"General Electric has become a mirage: What happened to the "American symbol"?" This is the cover theme of Bloomberg Businessweek on February 5, 2018. "Weekly" later asserted that the era of diversified conglomerates has come to an end.
Large enterprise group usually refers to a diversified enterprise group composed of a number of large companies with different businesses. Representative companies include General Electric, Siemens, and India's Tata Group.
General Electric of the United States is known as a company that "can produce anything". Its business industries include electronics, energy, transportation, aerospace, medical and financial services; Siemens’ business areas include energy, medical, transportation, financial services, Personal and household products, services, etc.; Tata Group's business covers seven major industries including communications, machinery, materials, services, energy, consumption and chemistry.
The stock price fell nearly 75%, greatly underperforming the market
This model of diversified large enterprise groups prevailed in the 1960s and 1970s, creating business miracles one after another. In 2000, General Electric's market value was close to US$600 billion, making it the largest company by market capitalization in the US stock market at that time.
However, in the past two decades, General Electric’s stock price has fallen by nearly 75%, while the S&P 500 Index (which is recognized to reflect the overall trend of the U.S. stock market) has doubled by 2.5 times, and Apple’s stock price has risen even more. 500 times. In other words, if you invested 1 million to buy General Electric stock in November 2000, and you hold it so far, your account balance is only 260,000; if you invest in Apple, the surplus in your account will be close to 550 million.
You read that right, it's 550 million!
Diversified groups cannot be "overthrown"
On the one hand, the decline in the diversification of large conglomerates is because savvy investors increasingly believe that specialized companies can unlock greater value. On the other hand, investors’ superstition in Jack Welch and other “super CEOs” has gradually increased. . Collapse. Therefore, large enterprise groups have begun to enter a wave of reorganization, some non-core businesses have gradually been divested and become the target of leveraged buyout (LBO), or the entire group has undergone a major financial reorganization.
But for a diversified large enterprise group, it is impossible to "knock down a boatman with one pole". There is a large enterprise group that pursues the relevance of different businesses. A typical case is that Disney Company-Disney pursues the principle of relevance for its diversification strategy, that is, there are horizontal or vertical links between business departments/companies, and various activities in the value chain have synergy between departments/companies.
The Disney Company is composed of theme parks, film production companies, cable TV networks and TV stations, and each business is related. The economies of scale produced by the strategies between the various businesses have stimulated higher profitability.
The pursuit of strong correlation and diversification is the optimal strategy of large enterprise groups. Collins Aerospace and Safran in the aerospace field belong to this category.
