Ultimate magazine theme for WordPress.

Why are giant conglomerates going out of style? | Economic and business news

This week General Electric, Toshiba, and Johnson & Johnson all announced that they would split their empires into separate companies.

Bigger is not always better. That seems to be the verdict this week ruling some of the largest companies in the world.

After the once powerful US conglomerate General Electric announced on Tuesday that it would split into three separate entities, J -anese industrial giant Toshiba and US drug and health giant Johnson & Johnson followed suit with their own spin-off announcements on Friday.

Every company has its own unique reasons for going small, but generally speaking, conglomerates start outsourcing entities because they want to “unlock value”.

Simply put, it means that investors will see less value in the company’s businesses if they stay grouped together, and shareholders will be better off if those businesses are spun off into separate companies.

The reason for forming a conglomerate is, of course, that a huge company with many companies can achieve synergies and cost savings.

But that’s the ups and downs of the corporate landsc -e.

Just look at General Electric. In the 1980s, then-CEO Jack Welch rose to rock star status by quitting companies where GE did not dominate, buying new ones he thought the company might be a market leader, and ruthlessly firing underperforming employees and managers – earned him the nickname “Neutron Jack”.

But just as shoulder pads have gone out of style, Jack Welch-style industrial giants have also gone out of style.

After GE struggled beneath its sheer weight for decades, GE eventually decided to split into three separate publicly traded companies: aerospace (which will keep the GE name), healthcare, and energy.

Toshiba said Friday it is also liquidating itself by spinning off its energy infrastructure and computing device units into two separate companies. The rest of the assets will be held under the Toshiba name.

Also on Friday, Johnson & Johnson announced that it is splitting into two separate companies. One unit yet to be named will focus on health products such as patches, Listerine, and over-the-counter drugs. The other – which will keep the J&J name – includes prescription drugs and medical devices.

But this week’s announcements don’t mean investors will turn against all big companies.

Just look at the tech sector. On Monday, Google parent Alphabet broke the $ 2 trillion mark for the first time, joining Microsoft and  -ple in the exclusive $ 2 trillion and more rating club.

Comments are closed.

%d bloggers like this: