Different Types of Large Business Organizations

The existence of various types of large business organizations in the economy is the end result of continuous business growth and evolution of organizations over the years.

Large firms typically employ hundreds of thousands of people in many different countries around the world such as McDonald’s or Starbucks.

5 types of large business organizations

When it comes to the largest players on the market, there are five types of large business organizations that should be mentioned.

1. Multinational

A multinational company is a business organization that operates – producing goods and providing services – in more than one country, or in two or more countries. It actually owns and controls physical production, selling facilities and service facilities such as factories, offices, distribution networks, etc. in other countries outside the country in which it is based.

However, multinational companies do not just export their products abroad. Selling products by exporting them from a home country to other foreign countries is not enough to be called a multinational business.

A multinational company is a very specific type of a business organization which emerged and developed as a result of globalization. The growing importance of international trade has led to the process of globalization.

It is usually a medium-size company that is planning to become a multinational company by selling its shares on the stock exchange in order to access very substantial funds for expansion. That is why multinational companies are typically public limited companies, limited liability companies with large scale of operations. They tend to be the largest companies in the world.

Examples of a multinational company include:

McDonald’s is an American multinational fast food chain, founded in 1940 as a restaurant operated by Richard and Maurice McDonald, in San Bernardino, California, United States.
Starbucks is an American multinational chain of coffeehouses and roastery reserves headquartered in Seattle, Washington. It is the world’s largest coffeehouse chain.
The Coca-Cola Company is an American multinational beverage corporation founded in 1892, best known as the producer of Coca-Cola.
PepsiCo is an American multinational food, snack, and beverage corporation headquartered in Harrison, New York, in the hamlet of Purchase.
Amazon is an American multinational technology company focusing on E-Commerce, cloud computing, online advertising, digital streaming, and artificial intelligence.
Volkswagen is a German multinational automotive manufacturer headquartered in Wolfsburg, Lower Saxony, Germany.
HSBC is a British multinational universal bank and financial services holding company.
Samsung is a South Korean multinational manufacturing conglomerate headquartered in Samsung Town, Seoul, South Korea.
Toyota is a Japanese multinational automotive manufacturer headquartered in Toyota City, Aichi, Japan.
Apple is an American multinational technology company headquartered in Cupertino, California, United States.
Google is an American multinational technology company focusing on search engine technology, online advertising, cloud computing, computer software, quantum computing, E-Commerce, artificial intelligence, and consumer electronics.
Sony is a Japanese multinational conglomerate corporation headquartered in Minato, Tokyo, Japan.

2. Holding

A holding company, or a parent corporation, is a legal business organization that owns and controls a number of separate businesses – often in completely different markets – without uniting them into one unified company. It is typically a limited liability company that buys shares and owns enough stock in other companies to have control over their operation, but not being actively involved in daily business operations.

Holding companies may have enough shares in numerous other public limited companies to exert control without direct involvement in their running. The degree of influence can vary depending on the management style of the holding company.

The holding company may not produce or do anything, but only own companies to receive dividends or capital gains. The holding company does not unite them into one unified company, so that any problems one company has cannot affect the other companies that the holding company owns. Keeping the businesses separate means that they are independent of each other for major decisions or policy changes, yet there will always be the possibility of centralized control from the directors of the holding company over really crucial issues, such as major new investments. As they all have their own limited liability.

Often holding companies are criticized for only seeing the companies they own as financial assets and do not have any long-term interest in the success of the business. Often the separate businesses are in different markets altogether and this would mean that the holding company had diversified interests. This could lead to financial and risk bearing economies of scale.

On one hand, a holding company wants to have diversified interests to spread the risk when one market fails, take advantages of market opportunities in different industries or keep separate businesses independent of each other for major decisions or policy changes. On another hand, a holding company wants to provide centralized control from the directors of the holding company over really crucial issues in those separate businesses, such as a major new investment.

It is an increasingly common way for businesses to be owned when this type of company wants to have a diverse range of business activities under one roof. They may also do this to become conglomerates.

Based on the varying degree of control, those companies will be considered as subsidiaries, associated companies or trade investments:

Subsidiary. Subsidiary is a company in which more than 50% of its shares are owned by another business, usually a large holding company. While the subsidiary is trading under its own name, but the holding company owns has the effective control. When that control or ownership is not shared, it is termed a wholly-owned subsidiary.
Associated company. Associated company is a company in which 20-50% of its shares are owned by another business (a holding company). The large holding company has a medium-level involvement in the control of the associated company.
Trade investment. Trade investment is a company in which less than 20% of its shares are owned by another business (a holding company). The holding company will not have strong interest in direct control over the trade investment.

Examples of a holding company include:

Berkshire Hathaway is a holding company that owns businesses in a vast range of industries, including insurance, property, clothing, meat products, flight services, home furnishing, news media, confectionery, beverages and carpet making. Many large conglomerates such as Berkshire Hathaway sit on a massive pile of cash. As of November 24, 2021, Berkshire Hathaway has USD$149,000,000,000 in cash on its Balance Sheet which is the largest cash holding in the company’s history. So, interest earnings can be an important revenue source for very large cash-rich businesses.
Alphabet is an American holding company that’s been around since 2015. Alphabet is mostly a collection of companies. The largest of which, of course, is Google but some of the other companies currently sitting under Alphabet include Android, YouTube, Fitbit, Nest, Calico, Life Sciences, DeepMind, DoubleClick, Verily, Waze or X Development. In fact, Google is a wholly-owned subsidiary of Alphabet.
Brascan Corporation, or Brookfield Asset Management) is a specialist asset manager. Focused on property, power and infrastructure assets, the company has approximately USD$40 billion of assets under management, including 70 premier office properties and 130 power generating plants. The company is co-listed on the New York and Toronto Stock Exchanges.

3. Conglomerate

A conglomerate is a business organization consisting of several disconnected companies operating independently in unrelated industries. Conglomerates own other businesses with a diversified product portfolio in different markets.

Such a structure allows for diversification of business risks, but the lack of focus can make managing the diverse businesses more difficult. Modern approach to the management of a conglomerate is to delegate power very extensively to the different businesses within the group. This is to enable each business to act as its own core within its own strategy and focus. Major strength is diversification.

Conglomerates can spread their Fixed Costs (FC) such as Research and Development (R&D), accounting, recruitment or advertising across a wide range of operations. Conglomerates benefit from risk-bearing economies of scale. Unfavorable trading conditions for certain products in one market can be offset by more favorable trading conditions in other markets, or countries. A loss in one industry, or in one market, does not jeopardize the overall existence of the conglomerate.

Conglomerates have a broad corporate plan and they will fit the objectives of the smaller companies which operate within the group into that plan. Investment expenditure requires the use of cash for initial capital. Different investments can be financed differently by long-term bank loans, debentures or selling shares.

Major weakness of conglomerates is lack of focus.

When a conglomerate business operates around the world it is called a global conglomerate. Large multinational conglomerates usually have multiple revenue streams to pay for their investments.

Examples of a conglomerate include:

General Electric (GE) is a conglomerate founded in 1892 that operates in sectors including healthcare, aviation, power, renewable energy, digital industry, additive manufacturing and venture capital and finance, but has since divested from several areas, now primarily consisting of the second, third and fourth segments. In 2021, the company announced it would divide itself into three investment-grade public companies unveiling the brand names of the companies it will create through its planned separation to be GE Aerospace, GE HealthCare and GE Vernova.
Power Corporation of Canada is a conglomerate company that focuses on financial services in North America, Europe and Asia. Its core holdings are insurance, retirement, wealth management and investment management, including a portfolio of alternative investment platforms. While Power Corporation was originally established as an electric utility holding company, the company became a conglomerate with interests in the finance industry, as well as interests in other business sectors such as sustainable and renewable energy.
Tyco International used to be a multi-billion dollar conglomerate built from a $3 billion company focusing on fire prevention and flow control systems into a hulking corporation that sells everything from home security systems to health care products to electronic components. The company’s strategy was to grow through acquisitions owning and controlling more than 200 businesses and operating in five industry segments around the world from manufacturing to services. In 2016, Johnson Controls announced it would merge with Tyco with all businesses under Tyco International to be renamed as Johnson Controls International.

4. Network

A network is an arrangement between independent business organizations to function together and work together. It is a group of firms with restricted membership and specific contractual business objectives likely to result in mutual financial gains for all the members. The members of a network choose each other (for a variety of reasons) and agree explicitly to cooperate in some way and to depend on each other to some extent.

That network can have either legal basis or exist merely as a matter or practice.

Firstly, networks can have an organizational superstructure (and thus become members of the large network), which could mean members benefit from the marketing of the superstructure and its possibilities for referrals. That means that they are very close to a Strategic Alliance (SA).

In other cases the functioning relationship is closer to the connotation of the word network.

Secondly, networks can be made of independently owned entities that offer services of another organization – affiliate radio or TV stations. These are not ‘franchises’, though certainly they share some common characteristics with them.

Thirdly, networks can have even more informal relationships than this, too. Professionals such as layers, doctors or business executives often network, share ideas, refer business to each other though there may never be any type of legal or organizational status of the network.

Examples of a network include:

Best Western Hotels & Resorts. The Best Western Hotels & Resorts brand is owned by Best Western International, Inc. which licenses to over 4,700 hotels worldwide. Best Western began in the years following World War II. In California, a network of independent hotel operators began making referrals of each other to travelers. This ‘referral system’ consisted of phone calls between one desk operator and another. This small and informal network eventually grew into the modern Best Western hotel brand founded by M.K. Guertin in 1946. As of 2018, Best Western Hotels & Resorts was non-profit business organization owned by its franchisee members.
Garni hotels. A hotel garni is a privately run hotel business which offers lodging, breakfast, drinks and smaller snacks at most as classical hotel restaurant and meal service are not applicable. It is very similar to a bed and breakfast but is designed and run as a hotel, not a private residence. The network of garni hotels is very common in France, Switzerland and Germany.

5. Strategic Alliance (SA)

A Strategic Alliance (SA) is an arrangement for between two or more companies to pursue a specific common business objective. Strategic Alliance (SA) usually has many companies involved; hence it is similar to a network. The term however could cover a broad spectrum of business relationships that may include anything from simple cost-sharing arrangements to a fully-integrated merger of two companies.

The legal reasons for forming Strategic Alliance (SA) are as varied as the imagination. From a legal standpoint, though, the principal reason to form Strategic Alliance (SA) is to try to create an organization that is better able to compete in the market place. Sometimes, Strategic Alliance (SA) can represent an effort to ‘roll up’ a number of separate business entities into a single legal entity that has integrated management, economies of scale and other characteristics that translate into more economic clout.

As with any business venture, any Strategic Alliance (SA) is risky. It may even be fair to say that many of them fail. But, many alliances have been hugely successful, and the adage holds true that ‘nothing ventured, nothing gained’. Before undertaking any Strategic Alliance (SA), there should be sound planning and legal advice involved in the process.

What are some examples of different kinds of Strategic Alliance (SA)?

Marketing Contracts. This type of alliance exists where businesses remain independent, but agree to market their products together. Typically, there would be no pooling of capital or a sharing of risk. A marketing network, for example, is something that might be characterized as Strategic Alliance (SA). There can also be huge TAX benefits to combining and integrating two or more business entities.
Partnership or Joint Venture (JV). Going a step further, Strategic Alliance (SA) to form a new product or service may be in the form of a partnership for the specific purpose called Joint Venture (JV). Joint Venture (JV) includes two or more organizations which set up one or more business projects that will be operated jointly, so avoiding the need for a complete merger, but allowing the organizations to benefit from joining forces. Joint Venture (JV) is where two or more companies share the cost, responsibility and profits of a specific business activity. The financial arrangements between the companies involved will tend to differ, although many Joint Ventures (JV) between two firms involve a 50/50 share of costs and profits.
Asset Purchases. A business can purchase the desired assets of another business. If this is done as an asset purchase, the purchaser is not actually buying the business entity, and any liability problems remain with the seller. In many respects, an asset purchase is much like going to the seller’s ‘store’ and buying all the merchandise without actually buying the store itself.
Stock Purchases. A stock purchase requires nothing more than all of the shareholders endorsing and handing their stock certificates over to the buyer at the same time the buyer gives them a check for the purchase price. In contrast to an asset purchase, the buyer is actually taking over the store and not just purchasing the merchandise. In essence, the buyer steps into the shoes of the selling shareholders.
Mergers. The ultimate alliance would be a merger, which is much like a marriage of two businesses where they blend together to become one entity. In the usual case, there is a ‘surviving’ corporation that will issue new stock to shareholders of a ‘disappearing’ corporation in exchange for their stock in the disappearing corporation. Much like an asset purchase, the surviving corporation will then take title to all of the assets of the disappearing corporation, and the disappearing corporation will cease to exist.

Examples of a Strategic Alliance (SA) include:

Star Alliance in the airline industry is an alliance where five major airlines formed an alliance so that all five enjoyed the benefit of providing service to basically all major airports in the world without having, individually, to have flights to each location. Star Alliance brings together 26 member airlines, offering more than 10,000 daily departures. Their combined fleets serve over more than 50 hub airports in over 1,200 destinations around the world.
Clean Air Strategic Alliance (CASA) is a non-profit consensus-based association of senior representatives from government, industry and non-government organizations (including health and environmental groups) who have committed to developing and applying a comprehensive air quality management system for Alberta.
In 1994, an alliance called The North American Coffee Partnership between Starbucks and PepsiCo created Frappuccino, the popular coffee-flavored drink. Frappuccino was its first product. The relationship moved Starbucks into the bottled-beverage market gaining access to Pepsi’s global distribution network while PepsiCo gained an innovative ready-to-drink product with a well-branded partner. It was a perfect match as each met their strategic and operational goals.

Many large businesses are extremely successful and thrive for several important reasons – easier to raise finance as considered less risky, better managed by professional business managers, high market power due to defensibility, many opportunities for economies of scale, greater choices of products for customers, etc.