making tactical alliances with large shareholders in order to be able to outvote the target company's officials.  It then gains a controlling interest in the target company.  While mergers, especially hostile takeovers, result in lost jobs due to streamlining and elimination of unprofitable lines, the target company is often made more efficient.

Conglomerate refers the merging of multiple companies into one large corporation, but each component company remains independent in how it is operated.  Each component produces a different product or provides a different service, so they are able to exercise the most efficient business practices suitable for each unique business line.  A major advantage of a conglomeration is the diversity it provides the corporate structure and the shareholders, thereby making the whole less vulnerable to market perturbations or industrial glitches in one individual sector.

Multinational corporations are those that operate in more than one country.  This does not mean they sell to foreign countries; it means they have production facilities in more than one country, with a headquarters in one location from which the entire business is controlled.  Multinationals are the largest businesses in the world, and include corporations like Wal-Mart, Toyota, Coca-Cola, and many others.

The consumer benefits from competition.  When companies have to compete for market share, they produce the best product at the lowest price possible.  This has greatly benefited major consumer nations like the United States.  Consequently, anything that reduces or eliminates competition is, by definition, bad for the consumer.  The United States Department of Justice looks very carefully at proposed mergers between major corporations to ensure that competition is not being eliminated through establishment of a monopoly.  

The consumer also benefits from the most efficient corporate practices, which not only increase dividends to stockholders, many of whom are middle-class families, but also produces the higher quality products that result.  If a merger produces those results, the consumer benefits.

Whether the consumer benefits through the practices of multinational corporations is very much in the eye of the beholder.  By having production facilities in other countries, American companies not only get the benefit of cheaper labor, but they also secure better access to the foreign market.  Conversely, when production is moved offshore to reduce labor costs, American workers suffer, at least those unable to transition to a new line of work.

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